EIM301 Exam Notes PDF

 Disclaimer These notes were compiled using Small Business Management: Launching and Growing Entrepreneurial Ventures, SA Edition Textbook. When utilising this information for any purpose that requi...

 Disclaimer These notes were compiled using Small Business Management: Launching and Growing Entrepreneurial Ventures, SA Edition Textbook. When utilising this information for any purpose that requires referencing, the following source is where I obtained this information: Longenecker, J.G., Petty, J.W., Palich, L.E., Hoy, F., Radipere, S., Phillips., M. 2017. Small Business Management: Launching and Growing Entrepreneurial Ventures. 1st ed. Andover, Hampshire: Cengage Learning EMEA. Please DO NOT cite or reference my notes as this is what I summarised and understood from reading, lectures and tutorials I attended. The purpose of these notes is to assist in gaining an understanding for the module and assisting you the way that the information assisted me in preparing for examinations. Please do not distribute this document or try and sell it as your own work. It took many hours of hard work to compile and format this pack and I would appreciate not seeing my notes on the groups. Thank you for your support! 1 Table of Contents PRICING & CREDIT DECISIONS 6 SETTING A PRICE 6 PRICING STARTING WITH COSTS 6 PRICING STARTING WITH CUSTOMERS 6 APPLYING A PRICING SYSTEM 6 BREAK-EVEN ANALYSIS 7 MARKUP PRICING 7 SELECTING A PRICING STRATEGY 7 PENETRATION PRICING 7 PRICE SKIMMING 7 FOLLOW-THE-LEADER PRICING 8 VARIABLE PRICING 8 PRICE LINING 8 OPTIONAL PRODUCT & SERVICE PRICING 8 OFFERING CREDIT 8 BENEFITS OF CREDIT 8 FACTORS THAT AFFECT SELLING ON CREDIT 9 TYPES OF CREDIT 9 MANAGING THE CREDIT PROCESS 9 EVALUATION OF CREDIT APPLICANTS 9 SOURCES OF CREDIT INFORMATION 9 AGEING OF ACCOUNTS RECEIVABLE 10 BILLING AND COLLECTION PROCEDURES 10 PROMOTIONAL PLANNING 10 PROMOTION IS COMMUNICATION 10 DETERMINING THE PROMOTIONAL BUDGET 10 PROMOTING USING THE INTERNET & SOCIAL MEDIA 10 THE SMALL BUSINESS WEBSITE 10 SOCIAL MEDIA 11 PERSONAL SELLING IN THE SMALL BUSINESS 12 THE IMPORTANCE OF PRODUCT KNOWLEDGE 13 THE SALES PRESENTATION 13 ADVERTISING PRACTICES 13 ADVERTISING OBJECTIVES 13 TYPES OF ADVERTISING 14 ADVERTISING SPECIALISTS 14 FREQUENCY OF ADVERTISING 14 WHERE TO ADVERTISE 14 SALES PROMOTION 14 SPECIALITIES 14 TRADE SHOW EXHIBITS 14 PUBLICITY 15 GLOBAL OPPORTUNITIES FOR SMALL BUSINESSES 15 SMALL BUSINESSES AS GLOBAL ENTERPRISES 15 QUESTIONS TO CONSIDER BEFORE GOING GLOBAL 15 GLOBAL BUSINESSES: FORCES DRIVING GLOBAL BUSINESSES 15 2 EXPANDING MARKETS 16 GAINING ACCESS TO RESOURCES 16 CUTTING COSTS 16 CAPITALISING ON SPECIAL FEATURES OF LOCATION 17 STRATEGY OPTIONS FOR GLOBAL BUSINESSES 17 EXPORTING 17 IMPORTING 17 FOREIGN LICENSING 17 INTERNATIONAL FRANCHISING 18 INTERNATIONAL STRATEGIC ALLIANCES 18 LOCATING FACILITIES ABROAD 18 CHALLENGES TO GLOBAL BUSINESSES 18 POLITICAL RISK 18 ECONOMIC RISK 19 THE EASE OF DOING BUSINESS INDEX 19 ASSISTANCE FOR GLOBAL ENTERPRISES 19 ANALYSING MARKETS AND PLANNING STRATEGY 19 CONNECTING WITH INTERNATIONAL CUSTOMERS 19 FINANCING 20 PRIVATE BANKS 20 SMALL ENTERPRISE DEVELOPMENT AGENCY 20 PROFESSIONAL MANAGEMENT & THE SMALL BUSINESS 21 SMALL BUSINESS LEADERSHIP 21 WHAT IS LEADERSHIP? 21 LEADERSHIP QUALITIES OF FOUNDERS 21 WHAT MAKES A LEADER EFFECTIVE? 21 LEADERSHIP STYLES 21 SHAPING THE CULTURE OF THE ORGANISATION 21 THE SMALL BUSINESS MANAGEMENT PROCESS 21 FROM FOUNDER TO PROFESSIONAL MANAGER 22 BUSINESS GROWTH AND MANAGERIAL PRACTICES 22 MANAGERIAL RESPONSIBILITIES OF ENTREPRENEURS 22 PLANNING ACTIVITIES 22 CREATING AN ORGANISATIONAL STRUCTURE 22 DELEGATING AUTHORITY 23 CONTROLLING OPERATIONS 24 COMMUNICATING 24 NEGOTIATING 25 PERSONAL TIME MANAGEMENT 26 THE PROBLEM OF TIME PRESSURE 26 TIME SAVERS FOR BUSY MANAGERS 26 MENTORS, SMALL BUSINESS NETWORKS & BUSINESS SERVICES 26 THE NEED FOR ASSISTANCE 26 THE ROLE OF MENTORS 26 MANAGING HUMAN RESOURCES 28 RECRUITING PERSONNEL 28 THE NEED FOR QUALITY EMPLOYEES 28 THE LURE OF ENTREPRENEURIAL BUSINESS 29 SOURCES OF EMPLOYEES 29 DIVERSITY IN THE WORKFORCE 31 JOB DESCRIPTIONS 31 3 EVALUATING PROSPECTS & SELECTING EMPLOYEES 32 STEP 1: USE APPLICATION FORMS 32 STEP 2: INTERVIEW THE APPLICANT 32 STEP 3: CHECK REFERENCES AND OTHER BACKGROUND INFORMATION 33 STEP 4: TEST THE APPLICANT 33 STEP 5: REQUIRE PHYSICAL EXAMINATIONS 34 TRAINING AND DEVELOPING EMPLOYEES 34 BASIC COMPONENTS OF TRAINING AND DEVELOPMENT 34 ORIENTATION FOR NEW EMPLOYEES 34 EMPLOYEE TRAINING 35 FROM TRAINING TO IMPLEMENTATION 36 DEVELOPMENT OF MANAGERIAL AND PROFESSIONAL EMPLOYEES 36 COMPENSATION INCENTIVES FOR EMPLOYEES 36 WAGE AND SALARY LEVELS 37 FINANCIAL INCENTIVES 37 SHARE OPTIONS 37 EMPLOYEE BENEFITS 37 SPECIAL ISSUES IN HUMAN RESOURCE MANAGEMENT 38 COEMPLOYMENT AGREEMENTS 38 LEGAL PROTECTION OF EMPLOYEES 38 LABOUR UNIONS 39 FORMALISING EMPLOYER-EMPLOYEE RELATIONSHIPS 39 THE NEED FOR A HUMAN RESOURCE MANAGER 40 MANAGING SMALL BUSINESS OPERATIONS 40 COMPETING WITH OPERATIONS 40 THE OPERATIONS PROCESS 41 THE OPERATIONS PROCESS IN A SERVICE BUSINESS 41 THE OPERATIONS PROCESS IN A MANUFACTURING BUSINESS 42 CAPACITY CONSIDERATIONS 42 PLANNING & SCHEDULING 42 INVENTORY MANAGEMENT & OPERATIONS 43 OBJECTIVES OF INVENTORY MANAGEMENT 43 INVENTORY COST CONTROL 43 INVENTORY RECORDKEEPING SYSTEMS 44 QUALITY & OPERATIONS MANAGEMENT 45 QUALITY AS A COMPETITIVE TOOL 45 THE CUSTOMER FOCUS OF QUALITY MANAGEMENT 45 CUSTOMER FEEDBACK 46 ‘THE BASIC SEVEN’ QUALITY TOOLS 46 QUALITY INSPECTION VS POKA-YOKE 47 STATISTICAL METHODS OF QUALITY CONTROL 47 INTERNATIONAL CERTIFICATION FOR QUALITY MANAGEMENT 48 QUALITY MANAGEMENT IN SERVICE BUSINESSES 48 PURCHASING POLICIES & PRACTICES 48 THE IMPORTANCE OF PURCHASING 49 MEASURING SUPPLIER PERFORMANCE 51 BUILDING GOOD RELATIONSHIPS WITH SUPPLIERS 51 FORMING STRATEGIC ALLIANCES 52 FORECASTING SUPPLY NEEDS 52 USING INFORMATION SYSTEMS 53 LEAN PRODUCTION AND SYNCHRONOUS MANAGEMENT 53 LEAN PRODUCTION 53 SYNCHRONOUS MANAGEMENT 54 4 MANAGING RISK 55 WHAT IS BUSINESS RISK? 55 BASIC TYPES OF PURE RISK 55 PROPERTY RISKS 55 LIABILITY RISKS 56 PERSONNEL RISKS 57 RISK MANAGEMENT 58 THE PROCESS OF RISK MANAGEMENT 58 RISK MANAGEMENT IN THE SMALL BUSINESS 58 BASIC PRINCIPLES OF A SOUND INSURANCE PROGRAMME 59 COMMON TYPES OF BUSINESS INSURANCE 60 PROPERTY AND CASUALTY INSURANCE 60 LIFE & HEALTH INSURANCE 62 5 Pricing & Credit Decisions Textbook Chapter 16 Setting a Price Total revenue depends on 2 components: − Sales volume − Price – even a small change can drastically influence revenue. Pricing = important because it indirectly affects sales quantity. − Setting price too high = lower quantities sold. Definitions: − Value: extent to which a good or service is perceived by a customer as meeting his/her needs/wants, measured by customer’s willingness to pay for it. − Price: specification of what a seller requires in exchange for transferring ownership or use of a product/service. − Credit: agreement between a buyer and seller that allows for delayed payment for a product/service. Pricing Starting with Costs − In order for a business to be successful, pricing must cover cost + profit margin. − Costs react differently as the quantity produced or sold increases or decreases – cost of goods sold increases as the quantity of products sold increases. − Operating expenses = expenses that remain constant at different levels of quantity sold – also called fixed costs. − Cost of sales – service organisation = harder to define than cost of goods sold in product company. − Average pricing = total cost (cost of goods sold + operating expenses) ÷ quantity of goods sold in specified period. − Average pricing overlooks the reality of higher average costs at lower sales levels. − Freemium Strategy: strategy that offers customers basic features at no cost with the idea that they will upgrade to advanced products or services at subscription prices. Pricing Starting with Customers − Cost analysis can identify a level below which a price should not be set under normal circumstances – does not show by how much the final price might exceed the minimum figure and still be acceptable to customers. Elasticity of Demand − Customer demand = sensitive to price level – called Elasticity − Elasticity of demand = effect of a change in price on the quantity demanded. − Elastic demand = increase in price lowers demand, decrease in price increases demand. − Inelastic demand = no significant change in demand when price changes. − Concept of elasticity of demand = NB – degree of elasticity sets limits on or provides opportunities for higher pricing. − Value – customers are ready to pay higher prices when they perceive a product or service offering greater value than other choices. Pricing and a Business’s Competitive Advantage − Attractiveness of a product/service – several factors affect. − Competitive advantage - what sets a company apart, allowing it to outperform competitors by delivering greater value to customers. − Unique and attractive combination of products and services = justify a higher price. − Prestige pricing – approach based on setting a high price to convey an image of high quality or uniqueness. − Strong brand image – associated with prestige pricing. Applying a Pricing System To evaluate a pricing system properly: − Understand potential costs − Understand revenue − Understand product demand 6 Key to understanding: − Determine when enough products and services have been sold to cover the operating expenses of running the business – ability to recognise the break-even point. Break-Even Analysis Definition: − Break-even analysis: examination of cost-revenue relationships and the incorporation of sales forecasts into the analysis. − Break-even point: sales volume at which total sales revenue = total costs + expenses. Two phases: Examining Cost and Revenue Relationships: − Objective = determine the sales volume level at which the product, at an assumed price, will generate enough revenue to start earning profit. − Equations: Total fixed costs & expenses 𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 = Unit selling price − unit variable costs & expenses − Contribution margin = unit selling price – unit variable costs + expenses − Calculating the break-even point helps determine whether you have a chance of making a profit by selling your products at certain prices. Incorporating Sales Forecasts − Indirect impact of price on the quantity that can be sold complicates pricing decisions. − Demand typically decreases as price increases, however, in certain cases, demand may increase when price increases. Markup Pricing − Manageable pricing system in the retail industry. − Markup percentage (markup rate) covers: o Operating expenses o Subsequent price reductions – including markdowns and employee discounts. o Desired profit. − Expressed as a percentage of either selling price or cost. − Two formulas: 𝑚𝑎𝑟𝑘𝑢𝑝 Markup expressed as a % of selling price = × 100 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑚𝑎𝑟𝑘𝑢𝑝 Markup expressed as a % of cost = × 100 𝐶𝑜𝑠𝑡 Selecting a Pricing Strategy − Price determination must also consider characteristics of targeted customers and the business’s total marketing strategy. − Prestige, premium, penetration, follow-the-leader, variable, optional product & service pricing, price lining & price skimming = strategies that reflect these additional considerations. Penetration Pricing − Technique that sets lower-than-normal prices to hasten market acceptance of a product or service or to increase market share. − This strategy can sometimes discourage new competitors from entering a market niche if they mistakenly view the penetration price as a long-range price. − Business that uses this strategy sacrifices some profit margin to achieve market penetration. Price Skimming − Technique that sets very high prices for a limited period before reducing them to more competitive levels. − This strategy assumes that certain customers will pay a higher price because they view a product or service as a prestige item. − Most practical when there is little threat of short-term competition or when start-up costs must be recovered rapidly. 7  − Another reason = high cost of introducing a new product. – business may not have achieved economies of scale in production – higher prices charged to customers who could be labelled early adopters. Buyers who like to be the first to own or use new products or services so are willing to pay a premium price. − To reach a larger market – pricing needs to be reduced. Follow-the-leader Pricing − Technique that uses a particular competitor as a model in setting prices. − Probable reaction of competitors = critical factor in determining whether to cut prices below a prevailing level. − Small business in competition with larger business – seldom in a position to consider itself a price leader. − Small businesses selling commodities (products purchased primarily based on price) tend to be better off holding costs down to enable them to price their merchandise in the same range as larger competitors. Variable Pricing − Technique that sets more than one price for a product or service in order to offer price concessions to certain customers. − Lower prices are offered for various reasons, including a customer’s knowledge and bargaining strengths. − Two-part pricing decisions: o Standard list price. o Price concessions – clients to purchase in bulk Price Lining − Technique that sets a range of several distinct merchandise price levels. − Establishes distinct price categories at which similar items of retail merchandise are offered for sale. − Amount of inventory stocked at different quality levels – depend on income levels + buying desires of a stores customers. − Advantage = simplify selection process for customer + reducing necessary minimum inventory. Optional Product & Service Pricing − Pricing strategy where a company offers a base product or service at a standard price, with optional add-ons or features available for an additional cost. − This approach allows customers to customise their purchase according to their needs and budget, potentially increasing overall sales and profit margins. − Commonly used in industries like automotive, electronics, and software, this strategy balances value by catering to both budget-conscious and premium-seeking customers. − When a small business markets a line of products, some of which may compete with each other, pricing decisions must take into account the effects of a single product price on the rest of the line. − Result = product line pricing – technique that places different prices on a range of products or services to reflect the benefits to the customer of parts of the range. − Continual pricing adjustment = costly to seller + confusing to buyers. Offering Credit Credit sale = seller provide products/services to buyer in return for buyer’s promise to pay later. − Major reason = make sales – buy now, pay later. − Added bonus = credit provides records containing customer information – can be used for sales promotions – direct marketing appeals to customers. Benefits of Credit Benefits to buyers: − Provides businesses with working capital. − Ability to satisfy immediate needs and pay for them later. − Better records of purchases on credit billing statements. − Better service and greater convenience when exchanging purchased items. − Ability to establish a credit history Benefits to sellers: − Suppliers extend credit to customers to facilitate increased sales volume. − Closer association with customers because of implied trust 8  − Easier selling on the telephone and over the internet − Smoother sales peaks and valleys, since purchasing power is always available. − Easy access to a tool with which to stay competitive. Factors That Affect Selling on Credit 1. Type of Business: retailers selling durable products rather than perishables – grant more credit. Most consumers find it necessary to buy big-ticket items on an instalment basis, life span of product is also a contributing factor. 2. Credit Policies of Competitors: most businesses offer comparable credit terms, unless they have a competitive advantage that causes customers to be willing to pay cash. 3. Ages and Income Levels of Customers: significant factors. Credit history is not present when a customer is in high school for example. 4. Availability of Working Capital: credit sales increase the amount of working capital needed by the business doing the selling. Open-credit and instalment accounts tie money up that may be needed to pay business expenses. 5. Economic Conditions: business cycles are real. Owners sometimes have short memories when times are good, and they receive and extend credit without concern for an economic downturn. Good credit management is critical to long-term success. Types of Credit − Consumer credit: financing granted by retailers to individuals who purchase for personal or family use. o Open charge accounts: a line of credit that allows the customer to obtain a product or service at the time of purchase, with payment due when billed. o Instalment sale: a line of credit that requires a down payment, with the balance paid over a specified period of time. o Revolving charge account: a line of credit on which the customer may charge purchases at any time, up to a pre-established limit. − Credit cards: an alternative to cash whose use provides assurance to a seller that a buyer has a satisfactory credit rating, and that payment will be received from the issuing financial institution. o Bank credit cards: credit cards offered directly from the banks. Widely accepted by retailers – MasterCard and Visa. o Retailer credit cards: department stores offer their own credit cards – to be used in their stores specifically. Customers are not usually charged annual fees provided the balance is paid each month. − Trade credit: financing provided by suppliers to client companies. Managing the Credit Process The fee that the business pays the credit card company covers the credit management process. Evaluation of Credit Applicants − Applicants fill in a form with information to determine whether they will pay the obligation, history, affordability, etc. this examines the applicants credit worthiness. The 4 Credit Questions: 1. Can the buyer pay as promised? 2. Will the buyer pay? 3. If so, when will the buyer pay? 4. If not, can the buyer be forced to pay? The Traditional 5 C’s of Credit: − Character − Capacity − Capital − Collateral − Conditions Sources of Credit Information − Trade credit agencies: privately owned organisations that collect credit information about businesses. − Credit bureaus: privately owned organisations that summarise a number of business’ credit experiences with particular individuals. 9 Ageing of Accounts Receivable − Ageing schedule: a categorisation of accounts receivable based on the length of time for which they have been outstanding. Billing and Collection Procedures − Timely notification of customers regarding the status of their account is essential for keeping credit accounts current. − Overdue credit ties up working capital. − Business extending credit must have adequate billing records and collection procedures if it expects prompt payments. − Bad-debt ratio: bad debts divided by credit sales. Promotional Planning Textbook Chapter 17 Promotion: Marketing communications that inform and persuade consumers. Promotion is Communication Basic communication model = simple – someone sends a message through a channel, and someone else receives & understands it. The promotion efforts of a small business can encompass non-personal (advertising), personal (personal selling), combined (social media) and special (sales promotion) forms of communication. Business combines these methods in a promotional mix, aimed at a target market. − Promotional mix: a blend of non-personal, personal, combined and special forms of communication aimed at a target market. Particular mix is determined by: − Geography − Size of promotional budget − Product characteristics − What you can learn from competitors − Listen to customers Determining The Promotional Budget Four approaches: 1. Budgeting a fixed percentage of sales A business’s own past experiences should be evaluated to establish a promotion-to-sales ratio. Major shortcoming = tendency to spend more on promotion when sales are increasing and less when they are declining. 