?•• 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
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
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
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
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
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
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
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
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
