Entrepreneurial Small Business

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?•• i .

Entrepreneurial

Small Business

! : • . . -• -• * . . . * ^ . » .

-Jerome A. Katz

Saint Louis University

Richard P. Green II

Texas A&M University-San Antonio

Me

Graw

Hill

McGraw-Hill

Irwin

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Part One

Entrepreneurs and Ideas: The

Basis of Small Business 1

CHAPTER 1

Small Business: Its Opportunities and Rewards 2

Starting an Entrepreneurial Small Business: Help Helps 4 /

Skill Module 1.1 The Small Business Online Scavenger Hunt 4

Defining a Small Business 5

Small Business Owners and Entrepreneurs 6 Small Businesses versus High-Growth Ventures 6

Rewards for Starting a Small Business 8 Myths about Small Businesses 9

Getting Started Now: Entry Competencies 12 Skill Module 1.2 BRIE Self-Assessment 13 Small Business and the Economy 14

New Jobs 15 Innovations 15 New Opportunities 16

Two Aspects of Global Entrepreneurship 18 Beyond Small Business: The Other Forms

of Entrepreneurship 19

Chapter Summary • Key Terms a Discussion Questions a Experiential Exercises a Mini-Case n

Suggested Cases and Articles • Suggested Videos

CHAPTER 2

Small Business Environment: Managing External Relations 26

The Environment of Small Business 28 The Elements of the Small Business

Environment 29

Skill Module 2.1 Finding Your Trade or Professional Association and Their Magazines 30

Environmental Scanning for Small Businesses 31 Skill Module 2.2 Finding Out How the Small

Business Economy Is Doing 32

Five Skills for Managing Relations with the Environment 33

Building Legitimacy 33 Developing a Social Network 36

Skill Module 2.3 Asking for Help 37 Skill Module 2.4 Networking Skills 38

Handling a Crisis 40 Achieving Sustainability 41

Making Ethical Decisions 42

Chapter Summary a Key Terms a Discussion Questions n Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos

Small Business Entrepreneurs: Characteristics and Competencies 56

The Entrepreneurial Personality 58

Entrepreneurial Operational Competencies 60 Skill Module 3.1 Competency

Self-Assessment 60 Professionalization 63 Entrepreneurial Careers 64

What Makes a Difference in Entrepreneurial Efforts 65

Family Businesses 66 Entrepreneurial Teams 69

Women and Minorities in Small Business 70 Second Career Entrepreneurs 71

Chapter Summary • Key Terms t> Discussion Questions n Experiential Exercises • Mini-Case a Suggested Cases and Articles a Suggested Videos

Small Business Ideas: Creativity, Opportunity,

and Feasibility 78

The Source of Business Ideas 80

Work Experience 81 A Similar Business 81

Hobby or Personal Interest 82 Chance Happening, or Serendipity 82 Family and Friends 82

Education and Expertise 83

Technology Transfer and Licensing 83

Screening Ideas 84

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Get into an Innovative Frame of Mind 90 Avoid Pitfalls 90

Types of Innovations Small Businesses Develop 91 Make Sure an Idea Is Feasible 92

Assessing Feasibility by Pilot Testing 96 Ways to Keep On Being Creative 97

Skii! Module 4.1 Great Ideas for Making Idea-Prone Companies 98

Chapter Summary o Key Terms • Discussion Questions Q Experiential Exercises <a Mini-Case a Suggested Cases and Articles a Suggested Videos Appendix A Sample Feasibility Study 103

Part Two

Small Business Paths &

' Plans 117

CHAP1ER 5

Small Business Entry: Paths to Part-Time Entrepreneurship 118

Why Part-Time Businesses Are Important 120 When to Consider Part-Time Entrepreneurship 120 Key Considerations for Success in Part-Time

Entrepreneurship 121

What Kinds of Part-Time Entrepreneurship Exist? 122

Home-Based Business 123

Internet Informational Web Sites 126 E-Commerce and eBay Web Sites 129

Skill Module 5.1 Checklist for Maximizing Success on eBay 133

The Next Best Things to a Home-Based Business 136

Success Factors for Part-Time Businesses 139

Boundary: Separating and Balancing Business and Home 140

Exchange: Dealing with Others 141 Pricing and Costing 141

What Are the Challenges of Being an Entrepreneur Part Time? 142

Delegation and Outsourcing 142

Making Do When You Are Starting Out 143 Ethics and Part-Time Small Business 144 Moving from Part-Time to Full-Time

Entrepreneurship 146

Chapter Summary ° Key Terms • Discussion Questions o Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos CHAPTER ®

