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*Chapter Six
Entrepreneurship
and Starting aSmall Business
McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
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Learning Outcomes
Explain why people take the risks ofentrepreneurship; list the attributes of successfulentrepreneurs; and describe entrepreneurialteams, intrapreneurs, and home- and Web-based
businesses. Discuss the importance of small business to
economy and summarize the major causes ofsmall-business failure.
Summarize ways to learn about how smallbusinesses operate.
Analyze what it takes to start and run a smallbusiness.
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*The Job-CreatingPower ofEntrepreneurshipin the U.S.
Entrepreneurship -- Accepting the risk of startingand running a business.
-Process of add value to product or services
WHAT is ENTREPRENEURSHIP?
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*The Job-CreatingPower ofEntrepreneurshipin the U.S.
French immigrant lruthre Irne du Pont deNemours started Du Pont in 1802.
-Manufactures thousands of products under such
brand names as Telfon and Lycra.
David McConnell borrowed $500 from a friend tostart Avon.
George Eastman started Kodak with a $3,000investment in 1880.
Jeff Bezos started Amazon.com with investmentsfrom his family and friends.
NOTABLE ENTREPRENEURS
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http://www2.dupont.com/Our_Company/en_US/http://www.avoncompany.com/about/history.htmlhttp://www.kodak.com/global/en/corp/historyOfKodak/historyIntro.jhtml?pq-path=2/8/2217/2687http://www.amazon.com/Careers-Homepage/b/ref=amb_link_5763692_1?ie=UTF8&node=239364011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=left-4&pf_rd_r=19X9HPSE1YPQ87Z2GFAT&pf_rd_t=101&pf_rd_p=465323071&pf_rd_i=203348011http://www.amazon.com/Careers-Homepage/b/ref=amb_link_5763692_1?ie=UTF8&node=239364011&pf_rd_m=ATVPDKIKX0DER&pf_rd_s=left-4&pf_rd_r=19X9HPSE1YPQ87Z2GFAT&pf_rd_t=101&pf_rd_p=465323071&pf_rd_i=203348011http://www.kodak.com/global/en/corp/historyOfKodak/historyIntro.jhtml?pq-path=2/8/2217/2687http://www.avoncompany.com/about/history.htmlhttp://www2.dupont.com/Our_Company/en_US/ -
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Successful Entrepreneurs in
Malaysian
Robert Kuok- Kuok Group, Pacific Carriers Ltd-
assets worth US$ 7 billion, the richest man in
south east Asia.
Ananda Krishna- owner ofMaxis
Communication- Assets worth US$4.1 billion
Teh Hong Piow - bank clerk open up a small
bank in 1966- PUBLIC Bank. His assets worth
US$2.1billion
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Common part for all of these
entrepreneurs
One of a couple of entrepreneurs had a good
idea.
Borrowed some money from friends and
family.
Employ thousands of people and helps the
country prosper.
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*Why PeopleTake theEntrepreneurialChallenge
Opportunity-become own boss, freedom, anidea
Profit-extra income
Independence-become decision maker
Challenge-solve problem.
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WHY TAKE the RISK?
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*Why PeopleTake theEntrepreneurialChallenge
Self-directed
-They should be self-disciplined and comfortablewith taking responsibility for success and
failure. Self-nurturing
-. Entrepreneurs must be able to believe in theirown ideas even when others don't. (especially,they present their business plan to investors orbankers)
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WHAT DOES IT TAKE to be anENTREPRENEUR?(characteristics)
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WHAT DOES IT TAKE to be an
ENTREPRENEUR?(characteristics) Action-oriented (proactive rather than wait)
-Entrepreneurs aren't satisfied with a dream, they want to makethe dream a reality. (not only talk, take action.)
Highly energetic-They are willing to work hard to sustain their efforts over long
hours.
Tolerant of uncertainty (many uncertainty factors)
-Entrepreneurs can accept the risks and uncertainties inherent inrunning a business.
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*Turning YourPassion andProblems intoOpportunities
It fills customers needs.
You have the skills and resources(network/knowledge/information/experience/$) to
start a business. You can sell the product or service at a reasonable
price and still profit.
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An IDEA is aGOOD OPPORTUNITY IF
You can get your product or service to customersbefore the window of opportunity closes.
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*EntrepreneurialTeams
Entrepreneurial team -- Agroup ofexperiencedpeoplefromdifferent areasof business
who join to form a managerialteam with the skills to develop,make and marketa newproduct.
An entrepreneurial team(Steve Jobs, Steve Wozniakand Mike Markkula) was keyto Apples success.
