the instructions are attached
INSTRUCTIONS DISCUSSION 3
After reading the chapters in this module, review the following (2) topics below. Choose and post your response to one (1) topic. l
|#1||Chapter 8||A Lone Wolf? As a very independent person, you started a business and it is very successful. You are looking at expanding to another location in the same city but cannot afford that total expense right now. An opportunity exists to partner with another small firm that has complementary products. Discuss the advantages and disadvantages of such an alliance.|
|#2||Chapter 9||E-Commerce Growth and Opportunity Discuss how particular businesses would benefit from e-commerce and others might not.|
In order to earn the full points for this assignment, you must:
· Begin your post with Chapter # and topic
· Clearly and accurately explain your answer based on factual information. (25 points)
· Include examples, illustrations and/or applications in your answer. If you copy information from the Internet, you must cite your source. (25 points)
8 The Organizational Plan: Teams, Legal
Structures, Alliances, and Directors
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
By studying this chapter, you should be able to… 8-1 Describe the characteristics and value of a strong management
team. 8-2 Explain the common legal forms of organization used by small
businesses. 8-3 Identify factors to consider in choosing among the primary legal
forms of organization. 8-4 Discuss the unique features and restrictions of six specialized
organizational forms. 8-5 Understand the nature of strategic alliances and their uses in
small businesses. 8-6 Describe the effective use of boards of directors and advisory
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-1 BUILDING A MANAGEMENT TEAM (slide 1 of 2)
• Management team – Managers and other key persons who give a company its general direction. • In general, the management team consists of individuals with
supervisory responsibilities, as well as nonsupervisory personnel who play key roles in the business.
• Investors consider the quality of a new venture’s management to be one of the most important factors in decisions to invest.
• One reason that a management team often can bring greater strength to a venture than an individual entrepreneur can is that a team can provide a diversity of talent to meet various managerial needs.
• In addition, a team can provide greater assurance of continuity, since the departure of one member of a team is less devastating to a business than the departure of a single owner.
• The competence required in a management team depends on the type of venture and the nature of its operations.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-1 BUILDING A MANAGEMENT TEAM (slide 2 of 2)
• In many cases, a startup owner stacks the management team with family and friends, rather than seeking balanced expertise. • The upside to this is that:
• The owner knows these people well and trusts them. • They often work for less compensation. • They are more likely to make personal sacrifices to keep the
business alive. • The downside to this is that:
• The team can quickly become very homogeneous. • The team lacks complementary strengths. • The team entertains feelings of entitlement. • The team carries the baggage of family dysfunction into the
8-1a Achieving Balance
• Not all members of a management team need competence in all areas—the key is balance. • Example: If one member has expertise in finance, another
should have an adequate marketing background. • A diversity in perspectives and work styles enables the
completion of complex tasks. • A functionally diverse and balanced team will be more
likely to cover all the business bases, giving the company a competitive edge.
• A small firm can enhance its management by drawing on the expertise of competent insiders and outside specialists.
8-1b The Solo Startup Is Still an Option
• Despite the advantages of forming a team to start a business, The Wall Street Journal has reported that the number of small business owners who are choosing to go it alone is increasing significantly. • Research shows that 44 percent of successfully
funded startups are run by a single entrepreneur. • Emerging technologies make this option
increasingly manageable today.
8-1c Expanding Social Networks (slide 1 of 2)
• Management team members can connect the enterprise with a social network that provides access to a wide range of resources beyond the reach of individual team members. • Social network – An interconnected system of relationships
with other people. • Small business owners in the process of launching a
startup use their networks: • To access information or get advice. • To gain introductions to other people. • To obtain money, business services, physical facilities and
equipment, help with personal needs, and other forms of assistance.
8-1c Expanding Social Networks (slide 2 of 2)
• Social media tools can be very helpful in attracting customers, connecting with peers, and sharing advice about common problems.
• Small business owners are finding that they can use social media tools to build an active and robust social network to increase their social capital. • Social capital – The advantage created by an individual’s
connections within a social network. • The principle of reciprocation can be extremely helpful
in adding to whatever social capital you already have. • Reciprocation – A powerful sense of obligation to repay in
kind what another has done for or provided to us.
8-2 COMMON LEGAL FORMS OF ORGANIZATION
• The most basic forms of organization used by small businesses are the: • Sole proprietorship. • Partnership. • C corporation.
8.1 Forms of Legal Organization for Small Businesses
8.2 Percentage of Small Businesses by Legal Form of Organization
8-2a The Sole Proprietorship Option (slide 1 of 2)
• Sole proprietorship – A business owned by one person, who bears unlimited liability for the enterprise.
• Advantages: • An individual proprietor has title to all business assets. • He or she receives all of the firm’s profits. • Forming a sole proprietorship is the simplest and cheapest
way to start operation. • The owner holds title to all of the firm’s assets. • The owner is free from interference by partners, stakeholders,
8-2a The Sole Proprietorship Option (slide 2 of 2)
• Disadvantages: • An individual proprietor is subject to the claims of creditors. • He or she must assume all losses, bear all risks, and pay all
debts. • The owner bears unlimited liability.
