Division of Agricultural Sciences and Natural Resources • Oklahoma State University AGEC-915 Oklahoma Cooperative Extension Fact Sheets are also available on our website at: http://osufacts.okstate.edu Glenn Muske, Ph.D. Home-Based and Micro Business Specialist Mike Woods, Ph.D. Professor and Rural Development Specialist Community leaders throughout Oklahoma are looking for ways to expand the number of well-paying jobs in their com- munities. By enhancing the individual’s economic well-being, the community’s economy will grow. At the same time, this also meets the individual’s needs to increase personal income, enhance work responsibilities, and improve personal quality of life. A win-win situation develops when communities and individuals work together to achieve what are often mutually compatible goals. In order for communities to expand job opportunities and the local tax base, state and local policy makers typically have relied on three economic development choices: (1) attract outside businesses, (2) expand existing businesses, and (3) develop new businesses. The success of each of these three choices has varied. While attracting outside businesses is a great idea, the “big bang” approach is often a big bust because, at most, only one community in ten is successful (Scudder & Rettig, 1989). Communities instead have often found the expansion of existing businesses, and assistance in the development of new businesses yield greater returns. A recent evaluation of the economic development efforts within the Tenth Federal Reserve District, which includes Oklahoma, found economic development efforts moving in this direction. Typically, when communities consider expansion of exist- ing businesses or development of new businesses, they think in terms of the “traditional” business – those that operate from a store front or in a commercial location. An often-overlooked idea is to help the local entrepreneurs who want to start or expand their home-based business. Home-based businesses are often considered insignifcant or simply invisible. Support- ing them lacks the glitz of recruiting a major business. Few home-based businesses follow Gateway Computers growth from garage to Fortune 500 company, yet a 1994 survey found that 125,000 Oklahoma home-based businesses generated over $3 billion in income. What Is a Home-Based Business? Home-based businesses are pretty much what the name describes. The location of the business is what makes them unique. The entrepreneur works from the home, garage, workshop, or barn. Home-based businesses can, within certain limitations, be any business, either product or service, produc- tion and/or sales. Some home-based businesses develop as people perform services elsewhere, such as lawn care, but use their home as an offce. Economic Impact of Home-Based Businesses The economic impact of a home-based business is like the impact of any other successful business. The owner, through the sale of products and services, generates income from which supplies, equipment, and even labor are purchased. Additionally, the owner and his or her family have increased disposable income to be spent in the community. What the Entrepreneur Must Do With the economic impact of home-based businesses in mind, the question becomes: How can local communities encourage their development? First, it must be recognized that business success is not dependent just on the community. Suc- cessful businesses require the diligent effort of the individual entrepreneur. Like any business, home-based businesses are more likely to be successful when entrepreneurs have outlined a clear plan for their business. Successful businesses have clearly identifed their product or service, their market, and the competition. A person considering a home-based business needs to gather a variety of information about starting a business. He or she will need valid information about the product/service chosen, about marketing opportunities, the economic environ- ment, trends occurring, and about the competition. Owners may need help to carefully evaluate the business potential of their ideas. For a home-based business, this includes an evaluation of whether operating at home is feasible, especially for retail businesses. Many people have good ideas for a business but fail be- cause of poor planning. Planning involves making informed, thoughtful decisions. Such careful development of a business can enhance the chance of success. Planning involves hav- ing the entrepreneur “put pencil to paper.” By writing down ideas, fuzzy thinking can be clarifed and needs or gaps in knowledge can be identifed. In addition, home-based business owners must secure an adequate amount of money to start the business. Many home-based businesses are fnanced by family, relatives, and friends. Few entrepreneurs successfully obtain outside venture capital. Entrepreneurs must explore these and other sources such as local banks, the Small Business Adminis- tration, agencies that administer SBA funds, and the Rural Development Administration. Unfortunately, many businesses fail because of inadequate start-up and/or working capital. Home-Based Business: An Economic Development Alternative Oklahoma Cooperative Extension Service brought to you by CORE View metadata, citation and similar papers at core.ac.uk provided by SHAREOK repository