Entrepreneurial Small Business

? i.! :.. - Entrepreneurial Small Business *... * ^.». - Jerome A. Katz Saint Louis University Richard P. Green II Texas A&M University-San Antonio Me Graw Hill McGraw-Hill Irwin

Part One Entrepreneurs and Ideas: The Basis of Small Business 1 CHAPTER 1 Small Business: Its Opportunities and Rewards 2 Starting an Entrepreneurial Small Business: Help Helps 4 / Skill Module 1.1 The Small Business Online Scavenger Hunt 4 Defining a Small Business 5 Small Business Owners and Entrepreneurs 6 Small Businesses versus High-Growth Ventures 6 Rewards for Starting a Small Business 8 Myths about Small Businesses 9 Getting Started Now: Entry Competencies 12 Skill Module 1.2 BRIE Self-Assessment 13 Small Business and the Economy 14 New Jobs 15 Innovations 15 New Opportunities 16 Two Aspects of Global Entrepreneurship 18 Beyond Small Business: The Other Forms of Entrepreneurship 19 Chapter Summary Key Terms a Discussion Questions a Experiential Exercises a Mini-Case n CHAPTER 2 Small Business Environment: Managing External Relations 26 The Environment of Small Business 28 The Elements of the Small Business Environment 29 Skill Module 2.1 Finding Your Trade or Professional Association and Their Magazines 30 Environmental Scanning for Small Businesses 31 Skill Module 2.2 Finding Out How the Small Business Economy Is Doing 32 Five Skills for Managing Relations with the Environment 33 Building Legitimacy 33 Developing a Social Network 36 Skill Module 2.3 Asking for Help 37 Skill Module 2.4 Networking Skills 38 Handling a Crisis 40 Achieving Sustainability 41 Making Ethical Decisions 42 Chapter Summary a Key Terms a Discussion Questions n Experiential Exercises a Mini-Case a Small Business Entrepreneurs: Characteristics and Competencies 56 The Entrepreneurial Personality 58 Entrepreneurial Operational Competencies 60 Skill Module 3.1 Competency Self- Assessment 60 Professionalization 63 Entrepreneurial Careers 64 What Makes a Difference in Entrepreneurial Efforts 65 Family Businesses 66 Entrepreneurial Teams 69 Women and Minorities in Small Business 70 Second Career Entrepreneurs 71 Chapter Summary Key Terms t> Discussion Questions n Experiential Exercises Mini-Case a Small Business Ideas: Creativity, Opportunity, and Feasibility 78 The Source of Business Ideas 80 Work Experience 81 A Similar Business 81 Hobby or Personal Interest 82 Chance Happening, or Serendipity 82 Family and Friends 82 Education and Expertise 83 Technology Transfer and Licensing 83 Screening Ideas 84 From Ideas to Opportunities through Creativity 87

Get into an Innovative Frame of Mind 90 Avoid Pitfalls 90 Types of Innovations Small Businesses Develop 91 Make Sure an Idea Is Feasible 92 Assessing Feasibility by Pilot Testing 96 Ways to Keep On Being Creative 97 Skii! Module 4.1 Great Ideas for Making Idea- Prone Companies 98 Chapter Summary o Key Terms Discussion Questions Q Experiential Exercises <a Mini-Case a Appendix A Sample Feasibility Study 103 CHAP1ER 5 Part Two Small Business Paths & ' Plans 117 Small Business Entry: Paths to Part-Time Entrepreneurship 118 Why Part-Time Businesses Are Important 120 When to Consider Part-Time Entrepreneurship 120 Key Considerations for Success in Part-Time Entrepreneurship 121 What Kinds of Part-Time Entrepreneurship Exist? 122 Home-Based Business 123 Internet Informational Web Sites 126 E-Commerce and ebay Web Sites 129 Skill Module 5.1 Checklist for Maximizing Success on ebay 133 The Next Best Things to a Home-Based Business 136 Success Factors for Part-Time Businesses 139 Boundary: Separating and Balancing Business and Home 140 Exchange: Dealing with Others 141 Pricing and Costing 141 What Are the Challenges of Being an Entrepreneur Part Time? 142 Delegation and Outsourcing 142 Making Do When You Are Starting Out 143 Ethics and Part-Time Small Business 144 Moving from Part-Time to Full-Time Entrepreneurship 146 Chapter Summary Key Terms Discussion Questions o Experiential Exercises a Mini-Case a CHAPTER Small Business Entry: Paths to Fuil-Time Entrepreneurship 152 The Five Paths to Business Ownership 154 Starting a New Business 155 Advantages of Start-Ups 155 Disadvantages of Start-Ups 155 Creating a New Business 156 Increasing the Chance of Start-Up Success 157 Special Strategies for Starting from Scratch 161 Buying an Existing Business 162 Advantages of Purchasing an Existing Business 162 Disadvantages of Purchasing an Existing Business 162 Finding a Business to Buy 163 Skill Module 6.1 Finding a Business for Sale 163 Investigating Entrepreneurial Opportunities: Performing Due Diligence 164 Determining the Value of the Business 166 Structuring the Deal 168 Buyouts 168 Buy-ins 169 Key Resource Acquisitions 169 Takeovers 169 Franchising a Business 170 What Is Franchising? 170 Advantages of Franchising 171 Franchise Opportunities 172 Legal Considerations 172 Inheriting a Business 174 Family Businesses Succession 174 Developing a Formal Management Structure 174 Succession Issues for the Founder 174 Succession Issues for the Successor 175 Ownership Transfer 176 Professional Management of Small Business 176 Chapter Summary n Key Terms B Discussion Questions a Experiential Exercises a Mini-Case a

