Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
C. Achieve Business Objectives
1. An important business function is set-
2. Growth depends on attaining both
3. Service objective
a. The objective of a business is to
produce and sell goods or ser-
4. Profit objective
a. PROFIT is the revenue received
by a business in excess of the ex-
penses paid.
b. The PROFIT MOTIVE is expect-
c. Goods or services must be pro-
duced at a cost:
(1) low enough that the firm
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
d. Profits are the reward for accept-
5. Social objective
a. Successful small businesses
must have SOCIAL OBJEC-
TIVES, which are goals regarding
6. Small firm owners should select a
growth objective based on personal
goals.
D. Need to Mesh Objectives
1. Personal and business objectives can
be integrated in small business.
2. The chances of success are in-
VII. CHARACTERISTICS OF SUCCESSFUL EN-
TREPRENEURS
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
Learning Objective 6.
Describe the characteristics of successful entrepreneurs.
A. The abilities and personal characteristics
of the owner influence the success of a
small company.
1. A recent study found that almost one-
2. Another characteristic is persis-
tence—16% of new business owners
have been in business before.
3. In entrepreneurship, the U.S. ranks
B. Desire Independence
1. People who start small businesses
C. Have a Strong Sense of Initiative
1. They desire to use their ideas, abili-
ties, and aspirations to the greatest
degree possible.
D. Are Motivated by Personal and Family
Considerations
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
1. Small business owners often start and
E. Expect Quick and Concrete Results
1. Small business owners expect quick
and concrete results from their invest-
ment of time and capital.
2. They seek a quick return on their cap-
3. Many new businesses, especially
those in the food industry, experience
F. Are Able to React Quickly
1. One advantage small business own-
ers have is the ability to react more
quickly to changes inside or outside
G. Are Dedicated to Their Business
.
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CHAPTER OUTLINE AND TEACHING NOTES
1. With so much of their time, money,
and energy devoted to the business,
H. Enter Business as Much by Chance
as by Design
1. They ask for management training
and development assistance.
2. These owners differ from those who
REAL WORLD EXAMPLE 1.9
Faced with low demand for his denim tents, Levi Strauss
started using the fabric to make sturdy jeans for miners.
VIII. WHAT LEADS TO SUCCESS IN MANAGING
A SMALL BUSINESS?
A. Serving an adequate and well-defined
market
B. Acquiring sufficient capital
C. Recruiting and using human resources ef-
fectively
IX. DOING AN INTROSPECTIVE PERSONAL
ANALYSIS
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
A. A personal evaluation can help determine
whether you have the combination of qual-
X. WHERE ARE THE OPPORTUNITIES FOR
SMALL BUSINESSES?
Learning Objective 7.
Describe where the opportunities are for small businesses.
A. What Are the Fastest-Growing Indus-
tries?
1. Most of the growing industries are
2. Professional and related occupations
will account for 10.5 million job open-
cians.
B. Factors Affecting the Future of an In-
dustry or a Business
1. Changes can cause slow-growing in-
dustries to speed up or fast-growing
ones to slow down.
2. One study found that the more profes-
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
3. HIGH-KNOWLEDGE INDUSTRIES
are those in which 40% or more of hu-
man resources are professionals,
C. Some Practical Ideas for Small Busi-
nesses
1. Around 71% of future employment in
the fastest-growing industries will
likely come from small businesses.
2. Potential areas for tomorrow’s busi-
nesses include:
a. Career counseling
b. Catering
f. Home health care
g. Marketing, promotion, and public
relations
h. Senior fitness and recreation
REAL WORLD EXAMPLE 1.10
Grubluck.com is a specialized delivery service for res-
taurants.
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
Cuisine Express features specialized delivery of restaurant
meals. Customers place the order through a Cuisine Express’s
XI. SOME AREAS OF CONCERN FOR SMALL
BUSINESS OWNERS
Learning Objective 8.
Identify some of the areas of concern for small business
owners.
A. The success of small firms tends to be
limited by such factors as:
1. inadequate management
4. inadequate record keeping
B. Poorly Planned Growth
1. Poorly planned growth appears to be
a built-in obstacle facing many small
businesses.
a. If the owners are incapable, their
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
c. As small businesses succeed,
their owners feel like prisoners of
long hours and hard work.(If you
d. Core symptoms of “trapped
owner” syndrome:
(1) despair over the loss of
closeness in important per-
sonal relationships
(2) unshakable anxiety despite
accomplishments
(5) the paradox itself: you own
your business, yet you don’t
enjoy it
(Learn to ask for help, in busi-
2. Loss of independence or control
a. With growth, owners must please
more people, including employ-
ees, customers, and the public.
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
b. However, many creative entre-
3. Typical growth pattern
a. During Stage 1, owners manage
the business and do all the work.
b. In Stage 2, the owners still man-
age the company but hire em-
C. Threat of Failure
1. A DISCONTINUANCE is a voluntary
decision to terminate a business,
caused by factors such as health
problems.
