Chapter Six

Small Business,
Entrepreneurship,
and Franchising

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Entrepreneurship and
Small Business
Entrepreneurship
The process of
creating and managing
a business to achieve a
desired objective.

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Small Business
Any independently
owned and operated
business that is not
dominant in its
competitive area and
employs fewer than
500 people.

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Why Do Entrepreneurs
Go Into Business?
41%

Joined family business

36%

Wanted more control over future

27%

Tired of working for someone else

25%

Wanted to fulfill longtime goal

Had been downsized or laid off

5%

Source: Dun & Bradstreet 19th Annual Small Business Survey, May 2000 from
The Rewards, Inc. State of Small Business, vol. 23 (2001), issue 7, p. 50.

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Just What Is A Small Business?

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.
Source: Small Business Vital Statistics, Small Business
Administration from http://www.sba.gov/aboutsba/ (accessed May 2,2001).

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The Role of Small Business in

the American Economy
Job creation
Innovation
Exporting
Fast 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.

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Number of Firms by
Employment Size
Firm Size

Number of Firms Percentage of

all Firms

0 - 19 employees

4,988,367

89.4%

20 - 49 employees

376,675

6.8%

50 - 99 employees

117,682

2.1%

100 - 499 employees

80,075

1.4%

500+ employees

16,378

0.3%

Source: US Census Bureau from http://www.census.gov/epcd/smallbus.html#EmpSize

(accessed July 30, 2001)

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What are the Advantages of

Owning a Small Business?
Personal
Independence

Fast Fact:

12% of Internet start-ups were

launched in a garage.

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Business
Lower startup costs
Greater flexibility
Focus on niche
markets
Easier to build a
good reputation

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Disadvantages of
Small Business Ownership

High stress level

High failure rate
Undercapitalization
Managerial inexperience or
incompetence
Inability to cope with growth
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Why Do Small Businesses Fail?

39%

Outside Business Conditions

28%

Financing

27%

Inside Business Conditions

20%

Tax Problems

19%
17%

Dispute with a Creditor

Personal Reasons
Calamities
Other

10%
6%
Source: Inc. State of Small Business, vol. 23 (2001), issue 7, p. 57..

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The Keys to
Small Business Success
A comprehensive business plan
The right form of ownership
Adequate financing

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How to Finance a Small Business

Equity Financing
Owners funds
Venture capitalists

Debt Financing

Loans & collateral

Lines of credit
Trade credits
Barter

Fast Fact:

The online lending agency is the latest trend in debt

financing. Live Capital connects borrowers to
American Express, GC Capital and other lenders.

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Franchising
Franchise:
A license to sell anothers products or to
use anothers name in business or both.

Franchiser:
The company that sells a franchise.

Franchisee:
The purchaser of a franchise.

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Top Ten Fastest-Growing

Franchises for 2001
Fastest Growing Franchises
1. McDonald's
2. Coverall North America Inc.
3. Taco Bell Corp.
4. Subway
5. Jani-King
6. Mail Boxes Etc.

Fast Fact:

7. Quiznos Corp.

Franchising grew by 13% in 2000.

One of every 3 consumer dollars is
spent in a franchise.

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8. ByeByeNow.com Travel Inc.

9. Jiffy Lube International, Inc.
10. Curves for Women

Source: Entrepreneurs 22nd Annual Franchise 500, January 2001 from http://www.
Entrepreneur.com/Your_Business/YB_PrintArticle/0,2361,285156-12----00.html (accessed
May 2,2001)
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Top Ten New Franchises

for 2001
New Franchises
1. ACE Americas Cash Express
2. Wetzels Pretzels
3. Friendlys Restaurnats Franchise Inc.
4. Express One
5. Quik Internet
6. New York Burrito-Gourmet Wraps
7. Window Gang
8. Sears Carpet & Upholstery Care Inc.
9. Christmas Dcor Inc.
10. Worldsites
Source: Entrepreneurs Top Ten New Franchises for 2001, Entrepreneur.com from
http://www.entrepreneur.com/Franchise/Zone/FZ_Special_Listing/1,4731,12-12---TP-,00.html
(accessed July 30, 3001)

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Facts about Franchising

1,500 estimated
franchise systems
320,000 estimated
franchise outlets
66.1% of franchisees
own only 1 outlet
33.9% of franchisees
own more than 1 outlet

The most popular

franchise types:
Fast food 18%
Retail 11%
Restaurants 9%
Service 9%
Automotive 8%

Source: State of Small Business 2001, p. 34 35.

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The Marketing and Communication

Tools for Small Business Success
100%

E-mail address
Company Web site

96%

Direct mail
Toll-free number
Yellow Pages ads

71%
60%
58%

Source: Small businesses cite successful tools, USA Today, November 1, 2001, p. 1b.

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Developing Trends Impacting

Small Business
Demographic Trends
Baby boomers & Echo boomers

Technological Trends
Increase in Internet usage
Major breakthroughs in technology

Economic Trends
Economic turbulence creates economic threats
AND new opportunities

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Solve the Dilemma

1. Evaluate the idea of a low-fat cookie and
muffin retail store.
2. Are there any concerns in connection with
starting a small business that Jack and
Bruce have not considered?
3. What advice would you give Jack and
Bruce as they start up their business?

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Explore Your Career Options

What are some of the key qualities
required of an individual starting a
new small business?

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Additional Discussion Questions

and Exercises
1. Assume 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?
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Additional Discussion Questions

and Exercises
3. What 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?
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Chapter 6 Quiz
1. A license to sell anothers products or to use anothers 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. retailing

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Chapter 6 Quiz
3. The shortest path to business failure is
a. undercapitalization.
b. lack of a business plan.
c. stress.
d. employee turnover
4. The money needed to finance regular business
operations is called
a. a line of credit.
b. collateral.
c. undercapitalization.
d. working capital.

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Multiple Choice Questions

about the Video
1. 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

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