• Unlimited liability – Liability on the part of an owner that extends beyond the owner’s investment in the business.
• A sole proprietor is not an employee of the business and cannot benefit from the advantage of many tax-free fringe benefits, such as insurance and hospitalization plans.
• The death of the owner terminates the legal existence of the business.
8-2b The Partnership Option (slide 1 of 6)
• Partnership – A legal entity formed by two or more co-owners to operate a business for profit.
• Benefits: • Owners can set it up quickly, avoiding many of the legal requirements
involved in creating a corporation. • The workload, as well as the emotional and financial burdens of the
enterprise, are shared. • Management talent that might otherwise break the budget is gained. • Companionship is added to life in a small business.
• Potential problems: • The owners share unlimited liability. • Personal conflicts are common. • Decision making is more complicated because leadership is shared. • The owners must share their equity position in the business, which
dilutes the control of each partner.
8-2b The Partnership Option (slide 2 of 6)
CHOOSING A PARTNER • Any person capable of contracting may legally become
a business partner. • Individuals may become partners without contributing
capital or having a claim to assets if the decision is made to close the business down. • Such persons are partners only with regard to management
and profits. • Forming a partnership involves consideration not only of
legal issues but also of personal and managerial factors. • A strong partnership requires partners who are honest,
healthy, capable, and compatible.
8-2b The Partnership Option (slide 3 of 6)
• The following are suggestions for forming a partnership: • Choose your partner carefully.
• Goals, values, and work habits must be compatible, and skills should be complementary before committing to the deal.
• Team up with a person you can trust. • Be open, but cautious, about partnerships with friends. • Test-drive the relationship, if possible.
• Try more limited forms of business collaboration first. • Create a shared vision for the business.
• Before joining forces, discuss the expectations of all partners, planned division of work, anticipated vacation time, and the sharing of profits and losses.
• Prepare for the worst. • From the beginning, have an exit strategy.
8-2b The Partnership Option (slide 4 of 6)
RIGHTS AND DUTIES OF PARTNERS • A written partnership agreement should be drawn up before the
venture is launched. • Partnership agreement – A document that states explicitly the rights
and duties of partners. • Unless the articles of the partnership agreement specify
otherwise, a partner is generally recognized as having certain implicit rights. • Partners share profits or losses equally, unless they have agreed to a
different ratio. • These rights are also balanced against serious liabilities, such as
joint and several liability. • Joint and several liability – The liability of each partner resulting
from any one partner’s ability to legally bind the other partners.
8-2b The Partnership Option (slide 5 of 6)
TERMINATION OF A PARTNERSHIP • Death, incapacity, or withdrawal of a partner
ends a partnership and requires liquidation or reorganization of the business. • Liquidation often results in substantial losses to all
partners. • When one partner dies, loss due to liquidation may be
avoided if the partnership agreement stipulates that surviving partners can continue the business after buying the decedent’s interest.
• This option can be facilitated by having each partner carry life insurance that names the other partners as beneficiaries.
8-2b The Partnership Option (slide 6 of 6)
• When a partner decides to leave the business, the other partners should take several measures as part of a sound response plan: • Cut off the departing partner’s access to bank
accounts, physical facilities, and company assets to avoid loss or damage to equipment critical to the business.
• Quickly assess that partner’s role in the enterprise, and take steps to fill his or her shoes to get the business back to normal as soon as possible.
• Once these very pressing matters are under control, sort out any legal issues that remain.
8-2c The C Corporation Option (slide 1 of 6)
• Corporation – A business organization that exists as a legal entity and provides limited liability to its owners. • Legal entity – A business organization that is
recognized by the law as having a separate legal existence.
• This means that the corporation can file suit and be sued, hold and sell property, and engage in business operations that are stipulated in the corporate charter.
• In other words, a corporation is a separate entity from the individuals who own it, which means that the corporation, not its owners, is liable for the debts of the business.
8-2c The C Corporation Option (slide 2 of 6)
• C corporation – An ordinary corporation, taxed by the federal government as a separate legal entity.
THE CORPORATE CHARTER • To form a corporation, one or more persons must apply to the
secretary of state (at the state level) for permission to incorporate. • After completing preliminary steps, including payment of an
incorporation fee, the written application is approved by the secretary of state and becomes the corporate charter. • Corporate charter – A document that establishes a corporation’s
8-2c The C Corporation Option (slide 3 of 6)
• A corporation’s charter should be brief, in accordance with state law, and broad in its statement of the firm’s power.
• Details should be left to the corporate bylaws, which outline the basic rules for ongoing formalities and decisions of corporate life, including the following: • The size of the board of directors. • The duties and responsibilities of directors and officers. • The scheduling of regular meetings of the directors and shareholders. • The means of calling for a special meeting of these groups. • Procedures for exercising voting rights. • Restrictions on the transfer of corporate stock.
8-2c The C Corporation Option (slide 4 of 6)
RIGHTS AND STATUS OF STOCKHOLDERS • Ownership in a corporation is evidenced by shares of
stock owned by a stockholder. • An ownership interest does not confer a legal right to act for
the firm or to share in its management. • It does, however, provide the stockholder with the right to
receive dividends in proportion to the shares of stock owned, but only when the dividends are properly declared by the firm.