2. Deciding how much is left over after other expenses are covered Small business owners should have objectives for the money that they spend, and they should be alert for new media opportunities. 3. Spending at the same level as competitors By duplicating the promotional efforts of close competitors, a business will be spending at least as much as the competition in the hope of reaching the same customers. This approach may result in repeating competitors’ mistakes. 4. Determining how much is needed to achieve objectives Determining how much you need to accomplish your goals requires a comprehensive analysis of the market with a link to the business’s objectives. Promoting Using the Internet & Social Media Businesses that fail to recognise how the internet and social media are changing the way in which people communicate and process information are not likely to prosper. The Small Business Website Three critical startup tasks related to the likely promotional success of a business website: 10 Creating & Registering a Site Name − Selecting the best name = important promotional decision − Domain designations:.co.za,.com,.net,.biz,.info &.org − Domain names have a minimum of 3 and maximum of 63 characters − Must begin with a letter/number and end with a letter/number − May not include a space Building a User-friendly Website First impressions are important Website design guidelines: − Select and register your domain name: comply with registration rules and choose a descriptive and user-friendly name. − Choose a Web host: determine the primary purpose of your website, and then locate a host that best fits that purpose (e-commerce, blogging, business and similar options) − Decide on the layout: design a sight that balances attractiveness with the ability to interact. − Provide easy navigation: do not overload a page. Enable users to access any content with as few clicks as possible. − Stay consistent in style: inconsistency in headings, fonts, page layouts, colour schemes and terms only confuses visitors and appears amateurish. − Make sure the website can be accessed by multiple devices: users may also search for your company from smart- phones and tablets, as well as desktops and laptops. − Engage in search engine optimisation (SEO): serious competitors are applying SEO strategies to improve their websites’ visibility. Don’t be left behind. − Keep the website fresh: review your site frequently to remove outdated material, introduce new links, experiment with new formats, and make other changes. − Include a call to action: think again about your purpose and invite users to take the action you are seeking. − Supply contact information: be sure that visitors know who you are and how to get in touch with you. Promoting the website − Search engine optimisation: process of increasing the volume and quality of traffic to a particular website. The higher your small business ranks in search engine results, the more visitors it will attract. − Important goal = make your website as search engine friendly as possible. Social Media − Social media: social networking and microblogging websites, as well as other means of online communication, where users share personal messages, information, videos and other content. − Pervasiveness of social media has resulted in the introduction of new terms and new definitions of some words. − Social networking: interacting online with other users who share common interests. Social Networking Sites − Business can use social networking sites to join communities, make contacts, introduce products and services, build customer relationships, and otherwise promote their ventures. − Some social networking sites are general, while others specialise. − Popular sites: o Facebook o Twitter o LinkedIn o Pinterest o Google+ o Tumblr Direct E-mail Promotion − E-mail promotion: delivery of a business’s message by electronic mail. − Low-cost way of pinpointing customers and achieving high response rates. − Due to various issues such as cluttered inboxes from high volumes of emails coming in, viruses and phishing scams, customers are more and more reluctant to open e-mails. − Introduction of CPA (Consumer Protection Act) in 2011, created an obstacle for businesses in that customers can choose to opt out and not receive emails from businesses. − Anti-spam software – sometimes blocks legitimate emails 11  − Marketers can use a preview tool to test e-mails. Reciprocal Advertising and Hyperlinks − Hyperlink: word, phrase or image that a user may click on to go to another part of a document or website or to a new document or website. − As promotional tools – hyperlinks are reciprocal. − Sometimes companies have to pay-per-click on hyperlinks. Blogs − Blog: an online journal that offers a writers experiences, opinions, etc. − Bloggers often include hyperlinks to complement or supplement ideas they have presented. − Websites = interactive, allowing readers to leave comments. Mobile Devices − In SA, 81.6% of consumers use smartphones to access the internet. − Mobile device = generic term used to refer to a variety of wireless handheld computing devices that allow people to access information from wherever they are. − When promoting your business on mobile devices, website will need to be reformatted to fit smaller, portable screens. Apps − Shorthand for “application”. − App: abbreviation for a small, specialised software program. − Large businesses use apps to make sure that their customers can reach them. − Small business owners must take this method of communication seriously to compete and promote their businesses. − App should not cost your business more than the revenue it brings in. Do’s and Don’ts of Social Media Marketing: Do’s Don’ts Tell stories personalising your brand and business. Post Overpromote. Provide more useful than promotional videos of customers using and enjoying your products. information. Build relationships with opinion leaders, including Waste your time on the wrong network. Just because journalists. Show an interest in what others are writing everyone seems to be on Facebook doesn’t mean that about. Bloggers and reporters often ask questions that your customer will look there for what you are selling. you or someone in your business may be able to answer. Make sure you know your target customers and where they get their information. Ask your customers to review the products they buy from Expect your customers to be perfect. They will make you. People trust the endorsements and recommendations spelling errors typing in keywords. Keep common of other customers more than those of someone who misspellings associated with your product and business in works for you. your search engine list to help people find you. Keep it quick and short. Even 140 characters can be too Use hype, slang or abbreviations. They all look like spam long at times. and make your brand look cheap. Take keywords seriously. Keywords bring people to your Overinvest in social media at the expense of building site. Emphasise the keywords that your customers search content on your own website. for in your URL, in title tags and headings. Quick Response Codes − Quick response (QR) code: a square bar code that connects to a website, a video, or some other web content. − The barcode makes it easy for someone to access your site without typing in a URL. − Prospective customers scan the QR code with their phone camera or webcam. − QR codes can also announce events or promotions for a business – providing days, times, locations and other information. Personal Selling in the Small Business − Personal selling: a face-to-face meeting with a customer. − Through personal selling, you can use body language to convey your message, answer questions & resolve problems immediately, and build confidence. − Most important marketing tool when just starting. 12 The Importance of Product Knowledge − Effective selling is built on a foundation of product knowledge. − Communication should be interactive. The Sales Presentation − Heart of personal selling. − At this point, the order is either secured or lost. Prospecting − Systematic process of continually looking for new customers. − Preliminary step leading to an effective sales presentation. − Networking = one of the most important skills a business owner can have. − Building relationships through business and social interactions can lead to personal referrals – which can open other doors for you. − Impersonal referrals: come from media publications, public records and directories. − Prospects can also be identified without referrals through marketer-initiated contacts. − Customer-initiated contacts = enquiries made by a potential customer. Practicing the Sales Presentation − Best salespeople have done their homework. − Knowing about customer wants and needs prepare you for the most likely objections: o Price o Product o Timing o Source o Service o Need Successful Sales Techniques: − Be honest: your prospect has to discover only one misinterpretation to lose all trust and confidence in you. − Know your audience: are you talking to the decision maker? Or does this person need approval from someone else? How is your product/service used by this customer? − Know how much time you have and get to the point: many people recognise that time is their most valuable asset. Respect that. If you can’t make clear in the first sentence or two why you are there, you will lose your prospect’s interest. − Prepare an outline and rehearse: be sure to cover all critical issues and logically order your presentation. Then, test your ideas on others. − Be relevant and engage the customer: ask enough questions to know what is important to your prospective customer and how you can help him or her. Think of your presentation as a conversation. Be a better listener than a speaker. − Believe in what you are selling and be enthusiastic: be able to genuinely convey what makes your product or service better for the customer than anyone else’s. But recognise that the world’s best salespeople still hear no more than yes. − Use visuals: size, technology requirements, and safety and other issues might limit your ability to show your product. Nevertheless, visual representations help to protect customers into a situation in which they better understand what the product will do for them. − Get reactions from the prospect: if the prospect does not ask questions, it is a sign that you have not communicated your message successfully. Be ready with questions of your own, questions that will solicit more than yes-or-no answers. You want to know what is preventing you from getting the answers that you seek. You want to know how to make the prospect happy. Advertising Practices − Likely to be part of the promotional strategy. Advertising Objectives − Advertising: a strategy to sell by informing, persuading and reminding customers of the availability or superiority of a business’s products or services. − Advertising must always be viewed as a complement to a good product and never as a replacement for a bad product. 