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MGT 491 Chapter 1 Slides
 

MGT 491 Chapter 1 Slides

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  • MGT 491: Small Business Management
  • Today, small businesses actually benefit over large corporations b/c their small size allows for agility in adapting. Prior generations saw entrepreneurship as a huge risk, but now with huge companies regularly downsizing, it isn’t perceived as that big of a risk to younger generations. 18.7% of the adult population in the U.S. is working to start a business. Essential sources of innovation that spur productivity growth and help change market structure. The majority of small businesses (51.3%) are in the service industry. (retail 10.3%, construction 12.4%, other 16.9%, finance 3.8%, mfg 2.3%, wholesale 2.8%). Many service businesses are faily inexpensive to start (i.e. web development company). MGT 491: Small Business Management
  • Possibly. the SBA definition allows for a varying max number of employees, depending upon industry. Manufacturing and/or mining for example allows 500 employees. Possibly. same thing with industry. For example, general and heavy construction is $28.5 million in annual sales. The SBA does not limit sales for some industries, such as manufacturing, where the only guideline is under 500 employees. For example, however, with retail and service industries, businesses must earn less than $6 million in annual sales to qualify. The SBA has a 61 page document that explains how it establishes, reviews and modifies its small business size standards pursuant to the Small Business Act (1953). Complex system to define a small business. In 2005, SBA tried to simplify the definition to one that had 100 or fewer employees. For some industries (those where 100 employees are tiny compared to leading firms). This would have been hugely problematic b/c they would have lost loan guarantees and other reasons. MGT 491: Small Business Management
  • Qualitative characteristics in addition to the quantitative measures. Committee for Economic Development has outlined four characteristics that describe a typical small business. MGT 491: Small Business Management
  • Terms are often used interchangeably. Entrepreneurs are seen more as change agents in society and take great risks to implement their business and ideas. (62 percent are “opportunity entrepreneurs” who start businesses b/c they spot an opportunity whereas 38 percent are necessity entrep. Who start businesses because they cannot find work any other way. Serial entrepreneurs repeatedly start businesses and grow them before starting another business. 50 Cent: clothing, shoes, video games, brand of Vitamin Water, body spray, and even condoms. Majority of these serial entrepreneurs are leapfroggers who start a company, grow it until they get bored, then sell it to start another. This course specifically looks at small business management and ownership, although much of the information is applicable to both groups. MGT 491: Small Business Management
  • The SBA has an Office of Women’s Business Ownership (OWBO) that exists to establish and oversee a network of Women’s Business Centers (WBCs) throughout the United States and its territories.  Through the management and technical assistance provided by the WBCs, entrepreneurs, especially women who are economically or socially disadvantaged, are offered comprehensive training and counseling on a vast array of topics in many languages to help them start and grow their own businesses. MGT 491: Small Business Management
  • MGT 491: Small Business Management
  • MGT 491: Small Business Management
  • In 2000-2003, firms employing fewer than 20 people were responsible for a net increase of more than 3.5 million jobs. Same time, businesses with 500+ employees saw a net decrease of 3.4 million jobs (mergers and downsizing). Many businesses employ just ONE person. Self-employment as a primary occupation continues to grow, in 2003 more than 12.2 million people (non-farm) were considered to be self-employed. MGT 491: Small Business Management
  • Not only provide employment, goods and services, but also complement large businesses by doing what large firms either cannot or will not do. Mobility: capital must be free to flow from industries with low rates of return to industries with higher rates of reutn. More likely to employ less-skilled workers and those with no prior experience. MGT 491: Small Business Management
  • * Independence, create your own destiny and “call the shots” in their lives. Financial opportunity: most never become super rich but some do. Nearly 75 percent of those on the Forbes lsit of the 400 riches Americans are first-generations entrepreneurs. Community Service: contribute to society by filling a need. Job security: When a person owns a business they don’t have to worry about being fired, so there is job security and no mandatory retirement. Flexibility: Schedule own hours around other commitments in life. Family employment: higher morale and trust among family, can provide family employment during economic downturns. Challenge: Thrill of the challenge and risk-taking of potentially failing. FUN: Many SBO start business from their hobbies which is something they love and have passion for. MGT 491: Small Business Management
