Chapter 01 – Starting Your Small Business
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CHAPTER
Starting Your Small Business
CHAPTER CONTENTS
Learning Objectives 1.2
Chapter Overview 1.2
Brief Chapter Outline 1.2
1
Chapter 01 – Starting Your Small Business
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LEARNING OBJECTIVES
After studying the material in this chapter, the student will be able to:
1. Define what is mean by the term business.
2. Name some of the unique contributions of small businesses.
3. Explain some of the current problems small businesses face.
CHAPTER OVERVIEW
Chapter One begins by showing students the unique challenges in owning and managing a small
business. This chapter will help students decide if pursuing a career in small business is right for them.
They will learn reasons for entering small business; they will discover growing opportunities for every-
one.
Companies such as Intel, Microsoft, McDonald’s, Sears and Wal-Mart were all started as small
BRIEF CHAPTER OUTLINE
I. IT’S AN INTERESTING TIME TO BE STUDYING SMALL BUSINESS
A. The Number of Small Businesses Is Growing Rapidly
B. The Public Favors Small Business
Chapter 01 – Starting Your Small Business
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II. DEFINING SMALL BUSINESS—NO EASY TASK
A. What Is Small?
B. Distinguishing Between Entrepreneurial Ventures and Small Businesses
III. SOME UNIQUE CONTRIBUTIONS OF SMALL BUSINESS
A. Encourage Innovation and Flexibility
B. Maintain Close Relationships with Customers and Community
IV. SOME CURRENT PROBLEMS FACING SMALL BUSINESSES
A. Inadequate Financing
B. Inadequate Management
C. Burdensome Government Regulations and Paperwork
V. SOME CURRENT TRENDS CHALLENGING SMALL BUSINESS OWNERS
A. Exploding Technology
VI. WHY PEOPLE START SMALL BUSINESSES
A. Satisfy Personal Objectives
B. Achieve Business Objectives
C. Need to Mesh Objectives
VII. CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS
A. Desire Independence
B. Have a Strong Sense of Initiative
Chapter 01 – Starting Your Small Business
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VIII. WHAT LEADS TO SUCCESS IN MANAGING A SMALL BUSINESS?
IX. DOING AN INTROSPECTIVE PERSONAL ANALYSIS
X. WHERE ARE THE OPPORTUNITIES FOR SMALL BUSINESSES?
A. What Are the Fastest-Growing Industries?
XI. SOME AREAS OF CONCERN FOR SMALL BUSINESS OWNERS
A. Poorly Planned Growth
B. Threat of Failure
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
CHAPTER OPENING PROFILE:
Chad Summerlin of LogoLink
Chad Summerlin found a need and filled it for odd sized air filters that vendors did not carry
I. IT’S AN INTERESTING TIME TO BE STUDY-
ING SMALL BUSINESS
A. Importance of Entrepreneurs
1. Many entrepreneurs turned an idea
into first a small business then into a
large successful one.
2. Small firms are the backbone of the
American economy.
B. The Number of Small Businesses Is
Growing Rapidly.
1. The value of goods and services pro-
duced makes the small business sec-
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
2. The SBA estimates that there are
around 28 million small businesses in
the U.S.
C. The Public Favors Small Business.
1. One survey found that half of the re-
spondents expressed an interest in
owning a small business.
D. Interest Is Increasing at High Schools,
Colleges, and Universities.
1. Courses of study in entrepreneurship
are now offered at hundreds of col-
leges.
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CHAPTER OUTLINE AND TEACHING NOTES
3. Many student organizations, such as
the Association of Collegiate Entre-
preneurs (ACE) and University Entre-
E. Trend Is Toward Self-Employment.
1. Small business grew rapidly from the
mid-1980s to the mid-1990s, followed
a few years later (circa 2006-9)by a
2. A national poll found that 55% of us
3. Booming Internet and biotechnology
industries have attracted record
F. Entrepreneurship Is Attractive to All
Ages.
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
1. Entrepreneurship knows no age lim-
REAL WORLD EXAMPLE 1.1
Entrepreneurship knows no age limits. Megan Crump is an
enterprising 7-year-old whose first business was reselling her
Halloween candy.
2. Many college students start busi-
REAL WORLD EXAMPLE 1.3
KOLComm LLC, a medical communications and market re-
search company, was started by Rose Rios, after she lost her
job. Rose started the business from home, where she cared for
her baby and developed software.
4. Some states, including New York,
New Jersey, Oregon, Washington,
5. Some retirees soon discover that they
6. Younger entrepreneurs do not fear
REAL WORLD EXAMPLE 1.4
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
The need for a cigarette was the kernel idea for a new venture
– Oral Fixation Mints.
6. Forty percent of those who form new
businesses already have some man–
II. DEFINING SMALL BUSINESS—NO EASY
TASK
Learning Objective 1.
Define what is meant by the term business.
A. What Is Small?
1. To be classified as “small,” a small
business must have at least two of
the following features:
a. Management is independent.
b. Capital is supplied and ownership
2. The Small Business Act of 1953
states that “a small business is one
3. The SBA, for loan purposes, uses dif-
ferent size criteria by industries.
