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					The Entrepreneurial Revolution

           Lesson 1
Understanding the Entrepreneurial
Perspective in Individuals

   There are more entrepreneurs in the
    U.S. than any other country. Why?
Understanding the
Entrepreneurial Perspective in
June 1995 through July 2000
A total of 4,026 aspiring entrepreneurs
  attended FastTrac Planning sessions.

The following demographics show just
 who took this course and why.
    Understanding the Entrepreneurial
    Perspective in Individuals

What kind of education do entrepreneurs
    Understanding the Entrepreneurial
    Perspective in Individuals

What types of businesses do
 entrepreneurs start?
Understanding the Entrepreneurial
Perspective in Individuals

   Service firms are 30% of new firms,
    while 19% of new firms are in retail
   That means 60% more service firms are
    started than retail merchandising firms.
   Why?
    Understanding the Entrepreneurial
    Perspective in Individuals

What drives us to be entrepreneurs?
Why do we start our own business?
What motivates us?
    Understanding the Entrepreneurial
    Perspective in Individuals

We average 2.2 jobs for part-timers and 2.8
  full-time jobs.
Those numbers may not look like much, but
  multiply them by millions of entrepreneurs,
  and you are looking at serious job creations.

Entrepreneurs are creating jobs when the large
  companies are laying off and downsizing.
    Understanding the Entrepreneurial
    Perspective in Individuals

What is the bottom line to all this?

How are we doing?
Understanding the Entrepreneurial
Perspective in Individuals
   In 1999 a survey asked participants if
    their business’s revenue increased,
    decreased, or stayed the same from the
    previous year.
   The survey also asked the percentage
    change they experienced.
   The following graphs show the results
    for 1999 – 2000 participants only.
Changes in Gross Sales
   Understanding the Entrepreneurial
   Perspective in Individuals

So where did all this data come from?
How geographically diversified were the
    Understanding the Entrepreneurial
    Perspective in Individuals

And that is who we are.
Lesson 1: Introduction
           to Small Business
Why Most Small Firms Fail
1. They are under capitalized.
2. The owners do not understand
3. The owners do not know how to run a

   I cannot guarantee you will succeed; I
    can and will reduce your odds of failure.
    What is a Small Business?
   A small business is often self-
    funded, built around the owner’s
    skills, and is intended to meet
    personal goals of the founder
    employing 50 to 100 persons.

   The most I ever had was 8 people. Your people
    problems rise geometrically as you add more people.
   Only hire additional people if you will lose money by
    not doing so.
Why Is Small Business
   Small business is the growth engine of
    the U.S. economy.
   Small firms provide most new
    employment opportunities.
   Large businesses are employing a
    smaller percentage of workforce today
    due to downsizing.
   Small firms are more flexible and can
    respond to change quickly. Why?
     Did You Know?
   In 2002 there were approximately 22.9
    million small firms in the US.
   Small businesses account for 52% of the
    private sector output in 1999.
   Small businesses represent 97% of all US
Did You Know?
   Politicians live and die (are elected or
    not) based almost entirely on job
    creation in their constituency. We
    generate new jobs:
       Approximately 75% of all net new jobs are
        added by small business.
        Small firms represent 99.7% of all
       Small firms employ 50.1% of the private
        work force.
A Brief History of Small Business
in the United States
   Until the mid-1880s, almost all firms in the
    US were small businesses. The US was
    mostly agriculture-based.
   Following World War II, 1945, small firms
    as a percentage of the economy began to
    decline replaced by large multinationals.
   By the early 1980s large multinational firms
    began to decline opening new opportunities
    for small firms.
   Today, almost all employment growth in the
    US is from small firms.
Some Common Motivations for
Small Business People

   The desire to be your own boss.
   Potential for significant personal
    rewards- both financial and non-
   Two thirds of the millionaires in the
    US are self-employed even though
    they make up only 20% of the work
How Does Society Benefit From
Small Business?