13  − Honesty = Important Types of Advertising − Product advertising: a presentation designed to make potential customers aware of a specific product or service and create a desire for it. − Institutional advertising: a presentation of information about a particular business, designed to enhance the business’s image in order to make its product advertising more credible and effective. Advertising Specialists − Advertising agencies, suppliers, trade associations and advertising media can provide specialised assistance. − They provide services such as: o Graphic design, artwork and printing for specific advertisements and commercials. o Recommendations for media with the greatest “pulling power” o Copywriting for traditional ads, blogs, press releases and other promotional materials. o Assistance with trade shows and merchandise displays. o Website design and social media management. o Mailing and e-mail list management. − Entrepreneur should ensure that the return on investment spent on fees related to advertising and marketing is greater than the fees paid. Frequency of Advertising − Should be done regularly. − Continuity reinforces the presence of a business. − Sometimes seasonal demand may require non-continuous frequency. Where to Advertise − Identify market segment most likely to buy the products and services offered. − Restrict advertising – geography or customer type. − Most appropriate combination = type of business and current circumstances. Sales Promotion − Sales promotion: an inclusive term for any promotional technique other than personal selling and advertising that stimulates the purchase of a particular product or service. Specialities − promotional items used by small businesses to keep their brand visible to potential and existing customers. These items are often inexpensive but useful or interesting, featuring the business's logo, name, or contact information. Key points include: 1. Brand Recognition: Specialties serve as a continuous reminder of the brand, helping maintain awareness and potentially influencing future purchasing decisions. 2. Practicality and Usability: Items that customers find practical or enjoyable (like pens, calendars, or reusable bags) are more likely to be retained and used, increasing brand exposure. 3. Cost-Effectiveness: For small businesses, specialties can be a low-cost alternative to larger advertising efforts, allowing them to reach a broader audience with minimal budget impact. 4. Long-Lasting Promotion: Unlike short-term ads, specialties can continue to promote the brand for as long as the item is used, providing ongoing marketing benefits. 5. Personal Touch: They create a tangible connection with customers, reinforcing positive feelings toward the brand and fostering loyalty. Trade Show Exhibits − Trade show exhibits are a type of sales promotion where businesses showcase their products or services at industry events to attract attention and connect directly with potential clients. Some key points: o Check Out the Trade Show’s History: Research the event’s reputation, audience type, and previous success rates. This ensures it aligns with your business goals and attracts your target market. o Apply for a Speaking Opportunity: Presenting at the trade show can enhance your visibility and credibility. Apply early for a chance to showcase expertise and connect with a broader audience. o Pick a Good Location for the Stand: Select a high-traffic area if possible—near entrances, main aisles, or high-interest booths. This can maximize foot traffic and increase exposure to your display. 14  o Prepare a Professional-Looking Display: Invest in visually appealing banners, signage, and displays that reflect your brand. A clean, professional setup attracts visitors and encourages engagement. o Have a Sufficient Quantity of Literature on Hand: Stock enough brochures, catalogues, and business cards. These materials provide valuable take-home information, reinforcing your brand after the event. o Bring the Right Staff: Select team members who are knowledgeable, friendly, and capable of answering questions. Staff should be trained to engage visitors and present products effectively. o Have the Right Giveaways: Choose useful, branded items relevant to your business and memorable to attendees. Quality giveaways help keep your brand top-of-mind long after the event. o Find a Partner: Consider partnering with a complementary business for joint promotions or shared booth space. This can expand your reach and attract a wider audience. o Follow Up: Collect contact information from leads, then follow up promptly with emails or calls. Following up shows professionalism, helps nurture leads, and can convert interest into sales. Publicity − Promotional strategy that provides visibility for a business at little or no cost. Global Opportunities for Small Businesses Textbook Chapter 18 Small Businesses as Global Enterprises − Globalisation: the expansion of international business, encouraged by converging market preferences, falling trade barriers and the integration of national economies. − Born-global firms: small businesses launched with cross border business activities in mind. Questions to Consider Before Going Global Management − What are the business’s reasons for going global? Objectives − How committed is top management to going global? − How quickly does management expect its international operations to pay off? Management − Which in-house international expertise does the business have (international sales Experience and experience, language skills, etc)? Resources − Who will be responsible for the business’s international operations? − How much senior management time should be allocated to the business’s global efforts? − Which organisational structure is required to ensure success abroad? Production − How is the present capacity being used? Capacity − How much additional production capacity will be needed at home and abroad? − Which product designs and packaging options are required for international markets? Financial Capacity − How much capital can be committed to international production and marketing? − Will the business be able to cover the initial expenses of going global (e.g. the costs of finding customers abroad, expanding production to support international sales)? − Which other financial demands might compete with plans to internationalise? − By which date must the global effort pay for itself? Global Businesses: Forces Driving Global Businesses − Many entrepreneurs are looking to do more than simply expand a profitable market – they recognise that their enterprises are no longer insulated from global challengers and that they must consider the dynamics of the new competitive environment. − One way to adjust to emerging realities = innovation – essential to competitiveness in many industries. − Small businesses that invest heavily in R&D can often outperform their large competitors – as R&D costs rise – they can seldom be recouped from domestic sales alone. Increasing sales in international markets may be the only viable way to recover a business’s investment. − In some cases – identify dynamic markets that are beginning to open around the world + locating in or near those markets. − Motives for global expansion vary. − Basic forces can be divided into 4 general categories: 15  o Expanding markets o Gaining access to resources o Cutting costs o Capitalising on special features of location. Expanding Markets − Primary Interest in Globalisation: Small businesses mainly pursue globalization to access new markets and drive growth, rather than seeking resources or avoiding regulations. − Diverse Motivations: Motivations vary among businesses; for example, South African small businesses are either looking for new markets or sourcing components via outsourcing. − Focus on High-Potential Countries: Globalization strategies target countries with strong commercial potential. Initially, these were wealthy, developed countries, but the focus has shifted to emerging markets with rapid growth, like the BRIC countries (Brazil, Russia, India, China) and, more recently, BRICS (adding South Africa). − Importance of China and India: Due to their massive populations, China and India offer extensive market opportunities, making them prime targets for global business expansion. Small businesses are increasingly competing in these markets, aiming to cater to the fast-growing middle class. Products Promoted − Shift in Product Launch Strategy: Previously, products were introduced first in the U.S. and later in less-advanced markets. Today, products are launched globally more quickly due to changing consumer sophistication and increased demand for variety. − Cultural Influence: Media and the internet shape cultural tastes and foster shared consumer preferences across countries, providing opportunities for businesses to reach consumers with similar preferences worldwide. − Demand for Specialised Products: As technology enables more specialized products, small businesses can exploit niches in international markets to spread high development