BUS 110 Module 2 Ch. 5 and Ch. 6 MY

venture capitalists (VCs)

Investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit raise pools of capital from lg private and institutional sources (such as pension funds) to finance ventures have high growth potential need lg amts of capital VC funding provided crucial stimulus to economy by making risky, early-stage investments in firms likely become major employers if products succeed in marketplace. 1/3 VD-funded start-ups don't succeed, those that do succeed need to really pay off to compensate. VCs extremely focused and selective, invest in few thousand companies in US every year. given amts of money involved and expectations of sizable returns, VCs usually invest in high-potential areas like information technology, energy, biotechnology, digital media - unlike banks VCs do more than provide money - they provide management expertise in return for sizable ownership interest in business = once business profitable, VCs reap the reward selling interest to long-term investors, usually after company goes public

2 additional types of partnerships Master Limited Partnership (MLP) Limited Liability Partnership (LLP)

Master Limited Partnership (MLP) = allows to raise money by selling units of ownership to general public, in same way corporations sell share stock to public gives MLPs fundraising capabilities of corporations w/o double-taxation disadvantage - strict rules limit types of companies qualify for MLP status, most in energy industry Limited Liability Partnership (LLP) a partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole- created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in firm) In LLP, each partner unlimited liability for his/his own actions and at least some degree limited liability for the partnership as a whole - restrictions on who can form LLP and how much liability protection is offered under this structure vary from state to state

Identify potential advantages of pursuing mergers & acquisitions as growth strategy, with potential difficulties & risks

Mergers and acquisitions can help companies reduce costs by eliminating redundancies and increasing buying power, increase revenue by cross-selling goods and services to each other's customers or expanding into new markets, and compete more effectively by adding new technologies or talented employees. However, the difficulties and risks are considerable, coming up with the money, deciding which managers will be in charge, merging marketing and sales efforts, reconciling information systems, dealing w/ redundant employees, and meshing different corporate cultures.

Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks

Mergers and acquisitions can help companies reduce costs by eliminating redundancies and increasing buying power, increase revenue by cross-selling goods and services to each other's customers or expanding into new markets, and compete more effectively by adding new technologies or talented employees. However, the difficulties and risks are considerable; coming up with the money, deciding which managers will be in charge, merging marketing and sales efforts, reconciling information systems, dealing with redundant employees, and meshing different corporate cultures.

8. Bob and Rob have started a food delivery business together called Grub Galore in their college town. They have not incorporated their business and they run it from​ Bob's basement and garage. Grub Galore is an example of which form of business​ ownership?

Partnership

Define partnership, explain six advantages and three disadvantages of this ownership model

Partnership is a business structure in which two or more individuals share ownership of the firm. The two basic forms of partnership are general partnership in which all owners play an active role and have unlimited liability, and the limited partnership, in which only the general partner or partners have active management roles and unlimited liability. Six key advantages of partnership are simplicity a single layer of taxation more resources cost sharing broader skill and experience base longevity Three potential disadvantages are unlimited liability for general partners potential for conflict expansion, succession, and termination issues

List most common reasons people start their own companies, and identify the common traits of successful entrepreneurs

People start their own businesses for a variety of reasons, including gaining more control over their futures, wanting to avoid working for someone else, having new product ideas that they are deeply passionate about, pursuing business goals that are important to them on a personal level, or seeking income alternatives during tough employment markets. The entrepreneurial spirit, the positive, forward-thinking desire to create profitable, sustainable business enterprises, is a good way to summarize the entrepreneurial personality. Specifically, successful entrepreneurs tend tend to love what they do and are driven by a passion to succeed at it, they are disciplined and willing to work hard, they are confident and optimistic, and they like to control their own destiny. Moreover, they relate well to others and have the ability to inspire others, are curious, learn from their mistakes without letting failure drag them down, are adaptable and tuned into their environments, and are moderate but careful risk takers.

Explain importance of planning new business, and outline the key elements in a business plan

Planning is essential because it forces you to consider the best ownership strategy for your needs and circumstances (creating a new company), buying an existing company, or buying a franchise), and it forces you to think through the factors that will lead to success. An effective business plan should include your mission and objectives, company overview, management, target market, marketing strategy, design and development plans, operations plan, start-up schedule, major risk factors, and financial projections and requirements

angel investors

Private individuals who invest money in start-ups, usually earlier in a business's life and in smaller amounts than VC's are willing to invest or banks are willing to lend start-ups that don't attract VC investment (maybe too early in product development) often look at angel investors - private individuals who put own money into start-ups w/ goal of selling interest for profit willing to invest in smaller amts than VCs often stay involved w/ company longer period of time. many of these investors stay w/ company for longer period time - most of these investors join angel networks or angel groups that invest together in chosen companies. Angel investing tends to have a more local focus than venture capitalism, so you can search for angels through local business contacts/organizations

Blueprint for an Effective Business Plan

Some successful entrepreneurs claim done little formal planning, do have some intuitive idea what trying to accomplish and how they hope to do it. If no formal document, probably at least thought through big questions just as important being entrepreneurial doesn't mean jump off ledge and figure out how to make parachute on way down - Fred Smith FedEx

25. Imagine that ABC and​ NBC, two publicly traded​ companies, have just decided to merge their operations. When the merger between these firms takes​ place, which type of organizational culture clash is LEAST likely to​ occur? A. Stock valuation Your answer is correct. B. Communication practices C. Management styles D. Corporate values E. Workplace atmosphere

Stock valuation

19. AAA Cars and Best​ Cars, two​ auto-parts manufacturers, have just signed a​ long-term partnership to jointly produce and sell their products. This is an example of which of the​ following? A. Merger B. Joint venture C. Strategic alliance Your answer is correct. D. Leveraged buyout E. Consolidation

Strategic Alliance

Explain why companies would choose strategic alliance or joint ventures over merger or acquisition

Strategic Alliances can accomplish many of the same goals as a merger or an acquisition but w/ less risk and work than permanently integrating two companies. A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does.

Define strategic alliance and joint venture, and explain why companies would choose these options over a merger or an acquisition.

Strategic alliance can accomplish many of the same goals as a merger or an acquisition but with less risk and work than permanently integrating two companies. A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does.

Identify the major causes of business failures, and identify sources of advice and support for struggling business owners.

Ten common reasons for failure are 1. managerial incompetence 2. inexperience 3. inadequate financing 4. poor cash management 5. lack of strategy planning 6. ineffective marketing 7. uncontrolled growth 8. poor location 9. poor inventory control 10. inability to make the transition from corporate employee to independent entrepreneur Another factor that can contribute to any of these explicit reasons is motivational collapse, when the entrepreneur simply gives up For help and advice, business owners can turn to a variety of government agencies, not-for-profit organizations, business partners, mentors and advisory boards, print and online media, networks and support groups, and business incubators

5. Which group finances projects that have high growth prospects and need big amounts of​ capital? A. The Small Business Administration B. Small Business Investment Companies C. Microlenders D. Venture capitalists Your answer is correct. E. Angel networks

Venture capitalists

Keeping it together: The partnership agreement

a clear and complete agreement is important for every partnership

small business

a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry) words of US Small Business Administration (SBA) SBA defines maximum size of "small" through either annual revenue or number of employees. Limits vary by industry and are occasionally adjusted to reflect industry changes or inflation.

small business is

a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this numbers varies by industry) and "not dominant in its field of operation" (words of US Small Business Administration (SBA). SBA defines maximum size "small" through either annual revenue or number of employees. Limits vary by industry and are occasionally adjusted to reflect industry changes or inflation. - entrepreneurship provides platform for launching companies can grow quite large. w/exception of operations spun off from existing companies even biggest corps begin life as small business defining small business tricky, but vital b/c billions dollars at stake when involves employment regulations - smallest companies often exempt govt contract reserved for small business.

private corporation

a corporation in which all the stock is owned by only a few individuals or companies and is not made available for purchase by the public

public corporation

a corporation in which stock is sold to anyone who has the means to buy it

initial public offering (IPO)

a corporation's first offering of shares to the public

proxy

a document that authorizes another person to vote on behalf of a shareholder in a corporation

proxy

a document that authorizes another person to vote on behalf of a shareholder in a corporation.

board of directors

a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives

board of directors

a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.

limited liability

a legal condition in which the maximum amount each owner is liable for is equal to whatever amount each invested in the business

A corporation is ___

a legal entity with the power to own property and conduct business The four primary advantages of this structure ability to raise capital by selling shares of ownership liquidity (meaning it's easy to convert shares of ownership to cash longevity limited liability for owners Six disadvantages startup costs and complexity ongoing reporting requirements extra demands on top managers potential loss of control double taxation short-term orientation of the stock market

A corporation is

a legal entity, distinct from any individual persons that has the power to own property and conduct business. It is owned by shareholders, investors who purchase shares of stock. The stock of a public corporation is sold to anyone who has the means to buy it- individuals, investment companies such as mutual funds, not-for-profit organizations, and other companies. Such corporations said to be publicly held or publicly traded contrast - stock of a private corporation or closely held corporation owned by only a few individuals or companies not made available for purchase by the public corporations can change from private to public ownership or from public to private as their financial needs/strategies interests change w/ unique ability pool money outside investors corporations can grow enormous corps like Royal Dutch Shell, Walmart, ExxonMobil, Sinopec Group annual revenues larger than entire economies many countries

corporation

a legal entity, distinct from any individual persons, that has the power to own property and conduct business.

Strategic Alliance

a long-term partnership between companies to jointly develop, produce or sell products

strategic alliance

a long-term partnership between companies to jointly develop, produce or sell products

liquidity

a measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it

liquidating (selling)

a measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it liquidity helps make corporate stocks attractive investment, increasing number people/institutions willing to invest in companies. b/c shares have value est. in open mkt. corp. can use shares of own stock to acquire other companies

general partnership

a partnership in which all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations if the partnership gets sued or goes bankrupt all partners own pockets to pay bills like sole proprietors

limited liability partnership (LLP)

a partnership in which each partner has unlimited liability only for is or her own actions and at least some degree of limited liability for the partnership as a whole form of business created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in the firm In LLP each partner has unlimited liability only for his/her own actions and some degree of limited liability for the partnership as a whole restrictions on who can form LLP & how much liability protection is offered under this structure - vary state to state

limited partnership

a partnership in which one or more persons act as general partners who run the business and have the same unlimited liability as sole proprietors the remaining owners are limited partners who don't participate in running business and who have limited liability - the maximum amount they are liable for is whatever amount each invested in the business

4. In addition to the initial cost of the​ franchise, what responsibilities does the franchisee have to the​ franchisor? A. Exit strategy B. A percentage of sales revenue Your answer is correct. C. A​ start-up schedule D. IPO buyout E. Marketing strategy

a percentage of sales revenue

benefit corporation

a profit-seeking corporation whose charter specifies a social or environmental goal that the company must pursue in addition to profit

joint venture

a separate legal entity established by two or more companies to pursue shared business objectives

limited liability company (LLC)

a structure that combines limited liability w/the pass-through taxation benefits of a partnership; the number of shareholders is not restricted, nor is members' participation in management offers advantages of limited liability, along w/pass-through taxation benefits of partnership LLCs not restricted in number of shareholders can have, members' participation in management not restricted as in limited partnerships. LLC structure recommended for most small companies not sole proprietorships LLCs favored by small companies - no means limited to small firms number multibillion-dollar companies structured as LLCs

limited liability company (LLC)

a structure that combines limited liability with the pass-through taxation benefits of a partnership; the number of shareholder is not restricted nor is members' participation in management.

poison pill defense

a targeted company invokes some move that makes it less valuable to the potential raider, with hope of discouraging the takeover common technique is to sell newly issued stock to current stockholders at prices below market value of company's existing stock, instantly increasing number of shares raider has to buy

advisory board

a team of people with subject-area expertise or vital contacts who help a business owner review plans and decisions - a form of "group mentoring" in which you assemble a team of people w/ subject-area expertise or vital contacts to help review plans and decisions. unlike board of directors, advisory board has no legal responsibilities, don't have to incorporate to est. advisory board. some advisors will agree help w/ no financial compensation other cases esp growth companies that want high-profile experts, advisors agree to serve in exchange for either fee or small portion of company stock (up to 3% standard)

white knight tactic

a third company is invited to acquire a company that is in danger of being swallowed up in hostile takeover

S corporation

a type of corporation that combine the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.