   Small firms may have the economic potential
    to turn around historically depressed areas.
   Small firms provide opportunities for people
    disenchanted with corporate life or who feel
    their promotion paths are small or blocked in
    larger companies.
   “A lot of new entrepreneurs come from
    corporate downsizing.” What does this mean?
Small Business Worldwide
   International agencies and local
    governments encourage and support
    small businesses. Why?
   Globally, small business has a positive
    impact on economies. How?
   The rate of small business
     startups is increasing
Characteristics of Small Business
Employees and Owners

   Small firms employed a higher
    percentage of workers under age 25
    and workers aged 65 and over than did
    large firms in 1996.
       Why younger?
       Why older?
       Why hire older people?
Lesson questions:
1. What types of small businesses interest
2. What aspects of those firms are appealing
   to you as a small business founder?
  •   The flexibility of a small business so you can
      spend more time with the family?
  •   To be your own boss?
  •   Money?
3. Do you see yourself as a small business
   operator in the next five years?
      Economies of Scale               -1

   Large firms have the ability to achieve
    economies of scale because they can do some
    things more efficiently due to their large
    operating size.
   Associated Grocers of Arizona (AG) was able to
    buy train freight carloads of suntan lotion in the
    off season at half the cost that a small grocery
    store could buy the same product.
   AG could buy an entire carload and save on
    shipping costs.
Economies of Scale          -2

   AG buys 10,000 bottles of Western
    Valley Suntan Lotion costing $1.25 per
   Shipping Costs for a carload of these
    from Chicago to Phoenix was $950 or
    9.5 cents per bottle.
   This means the total cost to AG is
    $1.345 per bottle.
      Economies of Scale              -3

   Joe’s Hometown Groceries in Phoenix does not
    need 10,000 bottles of suntan lotion and is not a
    customer of AG.
   Joe buys 48 bottles from the manufacturer.
   We will assume his price is only 10% higher, so
    he pays $1.375 per bottle.
   They arrive via Yellow Freight for a shipping cost
    of $60 or $1.25 per bottle
   This brings the total cost per bottle to Joe’s of
    $2.625 per bottle, or double AG’s cost.
Economies of Scale - 4
How do small firms survive?
   Using the example of AG vs. Joe’s
    Hometown Groceries:
       How do small firms survive against the
        competition of large firms?
       Clearly some do not. But some do.
       Specifically, why have stores like Wal-Mart,
        Costco, etc. swept all their competition
       Are they fair?
Small Business in China                    -1

   Today private entrepreneurs in China are still
    a small part of the economy.
   There has been a rapid growth in
    international joint ventures in the country.
   The vast majority of people still work for
    entities associated with the government.
       What kind of government does China have?
   All publicly listed companies in the country
    have very high levels of government
    ownerships even though they have publicly
    traded stock.
        Small Business in China            -2

   China continues to be a communist
    country with capitalist characteristics.
    What does that mean?
   Private entrepreneurs still do not have
       Instead they are seen as potentially taking
        capital and sales away from the government-
        related businesses.
       This is particularly true for those private
        businesses that grow very large.
Small Business in China                 -3

   This absence of government support
    combined with the lack of a well-
    established legal system results in many
    special, taxes, tariffs, and charges being
    made on private entrepreneurs by
    officials that are corrupt.
       Here we see the value of honest legal
Venture Capital
Venture Capitalists
(VCs) - 1
   Partnerships of wealthy persons and
    institutional investors such as insurance
   Generally individuals must have in
    excess of $1 million of cash to invest in
    these private equity funds.
   VCs make equity investments in small
    firms that have the potential for fast
(VCs)     -2

   VC firms’ stock is not publicly traded since the
    number of investors is small.
   The SEC does not get involved because the
    VCs are considered qualified or sophisticated
   VCs are not good source for new, small
    businesses. Why?

   The National Venture Capital website
    provides an excellent summary of the venture
    capitalist market and how it works:
    http://www.nvca.org/def.html .
Angel Capitalists               -1

   Wealthy local business people and investors who
    may be external sources of equity funding.
       I had one, and he was a wonderful person.
   Invest in businesses in their specific geographic
    or business area where VCs utilize a much wider
    geographic target area.
   Invest in a range of different types of businesses
    whereas VCs typically invest in a single type of
    business or single industry – their specialty or
    area of expertise.
Angel Capitalists            -2

   Angles’ expected returns are generally
    less rigorous than those desired by VCs,
    however they still focus on higher
    risk/higher return businesses.
       They may invest in “green” businesses or
        in firms who try to alleviate poverty or
        teach computer skills to ghetto children.
      That’s it for lesson 1
Introduction to Small Business.