CHAPTER 5 Small Business, Entrepreneurship, and Franchises 5.7 TEXTBOOK ANSWER KEYS 5.7a Return to Inside Business Locker Lookz 1. When Locker Lookz needed to raise money quickly, why do you think the founders sought financing from family, friends, and a church investment group rather than talking with banks? As the case notes, the owners of Locker Lookz had only a few weeks to raise money to pay for producing and transporting its new line of products in time for the back-to-school season. The chapter mentions that small businesses typically have a limited ability to obtain capital. Knowing this, Locker Lookz’s entrepreneurs probably recognized that they would have a better chance of raising the cash they needed if they presented the business situation to friends, family, and others, and explained the urgency and the opportunity. Students will also recognize that a bank might not be as likely to lend to first-time entrepreneurs, and a bank might require much more lead time to make a decision—especially given the size of the loan. In contrast, individuals might agree to lend a relatively small amount per person, and by combining all these loans, Locker Lookz could raise what it needed in time to pay its bills. 2. If you were writing a business plan for Locker Lookz, what would you recommend as an exit strategy? Explain your answer. Students will offer a variety of ideas. Locker Lookz might go public if its sales continue to grow and it can interest investors in buying stock. This could enable the owners to profit from the business on a larger scale, if they choose. It might also allow them to maintain some control or influence over management after going public, depending on the arrangement. Another possibility is that Locker Lookz’s owners could plan to step aside in favor of professional management taking over the business once it achieves high volume. The idea here would be to bring in experienced executives who can strengthen Locker Lookz’s position and accelerate its growth as a much larger company in a more competitive industry. 5.7b Review Questions 1. What information would you need to determine whether a particular business is small according to SBA guidelines? The SBA’s guidelines for smallness are as follows: a. Manufacturing: maximum number of employees: 500 b. Wholesale trade: maximum number of employees: 100 c. Agriculture: maximum annual receipts of up to $750,000 d. Retailing: maximum annual sales or receipts of $7 million e. General construction: maximum average annual receipts of $33.5 million f. Dredging: maximum average annual receipts of $20 million g. Special trade construction: maximum average annual sales of up to $14 million h. Travel agencies: maximum average annual receipts of $3.5 million i. Business and personal services: maximum annual receipts of up to $7 million, except for architectural, engineering, surveying, mapping, dry cleaning, and carpet cleaning: up to $4.5 million 2. Which two areas of business generally attract the most small businesses? Why are these areas attractive to small business? Two areas that attract a large number of small businesses are the service and retail industries. These industries are attractive because entrepreneurs are generally more familiar with them. They also require less initial investment than other industries. 3. Distinguish among service industries, distribution industries, and production industries. Service industries provide nonfinancial and financial services to the public. Distribution industries include retailing, wholesaling, transportation, and communications. Production industries include construction, mining, and manufacturing. 4. What kinds of factors encourage certain people to start new businesses? The factors that prompt certain people to start new businesses are the desire to create a new business, independence, the desire to determine one’s own destiny, and the willingness to find and accept a challenge. 5. What are the major causes of small-business failure? Do these causes also apply to larger businesses? The major causes of small-business failure are (1) lack of experience, (2) lack of money, (3) the wrong location, (4) mismanagement of inventory, (5) poor credit-granting practices, and (6) poorly planned expansion. The last three causes also apply to larger businesses. 6. Briefly describe four contributions of small business to the American economy. Small businesses contribute to the American economy in that they (1) provide technical innovation, (2) employ approximately one-half of all nongovernment workers, (3) provide competition, and (4) fill the needs of society and other businesses. 7. What are the major advantages and disadvantages of smallness in business? The advantages of smallness in business are (1) personal relationships with customers and employees, (2) the ability to adapt to change, (3) simplified record keeping, (4) independence, (5) the opportunity to keep all profits, and (6) the low cost of going into business. The disadvantages of smallness are (1) risk of failure, (2) limited potential, (3) limited ability to obtain capital, (4) limited management skills of owners, and (5) lack of opportunity. 