Entrepreneurship: Chapter 7

CHAPTER 7: STARTING A NEW BUSINESS

The advantages and disadvantages of starting a business from scratch

When starting a business from scratch, you have no worry on any negative impact or unhappy customers, or bad debt credit from prior mistake to overcome, as if you compare with purchasing an existing business. Furthermore, you may enjoy your creation of a success business and pride of ownership. However, the risk of failure is higher for a startup because there are more uncertainties and variables regarding the market acceptance to your product.

The common types of new businesses and characteristics of fast-growth companies

New businesses include E-businesses, home-based businesses and part-time businesses have completely changed the small business landscape. Some of the small businesses are hyper growth companies. These companies are generally led by teams of seasoned people with prior experiences or entrepreneurial spirit people who turn their idea into a new business.

Evaluating potential startups and ideas

When a brand new product idea being introduce, you may have a great chance of success if people want and will buy your product. As the product progresses through the product life cycle, the window of opportunity closes, as more competition enters the market and it impacts the pricing and the profit margin may drop. Most people get their idea from prior employment or their hobbies turn into business or someone suggestions. Sometimes business ideas occur by chance.

Getting started

It is a big challenge to turn your dream into reality. You need to carefully plan and consider the costs of starting a new business, and they must analyze the market and competitive landscape to ensure the competitive advantage really exist and your product can really sell. Next, customer service is the basis for establishing a long-term relationship with customers. Startups have legal requirements. Entrepreneurs must file the business name with the state of origin and obtain local business licenses and any industry-specific permits required. They must also apply for a tax identification number to collect and process sales taxes.

My View: I founded a business from scratch many years ago. I started the business because I thought about creating wealth and reaching personal satisfaction. Based on my past experience, there are several important pros and cons considerations for starting a successful business. Besides of all the key elements mentioned in the textbook, I would say the #1 most essential for me to start a business is not money but to have a right partner and a right team from the beginning. If you have a right team, many obstacles can be gradually resolved over time.

Entrepreneurship: Chapter 6

CHAPTER 6: TAKING OVER AN EXISTING BUSINESS

The advantages and disadvantages of buying an existing business

The advantages of buying an existing business are it comes with existing customer base and the business is already functioning operation. You do not have to start from the ground up. The disadvantages include the difficulty of changing the business’s image, the outdated inventory, equipment, unsatisfied location, liabilities for previous contracts, etc.

How to find a business for sale

There are several sources to find a business for sale. You can find it on newspaper advertising, Craiglists.com, word of mouth through friends and family, bankers, lawyers, accountants, business brokers, internet search, etc.

The means of measuring a business’s condition and determining why it is being sold
When a

The difference between tangible and intangible assets

Tangible assets are those that can be seen and examined. Real estate, inventory, and equipment are important tangible assets. Intangible assets, though unseen, are no less valuable. Goodwill, leases, contracts, and patents, copyrights and trademarks are exmples.

The price to pay for a business

The offering price to pay for a business is calculated by adding the adjusted value of tangible assets to the value of intangible assets (including goodwill, if appropriate)



Factors important when finalizing the purchase of a business

Once the price of a business is agreed upon, the terms of sale need to be negotiated including setting up installment provisions and thinning of the assets. Before the closing date the buyer puts an agreed upon amount of money into an escrow account.

My View: Taking over an existing business is a lot like founding your own. The big difference is that you do not have to start from scratch. You take responsibility for an organization that already has its own strength and weaknesses. Many years ago, a group of thirtheen of us bought out an existing support service business.  We all have great technical experience in support the customer base. Since we have an in-depth understanding of the business, its structure, and its business nature. We did fairly good in the business.

Entrepreneurship: Chapter 5

CHAPTER 5: FRANCHISING

• Explain what a franchise is and how it operates
• Franchising is a legal agreement that allows a franchisee to use a product, service, or method of the franchisor in exhange for fees and royalties.
• A franchisee is an independent businessperson who agrees to operate under the policies and procedures set up by the franchisor.

