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CHAPTER 7: SMALL BUSINESS AND
ENTREPRENEURSHIP
Economic Rocket Fuel
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LAUNCHING NEW VENTURES: WHAT’S IN IT FOR ME?
Greater Financial Success Independence Flexibility Challenge Survival
On any given day in the United States, more people are trying to start a new business
than are getting married or having children.
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THE ENTREPRENEUR: A DISTINCTIVE PROFILE
Vision
Energy
Tolerance
of
Uncertaint
y
Self-
Reliance
Confidence
Tolerance of Failure
Entrepreneurs – People who risk their time, money, and other resources to start and manage a business.
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OPPORTUNITIES AND THREATS FOR SMALL BUSINESS: A TWO-SIDED COIN
Threats:
• Higher Risk of Failure
• Lack of Knowledge and Experience
• Too Little Money
• Bigger Regulatory Burden
• Higher Health Insurance Costs
Opportunities:
• Market Niches
• Personal Customer Service
• Lower Overhead Cost
• Technology
Opportunities:
• Market Niches
• Personal Customer Service
• Lower Overhead Cost
• Technology
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SMALL BUSINESS FAILURE
Year in Business
Survival Rate
Change vs. Prior Year
(%)
Year 1 81% 19%
Year 2 66% 15%
Year 3 54% 12%
Year 4 44% 10%
Year 5 38% 6%
Year 6 34% 4%
Year 7 31% 3%
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Petstore.com offered a fish
delivery service. They were bought out by Pets.com for $13 million in
stock
DOT-COM DEBACLES
Webvan: the value of this early online grocer peaked at $1.2 billion, but Webvan left 2,000
people out of work when it closed its doors in the
middle of 2001.Pets.com: Shutting
down only nine months after its $82.5 million IPO, Pets.com hawked pet care products from doggie treats to kitty
litter, but lacked a workable plan for high
shipping costs.
Arrangeonline.com, Funeral.com,
Heavenly-Door.com and Plan4ever.com
marketed funeral
arrangements and related
services
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LAUNCH OPTIONS
• Starting from scratch• Buying an established business• Buying a franchise
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BUYING AN ESTABLISHED BUSINESS
Key Pros: Key Cons:• The concept, organizational
structure, and operating practices are in place.
• Relationships are established.
• Obtaining financing is less challenging.
• Working with someone else’s idea may not be fun.
• You may inherit old mistakes.
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STARTING A BUSINESS FROM SCRATCH
Key Pros: Key Cons:• It’s all you : Your concept,
your decisions, your structure.
• You don’t have to deal with the prior owner’s bad decisions.
• It’s all you. That’s a lot of pressure.
• It can be hard to get credit.• Logistics can be challenging• It takes time, money, and
sheer sweat to build a customer base.
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BUYING A FRANCHISE
Key Pros: Key Cons:
Less Risk
Training and Support
Brand Recognition
Access to Funding
Costs
Lack of Control
Negative Halo Effect
Growth Challenges
Restriction on Sale
Poor Execution
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ENTERING INTO A FRANCHISE AGREEMENT
Know all the facts before signing the dotted line:
Terms and Conditions Fees and Other Payments Training and Support Specific Operational Requirements Conflict Resolution Assigned Territory
Franchisors must provide a Franchise Disclosure Document (FDD)
The Federal Trace Commission (FTC) require: The FDD must be written in plain English The franchisor must be given 14 days to review the FDD The Franchisee should have a lawyer review the
document
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TOOLS FOR BUSINESS SUCCESS
Small Business Administration
Gain Experience
Learn from Others
Educate Yourself
Write a Business Plan
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The Business Plan
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FINDING THE MONEY: FUNDING OPTIONS
Personal Resources
Loans
Angel Investors
Venture Capital
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SMALL BUSINESS AND THE ECONOMY: AN OUTSIZED IMPACT
Creating New Jobs
Fueling Innovation
Vitalizing Inner Cities
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ECONOMIC IMPACT
Just 9.8% of the world’s entrepreneurs expect to create almost 75% of the jobs generated by new business ventures in the next five years.1 out of 10 adults worldwide start businesses every year Three key factors drive entrepreneurship globally:
□ Per Capita Income□ Opportunity Cost□ Cultural/Political Environment