  • Fluctuations: with regular check you can budget and plan but for SBO there are often cash ebbs and flows. You can go from making six figures one year to having a negative income the next. Competition: Can prosper at first until a new competitor enters the market and affects sales. Responsibilities: Make all major decisions but knowledgeable in MANY different areas. SBOs have complete responsibility. LONG hours – Avgs. Owner works 52 hrs per week compared to 41.1 for a typical non-SBO. Only about 59 percent take summer vacation. Losses: SBO faces financial losses, which might lead to bankruptcy. Employee relations: Human relations skills are imperative to the success of a business and SBO must manage these things. Laws and regulations: SBs are subject to multiple laws. For example, make sure have appropriate licenses and pay proper taxes, etc. Risk of failure: ultimate risk -- MGT 491: Small Business Management
  • Book lists 75.5% survival rate within four years of start up, but that is an old statistic from the 90’s. WE WILL USE THE MORE CURENT U.S. DEPT OF COMMERCE STATISTIC. Neglect: later we will watch an episode of Tabatha’s Salon Takeover where you will see a real life example of how an owner’s neglect can destroy his or her business. MGT 491: Small Business Management
  • Here are some specific management traps that can lead to the failure of the business. These were derived from a study reported by the SBA, that looked at firms that had failed during properous years compared to similar companies who had been successful during that same period. Records: particularly related to financial records. Expansion: grow rapidly but not equipped to handle growth. Lack of info about customers: Requires verifying credit worthiness and ensuring payment by customers. Diversify: when you put all of your eggs in basket and end up serving just a few customers, your business is dead in the water should those customers opt to go elsewhere. Lack of market research: want to conduct market research to best promote your product or service and plan for changes in market conditions. This is an important part of the business plan. Before even thinking of starting a business, one needs to complete the business plan – which is our semester-long assignment for this course. Legal problems: patent infringement, employment-based lawsuits, property ownership disputes. Nepotism: favoritism to family who make lots of money but don’t do much or aren’t qualified for job. Later in semester, will watch an episode of Kitchen Nightmares that shows some of the problems with nepotism or hiring family in a position in which he or she is not really qualified. MGT 491: Small Business Management
  • One person management: self-employee person gets sick and cannot manage operations, or that person solely holds the knowledge necessary for success. Lack of technical competence: Of course you have to have the technical knowledge about your business and industry to be successful otherwise you will fail. Need to know your business in depth. Owner abandons/neglects company. MGT 491: Small Business Management
  • Ethics provide the basic rules or parameters for conducting any activity in an “acceptable” manner. With high profile ethics failures such as Enron, Worldcom, Tyco, Bernie Madoff, etc., ethics is more of a concern than ever. Reputation is now key for businesses. Ethical decision making is a challenge that every businessperson involved in large or small enterprises confronts. The entrepreneur-owner’s value system is the key to establishing an ethical organization. An owner has the unique opportunity to display honesty, integrity, and ethics in all key decisions. In small businesses, the ethical influence of the owner is more powerful than in larger corporations MGT 491: Small Business Management
  • Example of code of conduct is Coca-Cola, whichi s 49 pages total. Here are their five core values. SB will probably have a more simplified code of conduct. MGT 491: Small Business Management
  • Social responsibility areas include environment, energy (conservation), fair business practices (i.e. don’t discriminate), HR (promote employee healthy, safety, training, childcare, etc.), community involvement (donations, sponsorships, etc., and products (enhance product safety and safety education). Social obligation: maintains low public profile and discloses info when only legally required. Denies problems with business and views contributions as the responsibility of individual employees and gives money only for direct benefit. Social responsibility: offers info more freely, willingly admits problems and accepts responsibility to solve them. Contributes to non-controversial and established causes. Social responsiveness: Similar to above but with greater openness to public access, scrutiny and input, and incrased willingness to support newer and/or more controversial causes. MGT 491: Small Business Management
