CH 6 MGMT 183 Small Business Management
Heuristic
rule of thumb
Advantages of start-ups
No existing rules Begin with a clean slate Opportunity to use the newest technologies Provide new, unique products or services Deliberately keep the business small Take time to perfect product, services, processes
Disadvantages of start-ups
No name recognition Requires significant time Can be difficult to finance Cannot easily gain revolving credit from suppliers and financial institutions May not have experienced managers and workers Training employees and obtaining management support
Workout
A form of business termination in which the firm's legal or financial obligations are not fully met at closing
Employee Stock Ownership Plan (ESOP)
A formalized legal method to transfer some or all of the ownership of a business to its employees
Serial entrepreneur
A person who opens multiple businesses throughout his or her career
Trade name franchise
An agreement that provides to the franchisee only the rights to use the franchisor's trade name and/or trademarks
Lean Business Practices
An application created by Eric Ries that addresses the specifics of new business creation, particularly Internet-based businesses, where rapid experimentation and constant monitoring of viewers' choices are possible.
Spin-off
A business that is created by separating part of an operating business into a separate entity
Synergy
A combination in which the whole is more than the sum of its parts
Discounted cash flows
Cash flows that have been reduced in value because they are to be received in the future
Asset
Something the business owns that is expected to have economic value in the future.
5 paths to business ownership
Start a completely new business Buy an existing business Franchise a business Inherit a business Work in a small business and eventually gain ownership
Increasing the Odds of Start-Up Success
Start the business in an accelerator Take part in a mentoring program Have a detailed start-up budget Produce a product or service for which there is a demand Secure outside investment Start with more than one founder Have experience managing small firms Have industry experience Have previous experience in creating a start-up business Choose a business that produces high margins Start the business with established customers Build trust in your story
Net realized value
The amount for which an asset will sell, less the costs of selling
Replacement value
The cost to acquire an essentially identical asset
Book value
The difference between the original acquisition cost and the amount of accumulated depreciation
Pass off
A type of business transfer where the owner gives the business to someone else without payment
Sell-off
A type of business transfer where the seller gets only a fraction of the value of the business.
3 principles critical in the process of effectual reasoning
Affordable loss, strategic partnerships, leveraging of contingencies
Business format franchising
An agreement that provides a complete business format, including trade name, operational procedures, marketing, and products or services to sell
Conversion franchising
An agreement that provides an organization through which independent businesses may combine recourses.
Product distribution franchise
An agreement that provides specific brand-name products that are resold by the franchisee in a specified territory
Transfer
An endgame strategy in which ownership is moved from one person or group to another
Accelerator
An organization that supports start-ups, typically of a particular type with a financial investment, free or inexpensive office space, mentoring, a variety of free or low-cost support services, and other resources. The goal of an accelerator is to accelerate a start-up from its early stages to being ready to pitch for investment. Most accelerators take an equity stake in the companies they help
Intangibles
Assets, such as patents or trademarks, and liabilities, such as accounts payable, that have no physical existence
Walkaway
Business termination in which the entrepreneur ends the business with its obligations met.
Strategic partnerships
Formal or informal relationships with customers, vendors, or mentors to ensure the success of an entrepreneurial venture.
Point of indifference
Price at which a buyer is different about buying or not buying the business
Buyout
Purchase of substantially all of an existing business
Buy-in
Purchase of substantially less than 100% of a business
Takeover
Seizing of control of a business by purchasing its stock to be able to select the board of directors
Affordable loss
The minimum possible expenditure of capital and other resources in order to bring an entrepreneurial idea to market.
Leveraging contingencies
The practice of and ability to seize upon novel opportunities that become apparent during the conduct of business.
Bricolage
The process of analyzing the resources available and creating a product or service from them
Due diligence
The process of investigating a business to determine its value and potential for investment
Causal (predictive) reasoning
The process of setting a goal and then determining the strategy and resources required to attain the goal.
Earnings multiple
The ratio of the value of a firm to its annual earnings
Bootstrapping
Using low-cost or free techniques to minimize your cost of doing business.
Minimum viable product
A concept central to lean business practices where you make a minimum product, but one that can be sold. By selling to customers and collecting feedback, an entrepreneur can develop a product at minimum cost.
Revolving credit
A credit agreement that allows the borrower to pay all or part of the balance at any time; as the loan balance is paid off, it becomes available to be borrowed again
Effectual Reasoning
A logical process in which one analyzes the resources available and restraints on the use of resources to create an attainable goal.
Start-up
A new business that is started from scratch