• Ownership of stock typically carries a preemptive right. • Preemptive right – The right of stockholders to buy new shares
of stock before they are offered to the public.
8-2c The C Corporation Option (slide 5 of 6)
LIMITED LIABILITY OF STOCKHOLDERS • Stockholders’ financial liability is restricted to the amount of
money they invest in the business. • Creditors cannot require them to sell personal assets to pay the
DEATH OR WITHDRAWAL OF STOCKHOLDERS • Unlike a partnership interest, ownership in a corporation is readily
transferable. • An exchange of shares of stock is sufficient to transfer an ownership
interest to a different individual. • To prevent any negative repercussions from the death of a
majority stockholder, legal arrangements should be made at the outset to provide for management continuity by surviving stockholders and fair treatment of a stockholder’s heirs.
8-2c The C Corporation Option (slide 6 of 6)
MAINTAINING CORPORATE STATUS • To retain its standing as a separate entity, a
corporation must: • Hold annual meetings of both the shareholders and the board
of directors. • Keep minutes to document the major decisions of
shareholders and directors. • Maintain bank accounts that are separate from owners’ bank
accounts. • File a separate income tax return for the business.
8-3 CONSIDERATIONS IN CHOOSING AN ORGANIZATIONAL FORM
• The key factors in choosing an organization are: • The initial organizational requirements and costs. • The liability of the owners.
• Piercing the corporate veil – A situation in which a court concludes that incorporation has been used to perpetuate a fraud, skirt a law, or commit some wrongful act, and it removes liability protection from the corporate entity.
• The continuity of the business. • The transferability of ownership. • Management control. • Its attractiveness for raising capital. • Income tax considerations.
8.3 Comparison of Basic Legal Forms of Organization (slide 1 of 2)
8.3 Comparison of Basic Legal Forms of Organization (slide 2 of 2)
8-4 SPECIALIZED LEGAL FORMS OF ORGANIZATION
• The majority of small businesses use one of the three major ownership structures—the sole proprietorship, partnership, or C corporation.
• However, other specialized forms of organization are also used by small firms, including: • The limited partnership. • The S corporation. • The limited liability company. • The professional corporation. • The nonprofit corporation. • The B corporation.
8-4a The Limited Partnership
• Limited partnership – A partnership with at least one general partner and one or more limited partners. • General partner – A partner in a limited partnership who has
unlimited personal liability. • Limited partners – A partner in a limited partnership who is not
active in its management and whose liability is limited to his or her investment.
• If a limited partner becomes active in management, however, his or her limited liability is lost.
• To form a limited partnership, partners must file a certificate of limited partnership with the proper state office, as state law governs this form of organization.
8-4b The S Corporation
• S corporation (subchapter S corporation) – A corporation that offers limited liability to its owners and passes taxable income or losses on to stockholders.
• To obtain S corporation status, a corporation must meet certain requirements, including the following: • The corporation must be domestic. • The corporation can have no more than 100 stockholders. • All stockholders must be individuals or certain qualifying estates and
trusts. • Only one class of stock can be outstanding. • It must not be an ineligible corporation.
• Because an S corporation does not pay income taxes but instead passes taxable income or losses on to the stockholders, this allows stockholders to receive dividends from the corporation without double taxation on the firm’s profit.
8-4c The Limited Liability Company
• Limited liability company – A form of organization in which owners have limited liability but pay personal income taxes on business profits.
• A limited liability company can have an unlimited number of owners, or “members,” and these may include other limited liability companies and non-U.S. entities.
• This form differs from the C corporation in that it avoids double taxation. • Like S corporations, limited liability companies are not taxed but simply
pass their income on to their owners, who pay taxes on it as part of their personal income.
• Compared to most other forms of organization, the limited liability company is easier to set up, is more flexible, and offers some significant tax advantages. • Thus, according to many attorneys, the limited liability company is
usually the best choice for new businesses.
8-4d The Professional Company
• Professional corporation – A form of corporation that shields owners from one another’s liability and is set up for individuals in certain professional practices. • The term professional usually applies to those
individuals whose professions require that they obtain a license before they can practice.
• Examples: Doctors, chiropractors, lawyers, accountants, engineers, and architects.
8-4e The Nonprofit Corporation
• Nonprofit corporation – A form of corporation for enterprises established to serve civic, educational, charitable, or religious purposes; not for generation of profits.
• The IRS will not grant this option to a sole proprietorship or partnership.
• In the application process, the officers need to submit articles of organization that spell out and limit the range of activities of the enterprise.
• For a tax exemption to be granted, the organization must pass the organizational test. • Organizational test – Verification of whether a nonprofit organization
is staying true to its stated purpose. • A nonprofit corporation must establish a board of directors or
trustees to oversee its operations, and if it should dissolve, it is required to transfer its assets to another nonprofit corporation.
8-4f The B Corporation
• B corporation – A form of corporation that creates a positive social or environmental impact while maintaining high standards of transparency and accountability.
8-5 FORMING STRATEGIC ALLIANCES
• Strategic alliance – An organizational relationship that links two or more independent business entities in a common endeavor.