S Corporation

a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership subchapter S corporation combines the capital-raising options and limited liability of a corporation w/federal taxation advantages of partnership (a few states tax S corporations like regular corporations) corporations seeing "S" status must meet certain criteria, including maximum of 100 investors

shareholder activism

activities undertaken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility shareholders pressure management on matters ranging from executive pay to corporate social responsibility to overall company performance, become increasingly visible factor in corporate governance activist shareholders better organized/more sophisticated in proposals they present, forcing boards pay more attention to concerns they raise same time, more boards seem recognize benefits to be gained by engaging activists/listening to their concerns not everyone happy w/development = those lean toward minimalist view corporate social responsibility worry such activism undermind ability of corporate boards to do work effectively

Disadvantages of Mergers and Acquisitions

advantages compelling, joining two companies is complex process involves virtually every aspect of both organizations - executives must agree how merger financed then find money to make happen - managers need to decide who will be in charge after they join forces - marketing depts decide how to blend product lines, branding strategies, advertising, sales efforts - incompatible information systems (i.e. including email, websites, accounting software) may need rebuilt/replaced to operate together - companies may deal w/layoffs, transfers, changes in job titles and work assignments - organizational cultures of 2 firms must be harmonized can result in clashes between different values, management styles, communication practices, workplace atmosphers, approaches to managing changes required to implement merger - also during transitional challenges must continue manufacturing products, satisfying customers, tending to all other daily details of business - mergers can drive customers away if feel neglected while 2 companies busy w/internal chores of melding b/c risks/difficulties, 2/3 and 3/4 mergers fail to meet stated business goals worst deals waste millions/billions dollars, destroy massive amts of market valuation (total value of company's stock) even w/risks, long odds, managers still pursue M & As some proficient some like Cisco developed comprehensive processes for evaluating/implementing acquisitions "acquisition skill" considered competitive advantage for companies do it frequently and well

Franchise Alternative

alternative to creating or buying an independent company is buy franchise, which enables buyer to use larger company's trade name and sell its goods/services in specific territory. In exchange for this right, franchisee (the small-business owner who contracts to sell the goods/services) pays franchisor (the supplier) an initial start-up fee, then monthly royalties based on sales volume. Franchises are large/growing presence in US economy, accounting for roughly 10% all employer businesses (those that hire employees)

acquisition

an action taken by one company to buy a controlling interest in the voting stock of another company

merger

an action taken by one company to buy a controlling interest in the voting stock of another company

Special Types of Corporations

as w/partnership structure special types corps created to aid companies w/particular situations

Blueprint for Effective Business Plan

business plan - a document that summarizes a proposed business venture, its goals, and plans for achieving those goals - communicates company's goals, highlights how management intends to achieve those goals, and shows how customers will benefit from the company's goods or services. 3 Important Functions of Preparing Business Plan: 1. it guides company operations and outlines a strategy for turning an idea into reality. 2. it helps persuade lenders and investors to finance your business if outside money is required 3. it can provide a reality check in case an idea just isn't feasible business plans can be written before company launch, when founders defining vision of what company will be, when company seeking funding, and after company up/running when plan serves as monitor-and-control mechanism make sure operations staying on track any stage business plan forces you think about personnel, marketing, facilities, suppliers, distribution and other issues vital to company's success.

Downsizing and Outsourcing

business start-ups often soar when economy sours hard times - companies downsize or lay off talented employees little to lose pursuing self-employment Hewlett/Packard joined forces during Great Depression Silicon Valley 1938. Microsoft launched during 1975 recession. recent global recession, entrepreneurs Mark Cannice - entrepreneurship program Univ. San Francisco, silverlining - large-scale downsizing from major companies release lots new entrepreneurial talent/ideas - scientists,engineers, business folks do new things outsourcing - practice engaging outside firms to handle individual projects or entire business functions creates numerous opportunities small businesses/entrepreneurs companies subcontract special projects or secondary business functions to experts outside organization. others use outsourcing way permanently eliminate entire departments and some laid-off employees even becoming entrepreneurs and sell services to their former employers

hostile takeover

buyer tries to convince enough shareholders to go against management and vote to sell

Longevity

by forming partnership, increase chances that organization endure b/c new partners can be drawn in to business to replace those die or retire

Partnership Agrement

carefully written partnership agreement can maximize advantages of partnership structure/minimize potential disadvantages - state laws all except Louisiana, specify basic agreements about business partnerships, laws generic not ideal for many partnerships. At minimum, partnerships should address investment percentages, profit-sharing percentages, management responsibilities, other expectations of each owner, decision-making strategies, succession and exit strategies (if an owner wants to leave partnership), criteria for admitting new partners,and dispute-resolution procedures (including dealing with owners who aren't meeting their responsibilities) a clear, complete agreement important for every partnership, particularly important going into business w/ friend, spouse, or anyone else has personal relationship w/. may have great relationship but dynamics could get in way of successful business partnership. i.e. couple who shares decisions, responsibilities equally personally but may struggle in business where one is clear leader of company. stress/strain business relationship can filter into personal relationship, make sure start w/ clear understanding what business relationship will be

Advice and Support for Business Owners Govt agencies Not-For-Profit Organizations

city, state, fed govt agencies offer business owners advice, assistance, even financing some case, many cities/states have office of economic development help companies prosper to help contribute to local regional economy fed level can apply for loans back by Small Business Administration (SBA) get management/financing advice/learn about selling to fed govt. Minority Business Development Agency offers advice/programs to minority-owned businesses, state agencies have offices help small firms compete some best advice offered by Service Corps of Retired Executives (SCORE) resource partner of SBA offer free advice & 1-1 counseling colleges/universities offer entrepreneurship/small-business programs i.e. Open Forum hosted by American Express - videos, articles, online network tools free resources part of mktg strategy

Conglomerate Merger

companies in unrelated industries

Conglomerate Merger

companies in unrelated industries - in conglomerate merger, a parent company buys companies in unrelated industries, often to diversify its assets to protect against downturns in specific industries

Public Financing

companies w/ solid growth potential seek funding from public at large, although small fraction of companies in US publicly traded. When corp offers its shares of ownership to public for first time, company is said to be going public. Shares offered for sale are the company's initial public offering (IPO). Going public effective method raising capital, but can be expensive, time-consuming process w/ no guarantee of raising amt of money needed. Public companies must meet variety of regulatory requirements,

Merger and Acquisition

company determines doesn't have right mix of resources and capabilities achieve its goals/time or inclination to develop them internally - can purchase or partner w/firm has what it needs businesses can combine permanently through mergers or acquisitions "M & A"

foreign

company that is incorporated in one state (frequently the state of Delaware, where incorporation laws are more lenient) but that does business in several other states where it is registered

products or services

concisely describe your products or services, focusing on their unique attributes and their appeal to customers

S corporation (AKA subchapter S corporation)

corporation allowed to sell stock to a limited number of investors while enjoying the pass-through taxation of a partnership

limited liability

corporation has unlimited liability but various shareholders who own corporation face only limited liability - their maximum potential loss only as great as amount they've invested in company like liquidity - limited liability offers protection that helps make corporate stocks attractive investment

Double Taxation

corporation must pay fed/state corporate income tax on its profits, individual shareholders must pay income taxes on their share of company's profits received as dividends (periodic payments that some corporations opt to make to shareholders)

domestic corporation

corporation that does business only in the state where it is chartered (incorporated)

alien corporation

corporation that operates in the US but is incorporated in another country

parent company

corporation that owns one or more subsidiaries

private corporation (AKA closely held)

corporation whose stock is held by a small number of owners and is not available for sale to the public

public corporation (AKA publicly held or publicly traded)

corporation whose stock is sold to the general public

Private Financing

covers every source of funding except selling stocks and bonds nearly all companies start w/ private financing even those who eventually "go public" personal savings to investment funds set up by lg corps looking for entrepreneurial innovations many firms get seed money, first infusion of capital through family loans - be sure to process as formal as bank loan would be - complete w/ specified repayment plan 4 common categories private financing for small business, important catch: most banks won't lend money to start-up that hasn't est. successful track record as company grows, bank usually be good long-term partner help finance expansions, major expenses about only chance for bank loan put up marketable collateral i.e. bldgs or equipment to back loan those who don't qualify for standard bank loans or who don't need amt of regular loan, hundreds organizations serve as microlenders offering loans up to $35,000.

Special types of corporations

created to aid companies in particular situations S Corporation or subchapter S corporation, combines capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership (although few states tax S corps like regular corps). Corporations seeking "S" status must meet certain criteria, including a maximum of 100 investors limited liability company (LLC) structure offers advantages of limited liability, along w/ pass-through taxation benefits of partnership. LLCs not restricted in number of shareholders can have, members' participation in management not restricted as in limited partnerships. Given these advantages, LLC structure recommended most small companies not sole prop. LLCs favored by many small companies, by no means limited to small firms, many multibillion-dollar companies structured as LLCs new type corporate structure supports goals of business people who want their companies pursue social/environmental goals while also pursuing profits like other corps. Benefit corporation has most of attributes regular corp but adds legal requirement that company must also pursue stated nonfinancial goal like hiring workers whose life histories make employment difficult to attain or reducing environmental impact of particular products. Corps performance toward meeting goal must be independently verified too. Requirements offer key advantages to founders & other stakeholders. Entrepreneurs who launch corp w/social or environmental objectives in mind assured that even if give up or lose voting control of corp, company still legally required to pursue its social or environmental goal. Transparency offered by third-party verification provides assurance for customers who want to buy from companies that support causes they value. Roughly half US states recognize benefit corporations. Most important to remember: difference between privately and publically held corps and basic features of S corporations and LLCs.

Horizontal Manager

different companies at the same stage or level a horizontal merger involves two similar companies at the same level, companies can merge to epand their product offerings or their geographic market coverage Lumber supplier<----> leather supplier Product-extension merger (expanding the mix of goods and services that a company has available for sale) Retailer (Western US) <----> Retailer (Eastern US) Market-extension merger (expanding the geographic range of markets that a company can serve)

Vertical Merger

different stages or levels of the same industry a vertical merger occurs when a company purchases a complementary company at a different stage or level in an industry, such as a furniture maker buying a lumber supplier (this is vertical line) Lumber supplier---> furniture maker---> furniture maker---> furniture retailer

Innovating Without Leaving: Intrapreneurship

entrepreneur's innovative spirit so compelling large companies/individuals w/in company express it through intrapreneurship - term coined by business consultant - Gifford Pinchot to designate entrepreneurial efforts w/in larger organization is often easier said than done - companies tend become more analytical, more deliberate, more structured, and more careful as mature mechanisms in place to prevent mistakes can hamper innovative thinking by restricting people to tried-and-true methods organizations develop habits based on behaviors/decisions made sense in past, no longer make sense as business environment changes injecting entrepreneurial spirit sometimes going against accepted wisdom - can be risky behavior may/may not be rewarded. Companies may need take special steps to encourage, protect reward entrepreneurial spirit

Innovating Without Leaving: Intrapreneurship

entrepreneur's innovative spirit so compelling many large companies/individuals w/in companies use intrapreneurship - term coined y business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization innovating w/in larger organization easier than done - b/c companies become more analytical, more deliberate, more structured, more careful as mature mechanisms to prevent mistake hinder innovative thinking restricting people tried-and-true methods organizations develop habits based on behaviors/decisions made sense in past but no longer make sense as business environment changes injecting entrepreneurial spirit means going against accepted wisdom - can be risky behavior may or may not be rewarded. - companies need take steps encourage, protect, and reward entrepreneurial spirit

