Lesson:
                                1. Introduction to Entrepreneurship.
                                2. What is meant by "small business".

1. Introduction to Entrepreneurship
This class always attracts people just like you - people who have an idea or skill  or who are taking classes to learn a profession, and who have an interest, maybe even a passion (some call it the "fire in the belly") to own their own business. The first thing I say is that you have an important ingredient for success - passion - but you need to make sure that you can make money pursuing this passion, because otherwise what you're doing will be just a hobby - you'll still have to make a living doing something else.

My personal experience with Entrepreneurship
As an entrepreneur, I sometimes wondered if the "fire in the belly" I was feeling was excitement or anxiety.  I usually start an entrepreneurship class by telling a joke I heard while engaged in my first entrepreneurial venture.  An entrepreneur is telling his accountant that he's finally experienced the "wonder" of small business - "it was about two this morning, and I was wide awake 'wondering' how I was going to make payroll today".  At the time I heard this joke I was a partner in Parvenue, Inc., in the early 1990s.  We manufactured clocks, candlesticks, jewelry, and other home accessories that we sold through boutiques and museum gift shops around the country, and to a few stores in Europe and Japan. It was an exciting time to be in the business of manufacturing American crafts, as there were lots of discretionary dollars in the hands of "yuppies" (in case that's a new term - "young urban professionals") and "dinks" (dual income - no kids).  These folks were able and willing to spend $300 on a clock (see "Fortune Teller" to the left below Robin Williams).

As a seasonal business (most of our sales were between September and December each year), we experienced a cash flow crunch every August because we were spending money building inventories, but sales weren't yet happening. I would make a few payrolls by getting advances on my credit card, and spend a few weeks worrying that "maybe this year the sales won't come".  They did, and we would be swamped with orders and cash flow until the next summer rolled the cycle around again. 

There were other problems as well. Customers canceling orders at the last minute, not paying, returning merchandise without telling me, etc.  I had employee issues: calling in sick on a day when a big order had to get shipped, quitting just as peak season began, stealing, etc. I had supplier problems: discontinuing parts I still needed, changing prices without notification, delaying shipments when I needed the items ASAP, etc.  And so on, and so on.

Robin Williams Wears Our Jewelry! It was all worth it, though, because of the good stuff that happened.  Late one night I was watching TV, and Robin Williams was the guest on the Letterman show, and out he comes wearing a piece of jewelry manufactured by my company!  (It's a bola tie with a picture of Albert Einstein - sorry, lousy picture!)

Why I Love Star Trek Movies One spring a set decorator in Los Angeles thought a clock we manufactured looked "Vulcan", so she used it in Mr. Spock's cabin aboard the Enterprise in a Star Trek movie! (Funny, we called that clock "Fortune Teller" - left photo - because it had the signs of the zodiac and a crystal ball, but oh well!)  This clock was made of painted copper and brass with brass charms attached.  The columns were made from copper plumbing pipe. The "crystal ball" was a clear marble - a "shooter", as I recall. This clock sold in stores for between $300 and $350.

Another Starring Role Metropolitan Home magazine decided in October one year to picture our cute candlestick "Fiona" as one of the big hits of the year, and our phone rang off the hook.  Then a store owner in Beverly Hills called with the exciting news that Carrie Fisher - Princess Leia of Star Wars - had just purchased two of our clocks - one to give as a wedding present, the other for herself! (House Clock - right.) That news also made the Los Angeles society pages, which helped boost sales of the clock.

2. What is meant by "small business"?
It's helpful, when trying to define "small business", to use information put together by
the Small Business Administration (SBA). The Small Business Act states that a small
business concern is "one that is independently owned and operated and which is not
dominant in its field of operation."  The law also states that in determining what constitutes
a small business, the definition will vary from industry to industry to reflect industry
differences accurately.*

When the U.S. Congress first established the SBA, the fundamental question was just what
numerical definition should SBA use to define small businesses, industry by industry, to
determine what businesses were eligible for SBA's programs.  Over the years the SBA has
established and revised numerical definitions for all for-profit industries, and this numerical
definition is called a "size standard."  It is almost always stated either as the number of
employees or average annual receipts of a business concern.*

Size standards:    http://www.sba.gov/size/sizetable2002.html

So small businesses in America are, by definition, "small".  They also*:

• represent 99.7% of all employers.

• provide approximately 75% of the net new jobs added to the economy.

• employ 50.1% of the private sector work force.

• provide 41% of private sales revenue in the country.

• represent 97% of all U.S. exporters.

• are the best way for women, minorities, and new immigrants to enter the
  American economic mainstream.

There are, as of 2003, approximately 21 million small businesses in America, and 26% of
these are women owned.

*Data cited from http://www.sba.gov/

The SBA also provides us with more reasons to prepare thoroughly prior to launching
a small business.  The statistics tell us that the odds of survival are not good: 90% of
businesses fail in the first five years. Statistically:

• 20% of new businesses don't survive their first year.  They use up the entrepreneurs
  start-up capital, then fade away into oblivion.

• 20% of the first year survivors don't make it past their second year.  In many of these
  cases they use up the entrepreneur's capital, then use up investors capital, then fail.

• At five years, 50% of the two-year survivors are gone.

The highest failure rates are for general contractors, apparel stores, trucking companies, and
restaurants.  Highest survival rates are for funeral homes (steady business helps), law offices,
and beauty shops.

Why Companies Fail
There are many factors that contribute to business failure, but review of a few web sites
that discuss business failure reveals a common denominator: lack of planning. The following
have an interesting discussion of the reasons for business failure:

http://www.allbusiness.com/articles/content/10207.asp
http://pandecta.com/dotcom.html
http://www.selfgrowth.com/articles/Greenstreet10.html

So lack of planning is a major reason for business failure.  Could another factor be about the entrepreneur's personality?  Are there specific behaviors that determine small business success, and if so, can we learn to behave that way?

In the next lesson we look at the entrepreneurial personality, and ask the question, "is small business for me?"

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