  • MGT 491: Small Business Management
  • Social responsibility areas include environment, energy (conservation), fair business practices (i.e. don’t discriminate), HR (promote employee healthy, safety, training, childcare, etc.), community involvement (donations, sponsorships, etc., and products (enhance product safety and safety education). Social obligation: maintains low public profile and discloses info when only legally required. Denies problems with business and views contributions as the responsibility of individual employees and gives money only for direct benefit. Social responsibility: offers info more freely, willingly admits problems and accepts responsibility to solve them. Contributes to non-controversial and established causes. Social responsiveness: Similar to above but with greater openness to public access, scrutiny and input, and incrased willingness to support newer and/or more controversial causes. MGT 491: Small Business Management
  • Social responsibility areas include environment, energy (conservation), fair business practices (i.e. don’t discriminate), HR (promote employee healthy, safety, training, childcare, etc.), community involvement (donations, sponsorships, etc., and products (enhance product safety and safety education). Social obligation: maintains low public profile and discloses info when only legally required. Denies problems with business and views contributions as the responsibility of individual employees and gives money only for direct benefit. Social responsibility: offers info more freely, willingly admits problems and accepts responsibility to solve them. Contributes to non-controversial and established causes. Social responsiveness: Similar to above but with greater openness to public access, scrutiny and input, and incrased willingness to support newer and/or more controversial causes. MGT 491: Small Business Management

MGT 491 Chapter 1 Slides MGT 491 Chapter 1 Slides Presentation Transcript

  • Chapter One Introduction to the Small Business Life: A Large Contribution to the U.S. Economy
  • Defining the Small Business
    • In the United States, owning and operating a small business is a highly respected career.
    • Studying effective small business management may be the most important way to understand the U.S. economy.
    • An accurate definition of “small” depends on developing limits that are truly appropriate for a given industry.
    1-
  • Defining the Small Business
    • Company A has 400 employees. Is it a small business?
    • Company B generates $20 million annually in sales. Is it a small business?
    1-
  • Government Definition
    • According to the Small Business Act of 1953, a small business is one that is independently owned and operated, and is not dominant in its field of operation. ( www.sba.gov/size )
    • An SBA size standard is usually stated in number of employees or average annual receipts (sometimes both).
    • Four characteristics:
      • Management is independent.
      • Capital is supplied by, and ownership is held by, one individual or a few individuals.
      • The area of operations is primarily local, although the market isn’t necessarily local.
      • The firm is small when compared to the largest competitors in its own industry.
    1-
  • Small Business OWNER vs. Entrepreneur
    • Small business owners manage their business with a long-term perspective, aiming for stable sales and profits, and for modest growth.
    • Entrepreneurs are usually seeking rapid growth and immediate profits.
      • 62% are opportunity entrepreneurs, and 38% start a business due to necessity.
    • Serial entrepreneurs repeatedly start businesses and grow them, then start other businesses. Types include:
      • Leapfroggers , who start a company, grow it until they get bored, then sell it to start another.
      • Jugglers , who start multiple companies and run them at the same time.
    1-
  • Women as small business owners
    • Businesses started by women tend to be smaller and require half as much start-up capital as those men start.
    • Nearly one in three small businesses (32%) are owned by women ( http://www.census.gov/econ/sbo/get07sof.html?8 )
    • Women owned businesses tend to grow more slowly than those owned by men, but they have a higher survival rate.
    • Office of Women’s Business Ownership (OWBO) aids small business owners who are women: http://www.sba.gov/womeninbusiness
    1-
  • Minorities as small business owners
    • Minority-owned businesses are a rapidly growing segment of the small business population.
    • Hispanics, Asians, and African-Americans (respectively) are the minority groups most likely to become small business owners.