• Without affecting the independent legal status of the participating business partners, a strategic alliance provides a way for companies to improve their individual effectiveness by sharing certain resources.
• Alliances can take many forms. • Alliances provide a way for small businesses to become more
competitive: • By accessing another firm’s first-rate resources. • By expanding the market range for products or services offered. • By combining advertising efforts. • By reaching crucial economies of scale. • By sharing risks that might prove crippling if borne by a single small
8.4 Most Popular Small Business Alliances by Type
8-5a Strategic Alliances with Large Companies
• Benefits: • The complementary skills and expertise of the partnered firms
can promote the competitive edge of both (or all) parties. • Forming an alliance with a large company may offer a boost to
status and market access. • Risks:
• The small company may be squeezed financially. • Partnering with a large firm may result in smothering
bureaucratic complications. • The parties’ strategic priorities may not mesh. • Large companies can wield enormous power over small
companies. • Some large firms have a track record of misbehavior as
8-5b Strategic Alliances with Small Companies
• About half of all small businesses maintain one or more strategic alliances with companies that are smaller or equal in size. • These partnerships have been found to be more
flexible, dedicated, creative, and understanding of the needs of small businesses.
8-5c Setting Up and Maintaining Successful Strategic Alliances (slide 1 of 2)
• An alliance strategy can be powerful for growing companies. • It spreads the risk of entering new markets. • It helps small players with unattractive balance sheets appear
stable to the end buyer. • It can provide a fast track to reaching the critical mass required
for pre-sale and post-sale support. • Working closely with other companies can also
introduce significant hazards. • Because alliance partners are in a unique position to learn
about your strategy and customer base, they can become competitors overnight.
• Thus, it is crucial to select partners with care and include an “easy out” clause in the contract, in case the alliance does not go well.
8-5c Setting Up and Maintaining Successful Strategic Alliances (slide 2 of 2)
• While strategic alliances often are not easy to set up, they can be even more difficult to maintain. • Entrepreneurs can improve their chances of
creating and maintaining a successful alliance by: • Establishing productive connections. • Identifying the best person to contact. • Being prepared to confirm the long-term benefits of the
alliance. • Learning to speak the partner’s “language.” • Ensuring a win-win arrangement. • Monitoring the progress of the alliance and making any
8-6 MAKING THE MOST OF A BOARD OF DIRECTORS
• Board of directors – The governing body of a corporation, elected by the stockholders. • In entrepreneurial firms, the board of directors tends to be
small (usually five or fewer members). • The board chooses the firm’s officers, sets or approves
management policies, considers reports on operating results from the officers, and declares any dividends.
• Corporations are required by law to have a board of directors. • Research shows that smaller companies that appoint
entrepreneurs to their boards experience increased performance along multiple dimensions.
8-6a Selection of Directors
• An entrepreneur who is attempting to assemble a cooperative and experienced group of directors needs to consider the value of an outside board. • Objectivity is a valuable contribution of outside directors.
• They can look at issues more dispassionately than can insiders who are involved in daily decision making.
• The nature and needs of a business help determine the qualifications required in its directors.
• After deciding on the qualifications to look for, a business owner must seek suitable candidates as board members. • Effective directors are honest and accountable, offer valuable
insights based on business experience, and enhance the company’s credibility with its stakeholders.
8-6b Contributions of Directors
• Boards of directors can assist small businesses by offering objective counsel and assistance to their chief executives.
• Directors can fill gaps in the expertise of a management team and monitor its activities.
• An active board of directors serves management by: • Reviewing major policy decisions. • Advising on external business conditions and on proper
reaction to the business cycle. • Providing informal advice from time to time on specific
problems that arise. • Offering access to important personal contacts.
8-6c Compensation of Directors
• The compensation paid to board members varies greatly, and some small firms pay no fees at all.
• If compensation is provided, it is usually offered in the form of an annual retainer, board meeting fees, and pay for committee work (evaluating executive compensation, nominating new board members, and overseeing the work of the company’s auditors). • Annual retainers for board work typically range from $5,000 to $10,000,
and board meeting fees can run from $500 to $2,000 per meeting. • These costs are usually in addition to reimbursements for travel
expenses related to board meetings and the financial burden of providing directors and officers liability insurance, which protects board members if they should be sued in the course of carrying out their duties as directors.
• Sometimes, board members are also given a small percentage of the company’s profits as a bonus for their participation.
