Business in Action: Thriving in the Digital
Enterprise
Ninth Edition, Global Edition
Chapter 6
Entrepreneurship and
Small-Business Ownership
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Learning Objectives (1 of 2)
6.1 Highlight the contributions small businesses make to the
U.S. economy.
6.2 List the most common reasons people start their own
companies and identify the common traits of successful
entrepreneurs.
6.3 Explain the importance of planning a new business and
outline the key elements in a business plan.
6.4 Identify the major causes of business failures and
identify sources of advice and support for struggling
business owners.
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Learning Objectives (2 of 2)
6.5 Discuss the principal sources of small-business private
financing.
6.6 Explain the advantages and disadvantages of
franchising.
6.7 Define machine learning and deep learning, and
describe their importance to contemporary business.
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The Big World of Small Business
• Small business
– A company that is independently owned and
operated, is not dominant in its field, and employs
fewer than 500 people (although this number varies
by industry)
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Economic Roles of Small Business
• They provide jobs
• They introduce new products
• They meet the needs of larger organizations
• They inject a considerable amount of money into the
economy
• They take risks that larger companies sometimes avoid
• They provide specialized goods and services
• They provide economic opportunities for a diverse range of
people.
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Exhibit 6.1 The Impact of Small
Business on the U.S. Economy (1 of 2)
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Exhibit 6.1 The Impact of Small
Business on the U.S. Economy (2 of 2)
Sources: Annual Report of the Office of Economic Research, FY 2016, U.S. Small
Business Administration; “Frequently Asked Questions,” U.S. Small Business
Administration, June 2016, [Link].
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The Impact of Small Business on
Turkish Economy
Percentage of SMEs
Total entrepreneurship 99,7 %
Total employment 71 %
Total revenue 44 %
Total production value 37,3 %
Total export 30,4%
Total import 14,7 %
Source: [Link]
2021-45685&dil=1
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Characteristics of Small Businesses
• Most small firms have a narrow focus
• Small businesses have to get by with limited resources
• Small businesses often have more freedom to innovate
• Entrepreneurial firms find it easier to make decisions
quickly and react to changes in the marketplace
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The Entrepreneurial Spirit
• Entrepreneurial spirit
– The positive, forward-thinking desire to create
profitable, sustainable business enterprises
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Why People Start Their Own
Companies
• More control over their futures
• Tired of working for someone else
• Passion for new product ideas
• Pursue business goals that are important to them on a
personal level
• Inability to find attractive employment anywhere else
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Exhibit 6.2 Qualities Shared by
Successful Entrepreneurs
Sources: Norman [Link] and Jeffrey R. Cornwall, Essentials of Entrepreneurship and
Small Business Management, 8th ed. (New York: Pearson, 2016), 5–12; Sujan Patel, “10 Essential
Characteristics of Highly Successful Entrepreneurs,” Inc., 2 September 2017, [Link]; Nina
Zipkin, “Barbara Corcoran on the 5 Traits All Successful Entrepreneurs Share,” Entrepreneur, 12 April
2017, [Link].
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Exhibit 6.3 Business Start-Up
Options (1 of 3)
Financi Possibilities
Business Customer
al for Owner’s
Start-Up Processes Support Base, Brand
Outlay Attracting Freedom and Workforce
Strategy and Networks Recognition,
at Start- Outside Flexibility
Systems and Sales
Up Funding
Create a Some Usually very Very high, Must be Suppliers, Must be None; must be
new, business limited; most particularly designed bankers, and hired and built from the
independ es can lenders and during early and created other trained at ground up,
ent be many phases, from elements of the owner’s which can put
business started investors although low scratch, the network expense serious strain
with very want capital can which can must be on company
little evidence severely restrict be time- selected; the finances until
cash; that the the owner’s consuming good news is sales volume
others, business can ability to and that the builds
particula generate maneuver expensive owner can
rly in revenue select and
manufac before they’ll recruit ones
turing, offer funds; that he or she
may venture specifically
require a capitalists wants
lot of invest in new
capital firms, but
only in a few
industries
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Exhibit 6.3 Business Start-Up
Options (2 of 3)
Possibilities
Owner’s Business Customer
Financial for
Start-Up Freedom Processes Support Base, Brand
Outlay Attracting Workforce
Strategy and and Networks Recognition,
at Start-Up Outside
Flexibility Systems and Sales
Funding
Buy an Can be Banks are Less than Already in Already in Already in Assuming
existing considerable; more willing when place, place; place, that the
independent Some to lend to creating a which can may need which business is at
business companies “going new be a plus or to be could a least
sell for concerns,” business minus, upgraded positive or somewhat
