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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 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
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.