Business Principles: Chapter 5 - Small Business, Entrepreneurship, & Franchises
Entrepreneurship
Small Business
Franchises
Definition - a small business is one that is independently owned and operated for profit, but is not dominant in its field. A small business typically has less than 500 employees (see SBA Size Table)
Definition - Entrepreneur is a person that takes on greater than normal personal, financial, and time risks to organize, operate, and grow a business
Definition: Franchise - a license to operate an individually owned business a though a part of a chain of stores
Small Business represents 99.9% of all employer firms (30.2 million small businesses (2015)
Service Industries account for 8.58 million of the 30.2 million small businesses or 28.4%
Small businesses created 1.9 million new jobs in 2015 out of 2.7 million, approximately 70% of all new jobs
1.1 million of the small business jobs created were created by businesses with less than 20 employees (57.9% of all small businesses)
24.3 million small businesses are classified as non-employer firms or businesses without employees (self-employed) making up 80.5% of all small businesses
In 2015, small businesses employed 58.9 million people or 47.5% of the private workforce / large businesses accounted for 65.1 million private employees
In 2015, the annual payroll of small businesses was $2.55 trillion which was 40.7% of the payroll for all businesses / large businesses made up $3.7 trillion of 59.3% of total annual payroll
Using annual payrolls for small and large businesses divided by total employees of each designation, the average payroll for small business employees in 2015 was $43,288 compared to $56,827 for employees of large firms
Types of Entrepreneurs
Characteristics of Entrepreneurs
Imitator: Mark Zuckerburg (Facebook)
Researcher: Jeff Bezos (Amazon)
Hustler: Mary Kay Ash (Mary Kay)
Money Magnet: Kim Kardashian (Kardashian Family)
Innovator: Bill Gates (Microsoft)
Prodigy: Elon Musk (Tesla / Space X)
Short-Temper: Jim Koum & Brian Acton ( WhatsApp)
Rebel: Michael Dubin (Dollar Shave Club)
Solopreneur: Neil Patel (Renowned SEO)
Buyer: Warren Buffet (Investor & Business Owner)
Resourceful
Perceptive
Creative
Motivational
Goal Oriented
Hard Working
Optimistic
Self Confident
Flexible
Able to Manage Risk
Independent
Able to Get Along with Others
Visionary
Definition: Franchsor - an individual or organization granting a Franchise
Types of Franchises
Definition: Franchisee - a person or an organization purchasing a Franchise
Disadvantages
Advantages
Simplified Record Keeping
Independence
Ability to Adapt to Change
Small businesses with 10 years and less than 20 employees are the most profitable companies in the U.S.
Personal Relationship with Customers and Employees
Limited Potential for Growth
Limited Ability to Raise Capital (see statistics)
Risk of Failure is high (see handout)
Advantages:
Disadvantages
Franchisor: Gains fast and well controlled distribution of it produces with minimal costs of constructing and operating outlets; The franchisee (sole proprietor mostly) is very highly motivated;
Franchisee: Opportunity to start a business with limited capital; Start a business with established products, brand, and reputation; Can get advice from the Franchisor; Franchisor provides all Marketing materials
Franchisor: Franchisee may not run the company at the expected to maintain the brand and reputation
Franchisee: Franchisor retains a large degree of control; Franchisee must pay royalties to the Franchisor; Franchisor may open another location in competition with the Franchisee
Small Business Resources: SBA, SCORE, SBI, SBDC, SBIC