CHAPTER 2 PREPARING FOR BUSINESS OWNERSHIP Introduction Ideas and opportunities are just that unless they are developed. The entrepreneur has to develop a keen sense of awareness; eyes and ears always attuned to what is going on in the neighborhoods, the city, the state, the nation, and internationally where business is concerned. What types of businesses are stable and continue to survive year after year and what are the ones that fail and why? It is especially important to find out how individuals deal with barriers to going into business such as finances, family that is not particularly receptive, and having a job. It is recommended that you not quit your present job until you are sure that the new business is at a point where you cannot continue working and do justice to the new venture. Visit neighborhoods that are potential sites for your concept. Talk to business owners and get familiar with what people need and will buy. Most businesses in the United States are small businesses. Even in large communities approximately 80% or more of the businesses are comprised of small firms.
Most large businesses begin as a small business. Small business success depends on good decisions such as what and when to buy and how to market a product as well as when to expand a business. There are certain procedures that most successful small business persons follow in order to grow and to continue making a profit. Factors such as geographic location, population habits, density, and mobility need to be considered. Changing trends dictate the role and course of small businesses. Expected Outcomes As you peruse the information in this chapter, it is expected that certain outcomes will occur. This includes the following: * Define the concept of a small business * Discuss the relationships between small business and big business * Define the concepts of possibility and feasibility * Understand due diligence in business * Discuss rules for doing business Facts and Concepts It is important to understand that: * Small businesses are the backbone of the American economy. They hire more people than big businesses.
They also have a failure rate of about 75% during the first three years. * A small business is often defined as one that employs less than 100 people and has under $1,000,000 in gross revenues. * To a great extent big business depends on small businesses for survival. * Feasibility studies are important during the planning period and will determine how the concept will be received and the direction that needs to be taken. * Small businesses are generally financed by one individual or a small group. Small Business Failure Due diligence is a key concept in becoming a business owner. Check all aspects of getting into business such as lending, site selection, organizing the business, regulations, and ways to use limited funds. During the planning stages of a business it is important to anticipate and plan for possible problems which could cause business failure.
They include: * Undercapitalization (lack of funds to meet expenses, cash flow, etc.) * Slow market/economy (consumers'' purchasing) * Accelerating too rapidly (business expansion before it is ready). * Overextended credit * Poor merchandising and marketing outreach * Poor consumer relations * Problems associated with pricing and production such as overpricing * Poor quality of product (quality control) * Problems with suppliers (inventory supply and timeliness) * Unreliable delivery service (transportation) * Dissention among owners/managers/employees * Failure to consider the competition and to make appropriate accommodations Rules for Success in Business * Ask the right questions. Force yourself to talk less and listen more. Get good, accurate information. Above all, be reflective. Think about the pros and cons before you commit your time, energy, and money. Advice is useful, but be your own person and be objective in making decisions.
* Develop a work ethic and a work standard for yourself and your business that no one can break. This will set you apart as a model for others and your reputation will follow you. * Plan on barriers if you want to start a business: Money - you may have to start small on borrowed resources from friends and relatives. Family - you need their support and understanding. Employment - do not quit your job and remember, "A closed mouth gathers no feet" when it comes to talking about business while you are "on the job." * Be a person who exhibits empathy and provides a nurturing work environment for employees. * Believe that no machine can replace you. Machines are programmed, they do not think, and are not creative or intelligent in the human sense.
Worrying about being replaced by a machine is a poor excuse for not trying. * Learn to accept the fact that you will have to postpone your desires or wants. Focus on doing good work, growing a business, and acquiring wealth for the future. The wants will take care of themselves as you progress. * Recognize that it is hard for people to change. This is probably true for most adults. Old habits tend to be set. If you know your faults and the faults of others, you will be better able to negotiate or compensate for deficiencies.
Activities for Preparing for Business Ownership 1. Analyze the local economy. What percentage of jobs is dependent on employment in small businesses? What are the present trends for small business survival given that there are many large multi-merchandise stores around? 2. Based on personal shopping habits, give examples of how small businesses can compete with larger corporations. What unique services, locations, or products can be offered to the customer? 3. Within the local area, give examples of small businesses that have filled a market niche. Topics may include: Mini-buses - local transit companies Mail/shipping firms - post office, Fed X, UPS Boutiques - department stores Ethnic restaurants - fast food restaurants Bed and breakfast inns - hotels, motels, resorts 4. Visit an agency that is funded at local, state, or national levels to support small business growth and development such as the Small Business Administration (SBA), chambers of commerce, trade associations, state and national Departments of Commerce, and local economic development agencies.
Examine the types of written materials, computer networks, or business technical assistance they offer to small business owners. 5. Entrepreneurs from Europe and the Orient are visiting the United States for an exchange of technical information about the formation of small businesses to stimulate economic growth in their countries. What can be replicable from our economic system to those areas of the world? 6. Examine a variety of business magazines and sections of newspapers and discuss articles that highlight entrepreneurial activity. 7. Select five articles from the bibliography of this chapter or other related published material and indicate how these articles are helpful in understanding preparation for business ownership.