Chapters 5 and 6

Who are the Entrepreneurs?  Mark Zuckerburg – Facebook  Mitchell and Mollie Murphree – Five Senses Restaurant  Mark Davis ○ Insert Therapeutics

Why Start Your Own Business?  Control  Reap the Profit  Challenge of Something New  Opportunity Is There

What Is Entrepreneurship? Opportunity + Resources New Value

The Internet – A Major Aid for New Small Businesses  20 million businesses are run out of homes in the U.S. Many are helped through Web services  Online sales account for 8% of all retail sales in the U.S. 24 hour business Ease and low expense of mailing customers Ease of reaching small target markets over large geographic areas

Entrepreneurs Everywhere  In corporations Intrapreneurs or corporate entrepreneurs Have to have right culture Much of the reward – not much of the risk  In incubators Arte’ Center for the Advancement of Research, Technology, and Entrepreneurship Arte’ Center for the Advancement of Research, Technology, and Entrepreneurship

The Importance of Small Business  Generate 75 percent of new jobs in U.S. each year  Generate over 50% of GDP in U.S.  Generate 11 TIMES the innovations of large businesses.

The Downside to Small Business  You can lose your shirt! 60% of small businesses go out of business in the first six years  Owning a business is likely to be extremely stressful.  Loving a field does not mean you’ll be successful as a business owner in that field!

Setting Up Your Small Business  Choose an ownership form and register with government.  Make a business plan Especially if you plan to go for a loan or for an angel investor.  Visit your local TSBDC and SCORE offices.

Forms of Ownership  Sole proprietorship  Partnership  LLC  S-Corporations  C-Corporations

How to Set Up Your Business  Sole Proprietorship Only one owner Dies with owner No limited liability Most common form of business Tax flows to personal income Must file for business license in TN

Partnership  2 or more owners  No limited liability Exception: General vs. limited partnerships  More likely to survive than sole prop.  Division of profits, liability, conflicts the downside

Corporations  Exist separately from owner  Represent 81% of U.S. revenues Should tell you something about sole proprietorships!  S and C – different tax treatment and ownership allowances  Perpetual life  More red tape to start up

Limited Liability Companies (LLCs)  Very much like S-corporation  Can be taxed on owner’s return  Other corporations can be owners also  Flexible distribution of profit  Must have approval of other owners to sell out  Must dissolve by deadline; dies with owners  Pay Medicare and Medicaid tax on profits

Careful Consideration Should Be Taken to Pick the Right Form !!  Liability concerns  Tax concerns  Future growth considerations  Cost to start up

Ways that Companies Grow  Mergers Vertical Horizontal Conglomerate  Acquisitions  Leveraged Buyout (?)

Franchises  One firm already has a successful product or service  Offers its trademarks and patented business processes to another for…  Initial franchise fee and ongoing royalties

Entrepreneurs  Franchisees can be entrepreneurs The ones opening the franchise in their local market  Franchisors can be entrepreneurs Different role of being a manager of managers

Franchise Agreements  Single unit agreements Open one store  Area agreements Open several stores in one area, up to a maximum Master franchisee: Can also sell franchises to others in that area

Developing a Franchise  Franchise fee ($25,000-$100,000)  Capital Requirements Land Building Inventory Licenses  Royalty payment on gross income  Advertising fees (on top of your ads)  Other fees as agreed upon

Last Kind of Business: Cooperative  MTEMC is a cooperative Owned by the users of the electricity  Farm cooperatives Farmers band together to get better pricing  One member, one vote  Other examples? Ace Hardware, Ocean Spray, True Value Hardware

Managing an Organization  Much different than 20 years ago  Managers Plan Organize Lead Control

Being a Manager: Planning  Mission, vision, values, goals, and objectives  SWOT analysis  Strategy and tactics  Decision making Using scientific method

Being a Manager: Organizing  Organizational Chart Why do people get put into management positions? Is this right?  Choosing between stakeholders  Staffing the ranks and dealing with turnover

Being a Manager: Leading  Creating something for others to follow  Different styles Autocratic Participative Free-rein  Used to be referred to as directing

Being a Manager: Controlling  Establishing standards  Creating a measurement system  Measuring  Comparing results to plans  Taking corrective action

Importance of Satisfaction  External customers Getting them to want to refer the business Getting them to return  Internal customers Making them feel at home Putting a smiling face in front of the customer

Chapter 8

Figuring Out Organizational Structure 1. Make strategic plans for the company 2. Decide what work needs to be done 3. Divide up the tasks 1. Job specialization – Adam Smith 4. Hire more workers as the business grows. What are the problems inherent in this?

Figuring Out Organizational Structure  Departments Set up to handle similar tasks  What are the functions of the organization?  Assigning responsibility

The Organizational Chart  A blueprint for how things get done in a company Microsoft’s organizational chart A standard organizational chart  Shows tasks, responsibilities, and hierarchy.

Why Are Today’s Organizations So Big??  Mass production  Economies of scale  Organizational Theory Henri Fayol ○ One boss, hierarchy, organization is most important, order, pride, clear communication Max Weber ○ Manager has the power, job descriptions, everything in writing,