Chapter 06 – Entrepreneurship and Starting a Small Business
6-16
PPT 6-18
Home-Based Business Growth
• Computer technology has leveled the playing
field.
• Corporate downsizing has led many to venture on
their own.
HOME-BASED BUSINESS
GROWTH
6-18
LO 6-1
• Social attitudes have
changed.
• New tax laws have
loosened restrictions on
deducting expenses for
home offices.
PPT 6-19
Home-Based Business Isn’t Easy
HOME-BASED BUSINESS
ISN’T EASY
6-19
LO 6-1
• Getting new customers is difficult.
• Managing your time requires self-discipline.
• Work and family tasks are sometimes not
separated.
• Government ordinances may restrict your
business.
• Homeowner’s insurance may not cover
business-related claims.
PPT 6-20
Benefits of Home–Based
Businesses
BENEFITS of HOME-BASED
BUSINESSES
6-20
LO 6-1
• Ability to start your business
immediately
• Minimal start-up capital needed
• No rent or excessive set-up
charges
• Comfortable working conditions
• Reduced wardrobe expenses
• No commuting
• Tax benefits
• Elimination of office politics
• Low risk for trial and error
PPT 6-21
Downsides of Home-Based
Businesses
DOWNSIDES of HOME-BASED
BUSINESSES
6-21
LO 6-1
• Difficult to establish work
habits
• Limited support system
• Isolation
• Work space may be limited
• Clients may be uncomfortable
coming to your home
• Zoning restrictions
• Success is based 100% on
your efforts
PPT 6-22
Think You’re Ready to Work from
Home?
Source:Entrepreneur,June2010.
THINK YOU’RE READY
to WORK from HOME?
6-22
Yes? No?
If I don’t know the answer, I can figure it out.
I’m hardworking, self-directed and disciplined.
I’m organized and can multitask.
I don’t mind working long hours or weekends.
I regularly set goals and measure progress.
I’m happy being alone.
I’m an excellent communicator.
I can create relationships with people I’ve never met.
I’m productive on my own.
My family and friends don’t expect me to be available
when I’m working at home.
LO 6-1
Chapter 06 – Entrepreneurship and Starting a Small Business
6-17
d. Trying new ideas instead of avoiding mis-
takes
e. Creating a long-term vision instead of seek-
ing a short-term payoff
F. WEB-BASED BUSINESSES
1. The Internet has spawned many small Web-
based businesses.
2. Online sales in 2013 were over $262 billion.
3. The text uses the example of Marc Resnik’s
website ThrowThings.com.
4. To succeed, Web-based businesses must offer
unique products or services.
5. AFFILIATE MARKETING is an Internet-based
marketing strategy in which a business rewards
individuals or other businesses (AFFILIATES)
for each visitor or customer the affiliate sends to
its website.
a. The text uses the example of directing poten-
tial buyers to a product.
i. You register as an affiliate on the seller’s
website.
ii. Whenever anyone clicks on the link and
buys the product, the seller pays you a
commission.
b. Setting up an online store is easier using a
SOCIAL COMMERCE SERVICE.
i. An example is SkimLinks.
ii. Users select which products they would
Chapter 06 – Entrepreneurship and Starting a Small Business
6-18
TEXT FIGURE 6.1
Potential Home-Based Businesses
This text figure gives some suggestions for would-be entre-
preneurs.
lecture enhancer 6-4
MORE ENTREPRENEURS LAUNCH
FROM HOME
Zoning laws are making it easier for entrepreneurs to set up
shop at home. (See the complete lecture enhancer on page
6.70 of this manual.)
TEXT FIGURE 6.2
Watch Out for Scams
This text figure highlights clues to avoiding home-based busi-
ness scams.
PPT 6-23
Online Business
ONLINE BUSINESS
6-23
LO 6-1
• Online sales reached
$262 billion in 2013,
about 8% of all retail
sales.
• All retail sales were up
2.5% in 2013. However,
online retail sales grew
13%.
bonus case 6-1
DRIVING AWAY BUSINESSES WITH
THE AMAZON TAX
For years, Amazon has made billions without collecting a cent
of sales tax. Illinois is putting an end to that and hoping in-
creased revenue will help the state debt. (See the complete
case on page 6.79 of this manual.)