CHAPTER 7 Small Business Strategies: Imitation with a Twist 182 Strategy in the Small Business 184 Prestrategy: The First Step of Strategic Planning 185 Owner Rewards 185 Product/Service Idea and Industry 186 Skill Module 7.1 Finding Your Firm's Industry 188 Imitation and Innovation,189 Markets 191 Customers and Benefits: The Second Step of Strategic Planning 191 Value and Cost Benefits 192 Skill Module 7.2 Checking Customer Opinions Online 192 Industry Dynamics and Analysis: The Third Step of Strategic Planning 195 Tool: Industry Analysis 196 Skill Module 7.3 Short and Sweet industry Analysis 196 Strategy Selection and Implementation: The Fourth Step in Strategic Planning 198 Tool: SWOT Analysis 201 Skill Module 7.4 The Mechanics of a SWOT Analysis 201 Post Start-Up Strategy 203 Resources: What You Bring to the Firm 203 Organizational Capabilities 204 Discouraging Competitors 204 Chapter Summary a Key Terms B Discussion Questions Experiential Exercises a Mini-Case a Appendix Five Steps to an Industry Analysis 209 CHAPTER 8 Business Plans: Seeing Audiences and Your Business Clearly 212 Business Plan Background 214 The Business Plan Story: Starting Small and Building Up 215 The Vision Statement 216 The Mission Statement 216 The Elevator Pitch 217 Skill Module 8.1 How to Write Your Elevator Pitch 218 The Executive Summary 218 Strategizing for the Business Plan 220 The Classic Business Plan 220 Cover Letter 221 Skill Module 8.2 How to Write a Gover Letter 223 Title Page 224 Table of Contents 224 Executive Summary 224 The Company 224 The Market 225 The Organization 226 The Financials 228 the Appendixes 229 Skill Module 8.3 How to Write a Resume 229 Focusing Your Business Plan 230 The Most Common Critical Risks in a Plan 235 Presenting Your Plan 236 Chapter Summary Key Terms Discussion Questions a Experiential Exercises a Mini-Case a Appendix A Example Cover Letter and Resume Appendix B Example Business Plan 245 Part Three Marketing in the Small Business 271 Small Business Marketing: Product and Pricing Strategies 272 Product 274 Goods versus Services 274 Skill Module 9.1 Facing Intangibility and Perishability 276 The Total Product Approach 276 Skill Module 9.2 Learning about the Total Product of You 277 Branding 277 New Product Development Process 279 243