• Articulate the difference between product-distribution franchises and business-format franchises
• Product-distribution franchises allow the franchisee to purchase the right to use the trade name of the manufacturer and to buy or sell the manufacturer's products.
• Business-format franchises allow the franchisee to duplicate the franchisor's way of doing business

• Compare the advantages and disadvantages of franchising
• There are eight major advantages of franchising from the franchisee's perspective:
• Proven product or service
• Marketing expertise
• Financial assistance
• Technical and managerial assistance
• Opportunity to learn
• Quality control standards
• Efficiency
• Opportunity for growth
• The primary disadvantages to the franchisee include fees, restrictions on his freedom to operate the business.

• Explain how to evaluate a potential franchise
• To evaluate a franchise opportunity, you should send for a copy of the company's disclosure statement, research the company through business periodicals, talk to current and former franchisees, and check out the franchisor's reputation with the international franchise association.

My View: Franchising looks attractive to extend a successful brand, but we should beware the high costs and business challenges.

Entrepreneurship: Chapter 4

CHAPTER 4: THE BUSINESS PLAN

• Explain the purpose and importance of the business plan
• Business plans are importnt to:
• Raise capital
• Provide a road map for future operations
• Prevent omissions

• Describe the components of a business plan
• The major sections of a business plan include the cover page, table of contents, executive summary, company, environmental and industry analysis, products or services, marketing research and evaluation, manufacturing and operations plan, management team, timeline, critical risks and assumptions, benefits to the community, exit strategy financial plan, and appendix

• Recognize the importance of reviewing your business plan
• Like any project involving a number of complex steps and calculations, your business plan should be carefully reviewed and revised before you present it to potential investors.

• My View: I already have the basic understanding of the importance of an executive summary in my business plan. I found a startup in 2004 named Nanno Solutions. I spent a lot of times presenting my executive summary as a mechanism to communicate with the angels and venture capital investors. Nevertheless, CALMAT’s marketing and entrepreneurship courses have taught me how to write a better executive summary report that will help information flow more efficiently within a business venture.

Entrepreneurship: Chapter 3

CHAPTER 3: SOCIAL RESPONSIBILITY, ETHICS, AND STRATEGIC PLANNING

• Explain the relationship between social responsibility, ethics, and strategic planning
• The social responsibility and ethics of your business are the commitments you make to doing what is right
• Strategic planning is the process of deciding where yo want yout busienss to go and how it will get there.
• All three concepts work together to form the foundation on which your entire business rests.

• Name the level of social responsibility
• You have an economic responsibility to make your business profitable. Without profit, your business cannot contribute anything to society
• Your legal obligation to obey the law describes the minimal behavior expected for your firm to be part of society
• Your ethical responsibility covers your obligation to do what is right.

• Discuss how to establish a code of ethics for your business
• a code of ethics offers a way for you to communicate your ethical expectations to everyone involved in your business
• The code should represent your ethical ideals, be concise enough to be remembered, be written clearly, and apply to everyone in the organization

• Describe each step in the strategic planning process, and explain the importance of competitive advantage
• The strategic planning process includes defining your mission statement, conducting an environmental analysis (internal and external, or SWOT, analysis)
• Analyzing the competition and defining your competitive advantage
• Identifying strategic alternatives, setting goals, and establishing systems to measure effectiveness
• A competitive advantage is the facet of your business that gives your company an edge over the competition
• The strategic planning helps you to identify and establish competitive advantage by analyzing the environment and the competitive landscape

Entrepreneurship: Chapter 2

CHAPTER 2: FORMS OF BUSINESS ORGANIZATION

The differences between the small business manager and entrepreneur

• An entrepreneur is a person who takes advantage of an opportunity and assumes the risk involved in creating a business for the purpose of making a profit. A small business manager is involved in the day-to-day operation of an established business.  Each faces significant challenges, but they are at different stages of development in the entrepreneurship and small business management model.