8-6d An Alternative: An Advisory Board
• Some individuals are reluctant to join a board of directors because outside directors may be held responsible for harmful or illegal company actions, even though they are not directly involved in wrongdoing. • Thus, many small companies use an advisory board
as an alternative to a board of directors. • Advisory board – A group that serves as an alternative to
a board of directors, acting only in an advisory capacity. • In other words, it has no legal authority over the owner or the
Key Terms advisory board B corporation board of directors C corporation corporate charter corporation general partner joint and several liability legal entity limited liability company limited partners limited partnership management team nonprofit corporation
organizational test partnership partnership agreement piercing the corporate veil preemptive right professional corporation reciprocation S corporation (Subchapter S
corporation) social capital social network sole proprietorship strategic alliance unlimited liability
- �CHAPTER�8��The Organizational Plan: Teams, Legal Structures, Alliances, and Directors
- LEARNING OBJECTIVES
- 8-1 BUILDING A �MANAGEMENT TEAM (slide 1 of 2)
- 8-1 BUILDING A �MANAGEMENT TEAM (slide 2 of 2)
- 8-1a Achieving Balance
- 8-1b The Solo Startup �Is Still an Option
- 8-1c Expanding Social Networks (slide 1 of 2)
- 8-1c Expanding Social Networks (slide 2 of 2)
- 8-2 COMMON LEGAL �FORMS OF ORGANIZATION
- 8.1 Forms of Legal Organization for Small Businesses
- 8.2 Percentage of Small Businesses by Legal Form of Organization
- 8-2a The Sole Proprietorship Option (slide 1 of 2)
- 8-2a The Sole Proprietorship Option (slide 2 of 2)
- 8-2b The Partnership Option (slide 1 of 6)
- 8-2b The Partnership Option (slide 2 of 6)
- 8-2b The Partnership Option (slide 3 of 6)
- 8-2b The Partnership Option (slide 4 of 6)
- 8-2b The Partnership Option (slide 5 of 6)
- 8-2b The Partnership Option (slide 6 of 6)
- 8-2c The C Corporation Option �(slide 1 of 6)
- 8-2c The C Corporation Option �(slide 2 of 6)
- 8-2c The C Corporation Option �(slide 3 of 6)
- 8-2c The C Corporation Option �(slide 4 of 6)
- 8-2c The C Corporation Option �(slide 5 of 6)
- 8-2c The C Corporation Option �(slide 6 of 6)
- 8-3 CONSIDERATIONS IN CHOOSING AN ORGANIZATIONAL FORM
- 8.3 Comparison of Basic Legal Forms of Organization (slide 1 of 2)
- 8.3 Comparison of Basic Legal Forms of Organization (slide 2 of 2)
- 8-4 SPECIALIZED LEGAL �FORMS OF ORGANIZATION
- 8-4a The Limited Partnership
- 8-4b The S Corporation
- 8-4c The Limited �Liability Company
- 8-4d The Professional Company
- 8-4e The Nonprofit Corporation
- 8-4f The B Corporation
- 8-5 FORMING STRATEGIC ALLIANCES
- 8.4 Most Popular Small Business Alliances by Type
- 8-5a Strategic Alliances �with Large Companies
- 8-5b Strategic Alliances �with Small Companies
- 8-5c Setting Up and Maintaining Successful Strategic Alliances (slide 1 of 2)
- 8-5c Setting Up and Maintaining Successful Strategic Alliances (slide 2 of 2)
- 8-6 MAKING THE MOST OF A BOARD OF DIRECTORS
- 8-6a Selection of Directors
- 8-6b Contributions of Directors
- 8-6c Compensation of Directors
- 8-6d An Alternative: �An Advisory Board
- Key Terms
9 The Location Plan
By studying this chapter, you should be able to… 9-1 Describe the five key factors in locating a brick-and-
mortar startup. 9-2 Discuss the challenges of designing and equipping
a physical facility. 9-3 Recognize both the attraction and the challenges of
creating a home-based startup. 9-4 Understand the potential benefits of locating a
startup on the Internet.
9-1 LOCATING THE BRICK-AND- MORTAR STARTUP
• The choice of a location for a physical facility is often a one-time decision, but a small business owner may later relocate a venture to reduce operating costs, be closer to customers, or tap other advantages.
9-1a The Importance of the Location Decision
• Brick-and-mortar facility – The traditional physical facility from which businesses have historically operated.
• The importance of the initial decision as to where to locate a brick- and-mortar facility is underscored by both the high cost of such a place and the hassle of pulling up stakes and moving an established business.
• Also, if the site is particularly poor, the business may never become successful, even with adequate financing and superior managerial ability.
• The choice of a good location is much more vital to some businesses to others. • Example: The location decision for an apparel store would be much
different than the location decision for a painting contractor’s office.
9-1b Key Factors in Selecting a Good Location (slide 1 of 9)
• Five key factors guide the location selection process: 1. Customer accessibility. 2. Business environment conditions. 3. The availability of resources. 4. The entrepreneur’s personal preference. 5. Site availability and costs.
9.1 Factors in Determining a Good Business Location
9-1b Key Factors in Selecting a Good Location (slide 2 of 9)
• Relevant questions to ask when making the location decision include the following: • Neighbor mix: Who’s next door? • Security and safety: How safe is the neighborhood? • Services: Does the city provide reliable trash
pickup, for example? • Past tenants’ fate: What happened to previous
businesses in that location? • Location’s life-cycle stage: Is the area developing,
stagnant, or in decline?
9-1b Key Factors in Selecting a Good Location (slide 3 of 9)
CUSTOMER ACCESSIBLITY • Customer accessibility is a key location factor in
industries with high transportation costs, as well as those that must provide handy access for targeted customers to avoid losing those customers to more conveniently located competitors.
BUSINESS ENVIRONMENT CONDITIONS • Business environment factors affecting the location
decision are climate, competition, legal requirements, and the tax structure.
