Chapter Six Small Business, Entrepreneurship, and Franchising

Chapter SixSmall Business,Entrepreneurship, and FranchisingEntrepreneurship andSmall BusinessEntrepreneurshipThe process of creating and managing a business to achieve a desired objective.Small Business Any independently owned and operated business that is not dominant in its competitive area and employs fewer than 500 people.Why Do Entrepreneurs Go Into Business?41%36%27%25%5%Joined family businessWanted more control over futureTired of working for someone elseWanted to fulfill longtime goalHad been downsized or laid offSource: Dun & Bradstreet 19th Annual Small Business Survey, May 2000 from “The Rewards,” Inc. State of Small Business, vol. 23 (2001), issue 7, p. 50.Just What Is A Small Business?Source: Small Business “Vital Statistics,” Small BusinessAdministration from (accessed May 2,2001). Represents over 99.7% of all employers.Employs 53% of the private work force.Accounts for 47% of all sales in the U.S.Provides 51% of the private sector output.Represents 96% of all U.S. exporters of goods.Receives 35% of federal contract dollars.The Role of Small Business in the American EconomyJob creationInnovationExportingFast Fact:9.1 million women-owned businesses employ 27.5 million and contribute 3.6 trillion to the economy.3.25 million minority-owned firms employ 4 million and account for $495 billion in revenues.Number of Firms by Employment SizeSource: US Census Bureau from (accessed July 30, 2001) What are the Advantages of Owning a Small Business?PersonalIndependenceBusinessLower startup costsGreater flexibilityFocus on niche marketsEasier to build a good reputationFast Fact:12% of Internet start-ups were launched in a garage.Disadvantages of Small Business OwnershipHigh stress levelHigh failure rateUndercapitalizationManagerial inexperience or incompetenceInability to cope with growthWhy Do Small Businesses Fail?39%28%6%27%20%19%17%10%Outside Business ConditionsFinancingInside Business ConditionsTax ProblemsDispute with a CreditorPersonal ReasonsCalamitiesOtherSource: Inc. State of Small Business, vol. 23 (2001), issue 7, p. 57..The Keys to Small Business SuccessA comprehensive business planThe right form of ownershipAdequate financingHow to Finance a Small BusinessEquity FinancingOwner’s fundsVenture capitalistsDebt FinancingLoans & collateralLines of creditTrade creditsBarterFast Fact:The online lending agency is the latest trend in debt financing. Live Capital connects borrowers to American Express, GC Capital and other lenders.FranchisingFranchise:A license to sell another’s products or to use another’s name in business or both.Franchiser:The company that sells a franchise.Franchisee:The purchaser of a franchise.Top Ten Fastest-Growing Franchises for 2001Source: Entrepreneur’s 22nd Annual Franchise 500, January 2001 from ” Entrepreneur.com/Your_Business/YB_PrintArticle/0,2361,285156-12----00.html (accessed May 2,2001)Fast Fact:Franchising grew by 13% in 2000.One of every 3 consumer dollars is spent in a franchise.Top Ten New Franchises for 2001Source: “Entrepreneur’s Top Ten New Franchises for 2001,” Entrepreneur.com from (accessed July 30, 3001)Facts about Franchising1,500 estimated franchise systems320,000 estimated franchise outlets66.1% of franchisees own only 1 outlet33.9% of franchisees own more than 1 outletThe most popular franchise types:Fast food – 18%Retail – 11%Restaurants – 9%Service – 9%Automotive – 8%Source: State of Small Business 2001, p. 34 – 35.The Marketing and Communication Tools for Small Business Success E-mail addressCompany Web siteDirect mailToll-free numberYellow Pages ads100%96%71%60%58%Source: “Small businesses cite successful tools,” USA Today, November 1, 2001, p. 1b.Developing Trends Impacting Small BusinessDemographic TrendsBaby boomers & Echo boomersTechnological TrendsIncrease in Internet usageMajor breakthroughs in technologyEconomic TrendsEconomic turbulence creates economic threats AND new opportunitiesSolve the DilemmaEvaluate the idea of a low-fat cookie and muffin retail store.Are there any concerns in connection with starting a small business that Jack and Bruce have not considered?What advice would you give Jack and Bruce as they start up their business?Explore Your Career OptionsWhat are some of the key qualities required of an individual starting a new small business?Additional Discussion Questions and ExercisesAssume you wanted to go into business for yourself. What kind of business would you prefer? What would be the financial requirements for entering the business? What type of work or managerial experience would you need?2. What should be included in a business plan? What is the importance of a business plan to the small-business entrepreneur?Additional Discussion Questions and ExercisesWhat are the goals of venture capitalists when they invest in new businesses?4. Think of your local community. Can you name five new businesses that have started up recently? Would you consider these new businesses to be small businesses? Are these new businesses franchises?Chapter 6 Quiz1. A license to sell another’s products or to use another’s name in business, or both, is called a. a franchise. b. a joint venture. c. a licensing agreement. d. a small business license.2. Which of the following industries is least likely to be entered into by small-business entrepreneurs? a. services b. high technology c. mining and manufacturing d. retailingChapter 6 Quiz3. The shortest path to business failure is a. undercapitalization. b. lack of a business plan. c. stress. d. employee turnover4. The money needed to finance regular business operations is called a. a line of credit. b. collateral. c. undercapitalization. d. working capital.Multiple Choice Questions about the Video1. Which of the following classifies Artists’ Frame Service as a small business? a. It has over 120 employees. b. It is independently owned and operated. c. It is not dominant in its competitive area. d. All of the above.2. Which of the following does Jay Goltz emphasize was his key to success?  a. lack of competition b. his business plan c. his Chicago location d. his parents’ encouragement