Applied Economics: Principles in Creating a Business PDF

**APPLIED ECONOMICS** **CHAPTER 3 - LESSON 10** **PRINCIPLES IN CREATING A BUSINESS** - fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning 1. **SCALABILITY** - the capability of a system, network or process to handle...

**APPLIED ECONOMICS** **CHAPTER 3 - LESSON 10** **PRINCIPLES IN CREATING A BUSINESS** - fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning 1. **SCALABILITY** - the capability of a system, network or process to handle a growing amount of work 2. **BIG IDEAS** - the entrepreneur\'s vision is more important to the life of the business 3. **SYSTEMS** - a small business is a system in which all parts contribute to the success or failure of the whole 4. **SUSTAINABILITY** - a business must be dynamic and able to thrive through all economic conditions, in all markets 5. **GROWTH** - a small business is a school in which its employees are students, with the intention, will, and determination to grow; all businesses need internal growth 6. **VISION** - a small business must manifest the higher purpose upon which it was seeded; the vision was meant to exemplify, the mission was intended to fulfill 7. **PURPOSE** - a small business is the fruit of a higher aim in the mind of the person who conceived it 8. **AUTONOMY** - a small business possesses a life of its own, in the service of God, in whom it finds reason 9. **PROFITABILITY** - a small business is an economic entity, driving an economic reality, creating an economic certainty for the communities in which it thrives 10. **STANDARDS** - a small business creates a standard against which all small businesses are measured as either successful, or not **7 STEPS IN EFFECTIVE DECISION-MAKING** 1. **IDENTIFY THE DECISION TO BE MADE** - you go through an internal process of trying to define the nature of the decision you must make clearly 2. **GATHER RELEVANT INFORMATION** - most decisions require collecting pertinent information; some information must be sought from within yourself through a process of self-assessment, while other information must be sought from outside books, people, and a variety of other sources 3. **IDENTIFY ALTERNATIVES** - you will list all possible and desirable alternatives 4. **WEIGH EVIDENCE** - you draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end 5. **CHOOSE AMONG ALTERNATIVES** - you are ready to select the choice that seems to be best suited to you 6. **TAKE ACTION** - you now take some positive action, which begins to implement the alternative you chose 7. **REVIEW THE DECISION AND CONSEQUENCES** - you experience the results of your decision and evaluate whether or not it has \"solved\" the need you identified in step 1 **DECISION-MAKING TOOLS** 1. **DECISION MATRIX** - used to evaluate all the options of a decision 2. **T-CHART** - used when weighing the pluses and minuses of the options 3. **DECISION TREE** - graph or model that involves contemplating each option and the outcomes of each; statistical analysis is also conducted with this technique 4. **MULTIVOTING** - used when multiple people are involved in making a decision 5. **PARETO ANALYSIS** - used when a large number of decisions need to be made 6. **COST-BENEFIT** - used when weighing the financial ramifications of each possible alternative 7. **CONJOINT ANALYSIS** - used by business leaders to determine consumer preferences when making decisions **TOOLS AND TECHNIQUES IN MAKING AN EFFICIENT BUSINESS** 1. **USE TECHNOLOGY TO SPEED UP WORKFLOW** - small businesses should be looking to innovations in technology to solve day-to-day inconveniences 2. **SHORTER MEETINGS FUEL EFFICIENCY** - hold a brief meeting standing up, every morning, where each person explains what they are going to work on that day 3. **SMART OFFICE SPACE PAYS** - office space can involve a big outlay for SMEs, but it is also an area where some smarter thinking can make a real difference 4. **SMALL CHANGES, BIG SAVINGS** - one way of improving efficiency is for business owners to make small changes to the way they handle their company\'s expenses 5. **MANAGE STAFF EXPENSES** - implementing a corporate card program can help oversee and manage employee expenses and provide high-quality management information 6. **KEEP A FIRM GRIP ON CASH FLOW** - "Turnover is vanity, profit is sanity, and cash flow is reality", is an old saying that business owners would do well to heed 7. **STAY CONNECTED ON THE MOVE** - the growing trend towards mobile and flexible working means that employees are permanently connected and are increasingly working on the go 8. **USE TIME MORE EFFICIENTLY** - being more efficient is more about being than doing; the shorter the amount of time you allow yourself, the more you will get done 9. **GET THE BEST DEAL ON INSURANCE** - business owners can save time by getting multiple insurance quotes from one place, either using a broker or a quote comparison tool 10. **DO NOT BE LAX WITH THE LEGAL** - it's important to have a partnership agreement in place **COMPETITION** - one of the fundamental factors that explain limited growth, productivity, and employment in the economy **TECHNICAL MARKETING TECHNIQUES** 1. **CREATE UTILITY AND USEFULNESS WITH YOUR PRODUCT** - you offer them something they need and can use to accomplish their other goals 2. **CHANGE YOUR PRICING** - bringing your goods and services into the price range of your customers 3. **EMPHASIZE YOUR PRODUCT'S KEY BENEFIT TO THE CUSTOMER** - adapting to the customer\'s reality, both social and economic 4. **DELIVER TRUE VALUE OF YOUR PRODUCT TO YOUR CUSTOMER** - something that can only be identified by working closely with your customers **METHODS OF COMPETITIVE ADVANTAGES** 1. **COST LEADERSHIP** - an offensive strategy, where businesses attempt to drive competitors out of the market by consistently using price strategies to win over consumers; a business is able to offer the same quality product but at a lower price 2. **DIFFERENTIATION** - used to set themselves apart from competitors 3. **DEFENSIVE STRATEGIES** - allows the business to further distance itself from its competition by maintaining a competitive advantage it has gained; used by businesses to keep those advantages in place once they have been attained 4. **ALLIANCES** - used to pool resources and gain themselves exposure at the expense of other competitors; occurs when businesses within the same industry work together to artificially control prices **(COLLUSION)** **TYPES OF BUSINESS COMPETITION** 1. **PERFORMANCE COMPETITION** - making the customers aware of their products, services, and company is done to improve their business performance 2. **HEAD-TO-HEAD COMPETITION** - they will need to use good defensive measures to deflect the attacks and to make it difficult for their opponents to do well 3. **CONTROLLING SUPPLIES** - outbidding in vital supplies or controlling suppliers can be done to hinder the opponents 4. **ADVERTISING** - the best ads indicate lack of quality of the competition through the use of implication 5. **DISTRIBUTION** - method of deterring the competition 6. **PREDATORY COMPETITION** - large companies are known to buy out smaller competitors or may simply make it difficult for the company to stay in business 7. **SUPPLIER** - party that supplies goods; distinguished from a contractor or subcontractor, also known as **VENDOR** where it manufactures inventoriable items, and sells those items to a customer **IMPACT OF SUPPLIERS TO BUSINESS** 1. **QUALITY** - higher quality increases customer satisfaction and decreases returns, which adds cash to your bottom line 2. **TIMELINESS** - quick turnaround is a key to minimize your inventory, which in turn translates to less risk of inventory obsolescence and lower cash needs 3. **COMPETITIVENESS** - gives you the one-up on your competition based on their pricing, quality, reliability, technological breakthroughs and knowledge of industry trends 4. **INNOVATION** - suppliers can make major contributions to your new product development and they\'re working to be on the cutting edge of innovation for their product 5. **FINANCE** - may be able to tap into your suppliers for additional financing once you hit growth mode or if you run into a cash crunch