Question

The book (Book: Business, 4/e) lists many advantages and disadvantages of small business ownership, which do you agree with the most? Would you start a business? How are websites like Kickstarter and Gofundme helping with small business ownership?

Answer 1

Advantages of Small-Business Ownership

• Independence. Entrepreneurs are their own bosses. They make the decisions. They choose whom to do business with and what work they will do. They decide what hours to work, as well as what to pay and whether to take vacations. For many entrepreneurs the freedom to control their destiny is enough to outweigh the potential risks.
• Financial gain. Entrepreneurship offers a greater possibility of achieving significant financial rewards than working for someone else. Owning your own business removes the income restraint that exists in being someone else’s employee. Many entrepreneurs are inspired by the mega-millionaire entrepreneurs we see today, such as Steve Jobs, Elon Musk, Jeff Bezos, and Mark Zuckerberg.
• Control. It enables one to be involved in the total operation of the business, from concept to design to creation, from sales to business operations to customer response. This ability to be totally immersed in the business is very satisfying to entrepreneurs who are driven by passion and creativity and possess a “vision” of what they aim to achieve. This level of involvement allows the business owner to truly create something of their own.
• Prestige. It offers the status of being the person in charge. Some entrepreneurs are attracted to the idea of being the boss. In addition, though, there is the prestige and pride of ownership. When someone asks, “Who did this?” the entrepreneur can answer, “I did.”
• Equity. It gives an individual the opportunity to build equity, which can be kept, sold, or passed on to the next generation. It’s not uncommon for entrepreneurs to own multiple businesses throughout their life. They establish a company, run it for a while, and later sell it to someone else. The income from this sale can then be used to finance the next venture. If they’re not interested in selling the business, the goal may be to build something that can be passed down to their children to help ensure their financial future. One thing is sure: In order to fully reap the financial benefits of a business venture, you need to be the owner.
• Opportunity. Entrepreneurship creates an opportunity for a person to make a contribution. Most new entrepreneurs help the local economy. A few—through their innovations—contribute to society as a whole.

In addition, small businesses have certain advantages over large businesses. Flexibility, generally lean staffing, and the ability to develop close relationships with customers are among the key benefits of small businesses. The digital communication revolution has significantly lowered the cost of reaching customers, and this has been a boon to small startups and big businesses alike.

Disadvantages of Small-Business Ownership

As the little boy said when he got off his first roller-coaster ride, “I like the ups but not the downs!” Here are some of the downsides to owning a small business:

Time commitment. When someone opens a small business, it’s likely, at least in the beginning, that they will have few employees. This leaves all of the duties and responsibilities to the owner. Small-business owners report working more than eighty hours a week handling everything from purchasing to banking to advertising. This time commitment can place a strain on family and friends and add to the stress of launching a new business venture.

Risk. Even if the business has been structured to minimize the risk and liability to the owner, risk can’t be completely eliminated. For instance, if an individual leaves a secure job to follow an entrepreneurial dream and the business fails, this financial setback can be hard to overcome. Beyond financial risk, entrepreneurs need to consider the risk from product liability, employee disagreements, and regulatory requirements

Uncertainty. Even though the business may be successful at the start, external factors such as downturns in the economy, new competitors entering the marketplace, or shifts in consumer demand may stall the businesses growth. Even entrepreneurs who go through a comprehensive planning process will never be able to anticipate all of the potential changes in the business environment.

Small businesses can raise money with crowdfunding in exchange for rewards, future repayment, or equity in the company. Startups and more established companies can raise funds online while getting new customers. The best crowdfunding sites offer low fees, a large audience, and allow a variety of campaigns.

Kickstarter is the biggest name in rewards crowdfunding, and perhaps the name most often associated with crowdfunding in general, with more than 158,000 successful campaigns and more than $4 billion pledged. This success has resulted in a huge number of big projects being launched and funded, as well as a big audience that can be both a source of funding and exposure.

Kickstarter is best for businesses focused on making products for consumers like games, art, tech, music, and food that can be shipped easily to campaign backers. Breaking through the competition can be difficult, but a good approach is to raise smaller funding amounts. Of the successful campaigns, 82% of them raised less than $20,000.

GoFundMe is a donation crowdfunding site where people have raised more than $5 billion. This means there is no equity to give up, no debt to repay, and no rewards to ship. It’s easy to see the appeal already, but to make it even better, GoFundMe doesn’t charge any fees. You’ll only be responsible for the transaction fees when you receive the funds, but getting your campaign noticed is difficult.

GoFundMe is best for businesses that can gather supporters to fund their campaign, even though there will be no repayment. This isn’t a great option for startups. However, businesses struggling to keep the lights on, that are important to their communities often raise funds successfully.