PowerPoint Presentation by Charlie Cook Managing in Action Gary Dessler Principles and Practices for Tomorrow’s Leaders Copyright © 2004 Prentice Hall,

Copyright © 2004 Prentice Hall, Inc. All rights reserved. Copyright © 2004 Prentice Hall, Inc. All rights reserved. PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

Managing in ActionManaging in Action

Gary DesslerGary Dessler

Principles and Practices for Tomorrow’s LeadersPrinciples and Practices for Tomorrow’s Leaders

Managing Entrepreneurial Managing Entrepreneurial OrganizationsOrganizationsManaging Entrepreneurial Managing Entrepreneurial OrganizationsOrganizations

1616C H A P T E RC H A P T E R

Copyright © 2004 Prentice Hall. All rights reserved. 16–2

Chapter ObjectivesAfter studying this chapter and the case exercises at the end, you should be able to:

1. Explain why you do (or do not) have the traits to be an entrepreneur.

2. List what the entrepreneur is doing right and doing wrong with respect to starting the business.

3. List what the person did right and did wrong with respect to buying a franchise.

4. Conduct an informal business feasibility study.


Chapter Objectives (cont’d)

5. Recommend a start-up structure for the new business.

6. List the activity areas for which the new business owner should establish controls.


Entrepreneurship Today

• EntrepreneurshipThe creation of a business for the purpose of gain

or growth under conditions of risk and uncertainty.

• EntrepreneurSomeone who creates new businesses for the

purpose of gain or growth under conditions of risk and uncertainty.


Common Themes in Definitions of Entrepreneurship

FIGURE 16–1

Source: From Mary Coulter, Entrepreneurship in Action (Upper Saddle River, NJ: Prentice Hall, 2001), p. 4; based on W. B. Gartner, “What Are We Talking About When We Talk About Entrepreneurship?” Journal of Business Venturing 5, 1990, pp. 15–28.


Entrepreneurs and Small Business Management

• Small Business ManagementPlanning, organizing, leading, and controlling a small

business.

• SBA Definition of a Small BusinessManufacturing or wholesaling firms with fewer than

100 employees.Retailing or service firms with annual sales under $5

million.



Business Turnover, 1990–2000

FIGURE 16–2

Sources: U.S. Small Business Administration, Office of Advocacy from data provided by the U.S. Bureau of the Census and U.S. Department of Labor, ETA (1999 and 2000 were estimated by Advocacy).


Why Entrepreneurship Is Important

• Small businesses account most of the 600,000 new businesses created every year.

• Small firms account for 75% of the employment growth in the U.S. economy.

• More than half the people working in the United States work for small firms.

• Small firms generate 24 times more innovations per R&D dollars spent than do Fortune 500 firms and account for over 95 percent of new product development.


Corporate Intrapreneurship

• IntrapreneurshipThe development, within a large corporation, of

internal markets and relatively small autonomous or semiautonomous business units that produce products, services, or technologies that employ the firm’s resources in a unique way.


Should You Be an Entrepreneur?

• Are you a self-starter?• How well do you get along with different

personalities?• How good are you at making decisions?• Do you have the physical and emotional stamina

to run a business?• How well do you plan and organize?• Is your drive strong enough to maintain your

motivation?• How will the business affect your family?


Getting Started In Business

• The Idea for What Business Should I Be InWork experienceSerendipityHobbiesA systematic search for ideas

• Things to ConsiderList the reasons for wanting to go into business.Determine what business is right for you. Identify the niche your business will fill.Conduct a pre-business review.


Methods for Getting into Business

• Family-Owned Business• Starting a Business from Scratch• Buying a Business• Buying a Franchise


Buying an Existing Business

Pros• Reduces risk of failure.• Allows immediate entry

into business.• Purchaser gains the

benefits of the firm’s established reputation and customer goodwill.

Cons• Can be a costly way to

enter a business• Has risk in unknowingly

buying a failing business

• Existing problems with suppliers, customers, and employees


Buying a Franchise

• FranchiseA license to use a company’s business ideas and

procedures and to sell its goods or services.

• FranchiserA firm that licenses other firms to use its business

idea and procedures and to sell its goods or services in return for royalty and other types of payments.

• FranchiseeA firm that obtains a license to use a franchiser’s

business ideas and procedures, and an exclusive right to sell the franchiser’s goods or services in a specific territory.


