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3-2 Forms of Business Ownership [CH 3

Chapter Overview

Part of the American dream is that anyone who wants to could own their own business
and be their own boss. With very limited capital, an individual can start and build a

successful enterprise; and it is a process that requires direction, discipline and a
tenacity to overcome any and all obstacles that they encounter. Ask anyone if they
want to be in business for themselves. Even though most people will not own their
firm, rather being an employee with a firm whose clientele trek to their establishment

to purchase the goods or services they offer; it is important for them to understand the
basic processes involved in organizing and operating a business.
Ask what does it take to start a business? You will likely hear “a small fortune,”
“lots of experience,” “a good location,” “a good product,” “lots of help”, and “lots of

luck!” The University of California, Los Angeles, Management Department conducted
an analysis to determine why only five out of every 100 startups are still running after
five years. Their findings were that (1) limited or no market demand for the product or
service, (2) lack of technical expertise, and (3) insufficient capitalization.

If only five out of 100 startups are still in business after five years, then the man
on the street would conclude that there is a 95% chance of failure, or the “odds of
success are against you.” The question is begged “how can the ‘odds for success’ be
improved?” The answer is simple from reviewing the UCLA study:

First there is limited or no market demand for the product or service, the budding
entrepreneur must analyze the market and determine the level of market desire for the
product or service and determine that the demand does exist. If there is no market
demand, then do not open a business for that line.

The second reason for business failure is that the owner lacks the technical
expertise to make the business a success. If the owner wants to start a mechanics shop
and does not know how to repair engines, brakes, or exhaust systems, then that
technical ‘expertise’ must be learned. How does that learning take place? Go to school

and take classes, or apprentice in a mechanics shop, or hire quality technicians who
can operate perform their tasks efficiently and expertly. Note that the founder of
WalMart, Sam Walton, worked (apprenticed) for JC Penney for 18 months beginning
three days after he graduated from College. In 1945, after leaving the military, Walton

took over management of his first variety store at the age of 26. With the help of a
$20,000 loan from his father-in-law, plus $5,000 he had saved from his time in the
United States Army, Walton purchased a Ben Franklin variety store in Newport,
Arkansas (a franchise opportunity). Walton pioneered many concepts that became

crucial to his success, offering prices for goods that were equal to or lower than stores
in cities that were four hours away by car, thus encouraging people to shop more
locally.
To overcome (3) Insufficient Capitalization requires the startup to financially
Crowdfunding is the
practice of funding a project analyze the business structure, and then find ways to more than sufficiently fund.
or venture by raising small Funding starts with the capital that the owner currently has. If insufficient then
amounts of money from a borrowing from one or several lenders. Lenders can be banks, insurance, family,
large number of people, friends or via crowdfunding—other people’s money. When using other people’s
typically via the Internet.
Crowdfunding is a form of money, they will or should require an excellent analysis of expenses and projected
crowdsourcing and incomes along with a market analysis for the product, good or service.
alternative finance When the startup entrepreneur resolves the questions about (1) limited or no
market demand for the product or service, (2) lack of technical expertise, and (3)

insufficient capitalization, he is in a much improved position to still be in business five
years from their beginning.

Business Starts at Home
Hanna York, Kentucky. Arrowhead Acres Nursery begins with Hannah York’s
freshman year in high school (14 years old), knowing that she needed a job and

wanted to do something that was unique and enjoyable. Support for her thinking came
from her classroom teachers and her parent’s encouragement. Hannah’s business
began as a service business offering to seasonal decorations. She began by doing fall

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