The Start-Up Phase: Planning and Launching a New Business

entrepreneurs/small-business owners love start up get to work - also exhausting b/c a lot of work to be done careful decision making and planning start w/ choosing best ownership option and creating effective business plan entrepreneurial urge conclude starting new company best choice - not always right choice 3 options -creating new business - buying existing business - buying a franchise creating new business advantages but can be most difficult - buying existing business can involve less work, less risk - provided you check out company carefully - when buy healthy business purchase customer base, functioning business system, proven products or services, known location - financing existing business often easier b/c lenders reassured by company's history and existing assets and customer base - buying existing business has disadvantages and risks- may need considerable amount financing to buy fully functioning company - may inherit any problems company has, from unhappy employees to obsolete equipment to customers w/ overdue accounts. Through research must - buying franchise combines many of benefits of independent business ownership w/support comes w/ being part of larger organization

Merger and Acquisition Defenses

every corp that sells stock to general public vulnerable to takeover by any individual or company that buys enough shares to gain controlling interest most takeovers are friendly acquisitions welcomed by acquired company hostile takeover can be launched in one of two ways: - by tender offer - by proxy fight tender offer - buyer or raider (sometimes called) offers to buy a certain number of shares of stock in corp at specific price - price gen. more, sometimes considerably, than current stock price so shareholders motivated to sell. Raider hopes to get enough shares to take control of corp. & replace existing board of directors/management proxy fight - raider launches public relations battle for shareholder votes, hoping to enlist enough votes to oust the board/management corp boards/execs devised schemes to defend against unwanted takeovers poison pill defense - targeted company invokes some move makes it less valuable to potential raider w/ hope of discouraging takeover common technique is sell newly issued stock to current stockholders at prices below mkt value of existing stock ,instantly increasing number of shares raider has to buy white knight tactic - third company invited to acquire company in danger of being swallowed in hostile takeover

Merger and Acquisition Defenses

every corporation that sells stock to general public potentially vulnerable to takeover by any individual or company that buys enough shares to gain controlling interest most takeovers are friendly acquisitions welcomed by acquired company hostile takeover can be launched in one of two ways: - tender offer - proxy fight corporate boards/executives devised schemes to defend themselves against unwanted takeovers - poison pill tactic - white knight tactic

2 types partnerships - general and limited partnership

general partner - a partnership in which all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations. If partner gets sued, goes bankrupt, all partners dig into pockets pay bills just like sole prop. do limited partnership - minimize personal liability exposure - a partnership in which one or more persons act as general partners who run the business and have the same unlimited liability as sole proprietors - remaining owners are limited partners who don't participate in running business and have limited liability - maximum amount they're liable for is whatever amount each invested in business

Composition

identifying type people who should be on board major challenge ideal board - balanced group seasoned executives, each "bring something to the table" helps corporation, like extensive contacts in industry, manufacturing experience, insight in global issues, etc. Ratio of insiders (company executives) to outsiders (independent directors) is hot topic Federal law requires majority directors independent but to be effective outsiders must have knowledge about inner workings of organization make informed decisions. diversity important, ensure adequate attention paid issues affect stakeholders historically underrepresented on corporate boards i.e. women hold 20% seats of boards 500 largest US public corporations, although number women now nominated to boards increased significantly over past yrs. members ethnic minorities hold 17% Fortune 500 board positions

Mergers and Acquisitions are

if company determines doesn't have right mix of resources/capabilities to achieve goals, or time or inclination develop internally can purchase or partner w/ firm has what needs Businesses can combine permanently through either mergers or acquisitions 2 terms often discussed together, usually M & A or used interchangeably (they are technically different, legal/tax ramifications different, depending on transaction details) Merger - 2 companies join to form single entity. Companies can merge by pooling resources or one company purchasing assets of other Consolidation not strictly a merger, two companies create new third entity that purchases 2 original companies business people and media often use consolidation 2 general senses to describe any combination of 2 companies merger or acquisition and to describe situation a wave of mergers/acquisitions sweeps across entire industry, reducing competitors acquisition - one company buys controlling interest in voting stock another company in most acquisitions, selling parties agree to be purchased - management in favor of deal encourages shareholders to vote in favor b/c buyers frequently offer shareholders more than their shares currently worth, sellers motivated to sell some situations buyer attempts to acquire company against wishes of management hostile takeover - buyer tries to convince enough shareholders to go against management and vote to sell to finance acquisition buyers offer sellers cash, stock in acquiring company or combo both another option involves debt - leveraged buyout (LBO) occurs when someone purchases company's publicly traded stock primarily by using borrowed funds, sometimes using target company's assets as collateral for loans debt expected repaid w/ funds generated by company's operations often by sale of assets An LBO is an aggressive move and can be risky if buyer takes on so much debt repayment demands deplete cash company has for operations and growth

Sole Proprietorship Advantage: 2. Single layer of taxation

income tax straightforward fed govt doesn't recognize company as taxable entity all profit "flows through" to the owner - treated as personal income/taxed accordingly

15. Federal law now requires that a majority of the directors on the board of a corporation be​ _______. A. competitors B. top management of the corporation C. employees in the same industry D. independent Your answer is correct. E. sole proprietors

independent

Partnership is

is a business structure in which two or more individuals share ownership of the firm. The two basic forms of partnership are general partnership, in which all owners play an active role and have unlimited liability, and the limited partnership, in which only the general partner or partners have active management roles and unlimited liability. Six key advantages simplicity a single layer of taxation more resources cost sharing broader skill and expertise base longevity 3 potential disadvantages unlimited liability for general partners potential for conflict expansion succession termination issues

Corporations is?

is a legal entity, distinct from any individual persons, that has the power to own property and conduct business it is owned by shareholders - investors who purchase shares of stock stock of public corporation is sold to anyone who has means to buy it - individuals, investment companies i.e. mutual funds, not-for-profit organizations, other companies such corporations said to be publicly held or publicly traded contrast - stock of private corporation also known as closely held corporation owned by only a few individuals or companies - not made available for purchase by public corporations can change from private to public ownership or from public to private as financial needs and strategic interests change unique ability pool money outside investors can grow enormous annual revenues of world lgst corps Walmart, Royal Dutch Shell, ExxonMobil, Sinopec Group bigger than entire economies many countries many small firms/individuals also take advantage unique benefits corporate organization

Disadvantages of Mergers and Acquisitions

joining 2 companies complex process b/c involves every aspect of both organizations Few of challenges must be overcome: - execs have to agree how merger financed - come up w/ money make it happen - managers need to decide who will be in charge after join forces - marketing depts figure how to blend product lines, branding strategies, advertising and sales efforts - incompatible information systems (email, websites, accounting software) may need rebuilt, replaced - companies may deal w/ layoffs, transfers, changes in job titles, work assignments - organizational cultures of 2 firms must be harmonized can result in clashes between different values, management styles, communication practices, workplace atmosphere, approaches to managing the changes required to implement the merger. while managers/employees wrestling w/ challenges must also continue manufacturing products, satisfying customers, tending to daily details of business. mergers can drive away customers if feel neglected while 2 companies fine tune internal chores b/c of risks/difficulties between 2/3 and 3/4 of all mergers fail to meet stated business goals worst deals can waste millions/billions dollars destroy massive amts. of market valuation (total value of a company's stock) even w/ risks, long odds managers continue to pursue mergers/acquisitions, some companies proficient in process companies like Cisco developed comprehensive process for evaluating/implementing acquisitions. "acquisition skill" considered competitive advantage for companies who do it frequently and do it well

Print and Online Media

library Internet blogs written by business owners, investors, functional specialists i.e mktg consultants offer valuable insights www.entrepreneurship.org free advice every aspect managing or entrepreneurial organization Inc. Bloomberg Businesweek Fortune, Money, Harvard Business Review Forbes Entrepreneur Fast Company

7. Which term describes the ability of people to easily and quickly convert their shares into cash by selling them on the open​ market? A. Liquidity Your answer is correct. B. Limited liability C. Longevity D. Reporting requirements E. Potential for conflict

liquidity

Networks and Support Groups

local or online network of people w/ similar interests search online for "entrepreneur network" some meet regularly small groups to analyze each other's progress month by month articulate plans/decisions to peers hold accountable for results invaluable reality check

Characteristics of Small Businesses are

majority are modest operations w/ little growth potential some w/ income potential for solo businessperson lifestyle business - local florist, small e-commerce venture, self-employed consultant - b/c built around the personal and financial needs of an individual or family other firms small b/c young have ambitions to grow high-growth ventures - usually run by team rather than by one individual, expand rapidly obtaining sizable supply investment capital & introducing new products or services to lg. mkt. small companies differ lg. companies: 1. most small firms have narrow focus, offer fewer goods/services fewer mkt segments 2. unless launched w/ generous financial backing (rare), have to get by w/ limited resources 3. often have more freedom to innovate and move quickly as grow larger, companies tend get slower, more bureaucratic. contrast - entrepreneurial firms usually find easier operate "on the fly" making decisions quickly, reacting to changes in marketplace

Characteristics of Small Businesses

majority modest operations w/ little growth potential, some have attractive income potential for solo businessperson lifestyle business - self-employed consultant, florist, small e-commerce venture - built around personal and financial needs of individual or family Contrast - other firms small b/c young - ambitious to grow - these high growth ventures usually run by team not one individual expand rapidly by obtaining sizable supply of investment capital & introducing new products/services to large mkt small companies differ from large: - have narrow focus, offering fewer goods/services/fewer mkt segments - unless launched w/ generous financial backing (rare) get by w/limited resources - have more freedom to innovate/move quickly as grow larger, companies get slower/more bureaucratic entrepreneurial firms find it easier operate "on the fly" making decisions quickly reacting to changes in marketplace

The Shareholders

most don't have direct involvement in management play key role in corporate governance shareholders who hold common stock invited to annual meeting where top execs present previous year's results/plans for coming year. shareholders vote on resolutions before board those who can't attend can vote by proxy authorizing management to vote on their behalf corp can have thousands or millions of shareholders unless own lg number shares, individual shareholders little influence - but elect directors notable differences: institutional investors = pension fund,s insurance companies, mutual funds, religious organizations, college endowment funds those w/ large holdings stock considerable influence over management

benefit corporation

new type corporate structure supports goals of businesspeople who want their companies pursue social/environmental goals while still pursuing profits a profit-seeking corporation whose charter specifies a social or environmental goal that the company must pursue in addition to profit has most attributes of regular corporation but adds legal requirement that the company must also pursue a stated nonfinancial goal, like hiring workers w/life histories make work difficult to attain or reducing environmental impact of particular products Corporation's performance toward meeting goal must be independently verified requirements offer key advantages to founders/other stakeholders entrepreneurs want to launch corp. w/social or environmental objectives assured that even if give up or lose voting control of corp. company legally required pursue social or environmental goals. transparency offered by third-party verification provides assurance for customers want to buy from companies support causes valued half US staes recognize benefit corporations

Disadvantages of Franchising

not ideal vehicle for all biggest disadvantage is lack of control several levels 1. buy into franchise system, typically agree to follow the business format, franchisors can prescribe every aspect of the business, from color of walls, to products carried if primary purpose owning business is freedom to be own boss - franchising isn't best choice b/c not alot of freedom in many systems 2. as franchisee, usually have little control over decisions franchisor makes that affect entire system disagreements/ maybe lawsuits erupted in recent yrs over actions taken by franchisors re: product supplies, advertising, pricing 3. if fundamental business model of franchise system no longer works - or never worked - or if customer demand for goods/services you sell declines you don't have option of independently changing business in response buying franchise involves both initial costs associated w/ buying into franchise system and regular payments after that., based on percentage of sales revenue costs vary widely, based on complexity and popularity of franchise many systems require minimum level of liquid assets (spendable cash) and personal net worth in addition to out-of-pocket costs you'll have. start-up costs for simple home-based franchise can be less than $10,000 but popular fast-food franchise can run from $250,000 to $2 million, luxury hotels can top $5 million. most franchises have initial costs in $50,000 - $$200,000 range

acquisition

one company buys a controlling interest in the voting stock of another company in most acquisitions, selling parties agree to be purchased; management is in favor of deal/encourages shareholders to vote in favor too buyers frequently offer shareholders more than shares currently worth, seller often motivated to sell some situations, buyer attempts to acquire a company against wishes of management = hostile takeover to finance an acquisition, buyers can offer sellers cash, stock in the acquiring company, or combination of the two another option involves debt - leveraged buyout (LBO)