Small Business Entry: Paths to Fuil-Time Entrepreneurship 152

The Five Paths to Business Ownership 154 Starting a New Business 155

Advantages of Start-Ups 155 Disadvantages of Start-Ups 155 Creating a New Business 156

Increasing the Chance of Start-Up Success 157 Special Strategies for Starting from Scratch 161

Buying an Existing Business 162

Advantages of Purchasing an Existing Business 162 Disadvantages of Purchasing an Existing Business 162 Finding a Business to Buy 163

Skill Module 6.1 Finding a Business for Sale 163

Investigating Entrepreneurial Opportunities: Performing Due Diligence 164

Determining the Value of the Business 166 Structuring the Deal 168

Buyouts 168 Buy-ins 169

Key Resource Acquisitions 169 Takeovers 169 Franchising a Business 170 What Is Franchising? 170 Advantages of Franchising 171 Franchise Opportunities 172 Legal Considerations 172 Inheriting a Business 174

Family Businesses Succession 174

Developing a Formal Management Structure 174 Succession Issues for the Founder 174

Succession Issues for the Successor 175 Ownership Transfer 176

Professional Management of Small Business 176 Chapter Summary n Key Terms B Discussion Questions a Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos

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CHAPTER 7

Small Business Strategies: Imitation with a Twist 182

Strategy in the Small Business 184 Prestrategy: The First Step of Strategic

Planning 185

Owner Rewards 185

Product/Service Idea and Industry 186

Skill Module 7.1 Finding Your Firm's Industry 188

Imitation and Innovation ,189 Markets 191

Customers and Benefits: The Second Step of Strategic Planning 191

Value and Cost Benefits 192

Skill Module 7.2 Checking Customer Opinions Online 192

Industry Dynamics and Analysis: The Third Step of Strategic Planning 195

Tool: Industry Analysis 196

Skill Module 7.3 Short and Sweet industry Analysis 196

Strategy Selection and Implementation: The Fourth Step in Strategic Planning 198

Tool: SWOT Analysis 201

Skill Module 7.4 The Mechanics of a SWOT Analysis 201

Post Start-Up Strategy 203

Resources: What You Bring to the Firm 203 Organizational Capabilities 204

Discouraging Competitors 204

Chapter Summary a Key Terms B Discussion Questions • Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos Appendix Five Steps to an Industry Analysis 209

CHAPTER 8

Business Plans: Seeing Audiences and Your Business Clearly 212

Business Plan Background 214

The Business Plan Story: Starting Small and Building Up 215

The Vision Statement 216 The Mission Statement 216 The Elevator Pitch 217

Skill Module 8.1 How to Write Your Elevator Pitch 218

The Executive Summary 218

Strategizing for the Business Plan 220 The Classic Business Plan 220

Cover Letter 221

Skill Module 8.2 How to Write a Gover Letter 223

Title Page 224 Table of Contents 224 Executive Summary 224 The Company 224 The Market 225 The Organization 226 The Financials 228 the Appendixes 229

Skill Module 8.3 How to Write a Resume 229 Focusing Your Business Plan 230

The Most Common Critical Risks in a Plan 235 Presenting Your Plan 236

Chapter Summary • Key Terms • Discussion Questions a Experiential Exercises a Mini-Case a Suggested Cases and Articles • Suggested Videos Appendix A Example Cover Letter and Resume Appendix B Example Business Plan 245

Part Three

Marketing in the Small

Business 271

243

Small Business Marketing: Product and Pricing Strategies 272

Product 274

Goods versus Services 274

Skill Module 9.1 Facing Intangibility and Perishability 276

The Total Product Approach 276

Skill Module 9.2 Learning about the Total Product of You 277

Branding 277

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Skill Module 9.3 Creating Your Idea Notebook 280

Product Life Cycle 283 Service Life Cycle 286

Using the Product Life Cycle 287

Pricing 287

Why Price Is Important 288

Pricing from the Seller's Point of View 288 Your Costs and Your Prices 289 Price Elasticity 290

v Pricing Psychology 291

Skill Module 9.4 Pricing Psychology 292

Price Setting 293 Pricing Strategies 296

Price-Lowering Techniques 298

Chapter Summary • Key Terms B Discussion Questions a Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos CHAPTER 1 0 '

Small Business Promotion: Capturing the Eyes of Your Market 306

The Need for Promotion 308

The Basics: Crafting Your Value Proposition 308 Skill Module 10.1 Developing a Value

