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Small Business, Entrepreneurship, and Franchises. Chapter 5. Small Business: A Profile. A business that is independently owned and operated for profit and is not dominant in its field. Industry Group-Size Standards. Small Business: A Profile (cont.). Important facts

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Small business entrepreneurship and franchises
Small Business, Entrepreneurship, and Franchises



Small business a profile
Small Business: A Profile

  • A business that is independently owned and operated for profit and is not dominant in its field

Small business a profile cont
Small Business: A Profile (cont.)

  • Important facts

    • In the last decade, the number of small businesses increased 49%.

    • 70% of new businesses survive at least two years, about 50% survive at least five years, and 31% survive at least seven years.

    • The primary reason for these failures is due to poor management stemming from a lack of business know-how.

    • Small businesses provide over 50% of the jobs in the U.S.

The entrepreneurs
The Entrepreneurs

  • Characteristics

    • The “entrepreneurial spirit”

    • The desire for independence

    • The desire to determine one’s own destiny

    • The willingness to find and accept a challenge

    • Personal background

    • Age-most are 24-44 years old

  • Motivation

    • “Had enough” of working for someone else

    • High-tech opportunities, especially for teens

    • Losing a job and deciding to start a business

    • An idea for a new product

    • An opportunity presents itself

The people in small businesses the entrepreneurs cont
The People in Small Businesses: The Entrepreneurs (cont.)

  • Women

    • Owned at least 50% of small businesses in 2008

    • Women have less risk of failure than average

  • Teenagers

    • High-tech entrepreneurship is exploding

    • Face unique pressures juggling schoolwork, social lives, business workload

    • Need skills for planning, persistence, patience, people management, generating profit

  • Successful entrepreneurs under age 30

The pros and cons of smallness
The Pros and Cons of Smallness


  • Risk of failure

  • Limited potential

  • Limited ability to raise capital

  • Guy Kawasaki from Apple

  • “Make Meaning”


  • Personal relationships with customers and employees

  • Ability to adapt to change

  • Simplified recordkeeping

  • Independence

  • Advantages of sole proprietorships

    • Keeping all profits

    • Ease and low cost of going into business

    • Keeping business information secret

Developing a business plan
Developing a Business Plan

  • Business plan—a carefully constructed guide for the person starting a business

  • Three basic purposes

    • Communication

    • Management

    • Planning

  • Banking officials’ and investors’ questions

    • What is the nature and mission of the new venture?

    • Why is it a good idea?

    • What are the goals?

    • How much will it cost?

The small business administration
The Small Business Administration

  • A governmental agency that assists, counsels, and protects the interests of small business in the U.S.

  • SBA management assistance

    • Management courses and workshops

    • Service Corps of Retired Executives (SCORE)

    • Help for minority-owned small businesses

    • Small-business institutes (SBIs)

    • Small-business development centers (SBDCs)

    • SBA publications

The small business administration cont
The Small Business Administration (cont.)

  • SBA financial assistance

    • Regular business loans

      • Loans made by private banks but partially guaranteed by the SBA

    • Small-business investment companies

      • Venture capital: money invested in small firms that have the potential to become very successful


  • Franchise

    • A license to operate an individually owned business as though it were part of a chain of outlets or stores

  • Franchising

    • The actual granting of a franchise

  • Franchisor

    • An individual or organization granting a franchise

  • Franchisee

    • A person or organization purchasing a franchise

What is franchising
What Is Franchising?





John Q.

Look at Dunkin’ Donuts Franchise Agreement

The growth of franchising
The Growth of Franchising

  • The growth of franchising

    • Franchising has expanded with the growth of the fast-food industry.

    • Franchising is attracting more women and minority business owners than ever before.

    • Dual-branded franchising, in which two franchisors offer their products together, is a new trend.

      • Example: Taco Bell and KFC

The growth of franchising cont
The Growth of Franchising (cont.)

  • Are franchises successful?

    • The success rate for franchises is significantly higher than that for other small businesses.

    • The vast majority, 94%, of franchise owners report that they are successful.

    • Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail.

Entrepreneur s ten franchises in 2011
Entrepreneur’s Ten Franchises in 2011

Source: (accessed March 15, 2011).

Advantages of franchising
Advantages of Franchising

To the franchisee

  • Opportunity to start a proven business with limited capital

  • Guaranteed customers

  • Franchisor available for advice and guidance

  • Materials for local promotional campaigns and participation in national campaigns

  • Cost savings when purchasing in cooperation with other franchisees

To the franchisor

  • Fast and well controlled distribution of its products

  • No need to construct and operate its own outlets

  • More working capital available for expanded production and advertising

  • Franchising agreements maintain product and quality standards

  • Motivated work force of franchisees

Disadvantages of franchising
Disadvantages of Franchising

To the franchisee

  • Franchisor retains a large amount of control over the franchisee’s activities

  • Franchisor opening competing franchises within the franchisee’s market

To the franchisor

  • Failure of the franchisee to operate franchise properly

  • Disputes with and lawsuits by franchisees over the terms of the franchise

Qualities franchisors seek in franchisee
Qualities FranchisorsSeek in Franchisee

Chapter quiz
Chapter Quiz

  • Which one of the following would most likely be classified as a service industry?

    • Grocery store

    • Jewelry store

    • Pet shop

    • Dry cleaning shop

    • Clothing store

Chapter quiz1
Chapter Quiz

  • Roger Jones, a graduate business student, has decided to open his own consulting firm. Since he is an intelligent and hard-working student with previous management experience, Roger feels he is well prepared to succeed since more new businesses fail due to

    • a lack of adequate financing.

    • low consumer demand for their products.

    • hostile competition.

    • a lack of owner commitment.

    • mismanagement and lack of business know-how.

Chapter quiz2
Chapter Quiz

  • A license to operate an individually owned business as if it were part of a chain of outlets or stores is called a

    • joint venture.

    • syndicate.

    • franchise.

    • SCORE.

    • small-business development center.

Chapter quiz3
Chapter Quiz

  • Jim Moniz is contemplating obtaining a franchise. He would like to purchase a franchise in an industry that has had extensive success with franchising in the past. All of the following are possible choices for Jim except

    • a fast-food industry.

    • the semiconductor industry.

    • filling stations.

    • car dealerships.

    • the soft-drink industry.