Buying a Franchise (cont’d)

• FranchiseeA firm that obtains a license to use a franchiser’s

business ideas and procedures, and an exclusive right to sell the franchiser’s goods or services in a specific territory.

• Franchising AgreementA document that lays out the relationship between the

franchiser and franchisee.


Forms of Business Ownership

• Sole ProprietorshipSimplest form of business: a business owned entirely

by one person.As sole owner, the proprietor owns the firm and its

profits (or losses) outright; there are no other owners with whom the rewards must be shared.

The sole proprietor has unlimited financial liability. The business owner is responsible for any claims

against the firm that go beyond what the owner has invested in the business.

Profits are taxed as simple income to the owner.


Forms of Business Ownership (cont’d)

• PartnershipAn association of two or more persons to carry on as

co-owners of a business for profit.

• Partnership AgreementAn oral or written contract between the owners of a

partnership. It identifies the business, and it lays out the partners’ respective rights and duties.

• Partnership AdvantagesSimple to startMore sources of investmentsMore opportunities to specialize


Forms of Business Ownership (cont’d)

• Basic Forms of PartnershipsGeneral partnership

All partners share in the ownership, management, and responsibility for all liabilities of the firm.

Limited partnership Certain partners are liable for the debts of the firm only

to the extent of their financial investment in the firm.


Partnerships

• AdvantagesSimple to startMore sources of

investmentsMore opportunities to

specializeProfits taxed as

simple income to the partners

• DisadvantagesUnlimited liability for

general partnersPersonal

disagreements among partners

Withdrawal of partners and their investments


The Corporation

• CorporationA legally chartered organization that is a separate

legal entity apart from its owners.A corporation comes into being when the

incorporators (founders) apply for and receive a charter from the state in which the firm is to reside.

The corporation’s owners as stockholders also have limited financial liability for the corporation.


The Corporation

• AdvantagesLimited liabilityEasier to raise capitalPermanenceEasy of transfer of

ownership

• DisadvantagesDouble taxation of

corporate income and dividends

Subject to state and Federal regulations


Getting Funded: Equity

• AngelsWealthy individuals interested in the high-risk/high-

reward potentials of new venture creation.

• Venture Capitalists (VCs)Professionally managed pools of investor money that

specialize in evaluating new venture opportunities and taking equity stakes in worthy businesses.

• Initial Public Offering (IPO)When a company first sells stock to outside owners.


Getting Funded: Debt

• Commercial Sources of DebtCredit lines and business loans from banksBusiness credit card debtPersonal loansPersonal credit card debt.

• Asset-based DebtDebt collateralized (guaranteed) by one or more

specific assets of the business. If the business doesn’t pay, the lender takes the asset.


How Entrepreneurs Craft Strategies

1. Screen out losers quickly.

2. Minimize the resources devoted to researching ideas.

3. Don’t wait for all the answers, and be ready to change course.


Checklist 16.1Is the Business Idea Feasible?

The Market The Customers The Industry


Note: (1) The ratings values are as follows: 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4 = major strength. (2) As indicated by the total weighted score of 2.8, Competitor 3 is weakest. (3) Only eight critical success factors are included for simplicity; this is to few in actuality.

Source: Fred R. David, Strategic Management (Upper Saddle River, NJ: Prentice Hall, 2001), p. 115.


The Business Plan

• Business Plan A plan that lays out what the business is, where it is

heading, and how it plans to get there.

• Creating a Business Plan1. Clearly define the business.

2. Provide evidence of management capabilities.

3. Providing evidence of marketing capabilities.

4. Offer an attractive financial arrangement.


FIGURE 16–5a

Contents of a Good Business Plan

Source: Source: William F. Schoell, Gary Dessler, and John A. Reinecke, Introduction to Business (Boston: Allyn & Bacon, 1993), p. 176.

INTRODUCTIONA basic description of the firm—name, address, business activity, current stage of development of the firm, and plans for the future.

EXECUTIVE SUMMARYAn overview of the entire business plan, summarizing the content of each section and inviting the reader to continue.

INDUSTRY ANALYSISA description of the industry the firm is competing in, focusing on industry trends and profit potential.

MANAGEMENT SECTIONA description of the management team and whether it is complete—and, if not, when and how it will be completed.