The steps in preparing for small business ownership

• The entrepreneurship process involves an innovative idea for a new product, process, or service. Implementation is the stage at which the entrepreneur forms a business management process is growth, which usually means the business is becoming large enough to generate enough profit to support itself and its owner. The maturity stage is reached when the business is stable and well established.

The advantages and disadvantages of self-employment

• The advantages of self-employment include the opportunity for independence, the chance for a better lifestyle, and potential for significant profit.  The disadvantages include the personal liability you would face should the business fail, the uncertainty of an income, and the long working hours.

The characteristics of the forms of small business ownership

• There are several choices for the form of ownership of your small business. The most common is the sole proprietorship. If you choose a partnership, you have the choice of a general partnership, in which all partners are fully liable for the business, or a limited partnership, in which at least one partner retains unlimited liability. A corporation offers its owners limited liability.  In forming a corporation, you are creating a legal entity that has the same rights as a person. Variations of corporations include S corporations, limited-liability companies, and nonprofit corporation.

• My View: The importance of a business organziational structure constructs a hierarchical system to be implemented into the organization to make its operation more efficient and productive. One bad example is I used to work for acompany with 300 employee. The organization structure involved a chain of 36 Vice President who makes the decisions and accountabled for various duties. Due to the high cash burn rate and poor organizational structure, it turned company into ashes with a few years.

Entrepreneurship: Chapter 1

This is my 1^st Independent Study (BUS596) at CALMAT. The subject I selected for my Independent Study is “Entrepreneurship”. The textbook’s title is “Small Business Management; Entrepreneurship and Beyond”; 4^th edition, written by Timothy S. Hatten.

After reading Chapter 1, I understand the following key points

• Characteristics of Small Business


• The roles of Small Business in the U.S. Economy


• Important of Diversity in the Marketplace and the Workplace


• Some of the Opportunities available to Small Business


• Most Common Causes of Small Business Failure

Chapter 1: Small Business: An Overview

a. What is Small Business?

b. Small Businesses in the U.S. Economy

c. Workforce Diversity and Small Business Ownership

d. Secrets of Small Business Success

e. Understanding the Risks of Small Business Ownership

a. What is Small Business?

A business is generally considered small if it is independently owned, operated, and financed; has fewer than 100 employees, and has relatively little impact on its industry.

As some of us know small business generates a great deal of innovation, opportunities, and profit for millions of Americans. 2005 U.S. census data shows that 24 percent of 25.8 million small businesses have employees, and 76 percent do not.

Here’s the fact of small business in U.S:

• Represent more than 99.7 percent of all employers
• Employ 41 percent of high-tech employees (scientists, engineers, computer workers)
• Create 60 – 80 percent of net new jobs annually
• Create more than 50 percent of private GDP
• 53 percent home-based and 3 percent franchises

Small business size standard vary by the industry within which the business operates, construction, manufacturing, mining, transportation, wholesale trade, retail trade, and service.

b. Small Businesses in the U.S. Economy

In the late 1950s and early 1960s, businesses began paying more attention consumer wants and needs, rather than focusing on production. This paradigm shift was called the “marketing concept”. With this shift came an increased importance ascribed to the service economy. Small service businesses create competitive advantage for themselves by offering their customers more time for other things.

By the early 1970s, corporate profits had begun to decline, while the large firms’ costs increased. Managers began to realize that bigger is not necessarily better and the economy of scale does not guarantee lower costs. Other startups, such as Wal-Mart which was founded in the 1960s could respond more quickly to customers’ changing desires, and they were more flexible in changing their products and services.

In the 1980s, and then in the 1990s, U. S. business saw a period of merger mania to acquired other businesses purely for the growth, rather than to exploit a natural fit between each other. Then it was followed a string of bankruptcies and downsizing.

