Entrepreneurship and Management

1. Entrepreneurship and Management Luis Ortiz, Ph.D. October 18, 2003 Economic Development Center

2. Agenda • Economic Development Center • Who we are and what we do • Facts and Statistics • Business Plan and Strategies • Market Research (data for Business Plan) • Management Skills • Questions and Answers (Survey and Evaluation)

3. Purpose of the Course • To create awareness of the resources • To provide guidance and orientation in the business development process • Business plan’s importance • Enhance our management skills

4. Where do I start? So Many Hats!!! Owner • Human Resources • Hiring/Firing • Training • Motivating • Product & ServiceDevelopment • Develop/Improve • Finance/ • Accounting • Bookkeeping • Accounting • Credit • Sales • Prospect • Present • Close • Management • Plan/Prioritize • Organize • Direct/Control • Evaluate • Marketing • Study markets • Advertising • Promotion • Operations • Day-to-Day • Improve Procedures

5. We know BUSINESS is everything... • management • marketing • finance • accounting • economics • business law • International Business • Finance • Small Business Taxes Bookkeeping • Small Business Loans/Financing • Technology • QuickBooks • Internet Marketing • Building a Web Page • International Trade • Doing business with Mexico • Selling to Maquiladoras • Marketing & Advertising • Selling Strategies • Advertising Techniques

6. EDC Mission Goal:To Grow Businesses and Create Jobs Designed:To maximize business success by coupling financial programs with managerial and technical assistance What drives EDC:Seeing businesses succeed by Planning through well developed business plans and Seeking Professional Advisors, while avoiding the problems of staffing and understanding that years of education do not necessarily correlate with success.

7. The Nature of Goals • Write them down • The world has a funny habit of making room for those who know where they are going.

8. Entrepreneurial Spirit • Every 30 seconds of every day, someone somewhere in the United States starts a new business. Every 30 seconds someone stakes their money, their labor, their good name on the unshakable belief that they can make or provide something bigger, better, faster, or cheaper than the next person. • Facts and Statistics

9. BUSINESSES IN THE U.S. • There are more than 21,000,000 small business in the U.S. 16,000,000 have the owner as the sole employee. 5,000,000 have between 1 and 500 employees. • Small businesses… • employ 53% of the private workforce. • provide 47% of all sales receipts. • provide 55% of innovations. • account for 35% of federal contract dollars. • account for 28% of jobs in high technology sectors. • account for 51% of private sector output.

10. Entrepreneurial Spirit Seminar • In America today, smaller businesses, with fewer than 20 employees, create 98% of all new jobs.

11. How many small businesses opened? 1990 1995 1998Incorporate 647,675 768,180 790,569New Firms 769,124 819,477 842,357 Source: Dun and Bradstreet Corp. and U.S. Department of Labor

12. How many small businesses closed? 1990 1995 1998Bankruptcies 63,912 50,516 53,214Failures 60,746 71,194 71,811 (125,025)Terminations 837,511 863,699 849,839 Source: Dun and Bradstreet Corp. and U.S. Department of Labor

13. Business Dissolution Rates (%)all firms franchises 1-4 jobs 5 or moreafter 2 yrs. 23.7 25.4 8.3 6after 4 yrs. 52.7 59.2 19.6 13.1after 6 yrs. 62.2 61.6 23.5 21.1after 8 yrs. 70.9 72.5 46.5 30 Source: Dun and Bradstreet Corp. and U.S. Department of Labor

14. Who Starts Businesses by Age Group

15. Vision Tolerance For Failure High Energy Level Creativity Need To Achieve Tolerance For Ambiguity Self-Confidence Internal Locus Of Control Characteristics Of Entrepreneurs Entrepreneurial Personality

16. What makes an Entrepreneur? + ORGANIZED + CREATOR + IMPROVER + MANAGER (Plan, Staff, organize, and decision-making) [Administer, maintain, control, short-term view, ask how and when, initiate, accept the status quo, do things right.] + LEADER(control, motivate, charismatic) [Innovate, develop, inspire, long-term view, ask what and why, originate, challenge the status quo, do the right things.] --------------------- = ENTREPRENEUR ! ! !

17. Why are you going into business? • Independence • Personal Fulfillment • Lifestyle Change • Respect • Money • Power • Socialized Power • Personalized Power • Reward • Coercive • legitimate • Expert • Referent Source: Maslow, 1943; French and Raven, 1959 Self Actualization Esteem needs Affection needs Safety Physiological

18. Entrepreneurial Spirit In 1998, the average number of hours that business owners worked per week was 64……. ….. and it hasn’t gotten any better. 10 years doing what they own! Close 2-4 times before getting it right! Success 25% w/o Business Plan 75% w/ Business Plan

19. Entrepreneurial Spirit • Owning your business can be a wonderful opportunity: • To be your own boss. • To take charge of your financial future. • To work 7 days a week, 24 hours a day, with no pay check at the end.

20. 10 Myths of Business Ownership 1. I can start living off the business immediately. 2. I’ll be my own boss. 3. I’ll get rich overnight. 4. I have nothing to lose (OPM). 5. Will give me independence.

21. More Myths…. 6. Will allow me time off any time I want. 7. Will let me control the business. 8. Will make a lot of money. 9. Will be easy to do. 10. Will be easy to get funding for my great idea.

