module 2 - mbes
DESCRIPTION
Module 2 - MBEs. Leslie Lum Bellevue Community College. How businesses evolve. How businesses evolve. How businesses evolve. How businesses evolve. Growth in MBEs. Growth in MBEs. Hitting critical mass. Hitting critical mass. Social values. Self employment. Self employment. - PowerPoint PPT PresentationTRANSCRIPT
1
Module 2 - MBEs
Leslie Lum
Bellevue Community College
2
How businesses evolve
3
How businesses evolve
Self-Employed Employer Firms Gazelles Long-lived Firms
Definition Firms with one owner/employee
Firms that have employees
Coined by David Birch, fast-growing businesses that typify the best in US entrepreneurship
Established large enterprises characterized by public companies.
Number 9 to 10 million 5 to 6 million 350,000 17,000
Characteristics Most self-employed start businesses to accommodate lifestyle choice
Most are small marginal businesses and continue to be small.
Growth rates of over 20% per year.
S&P 500 growth rates.
Capital Low capital requirements: 75% start with less than $5000. Over 90% start with less than $25,000.
Low capital requirements: About 75% start with less than $25,000. Over 50% required less than $5000.
Don’t differ much from employer firms. Two thirds use less than $50,000 to start their businesses. More capital seems to accelerate process, though it does increase profitability. Key is that the entrepreneur knows how to bootstrap. Only 4% use venture capital.
Large banks and public financial markets.
Industries Professional and other services, retail, and construction.
Most are low capital and low barrier industries.
“Fuzzy” market opportunities not completely defined. No major competitors.
See S&P 500 classifications.
4
How businesses evolve
Owner characteristics
Wants to be own boss, control over number of hours worked, and family reasons.
Risk-aversive. Strong tolerance for ambiguity. Strong self confidence. Sales skills. Problem solving in a fuzzy environment. Open to learning from mistakes. Previous experience in industry.
80% have college degrees.
Leadership. Audacious goals. Strategic outlook. Coherence of goals.
Business characteristics
Marginal businesses with low-risk incremental opportunities.
Most popular are restaurants, beauty salons, and construction.
Few substitutes for products/services. Not an original idea.
Portfolio of businesses.
Revenue generation Most generate less than $50,000 and one third operate at loss.
Most do not grow. Bulk have less than $100,000 in sales.
High revenue growth of over 20% a year.
Job generation None. Only 24% of employer firms tracked over 10 years show any growth in employment
Estimated that these generate 60% of the new jobs.
Generate one-third of net jobs.
Cycle Self-employment increases during economic downturns.
Growing at 1% to 2% a year. Follows business cycle with more starts during expansions and more deaths during downturns.
Business cycle specific to industry.
5
How businesses evolve
Survival One study showed 51% survive five years as compared to 82% of businesses with employees.
About 500,000 started every year and about 500,000 terminated. Only 30,000 are bankruptcies. One SBA study shows lack of capital is a major source of business dissolution.
Survival may be subject to industry life cycle.
Escape velocity If self-employment becomes primary source of income then move to become employer firm. 41% contribute less than 10% of family income.
Choosing a market without major competitors.
Information about the market is imperfect and evolving.
Previous experience in that industry.
Strong sales skills.Bootstrapping and making do
with little at the fledgling stages.
Ability of management to transition from entrepreneur to manager. Vision to set audacious goals. Moving from single business to portfolio of businesses. Ability to motivate teamwork. Coherence of vision.