In the 1971 only 16 schools in the U.S. offered courses in entrepreneurship. By 2005 that number had grown to 1,600. The evidence of increased interest in entrepreneurship education U.S. colleges and universities is phenomenal.

c. Workforce Diversity and Small Business Ownership

The report suggested that the minority-owned businesses are vital to the growth of the U.S. economy. The statistics from the report as follow:

• Asian-owned firms totaled 1,103,587 and generated $326.7 billion annual revenue
• Black-owned firms totaled 1,197,567 and generated $88.6 billion annual revenue
• Hispanic-owned firms totaled 1,573,464 and generated $222 billion annual revenue
• American Indian/Native-owned firms totaled 201,387 and generated $26.9 billion annual revenue

d. Secrets of Small Business Success

You will improve your chances of achieving success in running a small business if you identify your competitive advantage, remain flexible and innovative, cultivate a close relationship with your customers and strive for quality. Small businesses perform more efficiently than larger ones in several areas. You have to offer your customers more value than your competitors do. A competitive advantage can be built from many different factors.

• Flexibility
• Innovation
• Close Relationship to Customers

Before starting your own business, you need to make sure you have the right tools to succeed.

• Market sue and definition
• Gathering sufficient capital
• Finding and keeping efficient employees
• Getting accurate information

e. Understanding the Risks of Small Business Ownership

Running a small business involves much more than simply getting an idea, hanging out a sign, and opening for businesses the next year. You need a vision, resources, and a plan to take advantage of the opportunity that exists.

The causes of business failure are many and complex; however, the most common causes are inadequate management and inadequate financing.

Business management is the efficient and effective use of resources. For small business owners, management skills are especially desirable. Lack of experience is one of their most pressing problems. Inadequate financing can be caused by improper managerial control as well as shortage of capital. You can fail to plan for the future or not have strategic direction. Your plan should provide a road map for your business, showing you both the expressways and the scenic route – and the detours.

Question 4: Define outsourcing and describe its impact on small business

Answer: Outsourcing means relying on smaller vendors & suppliers to produce the parts. For example, I have been indirectly doing business with Foxconn, the world's largest contract electronics manufacturing services provider. They replied on many small vendors to manufacture parts for them. These relationships enable Foxconn to focus on their major customer (i.e. Apple) and what it does best, while at the same time creating economic opportunity for hundreds of individual entrepreneurs in China & Taiwan. These small businesses perform more efficiently than larger ones in several area.

Question 8: How would you show that small business is becoming a more important part of the economy?

Answer: According to U.S. Small Business Administration Office of Advocacy estimated that there were 25.8 million businesses in the U.S. in 2005. Census data shows that 24 percent of those 25.8 million businesses have employees, and 76 percent do not. It represents more than 99.7 percent of all employers. It creates more than 50 percent of private gross domestic product (GDP) in U.S.

My View:

For my past 20 years working in Electronic Design Automation (EDA) industry, I noticed many start-ups (small businesses) are more likely than large businesses to be innovative. The reason is the R&D departments of most large businesses (the big three of EDA are Synopsys, Cadence, Mentor Graphics) tend to concentrate on the improvement of the products their companies already make. This practice makes sense for companies trying to profit from their large investments in people, plant & equipment. At the same time, it discourages the development of totally new idea and products. They rather make acquisition on start-up with good tracking record of innovative technology. Real innovation has come most often from independent inventors and small businesses.

Small businesses have its success secret. They can perform more efficiently than larger one in some areas. For example, I noticed smaller contract electronic manufacturing service provider offers more competitive advantage than larger manufacturers (i.e. Foxconn, Flextronics) in flexibility, delivery, pricing , and innovation. The analogy is the large and small businesses turning in new directions. The big truck has a lot more capacity (more headcount, higher cost, many decision-makers, etc.) but the pickup has more maneuverability in reaching customer (efficiency).