Proposition 309

Segmenting Your Market 309 Crafting Your Message 312 Conveying Your Message 314

Advertising 314 Sales Promotions 316 WebSites 316

Network Advertising: Referrals and Word-of-Mouth 316 Buzz Marketing' 318

The Process of Personal Selling 319 Skill Module 10.2 The Art of Closing 321 Succeeding after the Sale 322

Strategies of CRM 322 Steps in CRM 323

Handling Postsale Problems 327

Building a Press Relations Program 328

Targeting Media Outlets 328 The Basics of a Press Release 328

Skill Module 10.3 Writing a Press Release 329

Resources for E-Mailing Press Releases 329

What Is Newsworthy? 331

Leveraging the Press and Generating Publicity 332

Building a Public Relations Program 332

Two Ways to Generate Publicity 334

Chapter Summary • Key Terms a Discussion Questions a Experiential Exercises • Mini-Case a Suggested Cases and Articles a Suggested Videos CHAPTEH11

Small Business Distribution and Location 340

Distribution 342

Direct Marketing 342

Skill Module 11.1 Making Mail Order Ads Work 345

Distribution Issues for Direct Marketing 350 Nondirect Distribution 350 International Strategies 351 Location 356 Service Firms 357 Manufacturers 358 Site Selection 359

Skill Module 11.2 Using the U.S. Census Bureau Web Site 359

Leasing 363 Layout 365

Build, Buy, or Lease 367

Chapter Summary a Key Terms a Discussion Questions n Experiential Exercises a Mini-Case a Suggested Cases and Articles • Suggested Videos

CHAPTER 12

Marketing Plans: Saying How You'll Get Sales 372

The Importance of Having a Marketing Plan 374

Market Research 374

Secondary Research 374 Primary Research 377

Skill Module 12.1 How to Conduct a Focus Group 378

Skill Module 12.2 Open- and Close-Ended Questions 380

Sales Forecasting 381

Skill Module 12.3 Sales Forecasting from a Fixed Inventory 381

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f Skill Module 12.4 Determining Differential

| Advantage 383

'} The Marketing Plan 385

; Target Market 385

Skill Module 12.5 identifying Target Market Segments 386

Current Situation 388 The 4 Ps 389 The Written Plan 390

What's Next? 391

Chapter Summary a Key Terms m Discussion Questions s Experiential Exercises a Mini-Case a Suggested Cases and Articles ® Suggested Videos Appendix A Marketing Plan: PizzMo 396

Part Four

; Cash, Accounting, and Finance

in the Small Business 399

Analysis of Business Operations 418

Uses of Managerial Accounting 418

Cost-Volume-Profit Analysis 418

The Business Plan and the Budget Process 422

Planning/Budgeting 422 Completing a Master Budget 422 Sales Budget 424

Purchases Budget 425 Cost of Goods Sold Budget 426 Labor Budget 427

Selling, General, and Administrative Expense (SG&A) Budget 427

Overhead Budget 428

Budgeted Income Statement 428 Completing a Comprehensive Budget 428 Controlling 428

Skill Module 13.3 Preparing a Master Budget 429 Decision Making 431

Chapter Summary • Key Terms D Discussion Questions a Experiential Exercises a Mini-Case • Suggested Cases and Articles a Suggested Videos

CHAPTER 13

Small Business Accounting: Projecting and

Evaluating Performance 400

Why Accounting Matters to Small Business 402

Basic Accounting Concepts 402

Business Entity Concept 403 Going Concern Concept 403 The Accounting Equation 403 Revenues, Expenses, and Costs 404 Information Usefulness 405

Accounting Systems for Small Business 405

Skill Module 13.1 Why Does Accounting Matter? 406

Setting Up an Accounting System 407 Financial Reports 408

Income Statement 409 Balance Sheet 412

Skill Module 13.2 Applying for a Loan 414

Cash Flow Statement 415

Uses of Financial Accounting 416

Reporting to Outsiders 417 Record Keeping 417 Taxation 417

Control of Receivables 417

CHAPTER 14

Cash: Lifeblood of the Business 440

The Importance of Money Management 442

Money In/Money Out—Just How Important Is It? 442

Money as the Key Idea 445

Cash and Cash Equivalents 446

Managing Cash Flow 447

Company and Bank Cash Balances 447 Reconciling Bank Balances with Company Book

Balances 450

Planning Cash Needs 451

Sales Budget: Forecasting Sales Receipts 452 Cash Receipts Budget 452

Forecasting Cash Disbursements 455

Skill Module 14.1 Planning Cash Needs 456

The Comprehensive Budget—the Pro Forma Cash Flow Statement 456

The Comprehensive Budget—Pro Forma Balance Sheet 457

Skill Module 14.2 A Comprehensive Budget 458 Preventing Cash Flow Problems 459

Protecting Cash from Being Stolen 459 Techniques to Increase Cash Inflows 460 Techniques to Decrease Cash Outflows 461