PPT 6-24
Affiliate Marketing
AFFILIATE MARKETING
6-24
LO 6-1
• Affiliate Marketing — An online marketing strategy
in which a business rewards individuals or other
businesses for each visitor or customer the affiliate
sends to its website.
PPT 6-25
Boosting Your Business’s Online
Presence
Source: Entrepreneur, www.entrepreneur.com, accessed November 2014.
BOOSTING YOUR BUSINESS’S
ONLINE PRESENCE
6-25
PhotoCredit:MarcWathieu
LO 6-1
• Establish an identity.
• Be easy to find.
• Steal good ideas and
make them your own.
• Look out for
opportunities.
• Remember other forms
of marketing.
• Be friendly!
Chapter 06 – Entrepreneurship and Starting a Small Business
6-19
like to appear in their LINKS.
iii. Using a SERVICE saves users time and
effort.
6. Web-based businesses are not failure-proof.
G. ENTREPRENEURSHIP WITHIN FIRMS
1. INTRAPRENEURS are creative people who
work as entrepreneurs within corporations.
2. They launch new products and generate new
profits by using company’s existing resources—
human, financial, and physical.
3. The text focuses on the development of Post-it
Notes at 3M through the entrepreneurial efforts
of Art Fry.
H. ENCOURAGING ENTREPRENEURSHIP: WHAT
GOVERNMENT CAN DO
1. The government passed the IMMIGRATION
ACT OF 1990 to encourage more entrepreneurs
to come to the United States.
a. It created a category of “INVESTOR VI-
SAS” that allows 10,000 people to come to
the U.S. each year if they invest $1 million in
an enterprise that creates or preserves 10
jobs.
b. Some believe that more jobs will be created
if more entrepreneurs can be lured to the
U.S.
2. One way to encourage entrepreneurship is
through ENTERPRISE ZONES that feature low
Chapter 06 – Entrepreneurship and Starting a Small Business
6-20
PPT 6-26
Intrapreneurs
• Art Fry of 3M developed
Post-Its when he was
trying to mark pages of
his hymnal without
damage.
INTRAPRENEURS
6-26
LO 6-1
• Intrapreneur — A creative person who works as an
entrepreneur within a corporation.
• Intrapreneurs use a company’s existing
resources to launch new products for the
company.
Each year the 3M Company produces about 60,000 products
and generates $16 billion in sales by fostering employee inno-
vation. (See the complete case, discussion questions, and sug-
gested answers beginning on page 6.81 of this manual.)
PPT 6-27
Government and Entrepreneurship
GOVERNMENT and
ENTREPRENEURSHIP
6-27
LO 6-1
• Immigration Act passed in 1990 created a
category of “investor visas” that encourage
entrepreneurs to come to the U.S.
• Enterprise Zones — Specific geographic areas to
which governments attract private business
investment by offering lower taxes and other
government support.
• Incubators — Offer new businesses low-cost offices
with basic services.
lecture enhancer 6-5
LURING ENTREPRENEURS WITH
SPECIAL VISAS
Canada is already a welcoming nation. However, new incen-
tives for international entrepreneurs is making them even more
enticing. (See the complete lecture enhancer on page 6.70 of
this manual.)
Chapter 06 – Entrepreneurship and Starting a Small Business
6-21
taxes and government support.
a. ENTERPRISE ZONES are specific geograph-
ic areas to which governments try to attract
private business investment by offering lower
taxes and other government support.
b. The government could encourage entrepre-
neurship by offering investment TAX
BREAKS to businesses that invest in creat-
ing jobs.
3. States also provide support for entrepreneurs.
a. State commerce departments serve as clear-
inghouses for information and programs.
b. States also create incubators and technology
centers to reduce start-up capital needs.
c. INCUBATORS are centers that offer low-cost
offices with basic business services (such as
accounting, legal advice, and secretarial
help).
d. Incubators help companies survive because
they provide assistance in the CRUCIAL
EARLY DEVELOPMENT STAGE.
4. A few states offer assistance under the SELF–
EMPLOYMENT ASSISTANCE (SEA) pro-
gram.
a. SEA allows participants to collect unemploy-
ment while building their business.
b. The checks are enough to help launch the
company.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-22
lecture enhancer 6-6
SU LABS ALTRUISTIC BUSINESS
INCUBATOR
Not all companies are looking to be the next big profit maker.