MANUFACTURING SECTIONA description of the complexity and logistics of the manufacturing process and of the firm’s production capacity and current percentage of capacity use.

INTRODUCTIONA basic description of the firm—name, address, business activity, current stage of development of the firm, and plans for the future.

EXECUTIVE SUMMARYAn overview of the entire business plan, summarizing the content of each section and inviting the reader to continue.

INDUSTRY ANALYSISA description of the industry the firm is competing in, focusing on industry trends and profit potential.

MANAGEMENT SECTIONA description of the management team and whether it is complete—and, if not, when and how it will be completed.

MANUFACTURING SECTIONA description of the complexity and logistics of the manufacturing process and of the firm’s production capacity and current percentage of capacity use.


FIGURE 16–5b

Contents of a Good Business Plan (cont’d)

Source: Source: William F. Schoell, Gary Dessler, and John A. Reinecke, Introduction to Business (Boston: Allyn & Bacon, 1993), p. 176.

PRODUCT SECTIONA description of the good or service, including where it is in its life cycle (for example, a new product or a mature product); of future product research and development efforts; and of the status of patent or copyright applications.

MARKETING SECTIONA marketing plan, including a customer profile, an analysis of market needs, and a geographic analysis of markets; a description of pricing, distribution, and promotion; and an analysis of how the firm’s marketing efforts are different from competitors’ efforts.

FINANCIAL SECTIONFinancial statements for the current year and the three previous years, if applicable; financial projections for the next three to five years; and assumptions for sales, cost of sales, cash flow, pro forma balance sheets, and key statistics, such as the current ratio, the debt/equity ratio, and inventory turnovers.

LEGAL SECTIONForm of ownership (proprietorship, partnership, or corporation) and a listing of any pending lawsuits filed by or against the firm.

PRODUCT SECTIONA description of the good or service, including where it is in its life cycle (for example, a new product or a mature product); of future product research and development efforts; and of the status of patent or copyright applications.

MARKETING SECTIONA marketing plan, including a customer profile, an analysis of market needs, and a geographic analysis of markets; a description of pricing, distribution, and promotion; and an analysis of how the firm’s marketing efforts are different from competitors’ efforts.

FINANCIAL SECTIONFinancial statements for the current year and the three previous years, if applicable; financial projections for the next three to five years; and assumptions for sales, cost of sales, cash flow, pro forma balance sheets, and key statistics, such as the current ratio, the debt/equity ratio, and inventory turnovers.

LEGAL SECTIONForm of ownership (proprietorship, partnership, or corporation) and a listing of any pending lawsuits filed by or against the firm.


Staffing the Small Business

• Human Resource Tasks for the EntrepreneurWrite job descriptions.Have a recruiting plan showing the jobs to recruit for

and how to recruit for them.Effectively interview and screen candidates.Train, appraise, and discipline the new employees.Know federal and local equal employment laws.


FIGURE 16–6

Organizational Charts as a Company Grows

Source: Source: Peggy Lambing and Charles R. Kuehl, Entrepreneurship (Upper Saddle River, NJ: 2000), p. 44.


FIGURE 16–8

Organizational Culture: A Comparison

Source: Adapted from J. Cornwall and B. Perlman, Organizational Entrepreneurship (Homewood, IL: Irwin, 1990).


What to Control? (Financials)

• All approvals for disbursements of cash and regular accounting

• The review of cash receipts, including reconciliation with the work that the firm actually did for the customer

• The reconciliation of bank statements

• The periodic review and reconciliation of inventory records

• The approval of pricing policies and exceptions

• The approval of credit policies and exceptions

• The review of all expenses and commissions

• The approval of purchasing and receiving policies

• The review of payments to vendors and employees

• The approval of signature authorities for payments (in other words, who can sign checks?)

• The review and changes to policies


What to Control? (Operations)

• New orders and backlog (weekly, monthly)

• Shipments/sales (weekly, monthly)

• Employment (monthly)• Inventory that is out of

stock (weekly, monthly)• Product quality (weekly,

monthly)

• Accounts receivable aging (who owes what, and for how long?)

• Weekly overdue accounts

• Returns and allowances (monthly)

• Production (weekly, monthly)

Documents

PowerPoint Presentation by Charlie Cook Managing in Action Gary Dessler Principles and Practices for Tomorrow’s Leaders Copyright © 2004 Prentice Hall,