8. What are the major components of a business plan? Why should an individual develop a business plan? The components of a business plan are the introduction, executive summary, benefits to the community, company and industry, management team, manufacturing and operations plan, labor force, marketing plan, financial plan, exit strategy, critical risks and assumptions, and appendix. The business plan should help the entrepreneur answer the following questions: a. What exactly is the nature and mission of the new venture? b. Why is this new enterprise a good idea? c. What are the businessperson’s goals? d. How much will the new venture cost? 9. Identify five ways in which the SBA provides management assistance to small businesses. The SBA provides the following assistance: a. Management courses and workshops b. Service Corps of Retired Executives: a group of retired business executives who volunteer their services to small-business owners c. Help for minority-owned small businesses d. Small-business institutes: groups of senior and graduate students in business administration who provide management counseling e. Small-business development centers: university-based groups that provide individual counseling and practical training to small-business owners 10. Identify two ways in which the SBA provides financial assistance to small businesses. a. The SBA grants regular business loans. b. Small-business investment companies provide venture capital to small firms that have the potential to become very successful. 11. Why does the SBA concentrate on providing management and financial assistance to small businesses? The SBA was created to provide assistance to prospective new and established small businesses so that they could compete with larger, more established firms. 12. What is venture capital? How does the SBA help small businesses to obtain it? Venture capital is money that is invested in small and sometimes struggling firms that have the potential to become very successful. The SBA licenses, regulates, and provides financial assistance to small-business investment companies (SBICs). SBICs provide financial assistance (venture capital) to small enterprises. The SBA aid allows SBICs to invest in small businesses that would not otherwise attract venture capital. 13. Explain the relationships among a franchise, the franchisor, and the franchisee. The franchise is an individually owned business operated as though it were part of a chain. The franchisor is the individual or firm granting the franchise. The franchisee is the person or firm purchasing the franchise. 14. What does the franchisor receive in a franchising agreement? What does the franchisee receive? What does each provide? The franchisor receives fast and selective distribution of its products without incurring high costs. The franchisor provides a known and advertised business name, management skills, a method of doing business, and the required training and materials. The franchisee gets the opportunity to start a business with limited capital and to make use of the business experience of others. If problems arise, the franchisor gives the franchisee guidance and advice. The franchisee provides labor and capital. 15. Cite one major benefit of franchising for the franchisor. Cite one major benefit of franchising for the franchisee. The major advantage for the franchisor is fast and selective distribution of its products without incurring the high cost of constructing and operating its own outlets. The major advantage for the franchisee is the opportunity to start a business with limited capital. 5.7c Discussion Questions 1. Most people who start small businesses are aware of the high failure rate and the reasons for it. Why, then, do some take no steps to protect their firms from failure? What steps should they take? Entrepreneurs are often too impulsive and eager to get started. They go ahead without paying much attention to planning. They should take the following steps before going into business: a. Get advice on management skills from experienced people in business. b. Have enough capital not just to start the business but to keep it going during the building-up period. c. Investigate the right location for the business. d. Get advice on inventory control and credit-granting practices. e. Wait to expand until they have sufficient capital and experience to do so. 2. Are the so-called advantages of small business really advantages? Wouldn’t every small-business owner like his or her business to grow into a large firm? Yes, the benefits inherent in small business often are lost as a business expands. But the benefits of business growth far outweigh the additional burdens for most owners. 3. Do average citizens benefit from the activities of the SBA, or is the SBA just another way to spend our tax money? The average citizen benefits greatly by having tens of thousands of more competitive businesses from which to select goods and services. These businesses might not have started or perhaps could not have continued without the assistance of the SBA. 4. Would you rather own your own business independently or become a franchisee? Why? Students’ answers will vary but will, no doubt, be based on the advantages and disadvan- tages of business ownership. The advantages of business ownership are (1) pride in owner- ship, (2) management flexibility, (3) retention of all profits, and (4) ease of transfer. The advantages of a franchise are (1) ease of start-up, (2) benefits of an established name, (3) professional/expert assistance, and (4) managerial guidance. 5.7d Comments on Video Case 5.1 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. Murray’s Cheese: More Cheese Please 1. How does Murray’s overcome one of the most common limitations facing small companies: its nonexistent advertising budget? Murray’s relies on well-trained and highly motivated employees to engage customers, promote tasting, and create a welcoming experience that, along with its unique products, creates a lot of positive word-of-mouth for the firm. It also uses e-mail marketing and social networking sites like Twitter to keep in touch with its customers. 