9-1b Key Factors in Selecting a Good Location (slide 4 of 9)
• Although most state and city governments go to great lengths to support startups, nearly all cities have regulations that restrict new business operations under certain circumstances. • Zoning ordinances – Local laws regulating land use. • These ordinances often apply to factors related to:
• Traffic and parking. • Signage. • Nonrelated employees working in a home. • The use of a home more as a business than as a residence. • The sale of retail goods to the public. • The storage of hazardous materials and work-related equipment.
9-1b Key Factors in Selecting a Good Location (slide 5 of 9)
AVAILABILITY OF RESOURCES • Availability of resources, such as raw materials and
crucial suppliers, can be important to location decisions. • Proximity to important sources of raw materials and an
appropriate labor supply are particularly critical considerations in the location of most manufacturing businesses.
• Access to key suppliers influences site selections for retail outlets and restaurant operations.
9-1b Key Factors in Selecting a Good Location (slide 6 of 9)
• Availability of suitable labor can also be important to location decisions. • The suitability of the labor supply for a manufacturer depends
on the nature of its production process. • Labor-intensive operations need to be located near workers with
appropriate skills and reasonable wage requirements. • A history of acceptable levels of labor productivity and peaceful
relations with employers in a particular area is beneficial to almost any production operation.
• Companies that depend on semiskilled or unskilled workers usually locate in an area with surplus labor, while other firms may need to be close to a pool of highly skilled labor.
• Access to good transportation is important to many companies, particularly retail stores and small manufacturers.
9-1b Key Factors in Selecting a Good Location (slide 7 of 9)
PERSONAL PREFERENCE OF THE ENTREPRENEUR • The entrepreneur’s personal preference is a practical
consideration in selecting a location. • Despite a world of alternatives, small business owners often
choose to stay in their home community, which may offer certain unique advantages that cannot be found elsewhere. • The entrepreneur may generally appreciate and feel comfortable with
the atmosphere of his or her home community. • It may be easier to establish credit with hometown bankers who know
an entrepreneur’s personal background and reputation. • Having personal connections in the local business community can
lead to invaluable business advice. • The small business owner probably will have a better idea of their
local residents’ tastes and preferences than would an outsider. • Friends and relatives in the community may be quick to buy the
product or service and spread positive reports about it to others.
9-1b Key Factors in Selecting a Good Location (slide 8 of 9)
SITE AVAILABILITY AND COSTS • Once an entrepreneur has settled on a certain area for
his or her business, a specific site must still be chosen. • If an entrepreneur’s top location choices are
unavailable, other options must be considered. • One alternative is to share facilities with other enterprises.
• Business incubator – A facility that provides shared space, services, and management assistance to new businesses.
• The purpose of business incubators is to see new businesses hatch, grow, and then move on, so the situation is temporary by design.
• Alternatives that are more permanent are the shared-office arrangement and “co-working” movement, which involves shared working spaces that allow workers to work and connect in the same location.
9-1b Key Factors in Selecting a Good Location (slide 9 of 9)
• Assuming that suitable building space is available, the entrepreneur must decide whether to lease or buy. • Although most small business owners choose to purchase,
there are a number of benefits to leasing: • A large outlay is avoided. • Risk is reduced by minimizing investment and by postponing
commitments for space until the success of the business is assured and facility requirements are better known.
• It is usually more affordable to lease in a high-image area than to buy in a prime location.
• The entrepreneur can focus on running the business rather than managing a property.
• However, there clearly are disadvantages to leasing as well. • A well-selected purchased property appreciates in value. • No permission is needed to make changes or additions to the property.
9-2 DESIGNING AND EQUIPPING THE PHYSICAL FACILTIES
• A well-written location plan should describe the physical space in which the business will be housed and include an explanation of any equipment needs. • The plan may call for a new building or an existing
structure, but ordinarily a new business that needs physical space will occupy an existing building, perhaps after some minor or major remodeling.
9-2a Challenges in Designing the Physical Facilities
• The general suitability of a building depends on the functional requirements of the business. • It should not be too large and extravagant nor too small and restrictive.
• Important factors to consider include: • The age and condition of the building. • Potential fire hazards. • The quality of heating and air conditioning systems. • The adequacy of lighting and restroom facilities. • Appropriate entrances and exits.
• The comfort, convenience, and safety of the business’s employees and customers must not be overlooked.
• The square feet of office area per employee has decreased in recent years.
• Office configurations have also gone through a substantial transformation, with a shift toward open designs.
9-2b Challenges in Equipping the Physical Facilities (slide 1 of 3)
• The final step in arranging for physical facilities is the purchase or lease of equipment and tools. • Research has shown that, overwhelmingly, owners
of small businesses would rather own their equipment than lease it.
9.2 Small Business Owners Choose Buying over Leasing
9-2b Challenges in Equipping the Physical Facilities (slide 2 of 3)
MANUFACTURING EQUIPMENT • Machines used in factories can include either general-
purpose or special-purpose equipment. • General-purpose equipment – Machines that serve many
functions in the production process. • General-purpose equipment requires minimal investment and is
easily adapted to various operations. • General-purpose equipment also offers flexibility.
