Business Administration

Unit 1Business and Its Environment

Chapter 1 – Characteristics of Business

Small business management

Organized to follow the life cycle of an entrepreneurial venture from concept through implementation into harvesting or replication.

Most innovative companies

Nike – digital sports division

Amazon – fast online delivery of anything

Square – sparked mobile payments

Dropbox – store,sync and share files securely

Uber - online tech cab service

Ecko Unlimited- Urban clothing line

What is an entrepreneur?They are engaged in the buying and selling of products or services in order to make money.Product – something that exists in nature or is made (tangible)Service – labor or expertise exchanged for money (intangible)

Types of businessMaking a product or providing a service–Manufacturing firms produce goods

• Johnson & Johnson/MicrosoftProviding a service–Assistance to satisfy specialized needs

through skilled workers• Doctor / Accountant / Web Design

Service firms far outnumber mfg. firms

Industry/SectorAn area of the economy in which businesses share the same or related products or services.–(10 – 12) major sectors

• Finance, Technology, Energy• Retail Sales, Communications,

Transportation, Health Care, Utilities, Agriculture, Mining, Manufacturing.

2 Types of BusinessesIndustrial/Manufacturing

Commercial/Services

Industrial/Manufacturing Business

Produce goods used by other businesses to make things–Basic Material Companies – Apple,

Exxon Mobil, Coach, Crocs, Campbell Soup

Emerging market nations have few mfg. firms –

Commercial/Service Business

Marketing–Retailers: Home Depot, Walmart,

WalgreensFinance–Banks & Investment Companies –

JPMorgan, Bank of AmericaServices–Comcast, AT & T, Hilton Hotels

12 Industries That Are Growing in 2015

Health CareHigh Tech Equipment ManufacturingThe Auto Industry

TransportationComputer Systems DesignSocial Networking

Changing Nature of BusinessFive ways that entrepreneurs find opportunities to create new business:– 1. Use a new technology to produce a new product.– 2. Use an existing technology to produce a new

products.– 3. Use and existing technology to produce an old

product in a new way.– 4. Find a new source of resources– 5. Develop a new market for an existing product.

Global CompetitionAbility to compete with businesses in other countries–Other countries have industrialized

• Efficient, greater variety, lower prices–American businesses had to change

Global competition is the force behind major decisions of large companies today

Establishing StrategiesTotal Quality Management–Commitment to excellence–Teamwork & continual improvement–Training from experts

SWOT Analysis– Evaluating strengths, weaknesses, opportunities and

threats– Integrating internal and external opportunities

Five Roots of Opportunity in the Marketplace

Problems that your business can solve.Changes in laws, situations or trends.Inventions of totally new products or services.Competition find a way to beat the competition on price, location, quality, reputation, reliability or speed.Technological Advances scientists may invest new technology, but entrepreneurs figure out how to use and sell it.

3 Ways To EfficiencySpecialization of effortBetter technology & innovationReorganization

SpecializationSpecialize in an area–Expert in industry (Niche)Mass Production–Up-to-date equip. in factory production

• Computers & Robots–Large quantities of identical goods–Costs decrease to consumers

Technology & InnovationTechnology includes–Equipment, manufacturing processes &

materials• Better quality goods/services• Built faster at lower cost

–Technology = staying ahead of competitors

ReorganizationLate 80’s to early 90’s & recent recession–Companies had slow growth–Competition from other nations

Downsize–Cutting back goods/services & employees–Needed better ways to compete

ReorganizationEmpowerment–Workers decide how to perform their jobs,

ideas on improving processes–Drastically changed role of workers

• Past – narrow tasks, little decision making• Improved quality of work & efficiency• Fewer managers due to skilled workers

EntrepreneurshipEntrepreneur–Person who starts, manages & owns a

business–Few gvt. controls promote starting a

business–New businesses may have:

• Physical facility (store) or individual working in home office, internet business

What is Small Business?The public often thinks of business only in terms of “big” business – ExxonMobil, Apple, Microsoft, NikeSmall business – companies having fewer than 500 employees and less than $5 million market capitalization.– 26.8 million businesses in the US and 99.9%

are small firms with fewer than 500 employees.– 52% of US businesses are home-based

Paths to Small Business Ownership

Franchising – legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol.Acquisition - buying an existing business.Licensing Technology – enter into a contract to use technology without purchasing the rights to own it.Microenterprises – firms with five or fewer employees

Franchise BusinessLegal agreement where distributor buys rights to sell franchising company’s product/service under company’s name & trademark – McDonald’s, Applebee’s Restaurants, Subway

Franchisor – parent companyFranchisee – distributor of franchised product/service

Franchise BusinessFranchise agreement usually includes initial fee to franchisor and % of weekly sales (3-8%)Franchisee gets in return–Help selecting location, exclusive

rights to sell in specific geographic area, training & advice

Risks of OwnershipBusinesses fail for many reasons–1 out or 4-5 fail within 3 years–½ close within 6-7 years

•Some voluntarily close–Sell to another larger company

Failure Reasons64.1% - Economic causes–Low profit/sales, industry weakness23.9% - Financial Causes–Expenses & debt

End of Chapter 1