More resources

one of key reason to partner w/ one or more co-owners to increase amt. of money have to launch, operate, grow the business in addition to money owners invest themselves, partnership can potentially raise more money b/c partners' personal assets support larger borrowing capacity

Liability

one of more controversial reform issues is potential for directors to be held legally/financially liable for misdeeds of companies oversee even simply failing to investigate "red flags" in company financial reports

Credit Cards and Personal Lines of Credit

one of most expensive forms of financing CC widely available sometimes only source of funding entrepreneur has half all entrepreneurs small-business owners use cards to get cash for start-up or ongoing expenses might be only option for some but extremely risky, some used them to launch successful, multimillion-dollar businesses, others have destroyed their credit ratings, racked up debts that take yrs to pay off

6. Bob and Rob have started a food delivery business together called Grub Galore in their college town. They have not incorporated their business and they run it from​ Bob's basement and garage. Grub Galore is an example of which form of business​ ownership? A. Master limited partnership B. Partnership Your answer is correct. C. Corporation D. Limited liability company E. Sole proprietorship

partnership

Shareholders

play a key role in corporate governance - though most have no direct involvement in company management all shareholders who own common stock invited to annual mtg. where top executives present the previous year's results/plans for the coming year and shareholders vote on various resolutions that may be before the board those who can't attend annual mtg. in person vote by proxy authorizing management to vote on their behalf shareholders elect directors, theory ultimately governing body of corporation major corporation may have thousands/millinos shareholders - unless own large amt shares, individual shareholders usually little influence notable exceptions: institutional investors - pension funds, insurance companies, mutual funds, religious organizations, college endowment funds w/ lg holdings stocks considerable influence over management i.e. nearly 300 institutions make up Interfaith Center on Corporate Responsibility (ICCR) collectively control mroe than $100 billlion in corporate stock, giving them powerful voice

Broader skill and experience base

pooling skills and experience of two or more professionals can overcome one of major shortcomings of sole proprietorship if goal build business that can grow significantly over time, partnership more effective than building up as sole owner

entrepreneurial spirit

positive, forward-thinking desire to create profitable, sustainable business enterprises - and the role it can play in every company, not just small or new firms. - vital to health of the economy and to everyone's standard of living, can help even largest/oldest companies become profitable and competitive

Outsourcing

practice of engaging outside firms to handle either individual projects or entire business functions -creates numerous opportunities for sm business/entrepreneurs some companies subcontract special projects/secondary business functions to experts outside organization, others turn to outsourcing as way to permanently eliminate entire depts. some laid off employees become entrepreneurs sell services to former employers

Short-term orientation of the stock market

publicly held corporations release their financial results once every quarter, seemingly simple requirement have damaging effect on way companies managed. Problem is executives feel pressure constantly show earnings growth from quarter to quarter so stock price keeps increasing - even if smart, strategic reasons exist for sacrificing earnings in short term such as investing new product development or retaining talented employees instead laying off during slow periods managers sometimes zigzag from one short-term fix to next trying prop up stock price for investors who have no patience for strategic, long-term plans to bear fruit when executive compensation closely tied to stock prices, managers have more incentive compromise long-term health of company to meet quarterly expectations to escape pressure - corporate leaders sometimes choose take companies private = buy all shares held by public = convert them to privately held status

Board of Directors are

representatives of shareholders, members of board of directors responsible for selecting corporate officers, guiding corporate affairs, reviewing long-term plans, making major strategic decisions, overseeing financial performance. - typically composed of major shareholders (both individuals and representatives of institutional investors), philanthropists, and executives from other corporations. - Directors often paid combination annual fee and stock options much attention focused on corporate reform recent yrs. zeroed in on boards various boards accused not paying close attention what companies do approving management proposals without analyzing them carefully, allying w/ management too closely to serve as independent representatives of shareholders or failing to add enough value to strategy planning

Corporate Governance is

shareholders own the business few typically involved managing it esp. if publicly traded shareholders who own common sock elect board of directors to represent them and directors select corporation's top officers who run the company corporate governance can be used broad to describe all policies, procedures, relationships, systems in place to oversee successful/legal operation of the enterprise media coverage/public define governance narrow as the responsibilities and performance of board of directors specifically. b/c serious corporate blunders can wreak havoc on employees, investors, economy, effective corporate governance has become vital concern for whole society

Shareholder Activism is

shareholders pressure management on matters ranging from executive pay to corp social responsibility, corp performance, increasingly visible factor corp governance. becoming better organized/ more sophisticated in proposals present, forcing boards to pay more attention to concerns raised boards recognize benefits gained by engaging activists/listening to their concerns those who lean minimalist view corp social responsibility worry such activism undermine ability of corp boards to do work effectively

How to Evaluate a Franchising Opportunity

so much at stake, research franchise crucial Federal Trade Commission (FTC) requires franchisors disclose extensive information about their operations to prospective franchisees: background info on company/executives, company's financial status, history of any litigation involving other franchisees, initial and ongoing costs, all restrictions put on franchisees, availability/cost of training, procedures for ending franchise agreement, earnings projections, and names of current/former franchise owners. study/talk to current/former franchise owners before taking plunge

3 most common forms of business ownership

sole proprietorship partnership corporation each has own characteristic internal structure, legal status, size fields best suited

3 most common forms of business ownership

sole proprietorship partnership corporation each has own characteristic internal structure, legal status, size, and fields

crowdfunding

soliciting project funds, business investment, or business loans from members of the public

The Entrepreneurial Spirit

some people working for themselves or starting company natural way earn living others - thought working outside structure regular company scary

holding company

special type of parent company that owns other companies for investment reasons and usually exercises little operating control over those subsidiaries

3 approaches - options to churn out fresh new products regular schedule develop in house - R & D partner w/ other companies acquire other companies with invented products minimize risks, maximize success?

staff research and development R & D partner w/ other copanies buy other companies outright fold them into their operations advantages/disadvantages R & D hands-on control of product design staff may not be able to invent all the products

Why People start their own companies

starting company difficult, risky, exhausting endeavor requires significant sacrifice -some want more control over future, - other tired working for someone else - some have new product ideas believe in w/passion willing risk everything -some pursue goals important on personal level - be one in control of innovation - work on something believe in - more common during tough job markets - inability to find attractive employment

Cost and complexity

starting corporation more expensive, more complicated than sole proprietorship or partnership "taking company public" (selling shares to public) extremely expensive for a firm, time-consuming for upper managers large firm - process can cost hundreds thousands dollars consume months executive time

The Start-Up Phase: Planning and Launching a New Business Small-business ownership options

starting new company not always only or best choice or right choice Consider all 3 options: creating new business buying existing business buying franchise creating new business has advantages but may also be most difficult compared to starting new business, buying existing business involve less work/less risk only if check out company carefully when buy healthy business, gen. purchase est. customer base, functioning business systems, proven products or services, known location also financing existing business easier b/c lenders reassured by company's history/existing assets/customer base disadvantages/risks: may need considerable financing to buy fully functioning company. inherit problems unhappy employees - obsolete equipment to customers w/ overdue accounts **through research is a must third option - buy franchise - combines many benefits of independent business ownership w/support comes w/being part of larger organization

Why People Start Their Own Companies

starting own company difficult, risky, exhausting requires significant sacrifice why do it? some want more control over future,others simply tired of working for someone else Sister Sky - new product ideas believe in - passion willing risk everything on start-up enterprise some pursue business goals important on personal level Jennie Baird Generation Growup - 2 reasons- shared by TurningRobe (sistersky). - wanted to take opportunity to be one in control of innovation, and work on on something believe in also, one reason more common during tough job markets is inability to fine attractive employment anywhere else Alex Andon no work laid off job biotech - became entrepreneur putting biology background to work launching Jellyfish Art create/sell jellyfish aquariums

The Growth Phase: Nurturing and Sustaining a Young Business

statistics about failure rate new businesses, 70,80,90 % new business ventures fail calculating precise figure represents all types of businesses across all industries impossible 1. definition of "failure" hard to pin down/varies one owner to next - may retire, return to corp. work, pursue different path - typical survey count as failures but not to owner self 2. establishing time frame essential for a failure rate to have meaning. i.e. ill-conceived or undercapitalized businesses often don't survive first year, so early failure rate high but after bad ideas collide w/reality and disappear, rate of failure slows down companies who fail do so for wide variety reasons some internal, some external 3. structural changes in the economy or in particular industry can cause business closures don't reflect general pattern applicable to all companies. i.e. advent online travel shopping, traditional in-person travel agencies in US plummeted roughly 2/3 so many gone out of business result of this structural change in industry than some new business failure every failure statistic w/skepticism unless you can find out how it calculated. restaurant industry = "90% new restaurants fail" but one in-depth study showed rate to be only 60% after four years - another study comprehensive analysis using data from US Census Bureau found 50% all new employer firms (those that hire employees) still in business after 4 yrs. another 17% no longer in operation but closed successfully meaning owner retired, sold, other ended enterprise positive note. = avg across all industries only 33% "failed" during time frame one of most important reasons companies fail is something not always show up in surveys - "motivational collapse" when would be entrepreneur has too many set-backs doesn't have drive keep going. truly committed entrepreneur keeps going on, pushing onward, experimenting making adjustments, keeping enthusiasm level high until starts to click

liquidity

stock of publicly traded companies high degree of liquidity meaning investors can easily/quickly convert their stock into cash by selling on open mkt. contrast - liquidating (selling)

9. For your new​ business, if you are looking for private​ funding, you should explore all of the following EXCEPT​ ______. A. angel investors B. venture capitalists C. bank loans D. microlenders E. stocks and bonds

stocks and bonds

Strategic Alliances and Joint Ventures

strategic alliance - long-term partnership between companies to jointly develop, produce or sell products joint venture - separate legal entity established by the strategic partners both options can more attractive than a merger or acquisition in certain situations

A Joint Venture

strategic alliances avoid much of work and risk of formal mergers, don't create unified entity that functions w/ single management structure, information system, other organizational elements. In contrast, joint venture lets companies create an operation more tightly integrated than strategic alliance w/o disrupting original companies to extent merger/acquisition does. spotty record of mergers/acquisitions recent yrs. more companies considering joint ventures more attractive way to collaborate good example - clearXchange, system enables person-to-person payments via email or text - launched by lg banks to compete w/ one another but cooperated on new venture to compete against PayPal.

joint ventures from perspective of international expansion

strategic alliances avoid much of work/risk of formal mergers don't create unified entity that functions w/single management structure, information system, other organizational elements contrast - joint venture lets companies create an operation more tightly integrated than a strategic alliance but w/o disrupting original companies to extent that merger or acquisition does - after spotty record of mergers/acquisitions recent yrs. more companies now considering joint ventures more attractive way to collaborate good example: clearXchange - system that enables person-to-person payments via email or text messaging launched by 3 large banks that compete w/ each other but cooperated on new venture as way to compete against PayPal.