costs across more buyers. Making the Most of Experience − Experience Curve Efficiencies: International expansion allows businesses to leverage experience-based efficiencies, especially in start-ups. As production volume grows, per-unit costs decrease due to learning effects and economies of scale. − Learning Effects: Insights, gained from experience, that lead to improved work performance. − Economies of Scale: Efficiencies from expanded production that result from spreading fixed costs over more units of output. − These efficiencies are crucial in technology-driven start-ups, which benefit from international expansion by reducing costs faster and improving practices. − Encouragement for Start-Ups: The potential for experience curve efficiencies in global markets encourages small businesses, especially those in emerging technologies, to expand internationally. Gaining Access to Resources − Small businesses may leave SA to gain access to essential raw materials, other factors of production and service requirements. − E.G. Oil fields in Dubai – tended by employees of global oil giants + support personnel who work for small businesses that have contracted to assist large clients. Simply because: That is where the oil and money is. − Same principle holds for manufacturers that require scarce inputs. − Small businesses traditionally pursued international ventures to obtain raw materials, increasingly, the focus of the search is on skilled labour. Cutting Costs − Many businesses go global to reduce the costs of doing business. − These costs are: o Raw materials o Labour o Manufacturing overhead − International outsourcing: a strategy that involves accessing foreign business operations through contracts with independent providers. − Offshoring: a strategy that involves relocating operations abroad. − International outsourcing and offshoring – especially popular in India and China. – highly skilled labour accessible at relatively little cost. 16  − Hardware based startups – difficulty getting market traction for a long time – changing as opportunities to shift operations overseas have greatly reduced the cost of bringing products to market – important to cash-strapped new ventures. − The business plans focus on raising sufficient money to develop prototypes to be manufactured in other countries and sold online. − Entrepreneurs who choose to outsource internationally/relocate offshore seek 2 things that are important for success: access to employee talent and/or reduced costs. Capitalising on Special Features of Location − Businesses that depend on a particular strength or resource often find that it makes sense to set up in a region that provides the best location for that type of business. − Appeal of location is sometimes a matter of cache or brand image. − Some small businesses follow large client businesses to new locations to keep up the ability to source important contracts. − Establishing a position outside of the domestic setting may pre-empt rivals from exploiting these opportunities and using them against you in the future – the best defence is a good offence. Strategy Options for Global Businesses − Once entrepreneur goes global – next step = plan a strategy that increases the potential of the business. Exporting − Exporting: selling products produced in the home country to customers in another country. − One of the most popular international strategies among small businesses – provides a low-cost way to expand into international arena. − Taking this approach – small export businesses can market and distribute their products in other countries without incurring expenses of supporting operations in those markets. − If financial benefits from international sales more than offset shipping costs and tariffs, exporting is a favourable option. − Web = powerful tool for increasing international visibility – connect with customers who would otherwise be out of reach. − Exporting can be a challenge – communication in other languages, translating payments into another currency, and setting up international shipping. − Products may have to be modified to meet government standards or unique interests of buyers abroad. – poor government connections put your business at a disadvantage in negotiations + unfavourable exchange rates make it difficult to offer products at competitive prices and still make a profit. Importing − Importing: selling products produced in another country to buyers in the home country. − When a small business finds a product overseas that has market potential at home or identifies a product that would sell at home but cannot find a suitable domestic producer – import strategy = best solution. − Finding a good product vendor = one of the most important factors. − Finding and managing international suppliers for long term relationships can be challenging. − Importing holds tremendous potential, especially if you follow simple guidelines: o Learn as much as you can about the culture and business practices of the country from which you will be sourcing to avoid making deal-breaking mistakes. o Do your research and be sure to select a source that is not a competitor or a business that hopes to learn from your operations in order to compete against you in future. o Protect your intellectual property so that your suppliers cannot easily take it from you. An NDA is a good way to protect your intellectual property. o Don’t rush the process of forming a relationship with a sourcing partner. You need time to ask difficult questions about important factors such as quality standards and capabilities, manufacturing flexibility and time to order fulfilment. o Work out transportation logistics ahead of time. A good freight forwarder can assist you with the mechanics of shipping, as well as help you with the confusing jumble of required documents. Foreign Licensing − Because of limited resources – small businesses are hesitant to go global. 17  − One way to deal with this constraint = licensing strategy. − Foreign licensing: a strategy that allows a business in another country to purchase the rights to manufacture and sell a business’s products in international markets − Licensee: the business buying the licensing rights. − Licensor: the business selling the licensing rights. − Royalties: fees paid by the licensee to the licensor for each unit produced under a licensing contract. − International licensing has its drawbacks. Foreign licensee makes all production and marketing decisions, licensor must share returns from international sales with the licensee. − Foreign licensing is the lease expensive way to go global – since licensee bears all the costs related to setting up a foreign operation. − Not limited to tangible products – licensing intangible assets such as proprietary technologies, copyrights and trademarks may offer greater returns. − Counterfeit activity: the unauthorised use of a business’s intellectual property or manufacture of its products. − Foreign licensing can be used to protect against counterfeit activity, or the unauthorised use of a business’s intellectual property or manufacture of its products. International Franchising − International franchising: a strategy of selling a standard package of products, systems and management services to a company in another country. − Franchisor offers a standard package of products, systems and management services to the franchisee, which provides capital, market insight and hands-on management. − Fastest growing market-entry strategy of US businesses – especially popular with restaurant chains such as McDonald’s. International Strategic Alliances − Moving beyond licensing and franchising – some small businesses have expanded globally by joining forces with large companies in cooperative efforts. − International strategic alliance: an organisational relationship that allows companies in different countries to pool resources and share risks as they enter new markets. − Can be used in many different ways by small businesses to gain advantage internationally. Locating Facilities Abroad − Small business may choose to establish a foreign presence of its own in strategic markets, especially if the business has already developed an international customer base – start by locating a production facility or sales office overseas as a way to reduce the cost of operations. − Opening overseas sales office – effective strategy – but sales in local market should be great enough to justify the move. − Cross-border acquisition: the purchase by a business in one country of a business located in another country. − Greenfield venture: a wholly owned subsidiary formed from scratch in another country. − Go-it-alone strategies = complex and costly. – offer maximum control over foreign operations and eliminate the need to share generated revenues, but also force companies to bear the entire risk of the undertaking. Challenges to Global Businesses − Small business owners must recognise the unique complications facing global businesses and adjust their plans accordingly. Political Risk − Political risk: the potential for political forces in a country to affect the performance of businesses operating within its borders negatively. − Often the risk is related to the instability of a host nation’s government – threats such as new regulations that restrict the content of television advertising to a government takeover of private assets. − Political developments can threaten access to an export market, require a business to reveal trade secrets or demand that work be completed in-country. − Large companies – maintain a risk assessment office with staff trained to determine the risk profile of individual countries where they have planned projects. 