6
Growth in MBEs
Five year percent change in number of firms
14
11
55
38
73
46
72
26
22
68
46
76
310
46
7
4
30
26
30
84
30
0 50 100 150 200 250 300 350
All US Firms
Nonminority-Owned
All Minority-ownedFirms
Black-Owned
Hispanic-Owned
Native American
Asian Pacific Islander
1992-97
1987-92
1982-87
7
Growth in MBEs
8
Hitting critical mass
0%
5%
10%
15%
20%
25%
Lessthan25K
25 to49K
50 to99K
100 to249K
250 to499K
500 to999K
1 to 2.49M
2.5 to4.99 M
5 to 9.99M
Over10M
Percent of MinorityBusinesses
Percent of NonHispanicWhite Businesses
Minority businesses have less sales
Source: Federal Reserve Bulletin April 2001
9
Hitting critical mass
0%
5%
10%
15%
20%
25%
30%
35%
0 to 4 5 to 9 10 to 14 15 to 19 20 to 24 Over 25
Percent of MinorityBusinesses
Percent of NonHispanicWhite Businesses
Years with Current OwnerSource: Federal Reserve Bulletin April 2001
Minority businesses are younger
10
Social values
Unemployed and Looking For Work as Percent of Group
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
White Black Native American Asian Total
Source: Minorities in Business, 2001, SBA
11
Self employment
Self-employed as Percent of Labor Force
0
2
4
6
8
10
12
1991 1992 1993 1994 1995 1996 1997 1998 1999
White
Black
Asian Pacific Islander
Native American
Source: Minorities in Business, 2001, SBA
12
Self employment
Self-Employment Major Source of Earnings
0
1
2
3
4
5
6
7
8
9
1991 1992 1993 1994 1995 1996 1997 1998 1999
White
Asian Pacific Islander
Native American
Black
Source: Minorities in Business, 2001, SBA
13
Marginal businesses
Most Popular Small Businesses Total Number of Firms
Trade contractors 1.8 million
Administrative and support services 1.4 million
Personal and laundry services 1.1 million
Nonstore retailers 1 million
Professional and Consulting services 1 million
Artists and entertainers 0.9 million
Real estate 0.7 million
Child care 0.6 million
Store retailers 0.4 million
Repair services 0.4 million
14
0% 10% 20% 30% 40% 50% 60%
Agricultural
Construction
Manufacturing
Transportation
Wholesale
Retail
Finance, Insurance and RealEstate
Services
Native American
Hispanic American
Asian-American
African-American
All
Distribution of Firms by Industry
Source: U.S. Census of BusinessesUnclassified industries excluded
15
Percent Employer Firms of Group
0% 5% 10% 15% 20% 25% 30% 35%
Total US Firms
Nonminority-OwnedFirms
All Minority-Owned Firms
Black-Owned Firms
Hispanic-Owned Firms
American Native-OwnedFirms
Asian-Owned Firms
Source: Minorities in Business, 2001, SBA
16
17
18
19
Survival rates from 1992-96
20%
25%
30%
35%
40%
45%
50%
55%
White Black White Hispanic Asian
Source: SBA Office of Advocacy
20
21
Employment Sizes of Businesses (Percent of Group)
11%
66%
11%9%
2%
16%
69%
8% 6%
1%
14%
71%
9%6%
1%
11%
72%
9%7%
1%
15%
69%
9%7%
1%0%
10%
20%
30%
40%
50%
60%
70%
80%
0 Employees 1 to 9 Employees 10 - 19 Employees 20-99 Employees Over 100 Employees
Nonminority-Owned Firms
Black-Owned Firms
Hispanic-Owned Firms
American Native-Owned Firms
Asian Pacific Islander OwnedFirms
Source: Minorities in Business, 2001, SBA
22
Percent of Firms in Group with Revenues
0%
5%
10%
15%
20%
25%
30%
35%
Less than $5000 $5000 to $9999 $10K to $24K $25K to $99K $100K to $499K Over $500K
Nonminority
Black
Hispanic
Native American
Asian Pacific Islander
Source: Minorities in Business, 2001, SBA
23
Large enterprises no longer rule
WHITE NONHISPANIC MARKETNational demographics
Mass marketingEnglish language
Single cultural dominanceLarge scale operations
White NonHispanic
MexicanAmericans
LatinoAmericans
AmericanIndians
ChineseAmericans
IndianAmericans Japanese
Americans
FilipinoAmericans
VietnameseAmericans
Hawaiians
HispanicBlacks
Africa-bornAmericans
US-born AfricanAmericans
NativeAlaskans
MULTICULTURAL MARKETSMicromarket demographics
Targeted segmentsMultiple languages
Multiple cultures and culturalfusion
Small scale operations
Markets aretransforming from
single culture to manycultures.