management and key personnel

summarize the background and qualifications of the people most responsible for the company's success

business plan - summary - mission and objectives - company overview - products or services - management and key personnel - target market - marketing strategy - design and development plans - operations plan - start-up schedule - major risk factors - financial projections and requirements - exit strategy

summarizes a proposed business venture, communicates the company's goals, highlights how management intends to achieve those goals, shows how customers will benefit from company's goods or services. Preparing business plan serves 3 functions: 1- guides company operations & outlines a strategy for turning an idea into reality 2- helps persuade leaders & investors to finance your business if outside money is required 3- can provide reality check in case an idea just isn't feasible business plans can be written before company is launched, when founders defining their vision of what company will be, when company seeking funding, after the company is up and running, when plan serves as monitor-and-control mechanism to make sure operations are staying on track. at any stage, business plan forces you to think about personnel, marketing, facilities, suppliers, distribution and other issues vital to a company's success. specific elements to include in business plan can vary based on situation - typically included:

e-commerce, social media, other technologies

technology major role in business formation rapid growth e-commerce/social media revolutionized way businesses operate Pandora & Facebook not exist w/o web technologies b/c connection to customers all online - technology enables innovation one or more functional areas i.e. use web to replace physical retail stores i.e. Etsy - online technology gives "very-very small businesses" unified online presence helping shoppers find products avoiding high cost of est. physical presence while able to mkt. to entire world one of most significant/lasting changes technology brought to small business - social media changed marketing/selling functions for many companies - Facebook, You Tube, other online media tools used by companies every size, these sites vital to small companies w/minuscule budgets prohibit them doing much advertising or traditional promotional activities

chief executive officer (CEO)

the highest-ranking officer of a corporation

proxy fight

the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management

corporate officers

the top executives who run a corporation

Corporate officers are

third/final group in key role governance are corporate officers - top execs who run company they implement major board decisions, make numerous board decisions, ensure compliance govt regulations, perform other essential tasks **executive team major influence on company performance/financial health CEO highest ranking officer - person aided by team other "C-level" execs such as chief financial officer (CFO) chief information officer (CIO) chief technology officer (CTO) chief operating officer (COO) titles vary corp to next corporate officers hired by board gen. have legal authority to conduct company business everything - hiring rest of employees to launch new products actions of execs can make or break company in board's best interest hire best talent available to help succeed and pay attention to what managers doing

Joint Venture

* Creates a unified management structure * More tightly integrated than a strategic alliance * May be created for a single large project * Example: General Electric and China Shenhua Energy might for a joint venture to build a new nuclear plant in Shanghai

Disadvantages of Mergers and Acquisitions

* Executives have to agree on how the merger will be financed * Managers have to decide who will be in charge after they join forces * Incompatible IT systems may have to be rebuilt * Companies often have to deal with layoffs, transfers, and new job titles * The organizational cultures of the two firms must be harmonized

Strategic Alliance

* Long term partnership between companies * Same general advantages as merger without formally combining firms * Less risk and work than permanently merging two companies

Advantages of Mergers and Acquisitions

* Provides a strategic tool for expansion * Vertical merger * Horizontal merger * Conglomerate merger

Merger and acquisition defenses

* Proxy fight * Poison pill * White knight

Special types of corporations

* S Corporation * Limited liability corporation (LLC) * Benefit corporation

Corporate governance

* Shareholders * Board of Directors * Corporate Officers

Corporate officers

* Top executives who run the company * Chief executive officer (CEO) * CEO is assisted by the COO, CIO, CFO and others

Disadvantages of corporations

* cost and complexity * reporting requirements * managerial demands * possible loss of control * double taxation (dividends) * short term orientation of the stock market

Advantages of partnerships

* simplicity * single layer of taxation * more resources * cost sharing * broader skill and experience base * longetivity

Advantages of Partnerships

**** - offer two of same advantages as sole proprietorships plus four more overcome some important disadvantages of being sole owner ****

Economic Roles of Small Businesses Are

- employing millions -creating essential products play vital role in US economy Major contributions small firms make: - they provide jobs - most small bus. no employees, those who do employ half of private-sector workforce in US create roughly 2/3 all new jobs - they introduce new products - freedom to innovate characteristic of many small firms yield countless advances - new firms apply for US patents on new inventions - small bus receive 16 times more patents per employee than lg firms - they meet needs of lg organizations - act as distributors, servicing agents, suppliers to larger corporations and to numerous govt agencies (often reserve percentage of purchasing contracts for sm businesses) - they inject considerable amount of money into the economy - sm businesses pay nearly half private-sector payroll in US and produce half country's gross domestic product - they take risks larger companies sometimes avoid - entrepreneurs play significant role in economy as risk takers - people willing to try new and unproven ideas - they provide specialized goods and services

Sole Proprietorship Disadvantage: 3. Limited managerial perspective

- even simple business complicated requiring expertise in accounting, marketing, information technology, business law, other fields - few individual business owners possess enough skills/experience to make consistently good decisions - for broader input can turn to variety sources for input = networks, support groups specifically for proprietors to counsel each other key decisions

Mission and objectives

- explain the purpose of your business and what you hope to accomplish

Sole Proprietorship Advantage: 6. Personal Satisfaction

- for many sole prop. main advantage is satisfaction of working for themselves - taking risks, enjoying rewards - if work hard make smart decisions, have bit of luck, get to see/reap fruits of labor

Characteristics of small business

- have a narrower focus, offering fewer goods and services to fewer market segments - get by with limited resources - more freedom to innovate and move quickly

Single Layer of Taxation

- income tax straightforward for partnerships - profit split between or among the owners based on whatever percentages they agreed to each owner treats his/her share as personal income

Sole Proprietorship Disadvantages: 2. Demands on the owners

- joke: work for self set own hours - work whichever 80 hours a week you want - potential long hours ( not all do) - stress making ALL major decisions, solving ALL major problems, being tied so closely to company taking off sometimes impossible - can feel isolated, unable to discuss problems w/anyone - social media blessing - can reach out for advice, fresh ideas, useful contacts, socializing opportunities missed for many small-business owners

Expansion, succession, and termination issues

- partnerships need consider how handle issues i.e. expanding by bringing in an additional partner, replacing partner want to sell out or retire, terminating partner unable/unwilling meet expectations of his/her role in organization - such issues destroy partnerships if owners have no clear plans/expectations to address them

Advantages of FRanchising

- popular option for many people b/c it combines some of freedom of working for self w/ advantages of being part of larger est. organization - be own boss - hire own employees - benefit directly from your hard work - if you invest in successful franchise, you know you are getting viable business model, one worked many times before if franchise system well managed, get added benefit of instant name recognition, national advertising programs, standardized quality of goods/services, proven formula for success Buying franchise also gives you access to support network and in many case, ready-made blueprint for building a business. Depending on system, initial investment provides you w/ services site-location studies, market research, training, technical assistance, assistance w/ building or leasing structure, decorating the bldg. purchasing supplies, operating business during initial ownership phase

growing diversity in entrepreneurship

- small-business growth fueled in part by women, minorities, immigrants, military vets want to apply leadership skills, older workers who can't find employment to fit interests or skills, & young people who want alternatives traditional employment - never too early to start - Google, Facebook, Dell few significant companies started by college students - Joseph Keeley who formed College Nannies and Tutors as freshman at University St Thomas - as young entrepreneur risk is low, well thought out plan, don't afraid to execute it - risk higher as get older

Sole PRoprietorship Disadvantage: 6. Finite life span

- some pass business on to heirs, owner's death may mean demise of business - even if business transfer to heir founder's unique skills may have been crucial to successful operation

E-commerce, Social Media, Other Technologies

- technology play major role in business formation, rapid growth e-commerce & social media recent revolutionized way businesses operate - Pandora, Facebook couldn't exist w/o web technologies b/c connection to customers entirely online - technology enables innovation one or more functional areas i.e. companies use web to replace physical retail stores while use conventional production/distribution systems in physical world - online technology allows Etsy to give tiny businesses unified online presence -avoiding high cost of est. physical presence while being able to market to entire world one of most significant/lasting changes technology brought to sm business - social media dramatically changed mkt/selling functions for many companies -Facebook, YouTube, other online media tools used by companies every size, these sites vital to small companies minuscule mkt budgets prohibit them from doing much advertising to other traditional promotional activities

6 Disadvantages of Corporations

1. Cost and complexity - starting corp. more expensive, more complicated than sole prop or partnership. taking company public (selling shares to public) extremely expensive for a firm and time-consuming for upper managers. for large firm process cost hundreds thousands dollars/consume months executive time 2. Reporting requirements - to help investors make informed decision about stocks, govt agencies require publicly traded companies publish extensive/detailed financial reports. Reports eat up staff/management time, expose strategic info might benefit competitors or discourage investors unwillingly wait for long-term results. 3. Managerial demands - top execs devote time/energy mtg w/shareholders, financial analysts, news media.one estimate, CEOs lg publicly held corp spend as much as 40% time on externally focused activities 4. Possible loss of control - outside investors acquire enough company's stock can gain seats on board of directors and begin exerting influence on company management. Extreme cases - outsiders can take complete control, may even replace company founders if believe change in leadership needed 5. Double taxation - corp pay fed and state corporate income tax on its profits, individual shareholders must pay income tax on their share of company's profits received as dividends (periodic payments some corps opt to make to shareholders) 6. Short-term orientation of the stock market - publicly held corps release their financial results once every quarter, seem simple requirement can have damaging effect on way companies managed. Problem is executives feel pressure to constantly show earnings growth quarter to quarter so stock price keeps increasing - even if smart, strategic reasons exist for sacrificing earnings in short term, i.e. investing in new product development or retaining talented employees instead of laying off during slow periods. managers sometimes wind up zigzagging from one short-term fix to next, trying prop up stock price for investors w/no patience for strategic, long-term plans to bear fruit. When executive compensation closely tied w/ stock prices, managers more incentive compromise long-term health of company to meet quarterly expectations. to escape pressure, corporate leaders sometimes choose take companies private = buy all shares held by public convert them to privately held status.

6 Disadvantages of Sole Proprietorships

1. Financial Liability - owner and business legally inseparable gives proprietor unlimited liability any legal damages or debts incurred by business are owner's personal responsibility - if aren't covered by appropriate insurance can run into serious financial or legal difficulty, i.e. get sued for accident on premises, lose not only business,also everything else you own including your house, car, personal investments 2. Demands on the owner - working for self work own hours work whichever 80 hours a week you want to potential long hours, stress of making all major decisions, solving all major problems, tied so closely to company taking time off may be impossible, can feel isolated, unable discuss problems w/anyone, social media helps providing advice, fresh ideas, useful contacts, socializing opportunities 3. Limited managerial perspective - even simple business can be complicated effort requiring expertise in accounting, marketing, information technology, business law, other fields. few owners possess enough skills/experience make consistently good decisions get broader input can turn to variety sources i.e. networks, support groups designed specifically for sole proprietors counsel each other on key decisions 4. Resource limitations - depend on single owner, sole prop. fewer financial resources/fewer ways get additional funds from lenders/investors - lack of capital hamper small business limiting ability to expand, hire best employees, survive rough economic periods 5. No employee benefits for owner - moving from corporate job means paid vacation time, sick leave, health insurance, other benefits no longer perks unless paid out of own pocket 6. Finite life span- some sole prop. pass businesses on to heirs, owner's death may mean demise of the business. If business does transfer to heir, founder's unique skills may be crucial to successful operation

Advantages of Sole Proprietorships 6

1. Simplicity - - easy to establish - requires less paperwork than other structures about only legal requirement to est. obtaining necessary business licenses/permits required by city, county, state 2. Single layer of taxation - income tax straightforward - fed govt doesn't recognize company as taxable entity - all profit "flows through" to owner - treated as personal income taxed accordingly 3. Privacy - other than filing tax returns, govt reports apply specific business, not required to report anything to anyone - your business your business unless apply for a long or solicit investors that need detailed financial information 4. Flexibility and control - aren't required approval from business partner, your boss, or board of directors to change any aspect business strategy or tactics -make own decisions, setting own hours to deciding how much work do yourself or assign to employees. up to you w/in contractual obligations might have, i.e. franchising agreement - financial value exists in business is all yours- keep business, sell it, give it away, bequeath it to heirs 5. Fewer limitations on personal income - partner in partnership or employee in corporation income est. by agreements/compensation policies sole proprietor - keep all after-tax profits business generates - business does well you do well, no generate income, no paycheck 6. Personal Satisfaction = for many sole prop. main advantage is satisfaction working for themselves - taking risks, enjoying rewards - work hard, make smart decisions, bit luck get to see/enjoy fruits of your labor

3 Disadvantages of Partnerships

1. Unlimited liability - all owners in general partnership and general partners in limited partnership face same unlimited liability as sole proprietors. Risk of financial wipeout even greater b/c partnership has more people making decisions could end in catastrophe (unless company formed as LLP) 2. Potential for conflict - more bosses = more chances for disagreement/conflict partners can disagree over business strategy, division of profits or liability for losses, hiring/firing employees, other significant matters. simple interpersonal conflict between partners can hinder company ability to succeed. Potential for conflict some experts recommend against equal ownership splits where everyone has equal vote in how things are run 3. Expansion, succession, and termination issues - partnerships need to consider how to handle issues as expanding by bringing in additional partner, replacing partner who wants to see out/retire, terminating partner unable or unwilling meet expectations of his/her role in organization. Such issues can destroy partnerships if owners don't have clear plans/expectations for addressing them.

