Business Essentials Chapter 3 PDF

3-1 Chapter 3 Business Essentials Thirteenth Edition Entrepreneurship, New Ventures, and Business Ownership Copyright © 2022, 2019, 2016 Pearson Education, Inc. in this chapter, we examine...

3-1 Chapter 3 Business Essentials Thirteenth Edition Entrepreneurship, New Ventures, and Business Ownership Copyright © 2022, 2019, 2016 Pearson Education, Inc. in this chapter, we examine converting a great assessing the business idea into a market potential for profitable new and up-and- enterprise coming businesses the business plan, advantages and reasons for success disadvantages of and failure different kinds of ownership Copyright © 2022, 2019, 2016 Pearson Education, Inc. Learning Objectives (1 of 2) 3-3 3-1 Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 3-2 Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 3-3 Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. Copyright © 2022, 2019, 2016 Pearson Education, Inc. Learning Objectives (2 of 2) 3-4 3-4 Discuss the trends in small business start- ups and identify the main reasons for success and failure among small businesses. 3-5 Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 3-6 Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. Copyright © 2022, 2019, 2016 Pearson Education, Inc. WHAT IS A “SMALL” BUSINESS? SMALL BUSINESS SMALL BUSINESS ADMINISTRATION (SBA) one that is independent government (not part of a larger agency charged business) and that has relatively little influence with assisting small in its market businesses Copyright © 2022, 2019, 2016 Pearson Education, Inc. The Importance of Small Business 3-6 in the United States (1 of 2) Copyright © 2022, 2019, 2016 Pearson Education, Inc. THE IMPORTANCE OF SMALL BUSINESS Job creation Innovation Contribution to big business Copyright © 2022, 2019, 2016 Pearson Education, Inc. Job Creation 3-8 Small businesses have accounted for about 40 percent of all new jobs in high-technology sectors of the economy Small businesses are generally the first to hire in times of economic recovery Copyright © 2022, 2019, 2016 Pearson Education, Inc. Popular Areas of Small-Business 3-9 Enterprise Copyright © 2022, 2019, 2016 Pearson Education, Inc. Copyright © 2022, 2019, 2016 Pearson Education, Inc. Entrepreneurship 3-10 Entrepreneur businessperson who accepts both the risks and the opportunities involved in creating and operating a new business venture Entrepreneurship the process of seeking business opportunities under conditions of risk Copyright © 2022, 2019, 2016 Pearson Education, Inc. Who are these people? Amancio Ortega Copyright © 2022, 2019, 2016 Pearson Education, Inc. Copyright © 2022, 2019, 2016 Pearson Education, Inc. ENTREPRENEURIAL CHARACTERISTICS Resourcefulness Concern for good, personal customer relations Strong desire to be their own bosses Deal with uncertainty and risk Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-11 Entrepreneurial Characteristics Copyright © 2022, 2019, 2016 Pearson Education, Inc. Copyright © 2022, 2019, 2016 Pearson Education, Inc.  16 Successful Venture Life Cycle Venture Life Cycle: stages of a successful venture’s life from development through various stages of revenue growth) Development Stage: period involving the progression from an idea to a promising business opportunity Startup Stage: period when the venture is organized, developed, and an initial revenue model is put in place Copyright © 2022, 2019, 2016 Pearson Education, Inc.  17 Successful Venture Life Cycle Survival Stage: period when revenues start to grow and help pay some, but typically not all, of the expenses Rapid-Growth Stage: period of very rapid revenue and cash flow growth Maturity Stage: period when the growth of revenue and cash flow continues but at a much slower rate than in the rapid- growth stage Copyright © 2022, 2019, 2016 Pearson Education, Inc. Financing a Small Business (1 of 2) 3-20 Personal resources Loans from family and friends Bank loans Venture capital companies Small-Business Investment Companies (SBICs) Minority Enterprise Small-Business Investment Companies (MESBICs) SBA financial programs Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-21 Financing a Small Business (2 of 2) Venture Capital Company group of small investors who invest money in companies with rapid growth potential Kakao Ventures, KB inverstment, etc. Small-Business Investment Company (SBIC) government-regulated investment company that borrows money from the SBA to invest in or lend to a small business Copyright © 2022, 2019, 2016 Pearson Education, Inc. Copyright © 2022, 2019, 2016 Pearson Education, Inc. Source: idiainnovation.org Copyright © 2022, 2019, 2016 Pearson Education, Inc. Background Korea as a Case Study By 2016 Korea has 67 Centres supporting 6,655 companies with a total budget of KRW 25 Billion KRW Korean survival rate is lower than other countries such U.S, Israel or Italy (41%) Korean firms are less connected to global innovations networks (2%) The exit rate of companies is very low in Korea (5%) Source: OECD Report ENHANCING DYNAMISM IN SMES AND ENTREPRENEURSHIP IN KOREA 2018 Copyright © 2022, 2019, 2016 Pearson Education, Inc.  