Instead, some would rather help the world. This incubator
helps those on that mission. (See the complete lecture enhanc-
er on page 6.71 of this manual.)
test
prep
PPT 6-28
Test Prep
TEST PREP
6-28
• Why are people willing to take the risks of
entrepreneurship?
• What are the advantages of entrepreneurial
teams?
• How do micropreneurs differ from other
entrepreneurs?
• What does the government do to promote
entrepreneurship?
Chapter 06 – Entrepreneurship and Starting a Small Business
6-23
learning objective 2
Discuss the importance of small business to the American economy and summa-
rize the major causes of small-business failure.
IV. GETTING STARTED IN SMALL BUSINESS
A. In general, the SAME PRINCIPLES apply to small
and large companies, government, and nonprofits.
1. All organizations need:
a. Capital
b. Good ideas
c. Planning
d. Information management
e. Budgets
f. Accounting
g. Marketing
h. Employee relations
i. Good overall managerial know-how
B. SMALL VERSUS BIG BUSINESS
1. As defined by the SBA, SMALL BUSINESS:
a. Is independently owned and operated
b. Is not dominant in its field of operation
c. Meets certain standards of size (set by the
Small Business Administration) in terms of
employees or annual receipts (for example,
less than $2 million a year for service compa-
nies)
2. SMALL-BUSINESS STATISTICS
a. There are 28 million small businesses in the
U.S.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-24
PPT 6-29
Small Businesses
SMALL BUSINESSES
6-29
LO 6-2
• Small Business —
Independently owned and
operated, not dominant in its
field of operation and meets
certain standards of size.
• Businesses are “small” in
relation to other businesses
in their industries.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-25
b. Almost 97% of all nonfarm businesses are
considered small by SBA standards.
c. Small businesses account for over 50% OF
THE GROSS DOMESTIC PRODUCT.
d. The first jobs of about 80% of all Americans
are in small business.
e. Small businesses generate 65% of the new
jobs each year.
C. IMPORTANCE OF SMALL BUSINESSES
1. Small businesses have advantages over big
companies—they give more personal customer
service and are able to respond quickly to oppor-
tunities.
2. There is plenty of room for small businesses in
MARKET NICHES not served by big businesses.
D. SMALL-BUSINESS SUCCESS AND FAILURE
1. FAILURE RATE
a. There is some debate about how many new
small businesses fail each year.
b. 50% of new businesses don’t last five years.
c. However data misinterpretation may have
overestimated the failure rate.
d. Business failures may be much lower than
traditionally reported.
2. Many small businesses fail because of manageri-
al incompetence and inadequate financial plan-
ning.
3. Choosing the RIGHT TYPE OF BUSINESS is
Chapter 06 – Entrepreneurship and Starting a Small Business
6-26
PPT 6-30
Small-Business Statistics
SMALL BUSINESS STATISTICS
6-30
LO 6-2
• There are 28 million small businesses in the U.S.
• Of all nonfarm businesses in the U.S., almost
97% are considered small.
• Small businesses account for over 50% of the
GDP.
• Small businesses have generated 65% of new
jobs since 1995.
• About 80% of U.S. workers’ first jobs were in
small business.
critical thinking
exercise 6-2
WHAT IS SMALL?
The Small Business Administration defines small in different
ways for different industries. This exercise asks students to
visit the SBA website and find definitions for several indus-
tries. (See the complete exercise on page 6.76 of this manual.)
PPT 6-31
Advantages of Small over Big
Business
ADVANTAGES of SMALL OVER
BIG BUSINESS
6-31
PhotoCredit:ElliotBrown
LO 6-2
• More personal customer service.
• The ability to respond quickly to opportunities.
lecture enhancer 6-7
A NEW KING OF BEERS IN ST. LOU-
IS
When Schlafly Beer was first started, no one thought it would
last because of the hometown favorite, Budweiser. Then In-
Bev took over A-B and doors were opened for the small brew-
er. (See the complete lecture enhancer on page 6.72 of this
manual.)
PPT 6-32
Business Failures Are Lower Than
the Reports Because . . .
BUSINESS FAILURES are LOWER
THAN the REPORTS BECAUSE…
6-32
LO 6-2
• Owner closing a business
to start another is reported
as a “failure.”
• Changing forms of
ownership is reported as a
“failure.”