22. Three Way Fit Personal Fit Business Fit Financial Fit

23. Remote Environment Technology Society External Environment Government Agencies Suppliers and Administrators Customers Internal Environment Competitors Activist Groups Managers and Employees Culture and Resources Venture Partners Unions Financial Intermediaries Local Communities (Banks) Global Economy Source: Michael Porter, Harvard

24. Five forces that impact every business Potential Entrants Threats of new entrants Bargaining power of suppliers Industry Competitors Competition Among Existing firms Bargaining power of customers Suppliers Customers Threat of substitute products or services Substitutes Source: Michael Porter, Harvard

25. Main Influences on the Mission and Goals of the Business Internal Environment External Environment Business Level Strategies Business Level Strategy & Implementation Business Successes and Failures Business Level Mission and Goals Remote Environment History and Inertia

26. Market Research (Data for the Business Plan)

27. Who are your major competitors? What are the major strengths and weaknesses of each? Where are they located? How long have they been in business? What are their business hours? Who is their target market? How heavy is their customer traffic? What quality level are they offering? What is their inventory level? How many employees do they have? How knowledgeable are their employees? How many product lines do they have? What about their suppliers? What about their marketing? Do you know of their plan for expansion? Have any gone out of business lately? Competitor Profile

28. Competitor Analysis

29. Personal Expenses

30. Operating Expense (Ongoing)

31. Start-Up Expenses (One Time)

32. Reality Check Business’s Resume Timetable for operations Modeling tool Tracks progress What can a Business Plan do for you?

33. Attachments to the Business Plan • Tax Returns (Business & Personal) • Resumes • Written Estimates • Personal Financial Statements • Contracts / Agreements • Org. Charts / Job Descriptions • Appraisals / Blue Prints / Floor Plans • Other Relevant Information

34. Ok, It is True, • Some Businesses have grown big without a formal Business Plan…. • But… • Times Have Changed. • Most of us are not as talented/lucky as the famous entrepreneurs.

35. The 5 C’s of Credit • Character • Capacity • Conditions • Collateral • Capital

36. $ources of Capital, From Most Common to Least Common • Personal Savings, Insurance, Retirement (0%) • Family or Friends (2-7%) • Suppliers • Personal Loans • Banks (10-16%) • Private Investors (18-25%) • Public Sources • Venture Capital (20-40+%)

37. What are lending officers looking for in the business plan? They want answers to the following: • Is there clear evidence of market acceptance? • Is there a sufficient market for the product/service? • Do you have a single-minded focus on your opportunity? • Do you have any advantage over you competition? • Is the Management Team experienced and capable? • Are your financial projections REALISTIC. • Is the project compatible with the institution’s lending policies and how will the loan be paid back?

38. Survival Strategies • Focus completely on satisfying the customer. • Study the success of others. • Gather and analyze management information regularly. • Continuous improvement involving everyone. • Embrace change with a positive attitude. Source: Dan Taylor, Pres. Data Staar Communications

39. The Business Plan “If you aim at nothing, you will hit it every time” -Theodore Roosevelt

40. Small businesses don’t plan to fail… they fail to plan.

41. Small Business Development Center Feasibility Types of Business Organizations Record Keeping Regulations Financing How to Start a Business CASH Total Project Cost - Less: Your Injection = Projected Amount Needed

42. Small Business Development Center Feasibility Types of Business Organizations Record Keeping Regulations Financing How to Start a Business Feasibility The cost of reality (example) 10,000 Mo. Bus. Exp. 60,000 Working Capital + 40,000 One Time Cost = 100,000 two ways to see it Projected Amount Needed

43. Small Business Development Center Feasibility Types of Business Organizations Record Keeping Regulations Financing Financing How to Start a Business Supporting Documentation • A Business Plan • Monthly Set of Financial Projections • Income Statement • Cash Flow Statement • Balance Sheet • Breakdown of Loan request. How will you use the money? • Sources and Uses of equity capital (New business or additional injection)

44. Small Business Development Center Feasibility Types of Business Organizations Record Keeping Regulations Financing Financing How to Start a Business Supporting Documentation • A Business Plan • Copies of any notes to be refinanced • Bids, proposals, estimates for: • Capital equipment • Leasehold improvements • Construction

45. What is a Business Plan? It is a document that convincingly demonstrates that your business can sell enough of its product or service to make a satisfactory profit and be attractive to potential backers. It is a selling document. It sells your business and its executives to potential backers, from bankers to investors to partners to employees. A short written document that serves as a guide to your future, provides direction and focus, and helps you model your business and avoid problems. Helps conceptualize business and set reasonable and achievable goals. Attracts lenders and investors. Provides an organized view of your business.

46. Details research from the feasibility study, management, sales, marketing, finances, etc... A Business Plan, should attract YOU to the business. A Business Plan, should attract others into the business. A Business Plan gives you confidence. A Business Plan improves your chances of success. A Business Plan Provides a road map for your business. Remember: No one can create your plan for you. Lenders are interested in the strategies for reaching financial projections. Show how you plan to set your business apart from competitors. Identify your market, offer evidence that customers for your product or service exist. Develop realistic financial forecasts (be sure to explain how they were derived)

47. Key Elements of any Business Plan 1. Executive Summary/Introduction 2. Description of Products/Services 3. Manufacturing & Operations Plan 4. Marketing Strategy and Competitor Analysis 5. Sales Plan 6. Management Plan 7. Financial Analysis The Length 8-15 pages

48. Attachments to the Business Plan Tax Returns (Business & Personal) Resumes Written Estimates Personal Financial Statements Contracts / Agreements Org. Charts / Job Descriptions Appraisals / Blue Prints / Floor Plans Other Relevant Information

49. The bottom line in Business • Employee relations • Communication • Networking • Differentiation/Innovation

50. Explaining the Employee Behavior Model • Three basic classifications of Employees • 1) Extra-Role Behavior Employees (OCB +) • 2) Contractual Agreement Employees (=) • 3) Sub-Optimal Employees (-)