1. Chapter 5 Choosing a Form of Business Ownership

2. Types of Business Structure Sole Proprietorship Partnerships Corporations Advantages & Disadvantages

3. Sole Proprietorship Advantages Disadvantages Easy to start & endUnlimited liability You’re the boss (& the help)Limited financial resources OwnershipRecords/management Leave a legacyTime commitment Retain profitsFew fringe benefits No special taxesLimited growth (must pay quarterly taxes)Limited life span

4. Partnerships Advantages Disadvantages More financial resourcesUnlimited liability Shared managementDivision of profits Longer survivalDisagreements among No special taxespartners Difficulty of termination

5. Corporations C corp = conventional corporation Advantages Disadvantages Limited liabilityExtensive paperwork More $ for investmentDouble taxation SizeTwo tax returns Perpetual lifeSize Ease of ownership changeDifficulty of termination Ease of attracting talented Possible conflict with employees stockholders & Separation of ownership board of directors from managementInitial cost

6. S Corporation Have no more than 100 shareholders all members of one family may be counted as 1 shareholder Shareholders who are individual or estates are citizens or residents of the USA. Only one class of outstanding stock Preferred & common stock are only for C corps No more than 25% of income from passive sources ( rents, royalties, interest )

7. Limited Liability Companies Advantages Disadvantages Limited liabilityNo stock Choice of taxationLimited life span Flexible ownership rulesFewer incentives Flexible profit or lossTaxes: paid on profit distribution not just salaries Operating flexibilityPaperwork less than corp. But more than proprietorship

8. Types of Mergers VerticalSoda Firm & Sweetener Firm Auto Maker & Tire Maker HorizontalMercedes Benz & Chrysler Wachovia & 1st Union Bank ConglomeratePhilip Morris & Nabisco LBO = Leveraged Buyout

9. Special forms of Ownership Franchises - Advantages & Disadvantges E-commerce Home-based Cooperatives - Advantages & Disadvantges

10. Franchises Advantages Disadvantages Management & marketingLarge start-up costs assistanceShared profits Personal ownershipManagement regulation Nationally recognized nameCoattail effects Financial advice & assistanceRestrictions on selling Lower failure rateFraudulent franchisors

11. Cooperatives Advantages Disadvantages Owned & controlled by usersWho is minding the store? producers, customers, or Requires stable group workers user/owners Pool resources for mutual gainMay require board of Buying power of larger groups directors Taxes: not the same as corporations Land O Lakes, Sunkist, Ocean Spray, Blue Diamond, Welch’s, Associated Press, Ace Hardware, True Value Hardware

12. Read pages 142-145 Vocabulary Terms: acquisition conglomerate merger conventional corporation cooperative corporation franchise franchise agreement franchisee franchisor general partner general partnership horizontal merger levered buyout limited liability LLC LLP limited partner limited partnership master limited partner merger partnership S corporation sole proprietorship unlimited liability vertical merger If you started a business, what type would it be & what goods or services would you provide.

14. Chapter 6 - Business Ownership The Age of the Entrepreneur Job-Creating Power DuPont: Started in 1802 by French immigrant; 18 investors put up $36,000 in start-up money. Avon started in 1886: David McConnell borrowed $500 from a friend.

15. The Cash Flow Quadrant Four Ways to Make an Income EmployeeBusiness Owner Self-EmployedInvestor From Robert Kiyosaki

16. More Business Stories George Eastman launched Kodak in 1880 with $3,000 Procter and Gamble was formed in 1837 by William Procter and James Gamble with $7,000 in capital. Ford Motors began with $28,000 by Henry Ford and 11 associates.

17. More Business Stories Amazon.com started by Jeff Bezos’s family and friends. His parents invested $300,000, a huge part of their retirement assets, Today, they are billionaires. Other entrepreneurs: Steve Jobs, Ross Perot, Michael Dell, Bill Gates, Howard Schultz, Scott Cook, Ted Turner…

18. Why be an Entrepreneur? Risks & Rewards Opportunity Profit Independence Challenge

19. What does it take? Self-directed Self-nurturing Action-oriented Highly energetic Tolerant of uncertainty Take Questionnaire on page 153 (Homework)