• Retirement is reported as
a “failure.”
Source:WorldFeaturesSyndicate.
• Tommy Hilfiger – First store went bankrupt
• Milton Hershey – First confectionery failed
• H.J. Heinz – Company went bankrupt six years after
start
THEY DID WHAT?
Famous Business Failures
6-33
LO 6-2
• Walt Disney – First film company
went bankrupt
• Henry Ford – First two car
companies failed
• L.L. Bean – Almost went bankrupt in
first year
Chapter 06 – Entrepreneurship and Starting a Small Business
6-27
critical to success.
a. The businesses with the lowest failure rates
often require advanced training to start.
b. High-growth businesses are not easy to start
and even more difficult to keep going.
c. In general, the easiest businesses to start are
the ones that have the least growth and the
greatest failure rate.
d. The ones that can make you rich are both
hard to start and hard to keep going.
learning objective 3
Summarize the ways to learn about how small businesses operate.
V. LEARNING ABOUT SMALL-BUSINESS
OPERATIONS
A. LEARN FROM OTHERS
1. Many LOCAL COMMUNITY COLLEGES offer
entrepreneur programs and classes.
2. Talk to ENTREPRENEURS who have already
done it.
3. Entrepreneurs will tell you that:
a. Location is critical.
b. You should be keeping good records.
c. You should not be undercapitalized.
B. GET SOME EXPERIENCE
1. Go to work for others and learn all you can.
2. The general rule is: THREE YEARS OF EXPE-
RIENCE in a comparable business.
3. Cornelius Vanderbilt sold his own sailing vessels
and went to work for a steamboat company so he
Chapter 06 – Entrepreneurship and Starting a Small Business
6-28
lecture enhancer 6-8
FAILURE IS THE BEST MEDICINE
One commentator believes that failure is a blessing, recycling
talent for new ventures. (See the complete lecture enhancer on
page 6.72 of this manual.)
PPT 6-34
Causes of Small Business Failures
TEXT FIGURE 6.3
Causes of Small Business Failure
CAUSES of SMALL BUSINESS
FAILURES
6-34
LO 6-2
PPT 6-35
Increasing Small Business Suc-
cesses
TEXT FIGURE 6.4
Situations for Small-Business
Success
INCRREASING SMALL BUSINESS
SUCCESSES
6-35
LO 6-2
LEARNING ABOUT
SMALL BUSINESS
6-36
LO 6-3
• Learn from Others – Investigate your local
colleges for classes on small business and
entrepreneurship; talk to and work for successful
local entrepreneurs.
• Get Some Experience – Gain three years
experience in the field; then start a part-time small
business.
• Take Over a Successful Firm – Serve as an
apprentice and eventually take over once the owner
steps down.
Chapter 06 – Entrepreneurship and Starting a Small Business
6-29
could learn the new technology of steam.
4. Running a small business part-time is another
way of gaining experience.
C. TAKE OVER A SUCCESSFUL FIRM
1. After many years in business, some small–
business owners feel stuck in their businesses.
2. The text describes a method of becoming suc-
cessful small-business managers.
a. The first step is to find a businessperson run-
ning a successful small business.
b. Ask to serve an APPRENTICESHIP, a one-
year training program.
c. For another year or so, working hard to learn
all about the business.
d. At the end of two years, offer to become AS-
SISTANT MANAGER.
e. At the end of two years, offer to manage the
business when the owner retires.
f. You can establish a profit-sharing plan for
yourself plus a salary.
3. The OWNER BENEFITS by keeping ownership
and earning profits without working.
4. If profit sharing doesn’t appeal to the owner, you
may want to BUY THE BUSINESS OUTRIGHT,
basing the price of the business on:
a. What the business owns
b. What it earns
Chapter 06 – Entrepreneurship and Starting a Small Business
6-30
MAKING
ethical decisions
PPT 6-37
Should You Stay or Should You
Go?
SHOULD YOU STAY or
SHOULD YOU GO?
6-37
Suppose you worked in a company for two years and
you see signs of it faltering. You and a coworker
have ideas about how to succeed and are
considering quitting to start your own company.
• Should you approach other coworkers about working for
your new venture?
• Will you try to lure your old boss’s customers?
• What are the alternatives?
• What are the consequences?
• What is the most ethical choice?