18  − Small businesses cannot afford this and can refer to publications that outline and provide a general sense of political risks that businesses will face when doing business abroad. – small businesses can develop international growth plans using these insights and make appropriate adjustments to their strategies. Economic Risk − Economic risk: The probability that a country’s government will mismanage its economy in ways that hinder the performance of businesses operating there. − Economic risk and political risk are related. − Two most serious problems resulting from economic mismanagement: o Inflation o Fluctuations in exchange rates − Exchange rate: the value of one country’s currency relative to that of another country. − Sudden or unexpected changes in the exchange rate = serious problem for small international businesses – whether they export to that market or have a local presence there. − To protect against exchange rate shifts – small businesses choose to state their contracts in their own currency – this can give competitors an edge if they are willing to sell in the buyers currency. − Can also lead to non-payment if unfavourable shifts make goods or services too expensive for a foreign customer. − Small businesses should use more sophisticated financial strategies and risk management tools, including forward contracts and options – which can be manageable. The Ease of Doing Business Index − Index is based on a survey of more than 10600 local experts, including lawyers, business consultants, accountants, freight forwarders, government officials, and other professionals routinely administering or advising on legal and regulatory requirements. − Process uses data related to 11 key sets of indicators: o Difficulty of starting a business o Getting credit o Enforcing contracts o Dealing with construction permits o Getting electricity o Registering property o Protecting minority investors o Paying taxes o Trading across borders o Resolving insolvency Assistance for Global Enterprises − Help exists for small businesses with international aspirations. Analysing Markets and Planning Strategy Two activities fundamental to success abroad: − Finding international markets that fit the business’s unique potentials. − Putting together a game plan for entry into targeted markets. − Small business should begin research by exhausting secondary sources of information. − SA government has prioritised advancement of small businesses and micro sized enterprises (SMMES) by providing financial and non-financial assistance. Connecting With International Customers Trade Leads − Essential in identifying potential customers overseas. − Accessed most often via the internet. − Inexpensive way to establish links with buyers and suppliers in target markets. 19 Trade Missions − Trade mission: a trip organised to help small business owners meet with potential foreign buyers and establish strategic alliances in an international market. Trade Intermediaries − Trade intermediary: an agency that distributes a business’s products on a contract basis to customers in another country. Trade Intermediaries Most Suited for Small Businesses Confirming − Works for foreign businesses that are interested in buying South African products House (Buying − ‘Shops’ for lowest possible price for requested items. Agent) − Is paid a commission for its services. − Is sometimes a foreign government agency or quasi-governmental business. Export − Acts as the export dept for one or several producers of products/services. Management − Solicits and transacts business in the names of producers it represents or in its own name in Company exchange for a commission, salary or retainer + commission. (EMC) − May provide immediate payment for the products or services by arranging financing or directly purchasing products for resale. − Usually has well-established networks of foreign distributors already in place. Export Trading − Acts as the export dept for producers or takes title to the product and exports it under its own Company name. (ETC) − May be set up and operated by producers. − Can be organised along multiple- or single-industry lines − Can represent producers of competing products. Export Agent, − Purchases products directly from manufacturer, packing and marking the product according Merchant, or to its own specifications. Remarketer − Sells the products overseas under its own name through contacts and assumes all risks. − Requires the producer to give up control of the marketing and promotion of its product. Piggyback − Is a manufacturer or service business. Marketer − Distributes another business’s product or service. Financing − More info a business have about direct + indirect sources of financing, more favourably they view foreign markets. Private Banks − Commercial banks – loan officer handles foreign transactions. − Large banks – international department. − Exporters use banks to issue letters of credit + perform other financial activities associated with exporting. − Letter of credit: an agreement issued by a bank to honour a draft or other demand for payment when specified conditions are met. – revocable or irrevocable − Irrevocable letter of credit: cannot be changed unless both buyer and seller agree to change. − Guarantee from reputable bank that exporter will be paid = critical to small business that has stretched resources to the limit and cannot afford an uncollected payment. − Letter of credit provides security for the receiving business as well because the exporter does not receive payment from the bank until it has released the title, or proof of ownership of the delivered goods. − Bill of lading: document indicating that a product has been shipped and the title to that product has been transferred. – must be received before the bank will pay on the letter of credit. Small Enterprise Development Agency − SEDA serves SA small businesses through its provincial offices. − Provides informative list of financial assistance programmes and trade point programmes. 20 Professional Management & The Small Business Textbook Chapter 19 Small Business Leadership − Leadership roles differ depending on the size of the business and its stage of development. What is Leadership? Being a leader means focusing your team on the key priorities. You need to build consensus on these priorities, set goals, evaluate performance against these goals and change course when necessary. Great leaders build credibility with their team by making a plan, executing it effectively and demonstrating that it was the right plan. − An entrepreneur must convey his or her vision of the business’s future to all other participants in the business so that they can contribute most effectively to the accomplishment of the mission. Leadership Qualities of Founders − In a totally new venture, the founder faces major uncertainties and unknowns. − Ambiguity tolerance is one of the most important traits. − Other important traits - essential in a start-up situation: o Adaptable o Able to adjust to unforeseen problems and opportunities. What makes a leader effective? − Ability to take charge and inspire others to follow. − Leaders not only know where they are going, they also take people with them. − A leader should follow these 7 principles when sharing a vision with people: o Simplification o Participation o Delegation o Motivation o Preparation o Cooperation o Celebration Leadership Styles − The visionary mobilises people toward a shared vision. − The coach develops people by establishing a relationship and trust. − The team builder promotes emotional bonds and organisational harmony. − The populist builds consensus through participation. − The paragon sets challenging and exciting standards and expects excellence. − The general demands immediate compliance. Definitions: − Empowerment: authorisation of employees to make decisions or take actions on their own. − Self-managed work teams: groups of employees with freedom to function without direct supervision, but with responsibility for results. Shaping the Culture of the Organisation − Culture = factor that determines the ‘feel’ of a business, the ‘silent teacher’ that sets the mood for employee conduct, even when managers are not present. − Like empowerment, creating an organisational culture that fosters innovation tends to draw employees into the work of the company and often provides a boost to commitment and employee morale. − Simple adjustments in physical space can have a profound effect on the mindset that employees assume at work. − A positive mindset can shape the culture of those around you. The Small Business Management Process − Professional manager: a manager who uses systematic, analytical methods of management. 21 From Founder to Professional Manager − Some founders can get a company through the first couple of stages of growth, but no further. They don’t know their weaknesses, or understand the real reasons for their company’s success, and they want to make every decision rather than cede control as the company outgrows what any one person can manage Expanding Beyond the Comfort Zone − Expansion beyond the comfortable point = where problems start to arise − Lack of professional management = failure Managing the Constraints that Hamper Small Businesses − Managers of small businesses, particularly new and growing businesses, are constrained by conditions that do not trouble the average corporate executive. − In a new venture situation: you cannot wait around for someone from IT to set up your computer. There is no IT department! You should plan to schedule your own meetings and organise your own recruiting pipeline. If you’re going to do something bigger like investigate a new channel opportunity, research it yourself, call prospective customers personally, make some mock-ups, model the growth, and create the PowerPoint deck. Business Growth and Managerial Practices − As a newly formed business grows, its organisational structure and pattern of management will need to be adjusted. − Stage 1: start-up = one person operation − Stage 2: entrepreneur becomes a player coach – implies continuing active participation in business operations. − Stage 3: intermediate level of supervision. − Stage 4: requires that the business begin to adopt written policies, prepare plans and budgets, standardise personnel practices, computerise records, put together organisational charts and job descriptions, schedule training conferences, set up control procedures, etc. Managerial Responsibilities of Entrepreneurs Planning Activities − Beyond the business plan to launch a new venture, entrepreneurs should plan for the ongoing operation of the enterprise. − Circumstances affect the degree to which formal planning is needed – businesses can function more profitably by increasing the amount of planning done. − Business’s basic path to the future is spelled out in a document called a long-range plan or strategic plan. − Long-range plan (strategic plan): a business’s overall plan for the future. − Strategic plan: roadmap that outlines an organisation's long-term goals and the strategies and actions needed to achieve them. − Short-range plan: a plan that governs a business’s operations for one year or a shorter period. − Budget: a document that expresses future plans in monetary terms – important part of a short-range plan. − Planning pays off in many ways: o First: process of thinking through the issues can improve productivity. o Second: planning provides a focus for a business – managerial decisions over the course of the year can be guided by the annual plan, and employees can work consistently towards the same goal. o Third: evidence of planning increases credibility with bankers, suppliers and other outsiders. − Managing time during the business day = important planning activity Creating an Organisational Structure − Entrepreneur must define the relationships among the business’s activities and among the individuals on the business’s payroll. The Unplanned Structure − In very small businesses – organisational structure evolves with little conscious planning. − Certain employees begin performing particular functions when the business is new and retain those functions as it matures. − Natural evolution = not necessarily bad – strong element of practicality characterises these arrangements. − Structure = forged through working and growing − Unplanned structures = far from perfect – creates a need for organisational change. 22  − Entrepreneur should examine structural relationships periodically and make adjustments as needed for effective teamwork. The Chain of Command − Chain of command: the official, vertical channel of communication in an organisation. – also, a channel for two- way communication. − Line organisation: a simple organisational structure in which each person reports to one supervisor. – all employees are directly engaged in the business’s work, producing, selling and performing office or financial duties. Small businesses (less than 10 employees) use this form of organisation. − Line-and-staff organisation: an organisational structure that includes staff specialists who assist management. Line-and-staff Organisation CEO Human Assistant to the Resource CEO Manager Production Financial/Office Sales Manager manager Manager Factory Office Salespeople Employees Employees Span of Control − Span of control: the number of employees who are supervised by one manager. − Optimal span of control = variable that depends on: o Nature of the work o Manager’s knowledge o Energy o Personality o Abilities – if employees abilities are above average, span of control can be broadened accordingly Delegating Authority − Delegation of authority: the process of granting to employees the right to act or make decisions. − Delegation frees the manager to perform more important tasks. − Particular problem for entrepreneurs due to their backgrounds and personalities – they are accustomed to doing things themselves. − Inability or unwillingness to delegate can become apparent in a number of ways: o Lack of authority and having to request approval will flood the inbox of the owner and will keep the owner very busy. o Having to work long hours in order to get through the workload that could have been delegated. − There are risks involved with delegation – employees and managers who are not committed to the business make decisions that lead to the downfall of the business. − Failure can be minimised if the handover is managed well. Suggestions to ease the transition: o Accept the fact that you will no longer be able to make all the decisions – not accepting this will hinder growth and development. o Prepare yourself emotionally for the loss of control felt when first starting to delegate. 23  o Manage, carefully, the process of finding, selecting, hiring and retaining employees who are trustworthy enough to handle greater responsibility – keep an eye on the future when you hire new staff. o Move forward one step at a time. Start by delegating functions you are most comfortable giving up – continue to provide reasonable oversight to smooth the transition and to ensure the quality of the work. o Plan to invest the time needed to coach those who are taking over new responsibilities so that they can master required skills – first thing to do = write job descriptions to minimise confusion. o Make delegation meaningful. Focus on results and give employees the flexibility to carry out assignments. To realise the benefits of delegation, you must build leadership in employees, who can then take on more advanced and complex tasks. Controlling Operations − Despite good planning, organisations never function perfectly – managers must monitor operations to discover deviations from plans and make corrections when necessary. − Control process begins with the establishment of standards – set through planning and goal setting. − Planners translate goals into norms (standards) by making them measurable. − Stages of the Control Process: Preventative Control Concurrent Control Corrective Control Process Stage Output Stage Input Stage e.g. quality e.g. inspection e.g. inspection control of work of completed of raw in progress, product, materials, check of comparison of careful adherence to actual expense selection of safety with budgeted employees procedures expense. − Corrective action is required when performance deviates significantly from the standard in an unfavourable direction – to prevent repetition = analysis of the cause of the deviation. Communicating − Key to healthy organisation = effective communication – getting managers and employees to talk to one another + openly share problems and ideas. − To communicate effectively – managers must tell employees: o Where they stand o How the business is going o What the business’s plans are for the future − Negative feedback is necessary, but giving positive feedback to employees is the primary tool for establishing good human relations. − An atmosphere of trust and respect contributes greatly to good communication. − Core characteristic of a good leader = they have earned the right to be heard. o Importance of credibility for a leader and their message – in order for message to have credibility, leader should already be living the message. o Success of a leader’s message lies in his/her own character. o Message should be delivered from the heart – leaders who share a piece of themselves in their messages achieve better results. o Message should be more than a simple command or instruction. – what the leader has to say should carry some weight o A leader should have a stake in the outcome of this process – be actively involved – lead his/her team towards the desired outcome. Communication Tools − Periodic performance review sessions – discuss employee’s ideas, questions, complaints and job expectations. 24  − Physical or virtual bulletin boards – keep employees informed about developments affecting them and/or the company. − Blogs for internal communication – especially in companies that have open organisational cultures and truly want transparent dialogue. − Micro-blogging tools (twitter) – enable employees to communicate, collaborate and share brief thoughts and observations about the business in real-time. − Physical or virtual suggestion boxes to solicit employees’ ideas on possible improvements. − Wikis set up to bring issues to the surface and draw feedback from employees. − Formal staff meetings to discuss problems and matters of general concern. − Breakfast or lunch with employees to socialise and just talk. Public Speaking − The need for public speaking skills increases as the company grows. Presentation tips: 1. Do your homework: Know the purpose of the presentation and to whom you will be presenting. If you can find out in advance who will be attending your presentation, you will be able to adapt your comments to their needs and concerns. 2. Know your material: The better you know what you plan to talk about, the more you can concentrate on the delivery. And, being prepared inspires confidence. 3. Be interactive: Listeners may be lulled into disinterest when they are not engaged. Find ways to get the audience involved in what you have to say. Don't, for example, read from your notes for extended periods of time doing so will ensure that the communication goes in only one direction, and your audience will know it immediately. 4. Make vivid mental connections in the minds of listeners: Telling stories helps, but so can other tools and techniques. For example, use props to focus attention, or employ a metaphor throughout the presentation to draw listeners back to a central theme. Humour is entertaining and can provide comic relief, but it can also be used to make a point unforgettable. 5. Emphasise relevance: Your listeners are busy people, so be sure to deliver information that they will find useful and worth their time. 6. Be dynamic but be yourself: Let your listeners know that you are passionate about the topic by the way you invest yourself in the presentation. It is much easier for an audience to remain engaged when the presenter is energetic and uses inflections, gestures, movement and facial expressions to show it. Maintaining eye contact communicates that you want to connect with each individual in the room, which is motivating. However, if your level of energy and your use of voice and body are less than authentic, listeners will quickly pick up on that and may write off the talk as insincere. 