Introduction

Small businesses have historically played a vital role in the development of the American economy. With the growth of large corporations during the Industrial Revolution the impact of small businesses on the economy began to erode and continued to do so well into the twentieth century. More recently, however, this situation has begun to change. Large corporations are currently downsizing and small businesses are beginning to re-emerge and again play a significant role in the preservation of the country's economic well-being.

In the American free enterprise system it has always been the dream of many to own their own businesses. And while the risks may seem high, never before have the opportunities to do so been so bountiful and the dream been in reach for so many. More and more people of all ages are starting businesses and more and more are succeeding. Success, however, does not come easily. Before starting a business it is important to first have a basic understanding of the general nature of small business and the issues involved in starting a new enterprise. This lesson provides an introduction to these topics.

Topics

• Definition of a small business
• Number of small businesses in U.S.
• Percentage of small businesses in different industry sectors
• Economic impact of small businesses
• Trends in small business
• Failure rates
• Start-up issues
• Consumer needs

Objectives

• To introduce students to the nature of small business
• To make students aware of the role of small businesses in the economy
• To familiarize students with the issues involved in starting a small business
• To help students understand the environment in which small businesses operate

Lesson Description

Students examine various definitions of small business and study its role in the nation's economy as well as their own communities. They discover what types of knowledge and skills are required to start and operate a business. After examining the small business environment in the area in which they live, they talk with local businessmen and women about various issues related to starting a business. This lesson helps students think about what type of business they might want to start and the issues they will face.

Materials

• Activity 1-A: Community Survey
• Visual 1-1: Criteria Used to Define Small Businesses
• Visual 1-2: Commonly Used Definition of Small Business
• Visual 1-3: Small Business Administration Size Standards for Defining a Small Business
• Visual 1-4: The State of Small Business in the United States
• Visual 1-5: The Percentage of Small Businesses by Major Industry Sector
• Visual 1-6: The Economic Impact of Small Business
• Visual 1-7: Growth in New Business Incorporations 1985-1995
• Visual 1-8: Net Job Creation by Size of Firm
• Visual 1-9: Small Business Create High-Wage Jobs
• Visual 1-10: Percent of Small Firms Exporting
• Visual 1-11: The Effects of Downsizing on Small Business
• Visual 1-12: Rate of Business Failures 1985-1994

Procedure

(Period 1)

1. Point out to students that this lesson will help them understand the role of small business in the national economy and their local communities. Emphasize that the only reason for any business to exist is to satisfy consumer needs. By studying their local communities they can observe how small businesses either meet, or fail to meet, the needs of different consumer groups. Explain that this can be measured to some extent by examining recent business failures and by talking with the owners of local businesses about how they are doing. Finally, tell students that this lesson will help them understand the environment in which entrepreneurs function and the opportunities that exist in that environment.

2. Ask students how they would define a small business. Write their suggestions on the board, paying particular attention to the criteria they mention, e.g., size, number of employees, gross income. Compare their responses with those commonly used in academia, business and government (Visual 1-1). Next point out that there really is no one clear definition of a small business. Depending on the situation, people and agencies define small business differently by using various criteria. One of the more commonly-used definitions is from Longenecker, Moore and Petty, (Visual 1-2). However, when it comes to seeking financing for a business, pursuing contracts, or dealing with legal issues, most small businesses use the criteria established by the U.S. Small Business Administration. Its definitions are generally based on size and/or number of employees and vary by industry, (Visual 1-3).

3. Divide the class into small groups to discuss the following questions which focus on the role of small business in the U.S. economy.
   • What percentage of all U.S. businesses are small businesses?
   • What percentage of U.S. workers are employed in small businesses?
   • Approximately what percentage of new jobs do small businesses provide?
   • What is the contribution of small businesses to the GDP?
   • What are the current trends in small business?

   Review the importance of understanding the role of small businesses in the economy and specifically in the community where the students live.

4. Hand out Activity 1-1 Community Survey, for students to complete. Ask pairs of students to survey their local business community and identify new business start-ups, recent failures and current survivors (5-10 years in business). They should also determine what percentage of local businesses are retailing, manufacturing, and service companies. Students should interview one or more business owners in each category, recording the obstacles they faced in starting their businesses and to what they attribute their success or failure. Students should draw a map of their community business area illustrating where the different types of businesses are located as well as parking facilities, streets, etc.

(Period 2)

5. As a class, discuss the information students gathered in Activity 1-1:
   • In what ways do small businesses contribute to the local economy?
   • What are the categories and types of businesses in the community?
   • What percentage of the total number of businesses in the community are retail, manufacturing and service?
   • How many new businesses were started in the last year?
   • How many businesses failed in the last two years? How many businesses have existed for less than five years?
   • How many businesses have survived more than five years?
   • What are the chances of succeeding in a small business today?
   • What are some of the issues facing small business owners in your community with regard to starting and operating small business?

6. Once the above topics have been discussed with regard to t he local community, use Visuals 1-4 to 1-12 to examine the current state of small business in the United States.

7. In their investigative pairs ask students to identify what consumer needs they feel are not being met in their community. Write their ideas on the board.

Closure

Have students discuss the list on the board and choose those opportunities they feel offer the best chance of success.

Assessment

Assign the following exercise to be turned in at the beginning of the next class period:

An out of town friend writes asking for your advice about starting a small business in your town. Based on what you now know about the small business environment, write your friend a letter giving advice as to what course of action should be taken.

Extension Activity

Invite a local small business owner to class to discuss what issues he/she faced in starting a business in this community. Ask the business owner to describe some of the obstacles faced in operating the business.