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Controlling Cash Shortages 465 In Review 466

Chapter Summary • Key Terms n Discussion Questions • Experiential Exercises a Mini-Case • Suggested Cases and Articles a Suggested Videos Appendix Completing a Bank Reconciliation 472

CHAPTER 15

Small Business Finance: Using Equity, Debt, and Gifts 476

Sources of Financing for Small Businesses 478

Financing with Equity 479

Skill Module 15.1 Determining Personal Net Worth 481

Getting Equity Investment for Your Business 483

Equity Capital from the Investor's View 484 Equity Capital from the Owner's View 485 Why Use Equity Capital? 485

Financing with Debt: Getting a Loan for Your Business 485

Skill Module 15.2 Obtaining Your Credit Report 487

Gift Financing 488

Skill Module 15.3 Finding SBIR Grants 489 What Type of Financing Is Right for Your

Business? 492

Financial Management for the Life of Your Business 496

Tools for Financial Management 496 Financial Management for Start-Up 498 Financial Management for Growth 501 Financial Management for Operations 501 Financial Management for Business Exit 502

Chapter Summary a Key Terms • Discussion Questions • Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos

CHAPTER 16

Assets: Inventory and Operations Management 506

Managing Short-Term Assets 508 Accounts Receivable 508

The Pros and Cons of Offering Credit to Customers 508 Managing Accounts Receivable to Receive the Greatest

Benefit for Your Business 508

Using Your Accounts Receivable as a Source of Financing 508

Skill Module 16.1 Using Receivables to Raise Immediate Cash 510

Managing Inventory 510

Determining the Appropriate Level of Inventory 511 Scheduling Ordering and Receipt of Inventory 512 Just-in-Time Inventory Systems 513

Other Approaches to Inventory Control 513

Value of Assets in Your Business 515

Determining the Value of Your Operating Assets 515 Determining the Value of Inventory 517

Property, Plant, and Equipment 518

Skill Module 16.2 Understanding Whole of Life Costs for Capital Budgeting 519

The Capital Budgeting Decision 519

Payback Period 520

Rate of Return on Investment 520 Net Present Value 521

Rent or Buy 522

Financing with Leases 522

Fractional Ownership and Other Forms of Joint Ventures 523

Managing Operations 523

Inputs into Your Business 524

Business Operations Comprise Converting Time and Materials into Service and Products 524 Business Outputs 525

Feedback 525

Measuring and Improving Productivity 525

Operations Management Challenges for Product-Based • Firms 526

Operations Management Challenges for Service Firms 526

Chapter Summary • Key Terms • Discussion Questions B Experiential Exercises a Mini-Case a Suggested Cases and Articles a Suggested Videos

Appendix A Economic Order Quantity 531 Appendix B Time Value of Money and Discounted

Cash Flow Analysis 533

CHAPTER 17

Small Business Protection: Risk Management and Insurance 538

Risk in Small Business 540 Thinking about Risk 540

Risks Associated with Specific Business Operations 541

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Events Related to Personnel 541

Events Related to Customers and Others 544

Managing Risks 545

Managing Risk to Tangible Property 546 Managing Risk to Buildings and Land 546 Managing Risk to Computers and Data 547 Managing Risk to Intangible Property 549 Managing Risk Resulting from Events Involving

Personnel 550

Managing Risk from Violations of Tax Regulations 552

Managing Risk from Employee Violation of Government Regulations 554 /

Using an Internal Audit as a Tool to Manage Risk 555

Insuring against Risks 556

Using Insurance to Manage Risks 556 Developing a Comprehensive Insurance

Program 556

Insuring the Property of the Business 558

Sharing Risk 562

Joint Ventures 563

Industry Groups for Insurance Coverage 563 Government Funding of Risky Ventures 563

/ Chapter Summary B Key Terms a Discussion Questions • Experiential Exercises • Mini-Case • Suggested Cases and Articles a Suggested Videos