Start-ups Source: startupcommons.org Copyright © 2022, 2019, 2016 Pearson Education, Inc.  UNDERSTANDING DISTINCTIVE COMPETENCIES Established Market one in which many firms compete according to relatively well-defined criteria Niche a segment of a market that is not currently being exploited Ex: your home country's food in Korea Copyright © 2022, 2019, 2016 Pearson Education, Inc. First-Mover Advantages 3-13 First-mover advantage is any advantage that comes to a firm because it exploits an opportunity before any other firm does Such companies as CocaCola, Amazon and others. Copyright © 2022, 2019, 2016 Pearson Education, Inc. Starting and Operating a New 3-14 Business Business plan document in which the entrepreneur describes her or his business strategy for the new venture and demonstrates how it will be implemented Copyright © 2022, 2019, 2016 Pearson Education, Inc. Crafting a Business Plan 01 02 03 Setting Sales Financial Goals and Forecasting Planning Objectives Copyright © 2022, 2019, 2016 Pearson Education, Inc. Starting the Small Business 3-16 Copyright © 2022, 2019, 2016 Pearson Education, Inc. Copyright © 2022, 2019, 2016 Pearson Education, Inc. Starting a Small Business 3-17 Franchise arrangement in which a buyer (franchisee) purchases the right to sell the good or service of the seller (franchiser) Copyright © 2022, 2019, 2016 Pearson Education, Inc.  Advantages Disadvantages Franchising Proven business Start-up costs opportunity Ongoing payments Access to Management rules management and restrictions expertise Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-19 Starting from Scratch Who and where are my customers? How much will those customers pay for my product? How much of my product can I expect to sell? Who are my competitors? Why will customers buy my product rather than the product of my competitors? Copyright © 2022, 2019, 2016 Pearson Education, Inc. Trends in Small-Business Start-Ups (2 of 2) Global Better Survival Opportunities Rates Many entrepreneurs are Today, 44 percent of new also finding new start-ups can expect to opportunities in foreign survive for at least four markets years Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-26 Reasons for Failure Managerial incompetence or inexperience Neglect Weak control systems Insufficient capital Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-27 Reasons for Success Hard work, drive, and dedication Market demand for the products or services being provided Managerial competence Luck Copyright © 2022, 2019, 2016 Pearson Education, Inc. Noncorporate Business Ownership 3-28 Sole Proprietorship business owned and usually operated by one person who is responsible for all of its debts General Partnership business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts Example: law firms, medical practices, and architectural firms Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-29 Sole Proprietorship Advantages Disadvantages Freedom Unlimited liability Simple to form Limited resources Low start-up Limited costs fundraising Tax benefits capability Lack of continuity Copyright © 2022, 2019, 2016 Pearson Education, Inc. Partnerships 3-30 Advantages More talent and money More fundraising capability Relatively easy to form Limited liability for limited partners Tax benefits Disadvantages Unlimited liability for general partners Disagreements among partners Lack of continuity Copyright © 2022, 2019, 2016 Pearson Education, Inc. Comparative Summary: Three 3-31 Forms of Business Table 3.1 Comparative Summary: Three Forms of Business Ownership Business Sources of Liability Continuity Management Form Investment Ends with death Personal, Personal, Proprietorship or decision of Personal unlimited unrestricted owner Unrestricted or Ends with death General Personal, depends on Personal by or decision of Partnership unlimited partnership partner(s) any partner agreement As stated in Under control of charter, board of Capital Purchase of Corporation perpetual or for directors, which invested stock specified period is selected by of years stockholders Copyright © 2022, 2019, 2016 Pearson Education, Inc. Alternatives to General 3-32 Partnerships Limited Partnership Allows for limited partners who invest money but are liable for debts only to the extent of their investments General (or active) partners run the business Often used as investment vehicles for investing in such assets as real estate Master Limited Partnership Master partner has majority ownership and runs the business; minority partners have no management voice Copyright © 2022, 2019, 2016 Pearson Education, Inc. Cooperatives 3-33 Combine the freedom of sole proprietorships with the financial power of corporations Groups of sole proprietorships or partnerships agree to work together for their common benefit Copyright © 2022, 