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SMALL BUSINESS, ENTREPRENEURSHIP, AND FRANCHISESCHAPTER-05

Dr. Gehan Shanmuganathan, (DBA)

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FRANCHISING FEEDS GROWTH OF FIVE GUYS BURGERS AND FRIES….

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FRANCHISING FEEDS GROWTH OF FIVE GUYS BURGERS AND FRIES….

Offer competitively priced generously sized

meals in a family-friendly atmosphere

Jerry and Janie Murrell started one outlet in

Arlington Virginia in 1986

In year 2002, they owned 300 franchised

restaurants in and around metropolitan DC

area

Today they have more than 600 franchised

restaurants in North America

LEARNING OBJECTIVES

1. Define what a small business is and recognize the

fields in which small businesses are concentrated.

2. Identify the people who start small businesses

and the reasons why some succeed and many fail.

3. Assess the contributions of small businesses to

our economy.

4. Judge the advantages and disadvantages of

operating a small business.

LEARNING OBJECTIVES (CONT’D)

5. Explain how the Small Business

Administration helps small businesses.

6. Appraise the concept and types of

franchising.

7. Analyze the growth of franchising and the

advantages and

disadvantages of franchising.

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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 SBA “smallness” guidelines-number of employees and size of the

turnover (in US 99.7% of all business considered small)

Industry group Size standard

Manufacturing, mining 500 employees

Whole sales trade 100 employees

Agriculture $ 750,000

Retail trade $ 7 Million

General and heavy construction

$ 33.5 Million

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ESTABLISHING A BUSINESS AROUND THE WORLD…..

Country # procedures

Time/ Days

Cost (US$) Min. Capital %

Australia 2 2 402 0

Belgium 7 56 2633 75.1

Canada 2 3 127 0

Denmark 4 4 0 52.3

France 10 53 663 32.1

Germany 9 45 1341 103.8

Greece 16 45 8115 145.3

Ireland 3 12 2473 0

Italy 9 23 4565 49.6

Japan 11 31 3518 71.3

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SMALL-BUSINESS SECTOR

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SMALL-BUSINESS SECTOR

In US, easy process to incorporate ($250 and four

days- name registration, tax ID, unemployment and

worker’s compensation insurance). Japan $3500, 31

days and 11 different procedures

There are about 29.6 million businesses in the US.

Only over 17000 of these employ more than 500

workers. During last decade small businesses in the

US increased by 49%

Two- third of new business survive at least two years

44 % survive at least four years

31 % survive at least seven years

INDUSTRIES THAT ATTRACT SMALL BUSINESSES Attractive small-business industry characteristics

Low investments

Some special skills

Knowledge

Industry categories where small businesses tend to

cluster

Distribution industries (33%) - retailing, wholesaling,

communication, and transportation

Service industries (48%) – dental care, watch, shoe

Production industries (19%)- construction, mining,

manufacturing

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THE PEOPLE IN SMALL BUSINESSES: THE ENTREPRENEURS

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THE PEOPLE IN SMALL BUSINESSES: THE ENTREPRENEURS

The entrepreneurial spirit is alive in the US

Study reveals that US population is quite entrepreneurial

when compared to other countries

More than 70% of Americans would prefer being an

entrepreneur to work for someone else

This compares with 46% of adults in Western Europe and

58% of adults in Canada

Another study reveals that United States was in the top

third in entrepreneurial activities and was a leader when

compared with Japan, Canada, and Western Europe

CHARACTERISTICS OF ENTREPRENEURS

Why people go into business for themselves

The “entrepreneurial spirit” (desire to create new business)

The desire for independence

The desire to determine one’s own destiny

The willingness to find and accept a challenge and risk

Family background

Age

“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

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WOMEN AS SMALL-BUSINESS OWNERS

Women are 51% of the total US population and according to

the SBA, they owned at least 50% of all small business in 2008

Already own 66% of the home-based businesses in the country

9.1 million women-owned business in the United States provide

almost 27.5 million jobs and generate $ 3.6 trillion in sales

They have proven that they are successful: more than 40%

have been in business for 12 years or more

Generally women owned businesses are financially sound,

credit-worthy, older, better educated, and have more

managerial experience

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HOW OLD IS AN AVERAGE ENTREPRENEUR?