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CHAPTER OUTLINE AND TEACHING NOTES
B. Distinguishing Between Entrepreneur-
ial Ventures and Small Businesses
1. In an ENTREPRENEURIAL VEN-
TURE, the principal objectives of the
owner are profitability and growth.
a. The business is characterized by
innovative strategic practices
2. A SMALL BUSINESS is inde-
pendently owned and operated and is
not dominant in its field.
a. Some owners may not want to
grow the business, but prefer to
3. The SMALL BUSINESS OWNER es-
tablishes a business primarily to fur-
ther personal goals, including making
a profit.
4. The goals of an ENTREPRENEUR in-
clude achievement, profit and growth,
III. SOME UNIQUE CONTRIBUTIONS OF
SMALL BUSINESS
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
Learning Objective 2.
Name some of the unique contributions of small businesses.
A. Encourage Innovation and Flexibility
1. Small businesses are sources of new
REAL WORLD EXAMPLE 1.4
The modern computer was invented and developed by
small businesspeople, such as John Mauchly, J. Presper Eckert,
Steve Jobs, Stephen Wozniak, and Michael Dell.
B. Maintain Close Relationships with Cus-
tomers and Community
1. Small firms can be more individual-
ized than big firms can, attracting cus-
tomers on bases other than price.
2. An atmosphere of friendliness makes
REAL WORLD EXAMPLE 1.5
Chutter’s General Store, started by Mike and Carol Hamil-
ton, has the world’s largest candy counter.
C. Keep Larger Firms Competitive
1. Small businesses encourage competi-
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CHAPTER OUTLINE AND TEACHING NOTES
D. Provide Employees with Comprehen-
sive Learning Experience
1. Employees in small businesses have
2. Small businesses train people to be-
come better leaders and managers.
4. Traditionally, self-built men, as our de-
pression era grandfathers, believed
E. Develop Risk Takers
1. Small business owners have relative
freedom to succeed or fail.
F. Generate New Employment
1. Small businesses create job opportu-
on to work for larger businesses.
REAL WORLD EXAMPLE 1.6
Brynn Albretsen, an entrepreneur who will be featured in
Chapter 5, suggests you learn as much as you can from those
around you and challenge yourself to think outside the box.
G. Provide Greater Job Satisfaction
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CHAPTER OUTLINE AND TEACHING NOTES
1. Employees in smaller workplaces
IV. SOME CURRENT PROBLEMS FACING
SMALL BUSINESSES
Learning Objective 3.
Explain some of the current problems small businesses
face.
A. Special Problems
1. Small businesses face special prob-
lems that can result in:
2. Data on the failure rate of small busi-
nesses is confusing.
3. The biggest worries facing small busi-
nesses owners are:
a. current political and economic is-
B. Inadequate Financing
1. The shortage of capital is the greatest
problem facing small business own-
ers.
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
2. Without adequate funds, business
C. Inadequate Management
1. Other problems include limited busi-
2. Many owners are reluctant to grow
beyond one-person management.
3. Managers of small firms must be gen-
D. Burdensome Government Regulations
and Paperwork
1. Small businesses are subject to many
of the same regulations as large
V. SOME CURRENT TRENDS CHALLENGING
SMALL BUSINESS OWNERS
Learning Objective 4.
Discuss some of the current trends challenging entrepre-
neurs and small business owners.
A. Small firms must be prepared to cope with
B. Exploding Technology
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CHAPTER OUTLINE AND TEACHING NOTES
1. All small firms are affected by im-
provements in communications and
computer technology.
2. Exploding technology improves the
3. There are training programs and
internet.
C. Occupation and Industry Shifts
1. There is a declining emphasis on tra-
2. One shift, REINVENTION, is the fun-
3. Reinvention has led to fewer job op-
4. Many larger companies have REEN-
GINEERED, redesigning operations,
starting from scratch.
5. These activities resulted in DOWN-
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CHAPTER OUTLINE AND TEACHING NOTES
7. These shifts help smaller firms, as
D. Global Challenges
1. The trend is for small businesses to
2. Up to one-half of all today’s college
3. One result of the global challenge is
the number of large and small U.S.
businesses that are foreign owned.
REAL WORLD EXAMPLE 1.7
Many “American” brands were owned by foreign compa-
nies, such as RCA and GE brands (owned by a French com-
pany.)
VI. WHY PEOPLE START SMALL BUSINESSES
Learning Objective 5.
Explain why people start small businesses.
A. There are as many reasons for starting
B. Satisfy Personal Objectives
1. Owning a small business tends to sat-
isfy most of our work goals.
a. One study found that the best
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CHAPTER OUTLINE AND TEACHING NOTES
b. The primary objectives of small
business owners are to:
(1) achieve independence
c. The personal objectives of own-
ers of small businesses differ
from those of managers of larger
firms.
2. Achieve independence
a. The owner’s primary motive in
owning a business is usually to
3. Obtain additional income
a. The need for income varies
among people.
Chapter 01 – Starting Your Small Business
CHAPTER OUTLINE AND TEACHING NOTES
c. Not all small business owners
make, or intend to make, a lot of
4. Help their families
a. Small business owners are moti-
5. Provide products not available else-
where
a. Most American economic devel-
opment is the result of innova-
tions born in small firms.
REAL WORLD EXAMPLE 1.8
One entrepreneur identified a need—basic funeral ser-
vices—and started a successful business. Lloyd Mandel
opened the first “funeral store” in an Illinois mall.