2. A FAILURE results from an inability to
succeed in running a business.
a. FORMAL FAILURES are failures
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
c. Personal failures are more com-
mon than formal failures.
3. Studies of the behavior of people in
small business show that failure often
results from:
a. too much left to chance (always
have a plan B.)
4. Start-up failures are usually caused
by:
a. lack of managerial assis-
tance(train, train, train)
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
5. Locating in a business incubator can
reduce the risks of failure.
a. BUSINESS INCUBATORS nur-
ture young firms and help them to
survive and grow during the
c. The typical incubator program
lasts 2-3 years, and about 30% of
the businesses “graduate.”
d. Incubator facts:
(1) Today, there are about 1,900
6. The latest available information
seems to indicate that failure rates
are decreasing.
Chapter 01 – Starting Your Small Business
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CHAPTER OUTLINE AND TEACHING NOTES
7. Many hobbyists, mom-and-pop ven-
tures, and other small undertakings
Chapter 01 – Starting Your Small Business
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LEARNING OBJECTIVES REVISITED
1. Define what is meant the term business.
● The definition of small business varies widely.
2. Name some of the unique contributions of small businesses.
● Encourage innovation and flexibility
3. Explain some of the current problems small businesses face.
● Inadequate financing—the greatest problem facing small business owners is shortage of
4. Discuss some of the current trends challenging entrepreneurs and small business owners.
● Exploding technology, including advances in communication and computer technology.
5. Explain why people start small businesses.
● To satisfy personal objectives, such as achieving independence, obtaining additional in-
Chapter 01 – Starting Your Small Business
1-33
6. Describe the characteristics of successful entrepreneurs.
● Desire independence.
7. Describe where the opportunities are for small business.
● The most new small businesses will be created in the service industry.
8. Identify some areas of concern for small business owners.
● Poorly planned growth can cause a business to fail.
KEY TERMS USED IN THIS CHAPTER
Business incubators nurture young firms and help them to survive and grow during the startup period
when they are most vulnerable.
Discontinuance is a voluntary decision to terminate a business.
Downsizing (rightsizing) is reducing the number of employees to increase efficiency.
An entrepreneur seeks to include achievement, profit, and growth through innovation and strategic man-
agement.
In personal (informal) failures, the owner who cannot succeed voluntarily, terminates the business.
Micro-Business has only one to four employees.
Objectives are the goals toward which the business’s activities are directed.
Chapter 01 – Starting Your Small Business
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Reengineering is the redesign of operations, starting from scratch.
NOTES FOR DISCUSSION QUESTIONS
1. Do you agree that this is an interesting time to be studying business? Why are you doing so?
This will be answered by each student individually. Many will mention the increasing influence
2. All of us have personal experiences with small business—as an owner, an employee, a friend, or
a relative of an owner, or in other relationships. Explain one or more such experience(s) you
have recently had.
Again, this question will have numerous responses. Are these experiences positive or negative?
3. What comes to your mind when you think of a small business? How does your concept differ from
the definition given in this chapter?
4. Distinguish between a small business and an entrepreneurial venture. If you were to start your
own business, which would you wish it to be? Why?
A small business is any business that is independently owned and operated, is not dominant in its
5. How do you explain the growing interest young people have in small business? Relate this to your
personal small business experience.
Because small businesses employ more than half of the U.S. work force, this will probably be the
workers than larger firms would be.
6. What are the unique contributions of small businesses? Give examples of each from your own ex-
Chapter 01 – Starting Your Small Business
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Small firms (1) encourage innovation and flexibility, (2) maintain close relationships with cus-
7. What are some of the problems facing small businesses? Again, give examples from your experi-
ence.
Small businesses face the problems of inadequate financing, inadequate management, and bur-
8. Discuss the four personal objectives that people seek when starting a new business.
9. Explain the interrelationship between the “service” and “profit” objectives.
The service objective must be achieved if the profit objective is to be attained. Yet profits must be
10. How does success cause problems for some small businesses? Can you give examples from your
experience or suggest ways to avoid the problems of growth?
Unplanned growth can be a problem for small business owners. If the owners are successful, they
11. What would be you reason for opening a small business, at this point in time?
NOTES FOR CASE QUESTIONS
CASE 1.1: The Big Wash
1. Evaluate Henry Gibson’s approach to starting a new business.
Gibson’s group involved the community in financing and operation. Following the well-known
2. Could there have been another source of funding? Explain.
Other sources of funding will be discussed in Chapter 7. Possible sources include SBA loans,
Chapter 01 – Starting Your Small Business
1-36
3. How do you explain the fact that Big Wash has not been robbed?
The public supports entrepreneurs, especially when the owners are known and respected. Because
CASE 1.2: The American Dream
1. Do you believe in the American Dream? Why? Or why not?
2. What would be your idea of the American Dream?
3. Do you think ethnicity is still a problem for small business owners in the mainstream? Why or
why not?