Under 20

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60 or Older

0

5

10

15

20

25

1

8

17

21

18

15

97

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WHY SOME ENTREPRENEURS AND SMALL BUSINESSES FAIL

Planning

Lack of capital and cash-flow problems

Lack of management skills

Overexpansion

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US BUSINESS START-UPS, CLOSURES, AND BANKRUPTCIES IN 2005- 2009

Year New Closure Bankruptcies

2009 N/A N/A 60840

2008 627200 595600 (94%) 43546 (6%)

2007 663100 571300 (86%) 28322 (4%)

2006 670058 599333 (89%) 19695 (2%)

2005 644122 565745 (87%) 39201 (6%)

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THE IMPORTANCE OF SMALL BUSINESSES IN OUR ECONOMY

THE IMPORTANCE OF SMALL BUSINESSES IN OUR ECONOMY

Providing technical innovation

Innovation and invention are part of our economy

Search for new ways to do “more with less”

Small firms employ 40% of all high-tech workers such

as engineers, and computer specialists

Small firms produce thirteen to fourteen times more

patents per employee than large patenting firms

THE IMPORTANCE OF SMALL BUSINESS IN OUR ECONOMY (CONT’D)

Providing employment

Small businesses create more new businesses

They provide 67% of workers with their first jobs and training

Providing competition

Challenge larger companies with high customer service

A combined competition makes a significant impact to large

organizations

Filling needs of society and other businesses

Small firms provide variety of goods and services to each

other and to much larger firms

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THE PROS AND CONS OF SMALLNESS

THE PRO AND CONS OF SMALLNESS

ADVANTAGES

Personal relationship

with customers

Ability to adapt to

change

Simplified record

keeping

Independence

DISADVANTAGES

Risk of failure

Limited potential

Limited ability to raise

capital

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DEVELOPING A BUSINESS PLAN

DEVELOPING A BUSINESS PLAN

Business plan

A carefully constructed guide for the person

starting a business

Three basic purposes of a business plan

Communication

Management

Planning

Accuracy and realistic expectations are crucial

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OVERALL PICTURE OF A BUSINESS PLAN

What exactly is the nature and mission of the

new venture?

Why is this new enterprise a good idea?

What are the businessperson’s goals?

How much will the new venture cost?

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COMPONENTS OF A BUSINESS PLAN

1. Introduction

2. Executive summary

3. Benefits to the community

4. Company and industry

5. Management team

6. Manufacturing and operations plan

7. Labor force

8. Marketing plan

9. Financial plan

10. Exit strategy- going public (who will take over)

11. Risk and assumptions

12. Appendix

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THE SMALL BUSINESS ADMINISTRATION

THE SMALL BUSINESS ADMINISTRATION (SBA) A government 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 business

Small business institute

Small business publications

SBA financial assistance

Regular business loans

Small-business investment companies

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FRANCHISING

FRANCHISING

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 franchising

TYPES OF FRANCHISES

Manufacturer- passenger cars, farm products

Producer – soft drinks, fast food

Services- massage parlors, financial services

FRANCHISING (CONT’D)

The growth of franchising

Are franchises successful?

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GLOBAL FRANCHISED BRANDS

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INDUSTRY TRENDS AND FRANCHISE COMPANIES

Health consciousness - Subway

Increasing working women- KFC, McDonald

Aging populations – Ocean Medical

International

Cost consciousness – Wal-Mart

ADVANTAGES OF FRANCHISING

TO THE FRANCHISOR

Gains fast and well-controlled distribution at

low cost

Making the product accessible to clients

Larger coverage

TO THE FRANCHISEE

Opportunity start business with limited

capital

Make use of business experience of a major

player

Business guidance

Already established brand image

DISADVANTAGES OF FRANCHISING

TO THE FRANCHISOR

Time to closely monitor customer service

Contract disputes

TO THE FRANCHISEE

Greater deal of control from the franchisor

Contract disputes

Inability to manipulate the marketing mix

GLOBAL PERSPECTIVES IN SMALL BUSINESS

Growing interdependence of national and international

economies as trade barriers diminish

Instant communications shrinks distances and expands

business opportunities

The Internet is the favored strategy for growth for small

businesses

The SBA offers counseling on how and where to market

overseas

Small businesses must adapt to demographic and

economic changes in the world marketplace

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QUESTIONS……..

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WRITE FIVE KEY THINGS (AREAS) THAT YOU CAN CRITICALLY REMEMBER IN TODAY’S DISCUSSION

WHAT WE DISCUSSED……

1. Define what a small business is and recognize the

fields in which small businesses are concentrated.

2. Identify the people who start small businesses

and the reasons why some succeed and many fail.

3. Assess the contributions of small businesses to

our economy.

4. Judge the advantages and disadvantages of

operating a small business.

WHAT WE DISCUSSED…… CONT…

5. Explain how the Small Business

Administration helps small businesses.

6. Appraise the concept and types of

franchising.

7. Analyze the growth of franchising and the

advantages and

disadvantages of franchising.

WEEKLY ASSIGNMENT- 05

What are the major components of a

business plan? Why should an entrepreneur

develop a business plan? Discuss with

examples.