2. What are some of the advantages of being a small business that Murray’s can (or does) take advantage of? What disadvantages might it face as a small firm? Murray’s benefits from its ability to build personal relationships with its customers, which encourages repeat business, and from its flexibility, which allows it to cater to customers’ changing tastes and to adapt to opportunities like the partnership with Kroger. Possible disadvantages of Murray’s small size are its limited ability to raise financing, limits on its ability to grow, and the risk of failure (though the company’s long duration makes this risk a low probability). 3. Do you think the partnership with Kroger will have a negative or a positive effect on the unique experience customers expect from Murray’s? Why? The partnership seems to offer mostly benefits to Murray’s. The partnership will make many Kroger customers aware of Murray’s products and enable Murray’s to sell them well beyond the physical confines of its New York stores. With consistent attention to employee training, it seems possible that the Kroger experience might be as close as possible to that found in a Murray’s store. Students should note that this partnership helps Murray’s overcome one of the common disadvantages of small businesses—limits on the ability to grow. 5.7e Comments on Case 5.2 Warby Parker’s Business Vision 1. If you were writing a business plan for Warby Parker, what critical risks and challenges would you mention? What are the business implications of each risk or challenge? Students’ answers will vary. One challenge students may recognize is that of increased competition. The business implication is that Warby Parker would have to take steps such as offering special deals or adding innovative goods or services so it can combat competitors and hold onto loyal customers. Also, students may identify the rapid change in fashion trends as a risk, because Warby Parker has its frames made in China and must therefore allow sufficient time to have its frames manufactured and shipped to the United States. If styles change quickly enough, the frames that Warby Parker has designed may not be as fashionable as they were, and the company might be stuck with inventory, not to mention the need to develop new frame styles in a hurry. 2. Why would Warby Parker have eyeglass frames made in China but optical lenses made in America? Frames made in China are likely to be less costly than those made in the United States, even when shipping costs are factored in. Making optical lenses to order is more practical if the laboratory is close to the market being served (in the United States). Otherwise, Warby Parker’s customers would have to wait for a long time to receive their prescription glasses, a disadvantage that the company would like to avoid. With lenses made in America, Warby Parker can control the quality and the finished product of the frames with lenses fitted. 3. Do you agree with Warby Parker’s decision to open showrooms inside trendy boutiques in addition to operating on the Internet? Explain your answer. Students who agree with Warby Parker’s decision to open showrooms may support their position by saying that this allows customers to walk into a local boutique and try on frames instead of using the company’s virtual “try on” system. These students may also say that Warby Parker saves money by operating showrooms inside existing stores rather than renting or building its own stores. Finally, these students may say that each boutique’s customers become potential customers of Warby Parker because they will see its frames when they visit the store. Students who disagree may support their answer by saying that any physical showroom outside the company’s headquarters raises costs and adds management complications, which can be distracting to a fast-growing small business. These students may also observe that Warby Parker will need to have a system in place to receive orders from the boutiques and ship frames back to them for customers to have fitted and pick up in the store. Instead of dealing directly with customers online, Warby Parker would be dealing with the boutiques. 5.7f Building Skills for Career Success 1. Social Media Exercise American Express’s “Open Forum” is a Web site that is designed for small business owners (www.openforum.com). Do a search using a search engine like Google or Bing and you will also find its presence on Tumblr and Pinterest. Take a look at the Open Forum Web site and answer the following questions. 1. What questions can Open Forum answer for business owners? Open Forum connects business owners and helps them manage and grow their companies. The topic areas on the site include articles to assist business owners with information to assist them in decision making and provides them with current information on many topics. The “Highlight” section contains topic areas with current information which will help business owners answer many questions. Categories include Sales, Money, Productivity, Managing, Marketing, Technology, and Innovation among others. 