20. Ways to make it happen. Entrepreneurial Teams Micropreneurs & Home-based Business Computer technology, Corporate downsizing, Social attitudes, New tax laws

21. Challenges for new businesses Getting new customers Managing time Keeping work & family tasks separate Abiding by city ordinances Managing risk

22. Intrapreneurs Working for someone else Launch new products Innovation and creativity 3M Skunkworks of Lockheed Martin

23. Encouraging New Businesses Enterprise Zones Incubators Technology Centers

24. Small vs Big Business 20 million full or part-time home-based businesses in the U.S. 750,000 tax-paying, employee-hiring businesses are started every year. Of non-farm business in U. S., 97% are small businesses (Small Business Administration) Account for 50% of GDP U.S. employees of small businesses are more than population of Canada & Australia

25. More about small businesses About 80% of U.S. employees get their first job at a small business. 75% of new jobs created by small businesses Women own nearly 6 million small businesses. Business ownership for Asians, Hispanics, and African Americans have increased by 463%, 417% and 108% respectively

26. Why are Small Businesses Important? 75% of new jobs are created by small businesses More personal approach to customer service Quicker response to customers wants Fill a contain with pebbles and rock. Can anything else be squeezed into the full box? If pebbles are medium sized companies & rocks are giant corporations, there is still a lot of room for small firm (sand) in the box.

27. Success and Failure SBA - 60% in first 6 years fail (not so fast) Conventional wisdom: 1/3 in first 4 years Bruce Kirschhoff’s study showed: 18% in first 8 years failed. Statistics on failures include closing one business to start a new business; changing from a partnership to corporation. 1 out of 5 firms that fail leave owing money to creditors.

28. Businesses with low failure rates Veterinary Services Dental Practices Medical Practices These don’t produce much growth but provide more security Growing for growth as in technology firms are not easy to start, and can be difficult to keep going. See page 162 – figure 6.4

29. Successes See page 163 - figure 6.5 Customers need a lot of personal attention Product is easy to obtain/make Market/neighborhood is not attractive to a large firm. Teaming with a giant/franchising Pay attention to new competitors Find a growth or recession resistant industry

30. Learning about Small Business Learning from others (who have succeeded) Get some experience Take over a successful firm 1) what the business owns 2) what the business earns 3) what makes it unique (An accountant can help you find what a business is worth.)

31. Managing a Small Business Planning your business Financing your business Knowing your customers Managing your employees Keeping records

32. Planning: A Business Plan a 25 to 50 page document Cover Letter Section 1 – Executive Summary Section 2 – Company Background Section 3 – Management Team Section 4 – Financial Plan Section 5 – Capital Required Section 6 – Marketing Plan Section 7 – Location Analysis Section 8 – Manufacturing Plan Section 9 – Appendix

33. Planning Begin with a Business Plan Writing a Business Plan Getting money to fund a small business - Would you lend a business money without a written business plan?

34. Marketing Target market age group need/wants resources willingness to buy price and financing How many sales per week are needed to keep your business afloat? When will your efforts make this happen? What strategies & activity will it take?

35. Where can you get help? Money sources personal savings relatives & friends former employers banks/finance companies venture capitalists government agencies: Small Business Administration www.sba.gov Farmers Home Administration, Economic Development Authority, Minority Business Development Agency, Small Business Investment Company Program, Small Business Development Center

36. Important Details Know your customers Managing employee/independent contractors Keeping records Help: Legal –SBA’s BusinessLaw.com SCORE –Service Corps of Retired Executives Local Chambers of Commerce Better Business Bureau

37. Going International Hurdles: Financing Know How Cultural Differences Red Tape = Bureaucratic Paperwork Advantages: Overseas buyer prefer dealing with individuals Faster response time/shipping Variety of suppliers through one small firm Better service

39. Chapter 7 Management, Leadership, & Employee Empowerment

40. Goals 1.Explain how the changes that are occurring in the business environment are affecting the management function. 2.Describe the four functions of management. 3.Relate the planning process & decision making process to the accomplishments of company goals. 4.Describe the organizing function of management. 5.Explain the difference between leaders & managers, & describe the various leadership styles 6.Summarize the top five steps of the control function of management.

41. Management The process used to accomplish organizational goals through planning, organizing, leading, and controlling people. Rewrite: change to controlling outcomes/product or change controlling to motivating This is a personal issue (for me). I do not believe in controlling through force & intimidation. Information, reason & incentives are more positive than attempts to control.