• Special-purpose equipment – Machines designed to serve specialized functions in the production process.
• Special-purpose equipment offers a narrower range of possible applications and, thus, has little or no resale value.
• Special-purpose equipment is more expensive to buy or lease.
9-2b Challenges in Equipping the Physical Facilities (slide 3 of 3)
RETAILING EQUIPMENT • Small retailers must have merchandise display racks and
counters, storage racks, shelving, mirrors, shopping carts, cash registers, and other equipment that facilitates selling.
• Fixtures and other retailing equipment should create an atmosphere appropriate for customers in the retailer’s target market.
OFFICE EQUIPMENT • Every business office—even a home office—needs furniture, filing
and storage cabinets, and other such items. • Entrepreneurs should choose office equipment (like computers
and communications systems) that reflects the latest advances in technology applicable to a particular business.
9-2c Business Image
• All new ventures, regardless of their function, should project an image that is appropriate to and supportive of the business and its intentions.
9-3 LOCATING THE STARTUP IN THE ENTREPRENEUR’S HOME
• Home-based business – A business that maintains its primary facility in the residence of the owner.
• Launching a business from home has become a viable permanent option for an increasing number of startups.
9-3a The Attraction of Home-Based Businesses (slide 1 of 2)
• Home-based businesses are started both for financial reasons and to accommodate family lifestyle considerations, such as the following: • To get a business up and running quickly, and with little risk. • To do something you love to do, and get paid for doing it. • To be your own boss, and reap the rewards from your efforts. • To have the flexibility to spend more time with family and
friends. • To save time and money wasted on daily commutes.
9-3a The Attraction of Home-Based Businesses (slide 2 of 2)
FINANCIAL CONSIDERATIONS • Locating a business at home helps increase profits by reducing
costs. • Starting at home allows you to build your business slowly, without
the pressing burden of having to find the cash to cover rent for office space every month and pay other expenses.
• It also allows you to deduct costs related to space used in the home for business from any taxes that may be owed from the venture’s income, as long as you conform to the rules established by the IRS.
LIFESTYLE CONSIDERATIONS • Entrepreneurs who locate business operations in the home are
frequently motivated by the desire to spend more time with family members.
9-3b The Challenges of Home-Based Businesses
PROFESSIONAL IMAGE • Maintaining a professional image when working at home is a
major challenge for many home-based entrepreneurs. • If clients or salespeople visit the home-based business, it is critical
that a professional office area be maintained.
LEGAL CONSIDERATIONS • Local laws, such as zoning ordinances, can pose serious problems
for home-based businesses. • There are also tax issues related to a home-based business.
• Example: A separate space must be clearly devoted to business activities if an entrepreneur is to claim a tax deduction for a home office.
• Insurance considerations also affect a home-based business. • A homeowner’s policy is not likely to cover an entrepreneur’s
business activities, liabilities, and equipment.
9-4 E-COMMERCE: LOCATING A STARTUP ON THE INTERNET
• E-commerce – Electronic commerce, or the buying and selling of products or services on the Internet.
• The Internet can significantly boost a small company’s financial performance.
9-4a Benefits of E-Commerce for Startups
• E-commerce can benefit a startup in many ways. • It allows a new venture to compete with bigger
businesses on a more level playing field. • The Internet blurs geographic boundaries and
expands a small company’s reach. • An e-commerce operation can help a startup with
early cash flow problems by compressing the sales cycle—that is, reducing the time between receiving an order and converting the sale to cash.
• The shorter cycle translates into quicker payments from customers and improved cash flows to the business.
9-4b E-Commerce Business Models (slide 1 of 7)
• A business model is an analysis of how a firm plans to create profits and cash flows given its revenue sources, its cost structures, the required size of investment, and sources of risk.
• Online companies differ in their decisions concerning which customers to serve, how best to become profitable, and what to include on their websites.
9.3 Basic E-Commerce Business Models
9-4b E-Commerce Business Models (slide 2 of 7)
TYPE OF CUSTOMERS SERVED • E-commerce businesses are commonly distinguished
according to customer focus. • There are three major categories of e-commerce
business models based on the type of customers served: 1. Business-to-business (B2B). 2. Business-to-consumer (B2C). 3. Consumer-to-consumer (C2C).
9-4b E-Commerce Business Models (slide 3 of 7)
• Business-to-business (B2B) model – A business model based on selling to business customers electronically. • Example: Hewlett-Packard. • The dollar amounts generated by firms using a B2B model are
significantly greater than those for firms with a B2C model. • B2B operations come in all shapes and sizes, but the most
popular form of this strategy emphasizes sales transactions. • A unique form of B2B trade involves work outsourcing, which
helps connect freelancers and other specialists with companies that need their services.
9-4b E-Commerce Business Models (slide 4 of 7)
• Business-to-consumer (B2C) model – A business model based on selling to final consumers electronically. • Example: Amazon. • The B2C model offers three main advantages over brick-and-
mortar retailing: 1. Convenient use. 2. Immediate transactions. 3. Round-the-clock access to a broad array of products and services.
• B2C e-commerce businesses face unique challenges— payment security risks and data breaches, customers who refuse to purchase a product without first seeing or trying it, etc.
