Business Administration Unit 1 Business 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 Dropbox – store,sync and share files securely Uber - online tech cab service Ecko Unlimited- Urban clothing line Nike – digital sports division Amazon – fast online delivery of anything Square – sparked mobile payments

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 business Making a product or providing a service Manufacturing firms produce goods Johnson & Johnson/Microsoft Providing a service Assistance to satisfy specialized needs through skilled workers Doctor / Accountant / Web Design Service firms far outnumber mfg. firms

2 Types of Businesses Industrial/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, Walgreens Finance Banks & Investment Companies – JPMorgan, Bank of America Services Comcast, AT & T, Hilton Hotels

Industry/Sector (10 – 12) major sectors An 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.

12 Industries That Are Growing in 2015 Health Care High Tech Equipment Manufacturing The Auto Industry Transportation Computer Systems Design Social Networking

Changing Nature of Business Five 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 Competition Ability 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 Strategies PEST Analysis Political: government regulations and legal issues Economic: outside economic issues Social: demographic and cultural aspects Technology: how organizations deliver its product or service to the marketplace 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 Efficiency Specialization of effort Better technology & innovation Reorganization

Specialization Specialize in an area Mass Production 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 & Innovation Technology includes Equipment, manufacturing processes & materials Better quality goods/services Built faster at lower cost Technology = staying ahead of competitors

Reorganization Late 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

Reorganization Empowerment 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

Entrepreneurship Entrepreneur Person who starts, manages & owns a business Few gvt. controls prevent starting a business New businesses may have: Physical facility (store), 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, Nike Small 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 Business Legal 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 company Franchisee – distributor of franchised product/service

Franchise Business Franchise 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 Ownership Businesses 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 Reasons 64.1% - Economic causes 23.9% - Financial Causes Low profit/sales, industry weakness 23.9% - Financial Causes Expenses & debt

End of Chapter 1