42. Function of Management PlanningOrganizing LeadingControlling (Motivating)

43. Planning Creating a vision that inspires people. Based on shared values Develop a mission statement 1)Organization’s self-concept 2)Firm’s philosophy & goals 3)Long-term survival 4)Customer needs 5)Social Responsibility 6)Nature of firm’s product or service

44. Planning: Short Term & Long Term Goals: Long Term broad accomplishments/wishes Objectives: Short Term specific, measurable outcomes Strategies: Low price; quality service; Tactics: Sale 4 time/year; customer surveys;

45. All planning is designed to… … get you from point A to point B Where are you now, where are your customers now, what do they need or want? How will people find out about how you can help them? What will it take to win customers that rave about you and your firm?

46. SWOT Analysis Strengths Weaknesses Opportunities Threats

47. Forms of Planning StrategicTactical long range goals specific short range by top managers by lower level mgrs ContingencyOperational Backup plans in case set work schedules primary plan fails & standards of performance

48. Decision making Find the best alternative Develop the situation Describe & collect the needed information Develop alternatives/brainstorm Develop concensus among those involved Decide which alternative is best/choose Do what is indicated/implement Determine whether decision was good/evaluate

49. Other ways of looking at this… Problem Solving PMI = Pluses/Minuses/Implications Similar to The Franklin Method of Decision Making

50. Organizational Chart Top Management Middle Management Supervisory Management Nonsupervisory/Employees Organizing: to form a unified system

51. Levels of skills for managers Top managers: Technical skills: less important Human Relations skills Conceptual skills: more important Middle managers:Technical skills Human Relations skills Conceptual skills First-line managers:Technical skills: more important Human Relations skills Conceptual skills: less important

52. Skills Technical: discipline specific skills; software or marketing Human Relations: communication & motivation; enabling, leading, coaching, moral building, delegating, training, assisting, developing competence Conceptual: planning, vision, organizing, controlling, system development, problem analysis, decision making, coordinating, delegating

53. Stakeholder-oriented Organization Less a matter of managers in control More influence of customers & others Restructuring of large organizations into small responsive units

54. Recruitment & Beyond Getting & Keeping the Right People Staffing – Attracting quality people/workers Orientation – Training to get recruits off to a positive start Motivating – Finding the best way to keep improving the firm/its people Retaining – Rewarding those who get it

55. Leading Providing Continuous Vision & Values Leaders versus Managers Leaders help people see the reasons for change & create a Vision to follow Managers strive to produce order & stability Good leaders develop an environment for workers to motivate themselves, Good managers carry out the vision & accomplish the firms goals.

56. Leader Must… Communicate a vision & rally others around that vision. Establish corporate value Promote corporate ethics Embrace change

57. Leadership Styles Autocratic: decision making without consulting others; great in emergencies; direct the activities of many skilled workers Participative: (TQM or TQL) work problem solving through teams; employee input may not improve efficiency, but may increase job satisfaction Free-rein: setting objectives & letting employees have discretion on how to accomplish them

58. Empowering Workers Giving explicit instructions versus authority to employees Enabling employees to decision that managers used to make Employees owning the responsibility of their choices Requires clear communication, education, training, coaching and tools for employees when using greater discretion at work

59. Knowledge is Power Managing knowledge: Getting the information to employees to better serve the customers What is most important? How does your firm get this information? What do I still not know? Who should I be asking? How does your firm keep in touch with others?

60. Controlling: Making sure it works Establish clear standards Monitor & Record performance Compare results against standards Communicate results If needed, take corrective actions Are standards realistic?

61. Setting Clear Standards The weakest link: setting standards Better quality is not precise Faster response to customer contact - not much better Greet each customer within 15 seconds of entering the store, ask “How may I help you, today?” - This is a measurable goal & clear.

63. Customer Satisfaction External Customers: dealers, general public Internal Customers: employees, units within the firm, field sales people Getting a good rating is not enough, how can you delight the customer so they rave about your firm to others.