2019, 2016 Pearson Education, Inc. Proportions of U.S. Firms in Terms of 3-34 Organization Type and Sales Revenue Copyright © 2022, 2019, 2016 Pearson Education, Inc. The Corporate Entity 3-35 Corporation business that is legally considered an entity separate from its owners and is liable for its own debts; owners’ liability extends to the limits of their investments Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-36 Corporations Advantages Limited liability Continuity Stronger fundraising capability Disadvantages Can be taken over against the will of its management Double taxation of profits Complicated and expensive to form Copyright © 2022, 2019, 2016 Pearson Education, Inc. Types of Corporations (1 of 4) 3-37 Table 3.2 Types of Corporations Type Distinguishing Features Examples Blue Cross/Blue Shield Stock held by only a few people Closely Held MasterCard Subject to corporate taxation Primestar Apple Stock widely held among many investors Publicly Held Starbucks Subject to corporate taxation Texas Instruments Organized much like a publicly held Pacific Northwest corporation Associates Limited Liability Subject to additional regulation Global Ground Support Subject to partnership taxation Ritz Carlton Norman Hui, DDS & Subject to partnership taxation Associates Professional Limited business liability B & H Engineering Unlimited professional liability Anderson, McCoy & Oria Toyota Spans national boundaries Multinational Nestlé Subject to regulation in multiple countries General Electric Copyright © 2022, 2019, 2016 Pearson Education, Inc. Types of Corporations (2 of 4) 3-38 Closely Held (or Private) Corporation a corporation whose stock is held by only a few people and is not available for sale to the general public Publicly Held (or Public) Corporation A corporation whose stock is widely held and available for sale to the general public Copyright © 2022, 2019, 2016 Pearson Education, Inc. Types of Corporations (3 of 4) Limited Liability Corporation (LLC) hybrid of a publicly held corporation and a partnership in which owners are taxed as partners but enjoy the benefits of limited liability Professional Corporation form of ownership allowing professionals to take advantage of corporate benefits while granting them limited business liability and unlimited professional liability Copyright © 2022, 2019, 2016 Pearson Education, Inc. Types of Corporations (4 of 4) 3-40 Multinational (or Transnational) Corporation form of corporation spanning national boundaries Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-41 Managing a Corporation Corporate Governance roles of shareholders, directors, and other managers in corporate decision making and accountability Copyright © 2022, 2019, 2016 Pearson Education, Inc.  3-42 Corporate Governance Stockholder (or Shareholder) owner of shares of stock in a corporation Board of Directors governing body of a corporation that reports to its shareholders and delegates power to run its day-to-day operations while remaining responsible for sustaining its assets Officers top management team of a corporation Chief Executive Officer (CEO) the top manager of an organization Copyright © 2022, 2019, 2016 Pearson Education, Inc. Elon Musk is Tesla's largest individual shareholder and a CEO of Tesla Copyright © 2022, 2019, 2016 Pearson Education, Inc. Special Issues in Corporate 3-43 Ownership (1 of 3) Strategic Alliance strategy in which two or more organizations collaborate on a project for mutual gain Joint Venture strategic alliance in which the collaboration involves joint ownership of the new venture Employee Stock Ownership Plan (ESOP) arrangement in which a corporation holds its own stock in trust for its employees, who gradually receive ownership of the stock and control its voting rights Copyright © 2022, 2019, 2016 Pearson Education, Inc.  Strategic Alliance Uber’s partnership with Spotify lets Uber riders easily stream their Spotify playlists whenever they take a ride Copyright © 2022, 2019, 2016 Pearson Education, Inc.  Joint Venture HULU - joint venture between NBC Universal, Providence Equity Partners, News Corporation and then The Walt Disney Company Copyright © 2022, 2019, 2016 Pearson Education, Inc. Special Issues in Corporate 3-44 Ownership (2 of 3) Institutional Ownership large investor, such as a mutual fund or a pension fund, that purchases large blocks of corporate stock Ex: college endowments, insurance companies, etc. Merger the union of two corporations to form a new corporation Ex: Merger between Exxon and Mobil Acquisition the purchase of one company by another Ex: after acquiring Pixar, Disney completed the same process with Marvel Entertainment Copyright © 2022, 2019, 2016 Pearson Education, Inc. Special Issues in Corporate 3-45 Ownership (3 of 3) Divestiture strategy where a firm sells one or more of its business units Spin-Off strategy of setting up one or more corporate units as new, independent corporations Copyright © 2022, 2019, 2016 Pearson Education, Inc.