Skill Module 9.3 Creating Your Idea Notebook 280 Product Life Cycle 283 Service Life Cycle 286 Using the Product Life Cycle 287 Pricing 287 Why Price Is Important 288 Pricing from the Seller's Point of View 288 Your Costs and Your Prices 289 Price Elasticity 290 v Pricing Psychology 291 Skill Module 9.4 Pricing Psychology 292 Price Setting 293 Pricing Strategies 296 Price-Lowering Techniques 298 Chapter Summary Key Terms B Discussion Questions a Experiential Exercises a Mini-Case a CHAPTER 10' Small Business Promotion: Capturing the Eyes of Your Market 306 The Need for Promotion 308 The Basics: Crafting Your Value Proposition 308 Skill Module 10.1 Developing a Value Proposition 309 Segmenting Your Market 309 Crafting Your Message 312 Conveying Your Message 314 Advertising 314 Sales Promotions 316 WebSites 316 Network Advertising: Referrals and Word-of-Mouth 316 Buzz Marketing' 318 The Process of Personal Selling 319 Skill Module 10.2 The Art of Closing 321 Succeeding after the Sale 322 Strategies of CRM 322 Steps in CRM 323 Handling Postsale Problems 327 Building a Press Relations Program 328 Targeting Media Outlets 328 The Basics of a Press Release 328 Skill Module 10.3 Writing a Press Release 329 Resources for E-Mailing Press Releases 329 What Is Newsworthy? 331 Leveraging the Press and Generating Publicity 332 Building a Public Relations Program 332 Two Ways to Generate Publicity 334 Chapter Summary Key Terms a Discussion Questions a Experiential Exercises Mini-Case a CHAPTEH11 Small Business Distribution and Location 340 Distribution 342 Direct Marketing 342 Skill Module 11.1 Making Mail Order Ads Work 345 Distribution Issues for Direct Marketing 350 Nondirect Distribution 350 International Strategies 351 Location 356 Service Firms 357 Manufacturers 358 Site Selection 359 Skill Module 11.2 Using the U.S. Census Bureau Web Site 359 Leasing 363 Layout 365 Build, Buy, or Lease 367 Chapter Summary a Key Terms a Discussion Questions n Experiential Exercises a Mini-Case a CHAPTER 12 Marketing Plans: Saying How You'll Get Sales 372 The Importance of Having a Marketing Plan 374 Market Research 374 Secondary Research 374 Primary Research 377 Skill Module 12.1 How to Conduct a Focus Group 378 Skill Module 12.2 Open- and Close-Ended Questions 380 Sales Forecasting 381 Skill Module 12.3 Sales Forecasting from a Fixed Inventory 381 Differential Advantage 382

f Skill Module 12.4 Determining Differential Advantage 383 '} The Marketing Plan 385 ; Target Market 385 Skill Module 12.5 identifying Target Market Segments 386 Current Situation 388 The 4 Ps 389 The Written Plan 390 What's Next? 391 Chapter Summary a Key Terms m Discussion Questions s Experiential Exercises a Mini-Case a Suggested Cases and Articles Suggested Videos Appendix A Marketing Plan: PizzMo 396 Part Four ; Cash, Accounting, and Finance in the Small Business 399 Analysis of Business Operations 418 Uses of Managerial Accounting 418 Cost-Volume-Profit Analysis 418 The Business Plan and the Budget Process 422 Planning/Budgeting 422 Completing a Master Budget 422 Sales Budget 424 Purchases Budget 425 Cost of Goods Sold Budget 426 Labor Budget 427 Selling, General, and Administrative Expense (SG&A) Budget 427 Overhead Budget 428 Budgeted Income Statement 428 Completing a Comprehensive Budget 428 Controlling 428 Skill Module 13.3 Preparing a Master Budget 429 Decision Making 431 Chapter Summary Key Terms D Discussion Questions a Experiential Exercises a Mini-Case CHAPTER 13 Small Business Accounting: Projecting and Evaluating Performance 400 Why Accounting Matters to Small Business 402 Basic Accounting Concepts 402 Business Entity Concept 403 Going Concern Concept 403 The Accounting Equation 403 Revenues, Expenses, and Costs 404 Information Usefulness 405 Accounting Systems for Small Business 405 Skill Module 13.1 Why Does Accounting Matter? 406 Setting Up an Accounting System 407 Financial Reports 408 Income Statement 409 Balance Sheet 412 Skill Module 13.2 Applying for a Loan 414 Cash Flow Statement 415 Uses of Financial Accounting 416 Reporting to Outsiders 417 Record Keeping 417 Taxation 417 Control of Receivables 417 CHAPTER 14 Cash: Lifeblood of the Business 440 The Importance of Money Management 442 Money In/Money Out Just How Important Is It? 442 Money as the Key Idea 445 Cash and Cash Equivalents 446 Managing Cash Flow 447 Company and Bank Cash Balances 447 Reconciling Bank Balances with Company Book Balances 450 Planning Cash Needs 451 Sales Budget: Forecasting Sales Receipts 452 Cash Receipts Budget 452 Forecasting Cash Disbursements 455 Skill Module 14.1 Planning Cash Needs 456 The Comprehensive Budget the Pro Forma Cash Flow Statement 456 The Comprehensive Budget Pro Forma Balance Sheet 457 Skill Module 14.2 A Comprehensive Budget 458 Preventing Cash Flow Problems 459 Protecting Cash from Being Stolen 459 Techniques to Increase Cash Inflows 460 Techniques to Decrease Cash Outflows 461