6 Advantages of Partnerships

2 of same advantages of sole proprietorship plus 4 more overcome some important disadvantages of being sole owner 1. Simplicity - almost as simple as est. sole proprietorship - you and partners say in business together, apply for necessary business licenses, get to work - approach is legal not sensible or safe partners need to protect themselves/company w/ partner agreement 2. Single layer of taxation - income tax straightforward - profit split between or among owners based on percentages agreed to - each owner treats his share personal income 3. More resources - one of key reasons partner w/ one or more co-owners is increase amount of money have to launch, operate, grow the business. In addition to owners money invested, partnership can raise more money b/c partners personal assets support larger borrowing capacity 4. Cost sharing - important financial advantage in many partnerships is opportunity to share costs. i.e. group lawyers or doctors share cost of facilities support staff while work more/less independently 5. Broader skill and experience base - pool skills/experience of 2 or more professionals overcome major shortcomings of sole prop. If goal to build business to grow significantly over tie, partnership much more effective than trying to build it up as sole prop. 6. Longevity - forming a partnership increase chances organization will endure b/c new partners can be drawn into business to replace those die or retire

Factors Contributing to Increase in Number of Small Businesses

3 Factors contributing to increase in number of small businesses today 1. e-commerce, social media, other technological advances 2. growing diversity in entrepreneurship 3. corporate downsizing and outsourcing

Define sole proprietorship, explain six advantages and six disadvantages of this ownership model.

A sole proprietorship is a business owned by a single individual and legally inseparable from that person. The six advantages of this structure are: simplicity single layer of taxation privacy flexibility and control fewer limitations on personal income personal satisfaction The six disadvantages are unlimited financial liability demands on the owner limited managerial perspective resource limitations no employee benefits for the owner finite life span

Sole proprietorship is

A sole proprietorship is a business owned by a single individual legally inseparable from that person. Six advantages of this structure are simplicity, single layer of taxation, privacy, flexibility and control fewer limitations on personal income personal satisfaction Six disadvantages unlimited financial liability demands on the owner limited managerial perspective resource limitations no employee benefits for owner finite life span

12. Which of the following summarizes an anticipated company project along with its​ objectives, and strategies for accomplishing particular​ objectives? A. Advisory board B. Angel investing C. Business plan Your answer is correct. D. Initial public offering E. Business incubator

Business Plan

7. Ramona believes she has a wonderful idea for a very viable business in the fusion food industry. She wants to apply for a bank loan to start her business. Which of the following must Ramona present to the bank as a summary of her proposed business​ venture?

Business Plan

23. General Motors​ (GM) is the largest United States-based auto manufacturing corporation. Who is the highest ranking officer at​ GM? A. Chief financial officer B. Chief information officer C. Chairman of the board D. Chief operating officer E. Chief executive officer

Chief executive officer

In response to outside pressure & managements recognition how important effective board is, corps wrestle w/ board-related issues

Composition - identifying type people who should be on board challenge. - Ideal board - balanced group of seasoned execs, w/ each "bring something to the table" help corp. i.e. extensive contracts for corp. manufacturing experience, insight into global issues, - ratio of insiders (company execs) to outsiders (independent directors) another hot topic -Federal law requires majority directors be independent, but to be effective, outsiders must have enough knowledge about inner workings of organization to make informed decisions - Diversity also important to ensure attention paid to issues that affect stakeholders who historically underrepresented on corp boards. (i.e. women hold 20% all seats on boards of 500 largest US public corps, though nominated women increasing significantly - members ethic minorities currently hold 17% of Fortune 500 board positions Education: board members expected to understand everything from govt regulations to financial management to executive compensation strategies and inner workings of corp some companies offer special training programs/orientation sessions for directors i.e. financial reporting (make sure directors not versed in finance understand company's own financial statements), compliance challenges, product research, manufacturing, human resources issues Liability - one of most controversial reform issues been potential for directors to be held legally, financially liable for misdeeds of companies they oversee, even simply failing to investigate "red flags" in company financial reports Independent board chairs - board chair or chairman oversees the other members of board of directors who supposed to oversee corporate officers who make up top management team, while CEO oversees top management team. Many corps one person acts board chair AND CEO (mean CEO his own boss) = critics ask how effective boards oversee top management majority lg. European companies divide responsibilities between 2 people not widely in US Lead director - emerging alternative - independent board member guides operation of board, helps maintain its role as independent voice in governance Recruiting challenges: effective director challenging - good candidates may think twice accepting directorship, well-chosen board members more vital so corp/govt leaders no choice but solve challenges

Qualities Shared by Successful Entrepreneurs

Confidence - like to control their destiny - and believe they can - curious and eager to learn to reach their goals - learn from mistakes and view failure as a chance to grow - highly adaptable and in tune with their markets - willing to take sensible risks but are not "gamblers" Passion - love what they do and are driven by a passion to succeed - often don't measure success in strictly financial terms - have a high degree of confidence and optimism - relate well with diverse personalities - have a talent for inspiring others Drive - willing to work hard for sustained periods of time - extremely disciplines; no one has to motivate them - willing to make sacrifices in other areas of their lives

22. Which of the following is a disadvantage of a merger or​ acquisition? A. More employees with specific expertise B. An increase in​ cross-selling of products C. Reduced buying power D. Different organizational cultures Your answer is correct. E. Product line size increases

Different organizational cultures

3. ___________is a term used to describe a​ positive, forward-thinking desire to create​ profitable, sustainable business enterprises.

Entrepreneurial spirit

10. Which of the following enables the buyer to use a larger​ company's trade name and sell its goods or services in a specific​ territory? A. Manufacturing franchisor B. Franchisor C. Franchise Your answer is correct. D. Franchisee E. Product franchisor

Franchise

The Franchise Alternative

Franchisee is the small business owner- franchisor is the supplier Types of franchises - product franchise - right to sell trademarked goods - manufacturing franchise - ex: bottling plant - business - format franchise - ex: Pizza Hut Advantages of franchising - viable business model - name recognition - support network Disadvantages of franchising - relative lack of control - high initial costs - $1-2.2 million for McDonalds - regular payments to franchisor

Explain the advantages and disadvantages of franchising

Franchising appeals to many b/c it combines some of advantages of independent business ownership with the resources and support of a larger organization. It can also be less risky than starting or buying an independent business because you have some evidence that the business model works. The primary disadvantages are the lack of control and the costs, both the initial start-up costs and he monthly payments based on a percentage of sales.

Board of directors

* Appoint corporate officers * Oversee financial decisions * Review long term plans and strategy

Corporate governance Shareholders

* Ultimate owners of the corporation * Elect the Board of Directors * Can attend annual meetings or vote by proxy * Shareholder activism can pressure anagement on issues of social responsibility

Advantages of corporations

* ability to raise capital * liquidity * longetivity * limited liability

Advantages of a sole proprietorship

* simplicity * single layer of taxation * privacy * flexibility and control * fewer limitations on personal income * personal satisfaction

Disadvantages of a sole proprietorship

* unlimited financial liability * demands on the owner * limited managerial perspective * resource limitations * no employee benefits for the owner * finite life span

Disadvantages of partnerships

* unlimited liability * potential for conflict * expansion, succession, and termination issues

21. To​ succeed, entrepreneurs need to have which of the following​ characteristics? A. Measuring success in strictly financial terms B. Little need to be an inspiration to others C. A passion to succeed Your answer is correct. D. A low degree of confidence E. The ability to relate to only one type of personality

A passion to succeed

Quiz 1. General Motors​ (GM) is the largest United States-based auto manufacturing corporation. Who is the highest ranking officer at​ GM?

Chief executive officer

Corporate Governance Exhibit 5.3

Shareholders ---> elect ---> Board of Directors ---> hire ---> corporate officers ----> hire---> employees

The Entrepreneurial Spirit

Why people start their own companies - tired of working for someone else - have new product ideas they believe in with passion - inability to find attractive employment anywhere else Qualities of successful entrepreneurs - confidence - passion - drive Innovating without leaving: Intrapreneurship

sole proprietorship

a business owned by a single person

franchisor

a company that licenses elements of its business system to other companies (franchisees)

public corporation

a corporation in which stock is sold to anyone who has the means to buy it said to be publicly held or publicly traded

Corporations

a corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business

unlimited liability

all owners in general partnership & general partners in limited partnership face same unlimited liability as sole proprietors risk of financial wipeout even greater b/c partnership has more people making decisions could end in catastropphe (unless company formed as LLP)

general partnerships

all partners have joint authority and joint liability

Simplicity

almost as simple as est. sole proprietorship you & partners just say in business together, apply for required business licenses, get to work approach is legal not safe or sensible b/c partners need to protect themselves and company w/partnership agreement

Crowdfunding is

an intriguing twist to funding combines elements of public and private financing. Kickstarter is best known of web services provide way for people/organizations seek money from public. fall into 2 categories: Kickstarter and other sites focus on individual projects or charitable endeavors, people provide money in exchange for product being created or simply to help people and causes they believe in . Contrast, such services such as Crowdfunder and Indiegogo help business owners raise money to launch or expand companies, and people who provide money investing in or lending to company Govt regs regarding investment crowdfunding still being finalized services have potential give entrepreneurs potent new ways get companies off ground

Partnership

an unincorporated company owned by two or more people a company owned by two or more people but not a corporation structure appropriate for firms that need more resources and leadership talent than sole proprietorship dont need fundraising capabilities or other advantages of a corporation - many small handful owners few are immense

Partnership

an unincorporated company owned by two or more people not a corporation partnership structure is appropriate for firms need more resources and leadership talent than sole prop. don't need fundraising capabilities or other advantages of a corporation. many are small, w/ handful owners, few are immense, i.e. accounting/consulting firm PwC more than 10,000 partners - some companies refer to employees as partners but not same thing as legal business partners

Independent Board Chairs

board chair or chairman oversees other members of the board of directors who supposed to oversee corporate officers who make up top management team, while CEO oversees top management team Some corps. one person acts as both board chair and CEO (meaning CEO own boss) leading critics ask how effectively such boards oversee top management majority lg. European companies divide responsibilities between 2 people, trend not widely in US emerging alternative is lead director - independent board member who guides operation of board and helps maintain its role as independent voice in governance

General Partnership

control: two or more owners; each partner is entitled to equal control unless agreement specifies otherwise

subsidiary

corporation primarily or wholly owned by another company

Vertical Merger

different stages or levels of the same industry

Financing Options for Small Businesses

figuring out how much you need to start business requires good insights into particular industry plan to enter where to get money creative challenge probably need money from multiple sources possibly using combination of equity and debt

Why choose strategic alliance or joint venture over merger or an acquisition?

from perspective of international expansion

company overview

give full background information on the origins and structure of your venture

Corporate Governance

in a broad sense, all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise, in a narrow sense, the responsibilities and performance of the board of directors specifically corporation shareholders own business, few involved in managing it esp. if publicly traded shareholders who own common stock elect a board of directors to represent them, and the directors select corporation's top officers, who run the company corporate governance used in broad sense to describe all the polilcies, procedures, relationships, systems in place to oversee the successful and legal operation of enterprise media coverage/public discusson define governance more narrow sense, as responsibilities & performance of board of directors specifically serious blunders wreak havoc on employee investors, entire economy, effective corporate governance become vital concern for society as whole

10. Entrepreneurial effort within a larger organization is referred to as​ _____.

intrapreneurship

shareholders

investors who purchase shares of stock in a corporation

2. Which of the following is one of the biggest disadvantages of a​ franchise? A. Being required to use a predetermined business model B. Lack of control Your answer is correct. C. Being part of a larger organization D. Association with national advertising campaigns E. Standardized goods and services

lack of control

Advantages of Mergers and Acquisitions

merger or an acquisition is rare event for many firms, some companies use acquisitions as strategic tool to expand yr after yr companies pursue mergers & acquisitions for variety of reasons: - might hope increase buying power as result of larger size -increase revenue by cross-selling products to each other's customers - increase market share by combining product lines to provide more comprehensive offerings - or gain access to new expertise, systems, teams of employees who already know how to work together bringing a company under new ownership can also be an opportunity to replace/improve inept management/thereby help company improve performance many case PRIMARY goal it reduce overlapping investments and capacities to lower ongoing costs