2. Develop a list of five issues or topics that you feel illustrates how American Express does an effective job of presenting information on this Web site. Students might include some of the following topics: • American Express has divided the “Business” section into sub-categories. The OPEN Small Business, Corporations, and Merchants categories each contain information relating specifically to those target groups. • There are videos, articles, podcasts, and blogs that provide multiple avenues of information. • Online communities such as Twitter, Facebook, LinkedIn, and Tumblr connect business owners. • AmEx is able to market to business owners some of its product line such as travel services, travel insurance, and credit cards. • Business owners can manage their AmEx accounts online through this site. • Apps allow users to link to other sites such as Yola, which enables business owners to create a professional Web site, or pagemodo, which enables creation of a custom business Facebook page. • Businesses are organized by industry: Manufacturing; Entertainment & Recreation; Marketing, Advertising & Creative Services; Health Care; and Educational Services among others. • There are many resources available, but the site offers “Most Popular,” “Top Story,” and “What’s New” categories to pare down the available articles and videos. 2. Journaling for Success 1. Assume that after evaluating your skills, experience, and financial situation, you have determined to purchase a franchise in your community. Identify and describe sources where you can obtain information on what the franchise package should contain. One source would be the International Franchise Association. Other sources would include the Web site of the franchise under consideration, as well as Web sites for similar organizations. Magazines such as Entrepreneur provide information as well. 2. List at least five reasons why you should choose franchising rather than starting a new, independent business. • Limited capital required • The ability to take advantage of the business experience of others • Nationally advertised and known name • Availability of promotional materials from the franchisor • Cost savings from volume purchases with other franchisees 3. Identify issues you need to be aware of as a franchisee. • Franchisor retains control • Potential contract disputes • Monthly royalty fees may be high • Franchisor may open too many stores in a small area 4. Make a list of possible advantages and disadvantages of the franchise you are considering. What are your rights and your obligations as a franchisee? The answer to this question will depend on the individual franchise. All parties to a franchise must abide by the terms of the contract. As a franchisee, you are obligated to pay any royalties and operate the business as dictated by the contract. This extends to décor, uniforms, and all other aspects of the business. As a franchisee, you have the right to use the franchisor’s name and advertising as well as receive assistance. 3. Developing Critical-Thinking Skills Small businesses fill a niche in the market by providing goods and services not provided by larger companies. In your community, who would provide many of the goods and services, if it were not for small businesses? Small businesses also are the backbone and support of larger companies by providing many of the parts and services that large companies use. For example, General Motors could not exist without using the parts made by small companies. Most technical innovations come from employees working in small companies. Small businesses provide most of the employment in a community. Small businesses fail because of several reasons, but most often because of poor management skills in planning and handling money. You may know how to make a product or create a service, but if you do not know how to plan, market, and manage the product or service, then you will likely fail. 4. Building Team Skills A business plan is a carefully constructed guide for starting a business. Students should follow the outline in Table 5.4 in preparing their business plan. 5. Researching Different Careers Successful entrepreneurs are unique people. They are highly motivated, self-directed, action-oriented, highly energetic, willing to take risks, and willing to work long hours. Today, entrepreneurs are older with more education, more experience, and more managerial skills than their predecessors. People with many years of experience are opening their own businesses after losing their jobs of many years and not being able to find employment that meets their needs. 5.8 QUIZZES I AND II Quiz I True-False Questions Select the correct answer. 1. T F A small business is one that is dependent, operated as a not-for-profit organization, and is not dominant in its field. 2. T F The primary reason for small-business failure is mismanagement resulting from lack of business know-how. 3. T F The type of person likely to start a small business is independent, has a desire to determine his or her own destiny, and is willing to find and accept a challenge. 4. T F The SBA is more likely to help nonminority small businesses. 5. T F Franchising is the actual granting of a franchise. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. A government agency that was created to assist, counsel, and protect the interests of small businesses in the United States is called a. Small Business Institutes. b. Small Business Investment Companies. c. the Small Business Administration. d. Small Business Development Centers. e. Small Business Guidance Centers. 7. Businesses seem to cluster in which of the following industries? a. Service industries b. Distribution industries c. Production industries d. Financial industries e. All of the above 8. A group of retired businesspeople who volunteer their time to help small-business owners is known as a. SCORE. b. ACE. c. SBDC. d. SBI. e. SBIC. 9. A privately owned company that provides venture capital to small firms is a(n) a. small-business association. b. small-business investment company. c. small-business institute. d. active corps of executives. e. small-business development center. 