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ENTREPRENEURIAL TEAMS
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*Micropreneurs andHome-BasedBusinesses
Micropreneur -- Entrepreneurs willing to accept therisk of starting and managing a business that remainssmall, lets them do the work they want to do, and
offers a balanced lifestyle.
Many micropreneurs are home-based businessowners writers, consultants, video producers,
architects, bookkeepers, etc.
Nearly 60% of home-based micropreneurs aremen.
LG1
MICROPRENEURS
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*Micropreneurs andHome-BasedBusinesses
Computer technology has leveled the playingfield. (internet, facebook)
Corporate downsizing has led many to venture on
their own. ( you are fired. The work of thedownsized employees still needs to be done, andcorporations are outsourcing much of it to smallercompanies.)
Social attitudes have changed. (work at home,more flexible)
New tax laws have loosened restrictions ondeducting expenses for home offices.
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HOME-BASED BUSINESSGROWTH
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Source: St. Louis Small Business Monthly, February, 2004.
Ability to start your business immediately Minimal startup capital needed No rent or excessive set-up charges (use your own
laptop and home) Comfortable working conditions (nobody observe
you.)
Micropreneurs andHome-BasedBusinesses
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BENEFITS of HOME-BASEDBUSINESSES
Reduced wardrobe expenses (not much cabinet) No commuting (no need travel, save time) Tax benefits (IRB difficult check) Elimination of office politics (no colleagues conflict)
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Source: St. Louis Small Business Monthly, February, 2004.
Difficult to establish work habits (too flexible)
Limited support system (less people)
Isolation (less connection-what employees doing?) Work space may be limited (no stock? Customer
cannot visit and try your product)
Disruption of personal life (you work at home)
Clients may be uncomfortable coming to your home
Zoning restrictions (not everywhere you can sell)
Success is based 100% on your efforts
Micropreneurs andHome-BasedBusinesses
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DOWNSIDES of HOME-BASEDBUSINESSES
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*Web-BasedBusinesses
Affiliate Marketing -- An Internet-based marketingstrategy in which a business rewards individuals orother businesses for each visitor or customer theaffiliate sends to its website. (seller pays you a
commission)
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ONLINE BUSINESS
Web-based businesses havemore unique products thanmost brick and mortar stores.
Online sales reached $165.9billion in 2007, 8% of all retailsales.
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*EntrepreneurshipWithin Firms
Intrapreneur -- A creative person who works as anentrepreneur within a corporation.
Intrapreneurs use a companys existingresources to launch new products for thecompany.
Art Fry of 3M developed Post-
Its when he was trying to markpages of his hymnal withoutdamage.
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INTRAPRENEURS
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Differences between a
businessman and an entrepreneur
Businessman
Would engage inbusiness activities to
support his living andfamily
A low risk taker
Would invest only inproven and testedmarkets
Entrepreneur
Would assume leadershipand commitment to
expand his venture forself-fulfillment
A moderate risk taker andwould take risk
Would use his creativity toventure into new areasthat have not been tested
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Advantages of Entrepreneurship
Ability to create own destiny Opportunity to make a difference
Able to reach full potential
Able to reap impressive
Able to contribute to society and be
recognized for their efforts Able to enjoy and have fun
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Disadvantages of Entrepreneurship
Uncertainty of income (you can becomemillionaire, you can bankrupt)
Risk of losing entire investment
Long hours and hard work. High stress level
Difficulty in obtaining customersnobody
know you.
Complete responsibility(to stakeholders)
Difficulty in obtaining loans- less confidence.
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*Small VersusBig Business
Small Business -- Independently owned andoperated, not dominant in its field of operation andmeets certain standards of size (such as under 2mil ayear for service business).
Businesses are small in relationship to other
businesses in their industries.
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SMALL BUSINESSES
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*Importance ofSmall Business
More personal customer service (there is plenty ofroom for small companies to make a profit filling
those niches). The ability to respond quickly to opportunities(big
business dont serve all the needs of the market).
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ADVANTAGES of SMALL OVERBIG BUSINESS
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*Small BusinessSuccess &Failure
Owner closing a business tostart another is reported as a
failure. Changing forms of ownership
is reported as a failure.
Retirement is reported as afailure.
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BUSINESS FAILURES are LOWERTHAN the REPORTS BECAUSE
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Source: World Features Syndicate, 2009.
Tommy Hilfiger First store went bankrupt
Milton Hershey First confectionary failed
H.J. Heinz Company went bankrupt six years afterstart
Small BusinessSuccess &Failure
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THEY DID WHAT?Famous Business Failures
Walt Disney First film companywent bankrupt
Henry Ford First two carcompanies failed
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Reasons for Failure and Success
(pg159) Failure
Poor management (entrepreneurial
team is important)
Neglect (ignore problem? Solution:
Pay attention to your businessduring each and every day.) Weak control systems (too much
Empowerment to their employees)
Insufficient capital (cash flowproblem) (Solution: Cut back
expenses, lookat and focus only on your corebusiness.)