66. Chapter 8 Adapting Organizations to Today’s Markets

67. Everyone is doing it… Restructuring Notable Firms Xerox Ford GM Toyota IBM Kraft Foods Siemens

68. From the Bottom Up Size does not change the fundamentals of organizing a business. Organize your business – Where to start?! What does your business do now? Who does what tasks? Division of Labor Job Specialization – Which workers are best at each task? Growing your business: Attracting & retaining quality workers What opportunities are suitable additions?

69. Setting up Team or Departments Specialization of task leads to development of groups that work together for a common goal. ProductionAccounting MarketingRecruiting/Training

70. Organizational Design Fayol’s principles of Organization 1.Unity of Command 2.Hierarchy of Authority 3.Division of Labor 4.Subordination 5.Authority 6.Degree of Centralization 7.Clear Communication Channels 8.Order 9.Equity 10.Esprit de corps

71. Max Weber – Organizational Theory The Theory of Social and Economic Organizations Pyramid Structure of Organizations Believed that firms would do well if worker just did what they were told. This may be reasonable if you had workers that were relatively uneducated or untrained. Job descriptions Written rules, decision guidelines & detailed records Consistent procedures, regulations & policies Staffing & promotion based on qualifications

72. Principles into Design Fayol – 1919Weber – 1940’s Chain of Command Hierarchy = a system of levels of command where each individual has only one direct supervisor President Manager AManager BManager C First –Line Supervisors Workers

73. Authority Centralized or Decentralized Centralized Authority & decision making centered in the top level of management = Centralized Aristocrats/Nobility/Ruling Class vs Workers Limitations: less responsive to current demands less empowerment/rigid rules clash between level lower morale

74. Authority Centralized or Decentralized Decentralized Authority & decision making spread out over the levels of management. The United States Government is a prime example of separate levels of authority. Federalism reserved all powers of decision making to the people and the states that are not delineated as responsibilities of the Federal or central government. Local decisions are more responsive to the wishes of the people.

75. Choosing a span of control How many subordinates should/can a manager supervise? At lower levels, where work is more standardized 15 to 40 workers is possible. At higher levels this span shrinks to 3 to 12 people per supervisor.

76. Tall versus Flat Orgaizations Tall = Many layers of management Flat = One person or group makes all the decisions

77. Departmentalization Advantages Disadvantages Depth of skill development Lack of communication to masteryfeedback missing Economies of scale run Fragmentation of loyalty by expertsGroup think Coordination & controlSlow response to external by top managementchanges Trained people become narrowly specialized

78. Alternatives to Departmentalization Function: Production, Finance, Marketing Product: GM – Chevy, Buick, GMC, etc. Market: Consumer market, Business to business, Government contracts Geographic: Regional/Cultural Hybrids

79. Line Organizations & others Line organization: direct, two-way lines of responsibility & communication from top to bottom with people reporting to only one supervisor.McDonald’s Line-and-Staff organization: Line personnel are part of the chain of command; Staff assist & advise line personnel in meeting their goals. Olympic College

80. Matrix-Style Organizations Project completion require specialist from different parts of the organization. Borrowing from different departments for temporary association for design & development of a new product.

81. Cross-Functional Self-Managed Teams Similar to matrix organizations, but longer connection and direction of new ideas/products without apppproval of upper management. Interdepartmental or interfirm collaboration

82. Managing Among Firms Customers, Suppliers, Distributors, Governments networking: real time communication (internet & other forms of telecommunication) Transparency & Integration Virtual Corporation

83. Benchmarking Comparing an organization’s practices, processes & products against the best in the world. Dalbar Award – Customer Service & Technology J.D. Powers Award- Quality Car & Track – Car of the Year Broad Prize – Best Inner City School System

84. Core Competencies Things that must be done well by the firm If outside the firm a better process, or more efficient way to accomplish a task is found … outsourcing can improve the bottom line IBM outsources its software development to Microsoft

85. Adapting to Change Stuck in a rut? How do you climb out? Managers find change the most difficult challenges. New ways of thinking; tracking progress; evaluating everything Kmart & Polaroid

86. Restructuring for Empowerment Inverted Organization (Service oriented firm) Front-line workers = Key People (not managers) Front-Line Workers Support Personnel Top Mgmt

87. Focus on the Customer What does the customer want? -not what are we selling/making. Creating a Change-oriented Organizational Culture Atmosphere & Actions Informal Organization = People working together