Controlling Cash Shortages 465 In Review 466 Chapter Summary Key Terms n Discussion Questions Experiential Exercises a Mini-Case Appendix Completing a Bank Reconciliation 472 CHAPTER 15 Small Business Finance: Using Equity, Debt, and Gifts 476 Sources of Financing for Small Businesses 478 Financing with Equity 479 Skill Module 15.1 Determining Personal Net Worth 481 Getting Equity Investment for Your Business 483 Equity Capital from the Investor's View 484 Equity Capital from the Owner's View 485 Why Use Equity Capital? 485 Financing with Debt: Getting a Loan for Your Business 485 Skill Module 15.2 Obtaining Your Credit Report 487 Gift Financing 488 Skill Module 15.3 Finding SBIR Grants 489 What Type of Financing Is Right for Your Business? 492 Financial Management for the Life of Your Business 496 Tools for Financial Management 496 Financial Management for Start-Up 498 Financial Management for Growth 501 Financial Management for Operations 501 Financial Management for Business Exit 502 Chapter Summary a Key Terms Discussion Questions Experiential Exercises a Mini-Case a CHAPTER 16 Assets: Inventory and Operations Management 506 Managing Short-Term Assets 508 Accounts Receivable 508 The Pros and Cons of Offering Credit to Customers 508 Managing Accounts Receivable to Receive the Greatest Benefit for Your Business 508 Using Your Accounts Receivable as a Source of Financing 508 Skill Module 16.1 Using Receivables to Raise Immediate Cash 510 Managing Inventory 510 Determining the Appropriate Level of Inventory 511 Scheduling Ordering and Receipt of Inventory 512 Just-in-Time Inventory Systems 513 Other Approaches to Inventory Control 513 Value of Assets in Your Business 515 Determining the Value of Your Operating Assets 515 Determining the Value of Inventory 517 Property, Plant, and Equipment 518 Skill Module 16.2 Understanding Whole of Life Costs for Capital Budgeting 519 The Capital Budgeting Decision 519 Payback Period 520 Rate of Return on Investment 520 Net Present Value 521 Rent or Buy 522 Financing with Leases 522 Fractional Ownership and Other Forms of Joint Ventures 523 Managing Operations 523 Inputs into Your Business 524 Business Operations Comprise Converting Time and Materials into Service and Products 524 Business Outputs 525 Feedback 525 Measuring and Improving Productivity 525 Operations Management Challenges for Product-Based Firms 526 Operations Management Challenges for Service Firms 526 Chapter Summary Key Terms Discussion Questions B Experiential Exercises a Mini-Case a Appendix A Economic Order Quantity 531 Appendix B Time Value of Money and Discounted Cash Flow Analysis 533 CHAPTER 17 Small Business Protection: Risk Management and Insurance 538 Risk in Small Business 540 Thinking about Risk 540 Risks Associated with Specific Business Operations 541 Property of the Business 541