Possible Loss of Control

outside investors acquire enough company's stock can gain seats on board of directors/therefore begin exerting their influence on company management extreme cases: outsiders can take complete control even replace company founders if believe change in leadership needed

24. ABC Tools has hired Frost Accounting to take care of all its​ billing, accounting, and​ tax-related issues and HR Solutions to manage its human resources-related issues. This is an example of​ ________. A. outsourcing Your answer is correct. B. lifestyle businesses C. ​high-growth ventures D. small business failure E. ​e-commerce

outsourcing

Education

overseeing modern corporation complex task board members expected understand everything from govt regulations to financial management to executive compensation strategies plus inner workings of corporation itself some companies offer special training programs or orientation sessions for directors i.e. financial reporting (ensure directors understand company's own financial statements), compliances challenges, product research, manufacturing human resources issues

Economic Roles of Small Business

play vital role in US economy Major Contributions small firms make - provide jobs - most no employees - those do employ about half of private-sector workforce in country and create roughly 2/3 all new jobs - introduce new products - freedom to innovate characteristic small firms yield advances - firms apply for US patents new inventions - small businesses receive 16 times more per employee than lg firms - meet needs of larger organizations - many small businesses act as distributors, servicing agents, suppliers to larger corporations and to numerous govt agencies - often reserve certain percentage of purchasing contracts for small businesses - inject considerable amt money into economy - pay nearly half private-sector payroll in US and produce half country's gross domestic product - take risks that larger companies sometimes avoid - entrepreneurs play significant role in economy as risk takers trying new/unproven ideas - provide specialized goods and services - small businesses frequently spring up fill niches aren't being served by existing companies

target market

provide data that will persuade an investor that you understand your target market. identify the strengths/weaknesses of your competitors

Board of Directors

representatives of shareholders, members are responsible for selecting corporate officers, guiding corporate affairs, reviewing long-term plans, making major strategic decisions, overseeing financial performance typically composed of major shareholders (both individuals and representatives of institutional investors), philanthropists, executives from other corporations directors often paid combo of annual fee & stock options, right to buy company shares at advantageous price attention on corporate reofrm zeroed in on boards w/various boards accused not paying close attention to what companies doing, approving management proposals w/o analyzing carefully, allied too closely w/management to serve as independent representatives of shareholders or failing add enough value to strategy planning in response to outside pressure & management's recognition of how important an effective board is, corporations wrestling w/variety board-related issues

stock options

right to buy company shares at an advantageous price

2. Investors who purchase shares of stock in a company are called​ ____

shareholders

Downsizing and Outsourcing

start-ups soar when economy sours hard times - companies downsize or lay off talented employees who have little to lose by pursuing self-employment. Hewlett-Packard joined forces Silicon Valley 1938 during Great Depression, Microsoft launched during 1975 recession Recent global recession another wave entrepreneurs companies trimming staff, Mark Cannice (runs entrepreneurship program University San Fran - silver lining , large-scale downsizing from major companies will release new entrepreneurial talent/ideas -scientists, engineers, business folks looking to do new things

Qualities of Successful Entrepreneurs

tend to share characteristics

The Entrepreneurial Spirit

the positive, forward-thinking desire to create profitable, sustainable business enterprises some people working for themselves or starting a company seems natural way earn living to others, thought working outside structure regular company too scary to contemplate every professional should understand the entrepreneurial spirit - he positive, forward-thinking desire to create profitable, sustainable business enterprises and role can play in every company, not just small or new firms it is vital to health of economy and everyone's standard of living, can help largest and oldest companies become profitable and competitive

merger

two companies join to form single entity companies can merge either by pooling their resources or by one company purchasing the assets of the other.

Factors contributing to the increase in the number of small businesses

- E commerce, social media, and other technologies - growing diversity in entrepreneurship - downsizing and outsourcing

Sole Proprietorship Advantage: 4. Flexibility and Control

- aren't required to get approval from business partner, your boss, or board of directors to change any aspect of business strategy or tactics - can make own decisions - set own hours to deciding how much work do yourself - how much assigned to employees -all up to you (w/in contractual obligations such as a franchising agreement) -as sole owner financial value exists in business is yours keep business - sell it - give away - bequeath to children

Sole Proprietorship Disadvantage: 4. Resource limitations

- b/c depend on single owner - usually have fewer financial resources, fewer ways to get additional funds from lendors or investors - lack of capital hamper small business many ways - limiting ability to expand, hire best employees, survive rough economic priods

Advantages of Corporations

- become major economic force b/c this structure offers 4 major advantages over sole proprietorships and partnerships

A Strategic Alliance

- can accomplish many of same goals as merger/acquisition w/less risk and work than permanently integrating 2 companies - help company gain credibility in new field, expand market presence, gain access to technology, diversity offerings, share best practices w/o forcing partners become permanently entangled. strategic alliances one of 3 foundations of Cisco's product-development strategy

potential for conflict

- more bosses = more chances for disagreement/conflict -partners disagree over business strategy, division of profits (or liability for losses), hiring, firing employees, other significant matters -interpersonal conflict between partners can hinder company's ability to succeed -potential for conflict - some experts recommend AGAINST equal ownership splits where everyone has equal vote in how things run

Sole Proprietorship Disadvantage: 5. No Employee benefits for the owner

- moving from corporate job to sole prop. shock for employees accustomed to paid vacation time, sick leave, health insurance, other benefits other employers offer - get none of these perks w/o paying out of own pockets

Sole Proprietorship Disadvantages 1. Financial liability

- owner/business legally inseparable gives proprietor unlimited liability -any legal damages/debts incurred by business are owner's personal responsibility - if aren't covered by appropriate insurance - run into serious financial or legal difficulty (get sued for accident on premises) could lose not only business but everything else you own - house, car, personal investments

Qualities of Successful Entrepreneur

- share characteristics -

Business Plan typical included

1. Summary - 1-2 paragraphs summarize business concept - business model - defines how company will generate revenue and produce profit summary must be compelling, catching investors attention giving reasons to keep reading, - Describe product or service - market potential -highlight things about company/leaders distinguish your firm from others -summarize financial projections/indicate how much money need from investors/lenders/where will be spent 2. Mission and objectives - explain purpose of business/hope to accomplish 3. Company overview - full background info on origins & structure of venture 4. Products or services - describe products/services, focus on unique attributes & appeal to customers 5. Management and key personnel- summarize background/qualifications of the people most responsible for company's success 6. Target market - provide data that persuade investor you understand target market - identify strengths/weaknesses of competitors 7. Marketing strategy - provide projections sales volume/market share - outline strategy for identifying/reaching potential customers, setting prices, providing customer support, physically delivering your products or services. Include evidence of customer acceptance, i.e. product orders 8. Design and development plans - if products require design/development describe nature/extent what needs done - costs,possible problems 9. Operations plan - provide info on facilities, equipment, personnel requirements 10. Start-up schedule - forecast development of company in terms of completion dates for major aspects of business plan 11. Major risk factors - identify all potential negative factors/discuss them honestly 12. Financial projections and requirements - include detailed budget of start-up and operating costs - projections for income, expenses, cash flow first 3 years business - identify company's financing needs, potential sources - 13. Exit strategy - explain how investors will be able to cash out or sell investment, i.e. public stock offering, sale of company, buyback of investors' interest create executive summary of business plan use when presenting ideas to investors for first time. may have only 20 min. or less to pitch back up w/executive summary no more 20 pages is ideal *Most important part of entire pkg is "the grab" compelling 1-2 sentence statement that gets an investor's attention- if investor intrigued, he can read exec summary for better sense of opportunity, review full business plan to make decision for funding not all start-up veterans/investors believe in business plan value - b/c amt time/energy required research/write plan, reluctant to read lengthy document, uncertainty whether new product /idea work difficulty correctly anticipating circumstances/obstacles company encounter

Disadvantages of Partnerships 3 potentially significant disadvantages

3 potentially significant disadvantages

Sole Proprietorship Advantage: 3. Privacy

- beyond filing tax returns, certain govt reports may apply to specific businesses, generally aren't required to report anything to anyone your business is your business if apply for loan or solicit investors - need to provide detailed financial information to these parties

strategic alliance from perspective of international expansion

- can accompllish same goals as merger or acquisition but w/ less risk and work than permanently integrating two companies - can help company gain credibility in new field, expand market presence, gain access to technology, diversify offerings, share best practices w/o forcing partners to become permanently entangled strategic alliances are one of three foundations of Cisco's product-development strategy

Economic roles of small business

- they provide jobs - they account for half of the private sector workforce and create roughly two thirds of all new jobs - they introduce new products - they meet the needs of larger organizations - they inject a considerable amount of money into the economy - they take risks that larger companies sometimes avoid - they provide specialized goods and services

Sole Proprietorship Advantage: 5. Fewer limitations on personal income

-as partner in partnership or employee in corp. your income est. by various agreements/compensation policies - you keep all after-tax profits generated by business -if business does extremely well you do extremely well -if business doesn't generate income - you don't get paycheck

Sole Proprietorships Advantages: 1. Simplicity

-easy to establish -requires less paperwork -only legal reqirement est. sole proprietorship obtain necessary business licenses or permits required by city, county, state -otherwise start business w/o creating partnership or corp. legally est. self sole proprietor

Summary

1-2 paragraphs summarize your business concept - business model - which defines how the company will generate revenue and produce a profit summary must be compelling, catching investor's attention and giving him or her reasons to keep reading -describe your product or service and its market potential -highlight things about company and leaders will distinguish your firm from the competition - summarize your financial projections and indicate how much money need from investors or lenders and where it will be spent

Advantages of Corporations

1. Ability to raise capital - pool money by selling shares of stock outside investors is reason corporations first came into existence, remains one of key advantages of its structure corps can also raise money selling bonds, potential for raising vase amounts gives corps unmatched ability invest in research, marketing, facilities, acquisitions, other growth strategies 2. Liquidity - stock of publicly traded companies has high degree of liquidity means investors easily/quickly convert stock into cash by selling it on open mkt. liquidating (selling) assets of sole proprietorship or partnership slow/difficult. Liquidity helps give corps long life span when shareholders sell/bequeath shares ownership passes to new generation, =find willing buyers for corps stock much easier than finding willing buyers for sole prop or stakes in partnership 3. Limited liability - corp unlimited liability various shareholders who own corp only limited liability - maximum potential loss only as great as amt they invested in company - like liquidity, limited liability offers protection helps make corp stock attractive investment

merger

2 companies join to form a single entity

Types of Franchises

3 basic types: 1. product franchise - gives you the right to sell trade-marked goods which are purchased from franchisor and resold (car dealers and gasoline stations) 2. manufacturing franchise - soft-drink bottling plant gives you right to product and distribute manufacturer's products, using supplies purchased from franchisor 3. business-format franchise gives you the right to open a business using a franchisor's name and format for doing business. This format includes many well-known chains including Taco Bell, Pizza Hut, The UPS Store, and Curves fitness centers

Factors Contributing to Increase in Number of Small Businesses

3 factors contributing to increase -e-commerce, social media, other technological advances - growing diversity in entrepreneurship - corporate downsizing and outsourcing

Define corporation, explain four advantages and six disadvantages of this ownership model

A corporation is a legal entity with the power to own property and conduct business. The four primary advantages of this structure are the ability to raise capital by selling shares of ownership liquidity (meaning it is easy to convert shares of ownership to cash) longevity limited liability for owners Six disadvantages are startup costs and complexity ongoing reporting requirements extra demands on top managers potential loss of control double taxation short-term orientation of the stock market