• However, they also enjoy the advantages of tremendous flexibility by being able to change merchandise mixes and prices quickly and easily modify the appearance of their online stores.
9-4b E-Commerce Business Models (slide 5 of 7)
• Many producers and wholesalers today are using a strategy sometimes referred to as disintermediation. • Disintermediation – The bypassing of a middleman by a
producer or wholesaler in order to sell its product or service directly to the final consumer.
• Consumer-to-consumer (C2C) model – A business model usually set up around Internet auction sites that allow individuals to list items available for sale to potential bidders. • Auction site – Web-based businesses offering participants
the ability to list products for consumer bidding. • Example: eBay. • Auction sites generate most of their revenue through listing
fees and commissions.
9.4 Selling Your Item on eBay
Step 1: Set up an eBay seller’s account, which is free of charge. Step 2: Create a listing for the item to be offered for sale. Step 3: Manage your listing to see if anyone has bid on or purchased your item. Step 4: Wrap up the sale with your buyer by communicating with the buyer,
receiving payment, shipping the item, and leaving feedback for the buyer.
Source: Adapted from “Getting Started Selling on eBay,” http://pages.ebay.com/ help/sell/sell-getstarted.html, accessed January 22, 2018.
9-4b E-Commerce Business Models (slide 6 of 7)
THE NATURE OF ONLINE PRESENCE • A second broad way of categorizing e-commerce models relates
to a firm’s intended level of online presence. • The role of a website can range from merely offering information
(information-based model) and basic content (content-based model) to enabling complex business transactions (transaction-based model).
• Information-based model – A business model in which a website simply offers information about a business, its products, and other related matters. • It is typically just a complement to an existing brick-and-mortar
9-4b E-Commerce Business Models (slide 7 of 7)
• Content-based model – A business model in which a website provides information (content) that attracts visitors, usually with the hope of generating revenue through advertising or by directing those visitors to other websites. • The content-based model does not provide the ability to make
purchases. • Transaction-based model – A business model in which a
website provides a mechanism for buying or selling products or services.
• Emerging platforms for online ventures include: • Blogging. • Podcasting. • Creating a following on YouTube or Pinterest to generate revenue
from ads and sponsorships, donations, subscription charges, or fees for access to live events.
9-4c Internet-Based Businesses and the Part-Time Startup Advantage
• Instead of giving up their existing job, many entrepreneurs start Internet-based businesses on a part-time basis while still holding on to their full-time job. • This approach reduces the personal risk of the
entrepreneur if the venture should fail. • On the other hand, holding on to a full-time career
while launching a new venture on the side can be extremely grueling due to the amount of hours that must be spent working two careers.
Key Terms auction sites brick-and-mortar facility business incubator business-to-business (B2B)
model business-to-consumer (B2C)
model consumer-to-consumer (C2C)
content-based model disintermediation e-commerce general-purpose equipment home-based business information-based model special-purpose equipment transaction-based model zoning ordinances
- �CHAPTER�9��The Location Plan
- LEARNING OBJECTIVES
- 9-1 LOCATING THE BRICK-AND-MORTAR STARTUP
- 9-1a The Importance of �the Location Decision
- 9-1b Key Factors in Selecting �a Good Location (slide 1 of 9)
- 9.1 Factors in Determining a Good Business Location
- 9-1b Key Factors in Selecting �a Good Location (slide 2 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 3 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 4 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 5 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 6 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 7 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 8 of 9)
- 9-1b Key Factors in Selecting �a Good Location (slide 9 of 9)
- 9-2 DESIGNING AND EQUIPPING THE PHYSICAL FACILTIES
- 9-2a Challenges in Designing �the Physical Facilities
- 9-2b Challenges in Equipping �the Physical Facilities (slide 1 of 3)
- 9.2 Small Business Owners Choose Buying over Leasing
- 9-2b Challenges in Equipping �the Physical Facilities (slide 2 of 3)
- 9-2b Challenges in Equipping �the Physical Facilities (slide 3 of 3)
- 9-2c Business Image
- 9-3 LOCATING THE STARTUP IN THE ENTREPRENEUR’S HOME
- 9-3a The Attraction of �Home-Based Businesses (slide 1 of 2)
- 9-3a The Attraction of �Home-Based Businesses (slide 2 of 2)
- 9-3b The Challenges of �Home-Based Businesses
- 9-4 E-COMMERCE: LOCATING A STARTUP ON THE INTERNET
- 9-4a Benefits of �E-Commerce for Startups
- 9-4b E-Commerce �Business Models (slide 1 of 7)
- 9.3 Basic E-Commerce Business Models
- 9-4b E-Commerce �Business Models (slide 2 of 7)
- 9-4b E-Commerce �Business Models (slide 3 of 7)
- 9-4b E-Commerce �Business Models (slide 4 of 7)
- 9-4b E-Commerce �Business Models (slide 5 of 7)
- 9.4 Selling Your Item on e Bay
- 9-4b E-Commerce �Business Models (slide 6 of 7)
- 9-4b E-Commerce �Business Models (slide 7 of 7)
- 9-4c Internet-Based Businesses and the Part-Time Startup Advantage
- Key Terms