2009 Pearson Education, Inc.
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Plunging in without first testing the waters on a smallscale.
Underpricing /overpricing goods & Services.
Reasons for Failure and Success
Failure
Reasons for success
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Success
Hard work, drive, and dedication. Many small business
owners spend 12 to 15 hours a day in the initial stages oftheir new business start up working to market, manageand promote their offerings. (Malaysia employees 8 hoursbased)
Market demand (growth industry)-You need to have a market to whom you can sell yourproduct or service, and you need to add value to yourproduct or service for it to be accepted in themarketplace.
Managerial competence (management should set atarget and achieve it. Provide reward to those employeesas a motivation)
Pay attention to competitors(what strategy and businessmodel they use and how we can respond?)Luck!!!
Reasons for success
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*Learning AboutSmall BusinessOperations
Learn from OthersInvestigate your localcolleges for classes on small business andentrepreneurship; talk to and work for successfullocal entrepreneurs. (to understand why they cansuccess)
Get Some ExperienceGain three yearsexperience in the field; then start a part-time small
business. Take Over a Successful FirmServe as an
apprentice and eventually take over once the ownersteps down.
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LEARNING ABOUTSMALL BUSINESS
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*Managing aSmall Business
Planning
Financing
Knowing customers
Managing employees
Keeping records
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MAJOR BUSINESS FUNCTIONS
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*Begin withPlanning
Business Plan -- A detailed written statement thatdescribes thenature of the business, thetargetmarket, theadvantages(competitive
advantages)the business will have overcompetition (how you can win?), and theresources ( manpower, idea , capital ,network)and owners qualifications.
A business plan forces potential owners to bespecific about what they will offer.
A business plan is mandatory for talking with
bankers or investors. (get financial support)
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BUSINESS PLANS
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*Writing aBusiness Plan
A good plan takes a long time to prepare.
A good executive summarycatches interest and
tempts potential investors to read on. (1-2 pgs)
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WRITING a BUSINESS PLAN
Getting the plan intothe right hands isalmost as important
as getting the rightinformation in it.
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*Getting Moneyto Fund a SmallBusiness
Personal savings
Relatives
Former employers (all employers contribute)
Banks & finance companies
Government agencies
Angel investors
Venture capitalists -- Individuals or companies thatinvest in new businesses in exchange for partialownership. Many well known businesses such asGoogle, Zappos and Apple received a first round of
funding from venture capitalists.
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SOURCES of CAPITAL
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*Knowing YourCustomers
Market -- Consumers with unsatisfied wants andneeds who have both resources and willingness tobuy.
Set out to fill the markets needs by offering top
quality and great service at a fair price.
One of the great advantages of smallbusinesses is the ability to know the market andquickly adapt to market needs.
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The MARKET
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*ManagingEmployees
Hiring, training and motivating employees iscritical.
Employees of small companies are often moresatisfied with their jobs they feel challengedand respected. (if not, turnover might behappen)
Entrepreneurs best serve themselves and thebusiness if they recruit and groom employeesfor management positions.
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MANAGING EMPLOYEES
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*Keeping Records
Computers simplify the process by helping withinventory control, customer records and payroll(to employees).
A good accountant can help in:
- Deciding whether to buy or lease equipment.- Deciding whether to own or rent a building.- Tax planning.
- Financial forecasting.(future estimation)- Choosing sources of financing. (bank loan?Offer share?)
- Writing requests for funds. (to government?
Bank?)
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ACCOUNTING ASSISTANCE
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*Looking for Help
Owners need outside consulting advice early inthe process.
Small and medium-sized firms cannot afford to
hire experts as employees. A competent lawyer can help with:
- Leases (Rent)
- Contracts- Partnership agreements- Protection against liabilities
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LEGAL HELP
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*Looking for Help
Marketing decisions need to be made long beforeintroducing a product or opening a store.
A marketing research study can help you:- Determine where to locate. (match with external
environment such as culture, governmentpolicy,..)
- Whom to select as your target market.- What is an effective strategy for reaching the
market. (advertising? promotion?)
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MARKETING RESEARCH
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*ProgressAssessment
Why are people willing to take the risks ofentrepreneurship?
What are the advantages of entrepreneurial teams?
What are some opportunities and risks of web-based businesses?
Can you describe at least five sections of abusiness plan?
PROGRESS ASSESSMENT
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