Advantages of Mergers and Acquisitions

A merger or acquisition is rare event for many firms, other companies use acquisitions as strategic tool expand year after year Companies pursue mergers/acquisitions variety reasons: - hope increase buying power as result of larger size - increase revenue by cross-selling products to each other's customers - increase market share by combining product lines to provide more comprehensive offerings - gain access to new expertise, systems, teams of employees already know how to work together bringing company under new ownership also opportunity to replace/improve inept management & help company improve its performance many cases - primary goal is reduce overlapping investments/capacities to lower ongoing costs

Structure

Characteristics

Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance

Corporate governance involves all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise. More narrowly, it refers specifically to the responsibilities and performance of the board of directors. The three groups responsible for good governance are 1. the shareholders who elect 2. he board of directors, who approve overall strategy and hire 3. the corporate officers who run the company

20. Which one of the following private sources of funding is extremely​ risky? A. Microlenders B. Venture capitalists C. Banks D. Credit cards and personal lines of credit Your answer is correct. E. Angel investors

Credit cards and personal lines of credit

Small Business Administration Assistance

SBA offers options financing small businesses SBA-backed loan apply regular bank/credit union who actually provides money SBA guarantees repay most of loan amt (percentage varies by program) if you fail to do so SBA in addition to operating primary loan guarantee program, also manages microloan program in conjunction with nonprofit, community-based lenders another option raise money Small Business Investment Companies (SBICs) created by SBA - investment firms offer loans, venture capital, management assistance, tend to make smaller investments/ willing to consider businesses VCs or angel investors not choose. SBIC program helped fund some best-known companies in US - Apple, FedEx, Jenny Craig, Outback Steakhouse

Contributions small businesses make to US economy

Small businesses provide jobs, employing about half the private-sector workforce. They introduce new and innovative products, they supply many of the needs of larger organizations they inject considerable amounts of money into the economy, they often take risks that larger organizations avoid, and they provide many specialized goods and services

The Startup Phase: Planning and Launching a new Business

Small-business ownership options - creating a new business - buying an existing business - buying a franchise Blueprint for an effective business plan - Summary - business model - Mission and objective - Company overview - Products or services - Management and key personnel - Target market - Marketing strategy - Design and development plans - Operations plans - Start-up schedule - Major risk factors - Financial projections and requirements - Exit strategy

14. Which of the following is LEAST likely to support the desire to start a small​ business? A. The desire to control​ one's own future B. The desire to produce a steady income Your answer is correct. C. The desire to develop new product ideas D. The desire to work independently E. The desire to pursue business goals that are important on a personal level

The desire to produce a steady income

franchise

a business arrangement in which one company (the franchisee) obtains the rights to sell the products and use various elements of a business system of another company (the franchisor)

sole proprietorships

a business owned by one person

Sole Proprietorships are?

a business owned by one person (although it may have many employees) - many farms, retail establishments, small service businesses are sole proprietorships, many home-based business - caterers, consultants, freelance writers - babysitting, website design

franchisee

a business owner who pays for the rights to sell the products and use the business system of a franchisor

joint venture

a separate legal entity established by the strategic partners

hostile takeover

acquisition of another company against the wishes of management

leveraged buyout (LBO)

acquisition of company's publicly traded stock, using funds that are primarily borrowed, usually with the intent of using some of the acquired assets to pay back the loans used to acquire the company

shareholder activism

activities undertaken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility

Corporate governance involves

all the policies, procedures, relationships, systems in place to oversee the successful and legal operation of the enterprise. Narrowly, refers specifically to responsibilities, performance of board of directors 3 groups responsible for good governance: 1. shareholders - who elect 2. the board of directors who approve overall strategy and hire 3. the corporate officers who run the company

Companies need to stay in game

be "innovation machines" customers expect continuous stream of innovations something new enhance personal lives improve business operations new product lines or move into new markets

Recruiting challenges

being effective director today business environment tough job - good candidates think twice accepting directorships well-chosen board members more vital than ever, corporate/govt leadrs no choice solve challenges

Sole proprietorship

control - one owner has complete control profits/taxation - profits and losses flow directly to the owners and are taxed at individual rates liability exposure - owner has unlimited personal liability for the business's financial obligations ease of establishment - easy to set up; typically requires just a business license and a form to register the company name

limited liability company (LLC)

corporate structure with benefits similar to those of an S corporation, without the limitation on the number of investors

Horizontal Merger

different companies at the same stage or level product-extension merger - expanding the mix of goods and services that a company has available for sale market-extension merger - expanding the geographic range of markets that a company can serve

TEST 1. The​ optimistic, progressive aspiration to establish​ lucrative, sustainable business ventures is known as​ ________. A. entrepreneurial spirit Your answer is correct. B. crowdfunding C. angel investing D. ​high-growth venture E. intrapreneurship

entrepreneurial spirit

business incubators

facilities that house small businesses and provide support services during the company's early growth phases centers that provide "newborn" businesses w/ various combinations advice, financial support, access to industry insiders/connections, facilities, other services a company needs to get started. some incubators not-for-profit organizations affiliated w/ economic development agencies local or state govt or universities, some for-profit run by venture capitalists, some companies have internal incubators encourage new ventures best-known incubators - Y Combinator helped fund/nurture hundreds companies in digital media/related industries. In exchange for small share of ownership, makes small investments in companies, helps founders refine ideas, develop products, polish pitches to investors, connect w/ industry experts, handle incorporation issues to avoid legal trouble later, hire right kind employees, mediate disputes between company founders, Y Combinator "gives advice can't be bought, anyone qualified to give it is already rich can only get it from investors"

One of first decisions when starting business?

form of business ownership - know long-term goals and how plan to achieve them - desire for control - tolerance for risk - may need to modify original structure or join forces w/other companies -know legal structure of companies where you work vital information

13. In​ a(n) ________, the purchaser tries to persuade enough shareholders to go against management and vote to sell. A. leveraged buyout B. joint venture C. acquisition D. merger E. hostile takeover

hostile takeover

Cost Sharing

important financial advantage in many partnerships opportunity to share costs i.e. group lawyers or doctors share cost of facilities/support staff while ocntinuing to work more or less independently

corporate governance

in a broad sense, all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise in a narrow sense, the responsibilities and performance of the oard of directors specifically

debt

in which you borrow money that must be repaid

Mentors and Advisory Boards

individual mentors, advisory boards mentoring through formal board like SCORE

longevity

liquidity also helps give corp. long life span - when shareholders sell or bequeath their shares, ownership passes to new generation willing buyers found easier for corp stock than for sole proprietorship or stakes in partnership

16. Two​ companies, Bright Auto and Light​ Auto, have voluntarily joined to form a single​ company, Light Bright Auto. This is an example of​ a(n) _________. A. hostile takeover B. leveraged buyout C. merger Your answer is correct. D. acquisition E. consolidation

merger

3. Two businesses coming together to form a single company is known as​ a(n) __________. A. joint venture B. leveraged buyout C. acquisition D. merger Your answer is correct. E. hostile takeover

merger

17. Corinne, Kayla,​ Ann, and Mishika are starting their business as a partnership. Which of the following is an advantage of this form of​ business? A. Potential for positive conflict B. Predetermined succession decisions C. More resources Your answer is correct. D. Predetermined agreement on expansion and termination issues E. Unlimited liability

more resources

5. Corinne, Kayla,​ Ann, and Mishika are starting their business as a partnership. Which of the following is an advantage of this form of​ business?

more resources

consolidation

not strictly a merger, in which two companies create a new, third entity that then purchases the two original companies is often lumped together with the other two merger approaches business people and media often use trm consolidation 2 general senses: to describe any combination of two companies, merger or acquisition, and to describe situations in which a wave of mergrs and acquisitions sweeps across an entire industry, reducing the number of competitors

leveraged buyout (LBO)

occurs when someone purchases a company's publicly traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans debt expected to be repaid w/funds generated by the company's operations and often by sale of some of its assets LBO is aggressive move and can be risky if buyer takes on so much debt that repayment demands deplete the cash the company has for operations and growth

acquisition

one company buys controlling interest in the voting stock of another company - may involve a leveraged buyout or hostile takeover

master limited partnership (MLP)

one of two types partnerships created recent yrs. accomodate needs of particular industries or professions - a partnership that is allowed to raise money by selling united of ownership to the general public allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations w/out the double-taxation disadvantage strict rules limit the types of companies that qualify for MLP status most are in energy industry

limited partnerships

one or more general partners, others have limited liability

microlender

organizations often not-for-profit that lend smaller amounts of money to business owners who might not qualify for conventional bank loans

Corporate Structures

p. 107

Economic Impact of Small Businesses in United States

p. 123

dividends

periodic payments that some corporations opt to make to shareholders

9. Which of the following is a disadvantage of​ partnerships? A. Longevity B. Single layer of taxation C. Simplicity D. More resources E. Potential for conflict

potential for conflict

benefit corporation

profit-seeking corporation whose charter also requires it to pursue a stated social or environmental goal

Ability to raise capital

reason corporations first into existence 7 remain one of key advantages of this structure corporations also raise money selling bonds some firms raised billion dollars or more selling stock to public for first time potential for raising vast amounts gives corporations an unmatched ability to invest in research, marketing, facilities, acquisitions other growth strategies

18. Investors who purchase shares of stock in a company are called​ ________. A. sole proprietors B. shareholders Your answer is correct. C. board members D. general partners E. limited partners

shareholders

Corporate Governance Chart

shareholders --->elect---> board of directors --->hire --->corporate officers--->hire--->employees shareholders of a corporation own business, but their elected representatives on board of directors hire the corporate officers who run the company and hire other employees to perform the day-to-day work. corporate officers also employees

6. Which of the following is a way that smaller companies differ from larger​ companies? A. Some firms are smaller because they do not have plans to grow. B. Smaller businesses do not have freedom to innovate and move quickly. C. Small firms have a narrow focus. D. Small businesses worry about getting by with limited resources. E. As smaller businesses grow​ larger, they tend to get more efficient and less bureaucratic.

small firms have a narrow focus

Growing Diversity in Entrepreneurship

small-business growth fueled part by women, minorities, immigrants, military veterans want to apply their leadership skills, older workers who can't find employment to fit interests/skills, young people want alternatives to traditional employment. Facebook, Google, Dell started by college students Joseph Keeley formed College Nannies and Tutors while freshman University St. Thomas - young entrepreneur risk low, if well-thought out plan don't be afraid to execute -risk increases as get older

11. Susan operates and owns a small business from home in her own name.​ Susan's business is most likely a​ _______. A. corporation B. sole proprietorship Your answer is correct. C. partnership D. limited liability company E. master limited partnership

sole proprietorship

4. Susan operates and owns a small business from home in her own name.​ Susan's business is most likely a​ _______.

sole proprietorship

tender offer

the buyer, or raider as party sometimes called, offers to buy a certain number of shares of stock in the corporation at specific price - price offered is generally more, sometimes considerably more than current stock price, so that shareholders motivated to sell. Raider hopes to get enough shares to take control of corporation and to replace the existing board of directors and management.

seed money

the first infusion of capital used to get a business started

corporate officers

the top executives who run a corporation 3rd final group plays key role in governance corporate officers implement major board decisions, make numerous business decisions, ensure compliance govt regulations, perform other essential tasks, executive team major influence company performance/financial health chief executive officer (CEO) - highest ranking officer aided by other "C-level" executives - chief financial officer (CFO) chief information officer (CIO) chief technology officer (CTO) chief operating officer (COO) titles vary in corporations officers hired by board w/ generally legal authority conduct company's business, everything from hiring rest of employees to launching new products actions of executives make/break company best interest of board hire best talent available, help them succeed, pay attention to what managers doing

Reporting requirements

to help investors make informed decisions re: stocks, govt agencies require publicly traded companies publish extensive/detailed financial reports reports eat staff/management time, expose strateic info might benefit competitors or discourage investors unwilling wait for long-term results

Managerial Demands

top executives devote lg time/energy meet w/shareholds, financial analysts, news media one estimate, CEOs lg publicly held corp. spend as much as 40% of their time externally focused activities

8. Which of the following is a disadvantage of​ partnerships? A. Single layer of taxation B. More resources C. Cost sharing D. Simplicity E. Unlimited liability

unlimited liability

equity

you give investors a share of the business in exchange for their money