Part Five

Management and Organization

in the Small Business 569

CHAPTER 18

Legal Issues: Recognizing Your Small Business Needs 570

You and the Law 572

You Need a Good Attorney 575 Can I Do This for Free? 576

Skill iodule 13.1 Getting Started on Legal Issues Online 577

Small-Claims Court 578

Choosing a Business Name 579 Choosing a Business Form 580

Taxation Issues 585

Everything Is Negotiable, and Negotiation Is Everything 586

Legal Liabilities 588

Torts: Responsibility for Your Actions and the Actions of Employees 588

The Independent Contractor Argument 588 The Scope of Authority Argument 589

Litigation vs. Arbitration vs. Mediation 590 Commonsense Ways to Avoid Torts 591 Contracting 592

Subcontracting 593

Internet Issues in Contracting 594

Intellectual Property 596

Patents and Trade Secrets 596 Copyright 601

Trademarks 601

Skill Module 18.2 Checking Out Trademarks Online 602

Chapter Summary a Key Terms • Discussion Questions • Experiential Exercises a Mini-Case a Suggested Cases and Articles • Suggested Videos

Human Resource Management: Small Business Considerations 606

The Bigger Small Business: Hiring Employees 608

Attracting Employees 612

Matching the Worker to the Work 614

Writing a Job Description 614

Skill Module 19.1 Grafting a Job Description 616

Evaluating Job Prospects 617 Selecting the Right Person 617

Training Your Employees 619

Initial and Ongoing Training Methods 619

Skill Module 19.2 Writing Instructions and Procedures 620

Three Guidelines for Training 620

Rewarding Employees 620

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Skill Module 19.3 Finding Local Salaries and Benefits Information Online 623

Bonuses and Long- Term Incentives 625 Health Insurance 625

Retirement Plans 626 Perks 626

Entrepreneurial Leadership 627 Human Resource Issues in the Family

Business 628

Nepotism, Meritocracy, and the Family Business 628

^Managing Privilege 629

Good Human Resource Practices for All Businesses 630

Dividing Up Ownership and Dividends 631

Chapter Summary • Key Terms • Discussion Questions a Experiential Exercises • Mini-Case • Suggested Cases and Articles • Suggested Videos

CHAPTER 20

Achieving Success in the Small Business 636

Small Business Life Cycle 638 ' Emergence 638 Existence 638 Success 639 Resource Maturity 639 Takeoff 640 Growth Strategies 641

Closing the Small Business 642

Transfers 643 ' Terminations 644

Walkaways 644

Workouts and Bankruptcy 645

The Not-So-Secret Secrets of Success 646 Measuring Success with Four Bottom

Lines 648

The Firm 648 Community 648 Family 649 Yourself 649

Skill Module 20.1 Assessing the Four Bottom Lines 650

Conclusion 651

Chapter Summary a Key Terms • Discussion Questions n Experiential Exercises • Mini-Case • Suggested Cases and Articles • Suggested Videos

CASES

1: Brothers Going Separate Ways or Not? C-1 2: G & R Garden Center: Lawn Care Services

Division C-2

3: Real Estate Millionaires of Memphis C-3 4: Big Business in a Small Rural City C-4 5: The Ambitious College Kid Who Just Can't

Wait C-5

6: The Grande General Store, Est. 1948—It's Time to Sell C-6

7: The Computer Guru: A One-Man Show or an Empire? C-8 .

8: The Early Stages of Paint Check Services C-9

9: The House of Wine—Grand Opening C-10 10: Business Demise C-11

, 1 1 : S & Z East Coast Importers C-12 12: The Wallingford Bowling Center C-14 13: Parker Mountain Products, Inc. C-15 14: Nate Mower & Son, Residential

Plumber(s) C-16

15: The Landlords: Investments in Commercial Real Estate C-18

16: Richard Harris and Harris Homes LLC C-19 17: The House of Wine (Revisited) C-20 18: Theresa Murray and in the Eye of the

Beholder C-20

19: Alaska Wildland Adventures C-21 20: Joseph Shaughnessy, BSI Constructors,

St. Louis C-22

WSiEO CASES

1 -1 Do-Gooders Who Spread the Dough VC-1 3-1 Small Business Volunteering VC-2 4-1 From Granny's Kitchen to Tesco VC-2 5-1 Magno-Grip VC-3

6-1 Blue MauMau VC-3

8-1 Financing for Entrepreneurs VC-4 9-1 Craft Beer Boom VC-5

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10-1 Antipreneurs VC-5

11-1 Fresh-Baked Entrepreneurs VC-6

14-1 Credit Squeeze on Small Business VC-6

15-1 Women Entrepreneurs VC-7

16-1 Wine Entrepreneurs VC-7

17-1 New Orleans Biz VC-8

19-1 Unique Vacation Policy VC-8

20-1 Entrepreneurs and Failure VC-9

Name and Organization Index

Subject Index

Figure

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References

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