Events Related to Personnel 541 Events Related to Customers and Others 544 Managing Risks 545 Managing Risk to Tangible Property 546 Managing Risk to Buildings and Land 546 Managing Risk to Computers and Data 547 Managing Risk to Intangible Property 549 Managing Risk Resulting from Events Involving Personnel 550 Managing Risk from Violations of Tax Regulations 552 Managing Risk from Employee Violation of Government Regulations 554 / Using an Internal Audit as a Tool to Manage Risk 555 Insuring against Risks 556 Using Insurance to Manage Risks 556 Developing a Comprehensive Insurance Program 556 Insuring the Property of the Business 558 Sharing Risk 562 Joint Ventures 563 Industry Groups for Insurance Coverage 563 Government Funding of Risky Ventures 563 / Chapter Summary B Key Terms a Discussion Questions Experiential Exercises Mini-Case Part Five Management and Organization in the Small Business 569 CHAPTER 18 Legal Issues: Recognizing Your Small Business Needs 570 You and the Law 572 You Need a Good Attorney 575 Can I Do This for Free? 576 Skill iodule 13.1 Getting Started on Legal Issues Online 577 Small-Claims Court 578 Choosing a Business Name 579 Choosing a Business Form 580 Taxation Issues 585 Everything Is Negotiable, and Negotiation Is Everything 586 Legal Liabilities 588 Torts: Responsibility for Your Actions and the Actions of Employees 588 The Independent Contractor Argument 588 The Scope of Authority Argument 589 Litigation vs. Arbitration vs. Mediation 590 Commonsense Ways to Avoid Torts 591 Contracting 592 Subcontracting 593 Internet Issues in Contracting 594 Intellectual Property 596 Patents and Trade Secrets 596 Copyright 601 Trademarks 601 Skill Module 18.2 Checking Out Trademarks Online 602 Chapter Summary a Key Terms Discussion Questions Experiential Exercises a Mini-Case a Human Resource Management: Small Business Considerations 606 The Bigger Small Business: Hiring Employees 608 Attracting Employees 612 Matching the Worker to the Work 614 Writing a Job Description 614 Skill Module 19.1 Grafting a Job Description 616 Evaluating Job Prospects 617 Selecting the Right Person 617 Training Your Employees 619 Initial and Ongoing Training Methods 619 Skill Module 19.2 Writing Instructions and Procedures 620 Three Guidelines for Training 620 Rewarding Employees 620 Compensation, Benefits, and Perks 623

Skill Module 19.3 Finding Local Salaries and Benefits Information Online 623 Bonuses and Long- Term Incentives 625 Health Insurance 625 Retirement Plans 626 Perks 626 Entrepreneurial Leadership 627 Human Resource Issues in the Family Business 628 Nepotism, Meritocracy, and the Family Business 628 ^Managing Privilege 629 Good Human Resource Practices for All Businesses 630 Dividing Up Ownership and Dividends 631 Chapter Summary Key Terms Discussion Questions a Experiential Exercises Mini-Case CHAPTER 20 Achieving Success in the Small Business 636 Small Business Life Cycle 638 ' Emergence 638 Existence 638 Success 639 Resource Maturity 639 Takeoff 640 Growth Strategies 641 Closing the Small Business 642 Transfers 643 ' Terminations 644 Walkaways 644 Workouts and Bankruptcy 645 The Not-So-Secret Secrets of Success 646 Measuring Success with Four Bottom Lines 648 The Firm 648 Community 648 Family 649 Yourself 649 Skill Module 20.1 Assessing the Four Bottom Lines 650 Conclusion 651 Chapter Summary a Key Terms Discussion Questions n Experiential Exercises Mini-Case CASES 1: Brothers Going Separate Ways or Not? C-1 2: G & R Garden Center: Lawn Care Services Division C-2 3: Real Estate Millionaires of Memphis C-3 4: Big Business in a Small Rural City C-4 5: The Ambitious College Kid Who Just Can't Wait C-5 6: The Grande General Store, Est. 1948 It's Time to Sell C-6 7: The Computer Guru: A One-Man Show or an Empire? C-8. 8: The Early Stages of Paint Check Services C-9 9: The House of Wine Grand Opening C-10 10: Business Demise C-11, 1 1: S & Z East Coast Importers C-12 12: The Wallingford Bowling Center C-14 13: Parker Mountain Products, Inc. C-15 14: Nate Mower & Son, Residential Plumber(s) C-16 15: The Landlords: Investments in Commercial Real Estate C-18 16: Richard Harris and Harris Homes LLC C-19 17: The House of Wine (Revisited) C-20 18: Theresa Murray and in the Eye of the Beholder C-20 19: Alaska Wildland Adventures C-21 20: Joseph Shaughnessy, BSI Constructors, St. Louis C-22 WSiEO CASES 1-1 Do-Gooders Who Spread the Dough VC-1 3-1 Small Business Volunteering VC-2 4-1 From Granny's Kitchen to Tesco VC-2 5-1 Magno-Grip VC-3 6-1 Blue MauMau VC-3 8-1 Financing for Entrepreneurs VC-4 9-1 Craft Beer Boom VC-5

10-1 Antipreneurs VC-5 11-1 Fresh-Baked Entrepreneurs VC-6 14-1 Credit Squeeze on Small Business VC-6 15-1 Women Entrepreneurs VC-7 16-1 Wine Entrepreneurs VC-7 17-1 New Orleans Biz VC-8 19-1 Unique Vacation Policy VC-8 20-1 Entrepreneurs and Failure VC-9 Name and Organization Index Subject Index