    • More than one in five (21.3%) small businesses are owned by minorities ( http://www.census.gov/econ/sbo/get07sof.html?5 )
    • Businesses owned by African-Americans are the fastest growing segment of small businesses.
    1-
  • How many U.S. businesses are “small” businesses?
    • 10%
    • 23%
    • 57%
    • 78%
    • 99%
    1-
  • Contributions
    • About 99 percent of the country’s 23.3 million non-farm businesses are small as defined by the SBA.
    • Small businesses employ 53 percent of the private non-farm workforce, contribute 47 percent of all sales in the country, and are responsible for 51 percent of the private gross domestic product.
    • Small businesses provided about 67 percent of initial job opportunities.
    • Small firms produce 55 percent of innovations.
    1-
  • Contributions
    • Small firms play an important role in the introduction of new goods and services to the marketplace.
    • Small firms are more likely to employ less-skilled workers and those with no prior experience.
    • Small firms purchase, use, and revitalize used capital equipment.
  • Advantages
    • Independence
    • Financial Opportunities
    • Community Service
    • Job Security
    • Flexibility
    • Family Employment
    • Challenge
    • Fun
    1-
  • Disadvantages
    • Sales Fluctuation
    • Competition
    • Increased Responsibilities
    • Financial Losses
    • Employee Relations
    • Laws and Regulations
    • Risk of Failure
    1-
  • Small Business Failure 1- True or False: Most small businesses will fail.
  • Small Business Failure 1-
    • First two years: 70%; first five years: 50% (U.S. Dept. of Commerce, 2009)
    • Most businesses fail when they are unable to pay debt.
    • Year after year, the major reason that businesses fail is incompetence. The second most common reason businesses fail is unbalanced experience.
    • Other common causes of business failure include neglect, fraud, and disaster.
  • Reasons for Small Business Failure
    • Inadequate Records
    • Expansion beyond Resources
    • Lack of Information about Customers
    • Failure to Diversify Market
    • Lack of Market Research
    • Legal Problems
    • Nepotism
    1-
  • Reasons - Continued
    • One-person Management
    • Lack of Technical Competence
    • Absentee Management
    1-
  • Ethics - Issues
    • For business owners developing one ethical code that suits all people in all situations is nearly impossible.
    • In one study, 65 percent of those surveyed said executives would do everything they could to make a profit, even if it meant ignoring society’s needs.
    • Many businesses turn to a code of conduct
    1-
  • Coca-Cola’s Code of business Conduct
    • Core values:
    • Act with integrity.
    • Be honest.
    • Follow the law.
    • Comply with the code.
    • Be accountable.
  • Ethics
    • The entrepreneur-owner’s value system is the key to establishing an ethical organization.
    • An owner has the unique opportunity to display honesty, integrity, and ethics in all key decisions.
    • In small businesses, the ethical influence of the owner is more powerful than in larger corporations
    1-
  • Social Responsibility
    • Social responsibility has emerged as a major issue in the business world.
    • Social responsibility consists of the obligations a business has to society.
    • Three categories to describe the level of corporate commitment to social concerns:
      • Social Obligation
      • Social Responsibility
      • Social Responsiveness
    1-
  • Social Responsiveness 1-
  • Social Entrepreneurship
    • A social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change.
    • Whereas a business entrepreneur typically measures performance in profit and return, a social entrepreneur focuses on creating social capital.
    • http://www.youtube.com/watch?v=jk5LI_WcosQ
    1-
  • Group Work
    • The owner of a manufacturing company is interested in obtaining small-business loans to help her expand her operations, but is not sure if her business is still considered “small.” The business was founded in 1978. She bought the company in 2001, and is the primary owner and manager, but has a few investors that own stock in the company. The firm has one plant employing about 200 employees and enjoys sales of $24 million each year, with products shipping to all of the lower 48 states. The manufacturer is about the fourth largest firm in the industry, which is comprised of seven firms. Does this firm meet the definition of “small” as established by the SBA? If so, why? If no, why not?
    1-