multiples of and investors because depending a negative, successful, it
their annual are more facilities, on how well but at least has a
revenue, for likely to invest workforce, they work there are customer
example in them and other staff to base with
assets are operate ongoing sales
already in the and some
place more Business brand
than when reputation
buying a (which could
franchise be positive or
negative)
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Exhibit 6.3 Business Start-Up
Options (3 of 3)
Financial Possibilities Owner’s Business Customer
Start-Up Outlay for Attracting Freedom Processes Support Base, Brand
Workforce
Strategy at Start- Outside and and Networks Recognition,
Up Funding Flexibility Systems and Sales
Buy into a Varies Varies, but Low to very One of the Varies; Must be Customer
franchise widely, many low; most key some hired and base and
system from a few franchisors do franchisors advantage franchise trained, but repeat sales
thousand not allow require rigid of buying a companies a franchisor must be built
to several franchisees to adherence franchise is specify Usually up, but one of
hundred buy a to company that it which provides the major
thousand franchise with policies and comes with suppliers a training or advantages of
dollars borrowed processes an franchisee training a franchise is
funds, so they established can use support established
must have business brand
their own system recognition
capital
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Blueprint for an Effective Business
Plan (1 of 3)
• Business plan
– A document that summarizes a proposed business
venture, goals, and plans for achieving those goals
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Blueprint for an Effective Business
Plan (2 of 3)
• Summary
• Mission and objectives
• Company overview
• Products and services
• Management and key personnel
• Target market
• Marketing strategy
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Blueprint for an Effective Business
Plan (3 of 3)
• Design and development plans
• Operations plan
• Start-up schedule
• Major risk factors
• Financial projections
• Exit strategy
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Exhibit 6.4 Why New Businesses Fail
Marketing and Sales
Strategic Issues Leadership Issues Financial Issues
Issues
Little or no demand: Managerial Ineffective marketing: Inadequate funding: Company
Company introduced a incompetence: Owner Small companies— lacked the funding needed to
product that few, if any, didn’t know how to plan, especially new small launch or scale up to the point
customers wanted. lead, control, or organize. companies—face a of being self-funding.
Lack of strategic Lack of relevant tremendous challenge Poor cash management:
planning or a viable experience: Owner may getting recognition in Company spent too much on
business model: be experienced in crowded markets.. nonessentials, failed to balance
Owners didn’t think business but not in the Uncontrolled growth: expenditures with incoming
through all the variables particular markets or Company added customers revenues, failed to use loan or
needed to craft a viable technologies that are vital faster than it could handle investment funds wisely, or
business strategy. to the new firm’s success. them, leading to chaos, or failed to budget enough to pay
Failure to pivot: Inability to make the might have even “grown its its bills.
Owners missed (or transition from way into bankruptcy” if it Excessive overhead:
failed to take) a chance employee to spent wildly to capture and Company created too many
to purpose a better entrepreneur: Owner support customers.. fixed expenses that weren’t
opportunity. couldn’t juggle the multiple Poor Location: For directly related to creating or
Overpowering and diverse retailers and businesses selling products, leaving it
competition: responsibilities or survive that depend on easy vulnerable to any slowdown in
Company might have the lack of support that customer access or the economy
been on the right track, comes with going solo. visibility, a poor location Poor inventory control:
but the competition Motivational collapse: limited sales potential. Company produced or bought
simply did things better. Entrepreneur burned out Customer neglect: too much inventory, raising
before the business Company failed to support costs too high—or it did the
became self-sustaining customers or respond to opposite and was unable to
problems satisfy demand
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Advice and Support for Business
Owners
1. Government agencies and not-for-profit organizations
2. Banks, credit card companies, and software companies
3. Mentors and advisory boards
4. Print and online media, podcasts, blogs written by business owners and investors, as
well as websites for business magazines
5. Networks and support groups
6. Business incubators—facilities that house small businesses and provide support
service during the company’s early growth phase
7. Business accelerators work with existing companies with the primary goal of
making them more attractive to investors
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Government Agencies and Not-For-
Profit Organizations
• Chamber of commerce
• Chamber of industry
• Development Agency
• Small and medium enterprises development organization
(KOSGEB)
• Turkish Employment Agency (İŞKUR)
• Scientific and Technological Research Council of Turkey
(TUBİTAK)
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Financing Options for Small
Businesses (1 of 4)
• Seed money