7. Use PowerPoint with care: Text-laden slides can produce the same effect as sleeping pills. If a picture paints a thousand words, then adding pictures and graphics can certainly help the audience to access the ideas you want to convey (as long as they are not flashy to the point of distraction). Limit the text on each slide, and do not read from the slides you are showing. Try to imagine how you would respond to the slides if you were not particularly interested in the topic, and then adjust accordingly. 8. Dress appropriately: Although your audience may be wearing more casual clothing, dress in business professional attire. Avoid distracting clothing like a tie that draws attention away from what you have to say) and check to be sure that everything you're wearing is in order before standing up to speak. 9. Avoid food and drink that make speaking difficult for you: Caffeinated drinks and sugary foods can make you jittery, which will only add to your nervousness. If you find that you need to clear your throat often after consuming certain foods or beverages, avoid them before speaking engagements. 10. Practise, practise, practise: The more presentations you give, the more you will feel confident while giving them. And one of the best ways to conquer stage fright is to spend time speaking in front of others. Recognise that your discomfort with public speaking is likely to fade with experience at the podium. Negotiating − Negotiation: the process of developing workable solutions through discussions or interactions. − To have a successful business, a manager must be able to reach agreements that both meet the business’s requirements and contribute to good relationships over time. − Many people consider negotiation a win-lose game – problem with this concept = parties who feel they have lost, try to get even in subsequent dealings – do not contribute to good long-term relationships. − Contrast = win-win negotiator – tries to find a solution that will satisfy at least the basic interests of both parties. o Implementation = thinking of one’s own interests as well as those of the other party. 25  − There are situations where a win-win solution is impossible – explore positive solutions wherever possible. − Foundation for successful negotiation = created by developing strong relationships between negotiating parties – facilitates cooperation. Personal Time Management Typical small business owner spends most of the workday in the “frontlines”: − Meeting customers − Solving problems − Listening to employee complaints − Talking with suppliers − Etc This results in the owners energy to be diffused and brings up the concept of time management. The Problem of Time Pressure − Most small business owners work 40-80 hours per week – this often leads to inefficient work performance – especially when life and work priorities have not been set. − This can affect the health and mental state of the business owner. − Lack of time or being “too busy” can hinder business performance due to: o Not having time to see customers o Unable to read important literature pertaining to what other businesses are doing and how they can improve. o Being unavailable to listen to employees opinions and grievances. o Not having the time to give employees adequate instruction in order to do their jobs correctly. Time Savers for Busy Managers 1. Give your attention first to critical activities (urgent and important). Leave enough slack time in your schedule to deal with unexpected issues and activities. 2. Next, deal with important concerns (not urgent, but important). These will not seem pressing, but they support the long-term goals of the business and should be given sufficient time. 3. Interruptions (urgent, but not important) can keep you from completing important work. Reschedule or delegate these tasks, if possible, and be prepared to respond to requests with a polite 'no’ when necessary. 4. Finally, avoid distractions (not urgent and not important) as much as possible. If they are not pressing and do not matter, attend to them only as you have spare time. Mentors, Small Business Networks & Business Services Entrepreneurs should look into involving mentors and professional business advisors in their business activities. The need for assistance Entrepreneurs often feel isolated due to limited opportunities to share ideas with peers, especially in small startups. To reduce this isolation, many involve friends, family, join business networks, seek professional advisors, or connect with mentors. These external supports provide objective perspectives, fresh ideas, and knowledge of strategies beyond the entrepreneur’s own experience. The Role of Mentors Mentors are typically older and more experienced, often holding senior positions in traditional business settings. This poses a challenge for entrepreneurs, who are the most senior in their own businesses. Entrepreneurs can seek mentorship from other experienced business owners and may benefit from having multiple mentors. Benefits of Mentorship Benefits for Entrepreneurs: − Skill development − New perspectives on business management − Performance feedback − Goal clarification through experienced guidance Benefits for the Business: − Enhanced succession and contingency planning − Increased productivity 26  − Improved turnover rates − Accelerated growth Benefits for Mentors: − Personal self-development − Increased sense of self-worth − Satisfaction from mentees’ success Successful mentorship Types of Mentorship: − Formal: goal setting, planning, resource allocation, and regular progress evaluations − Informal: flexible and less structured Qualities of a Good Mentor: − Understands the entrepreneur’s expectations, skill level, and challenges − Addresses issues such as: o Business growth o Personnel management o Personal development − Provides resources and introduces new opportunities − Fosters job satisfaction Key Traits of Successful Mentors: − Relevant experience − Strong interpersonal skills − Patience and tact − Willingness to take risks − Ability to teach and model positive behaviours − Celebrates successes and promotes resilience after setbacks The Mentoring Process Phases of the Mentoring Process: 1. Observation Phase: o Mentor observes the entrepreneur’s tasks o Entrepreneur observes the mentor, answering questions to enhance understanding 2. Participation Phase: o Entrepreneur actively engages in tasks alongside the mentor o Demonstrates learning through hands-on experience 3. Conducting Phase: o Entrepreneur operates independently, showing skill mastery o Mentor provides feedback, celebrates successes, and encourages self-motivation ▪ Self-motivation is essential for handling ongoing entrepreneurial challenges and uncertainties A Willingness to Learn Key Factors for Successful Mentorship: − Entrepreneur’s Willingness to Learn: o More important than the mentor’s skills o Essential for accepting tough feedback constructively − Teachability and Trust: o Help the entrepreneur handle constructive criticism without personal offense o Choosing a trusted mentor fosters support and makes challenges easier to embrace − Continuous Learning Attitude: o Eager entrepreneurs seek knowledge beyond the mentor, enhancing growth for both mentor and mentee Small Business Networks Networking: the process of developing and engaging in mutually beneficial informal relationships. Benefits of Small Business Networks: − Management support through mutually beneficial relationships − Idea and experience sharing among business owners Networking Channels: − Trade associations, clubs, and similar gatherings 27 Keys to Effective Networking: − Go beyond simply meeting people; focus on creating value for others − Build memorable and impactful connections "Paying It Forward": − Gary Vaynerchuk emphasizes creating value and building trust to stand out − "Paying it forward" has significantly boosted his career Value of Personal Networks: − Supports business launches − Provides valuable feedback − Leads to helpful professional connections Business and Professional Services Sources of Management Assistance for Entrepreneurs: − Bankers, accountants, attorneys, financial advisors, suppliers, and trade associations Effective Use of Professional Relationships: − Requires initiative to gain expertise beyond basic services Examples of Professional Support: − Accountants and financial advisors offer insights on: o Cash flow and tax management o Expansion feasibility o Compliance with South African legislation o Contingency planning Benefits of Professional Body Membership: − Ensures advisors follow conduct standards − Provides a channel for redress if needed Overall Impact on Small Business: − Strengthens operations and management without significant additional costs Managing Human Resources Textbook Chapter 20 Recruiting Personnel Recruitment aims to build a large talent pool to find skilled employees, but attracting and retaining talent is challenging. CEOs of Inc. 500 companies consider it their top difficulty, and 42% of small business owners report struggles to find qualified candidates despite extensive recruitment efforts. Human Resource Management: the management of employees in a way that enables them to help a business reach its strategic objectives. The Need for Quality Employees Employees as Revenue Generators: − Employees should be viewed as assets driving revenue, not expenses. Hiring Efficiency: − Hiring decisions should ensure costs are offset by increased sales, with careful attention to cash flow timing. − Many small businesses now operate with minimal staff, leveraging online tools to handle complex tasks (e.g., Near Networks launched with only four employees by using tech tools instead of dedicated IT or accounting staff). Value of High-Quality Employees: − Skilled, motivated employees boost business performance, productivity, and inspire higher standards among peers. − In some fields, top talent can be exponentially more productive, contributing significantly to innovation and efficiency. Impact of Recruitment and Selection: − Quality recruitment sets a strong foundation, as talented employees shape a business’s potential and drive growth. − Wise employment decisions maximize payroll investment, giving competitive advantage and boosting the bottom line. Strategic Importance of Hiring for Gro