– The first infusion of capital used to get a business
started
Banks and Micro lenders
– Organizations, often not-for-profit, that lend smaller
amounts of money to business owners who might not
qualify for conventional bank loans
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Financing Options for Small
Businesses (2 of 4)
• Venture capitalists (VCs)
– Investors who provide money to finance new
businesses or turnarounds in exchange for a portion of
ownership, with the objective of reselling the business
at a profit
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Financing Options for Small
Businesses (3 of 4)
• Angel investors
– Private individuals who invest money in start-ups,
usually earlier in a business’s life and in smaller
amounts than VCs are willing to invest or banks are
willing to lend
• Initial public offering (IPO)
– A corporation’s first offering of shares to the public
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Financing Options for Small
Businesses (4 of 4)
• Crowd funding
– Soliciting project funds, business investment, or
business loans from members of the public
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Exhibit 6.5 Financing Possibilities over
the Life of a Small Business
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The Franchise Alternative (1 of 2)
• Franchise
– A business arrangement in which one company (the
franchisee) obtains the rights to sell the products and
use various elements of a business system of another
company (the franchisor)
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The Franchise Alternative (2 of 2)
• Franchisee
– A business owner who pays for the rights to sell the
products and use the business system of a franchisor
• Franchisor
– A company that licenses elements of its business
system to other companies (franchisees)
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Types of Franchises
1. Business-format franchise: The right to use an entire business
system
2. Product-distribution franchise: The right to sell well-known brand
names and sell popular products.
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Money Side of Franchising
1. Initial franchising costs: Franchise fee and other start-up costs.
2. Ongoing franchising costs: Royalty payments and payments to an
advertising fund.
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Advantages of Franchising
• Combines at least some of the freedom of working for
yourself with many of the advantages of being part of a
larger, established organization
• Name recognition, national advertising programs,
standardized quality of goods and services, and a proven
formula for success
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Disadvantages of Franchising
• Typically agree to follow the business format
• Little control over decisions the franchisor makes that
affect the entire system
• Don’t have the option of independently changing your
business in response to market changes
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Exhibit 6.6 Key Questions to Ask Before
Signing a Franchise Agreement (1 of 2)
1. What are the total start-up costs? What does the initial franchise fee
cover? Does it include a starting inventory of supplies and products?
2. Who pays for employee training?
3. How are the periodic royalties calculated and when must they be
paid?
4. Who provides and pays for advertising and promotional items? Do
you have to contribute to an advertising fund?
5. Are all trademarks and names legally protected?
6. Who selects or approves the location of the business?
7. Are you restricted to selling certain goods and services?
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Exhibit 6.6 Key Questions to Ask Before
Signing a Franchise Agreement (2 of 2)
8. Are you allowed to sell online?
9. How much control will you have over the daily operation of the
business?
10. Is the franchise assigned an exclusive territory?
11. If the territory is not exclusive, does the franchisee have the right of
first refusal on additional franchises established in nearby locations?
12. Is the franchisee required to purchase equipment and supplies from
the franchisor or other suppliers?
13. Under what conditions can the franchisor or the franchisee terminate
the franchise agreement?
14. Can the franchise be assigned to heirs?
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Thriving in the Digital Enterprise:
Machine Learning and Deep Learning
• Machine learning
– The general capability of computers to learn
• Deep learning
– A type of machine learning that uses layers of neural
networks to attack problems at multiple levels
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Exhibit 6.7 Deep Learning
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Applying What You’ve Learned (1 of 2)
1. Highlight the contributions small businesses make to
the U.S. economy.
2. List the most common reasons people start their own
companies and identify the common traits of
successful entrepreneurs.
3. Explain the importance of planning a new business
and outline the key elements in a business plan.
4. Identify the major causes of business failures and
identify sources of advice and support for struggling
business owners.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Applying What You’ve Learned (2 of 2)
5. Discuss the principal sources of small-business private
financing.
6. Explain the advantages and disadvantages of
franchising.
7. Define machine learning and deep learning, and
describe their importance to contemporary business.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.