10. The person or firm that purchases a franchise is called a(n) a. entrepreneur. b. franchisor. c. franchisee. d. enterpriser. e. capitalist. Quiz II True-False Questions Select the correct answer. 1. T F An advantage to the franchisor is that he or she gains fast and selective distribution of the product. 2. T F An advantage for the franchisee is the opportunity to start a business with limited capital. 3. T F The majority of small businesses are found in the production industry. 4. T F Because of their small size, small businesses affect the U.S. economy very little. 5. T F Planning is one vital element in the success of a small business. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. The individual or firm that grants a franchise is known as the a. SBA. b. franchisor. c. franchisee. d. entrepreneur. e. grantor. 7. Small businesses provide a. technical innovation. b. employment. c. competition. d. for the needs of society. e. all of the above. 8. One advantage of a small business is a. no risk of failure. b. unlimited potential for employers. c. personal relationships with customers and employees. d. unlimited potential for employees. e. limited ability of raising capital. 9. Groups of senior and graduate students in business administration who provide management counseling are called a. small-business institutes. b. small-business development centers. c. active corps of business students. d. small-business investment centers. e. small-business senior centers. 10. The disadvantages of franchising mainly affect a. the consumer. b. the franchisor. c. the franchisee. d. both b and c. e. the grantor. 5.9 ANSWER KEY FOR QUIZZES I AND II Quiz I True-False Multiple-Choice 1. F 6. c 2. T 7. e 3. T 8. a 4. F 9. b 5. T 10. c Quiz II True-False Multiple-Choice 1. T 6. b 2. T 7. e 3. F 8. c 4. F 9. a 5. T 10. C 5.10 CLASSROOM EXERCISES 5.10a Homework Activities • Article Report. Have students bring in an article that shows an example of an entrepreneur. • Researching and Following a Company Throughout the Course (continuing assignment). Have students research the history of their company and describe how it started. With each continuing assignment, students should document their sources of information, as they would with any research project. • Characteristics of Entrepreneurs. To gain a better understanding of the personality of the entrepreneur, have each student research and report on a well-known entrepreneur (these can be found in the Inc. magazine profiles or in Fast Company magazine). After the reports, students can compare notes on the characteristics the entrepreneurs share. A fun way to do this is to hand out five post-its to each student and have them write down up to five different characteristics of that entrepreneur. Have the students arrange their post-it’s in groups on the wall. See how many end up in groups such as “persevered in the face of failure,” or “good in high tech,” etc. • Interviewing a Small-Business Owner. To help students understand the different challenges facing small-business owners, you may have them interview various small-business owners and report their findings to the class. Some questions could include the nature of their daily activities, dealing with constant change, surviving in tough times, and the differences they perceive between what they do and what employees in larger organizations do. 5.10b Classroom Activities • Fun Quiz. Using the “So You Think You Know Entrepreneurs?” questions as a handout or PowerPoint, have students take this quick (five minutes or less) individual quiz that can be used as a discussion starter. Answers are provided. • Let’s Brainstorm! Group Activity. Arrange students into groups of five or six. Ask one student to be a note taker. Use the handout provided. The students will have 10 minutes to brainstorm possible service business ideas for aging baby-boomers. The purpose of the exercise is to encourage them to think of unfulfilled needs for an important and moneyed target group. Encourage them to be creative and not to be concerned with feasibility at this stage. See instructor notes for some suggestions to use in your debriefing or to get the students started. • Ok—I Have an Idea—Now What? Group Exercise. Arrange students into groups of four or five. In this exercise, students are asked to provide advice to a relative with a potentially attractive new product idea. The purpose of the exercise is to help students actively consider the factors involved in making a start-up business a success. They should have approximately 15 minutes to develop a plan. Upon completion, each group should share their recommendation with the class. Instructor notes are provided with some suggestions. • Most Creative Business/Product Combination Contest Group Exercise. This exercise gives students the opportunity to both be creative and compete in a fun atmosphere. It is a short exercise (10–15 minutes) that asks students to consider business synergy and cost reduction. The exercise can also be expanded to a longer homework assignment or presentation. 5.10c Exercise Handouts Follow on Next Pages So You Think You Know Entrepreneurs? There are many myths about entrepreneurs—take the true-false quiz below and see how well you see past the stereotypes! 1. Most people start their own business to make lots of money. T or F 2. You don’t need a lot of money to start a business. T or F 3. It is important to have a great idea. T or F 4. The bigger the risk, the bigger the reward! T or F 5. Successful entrepreneurs are born to have to their own business. T or F 6. If you haven’t started a business by the time you are 30, you are too old. T or F 7. You don’t need a business plan for success. T or F 8. It’s better to be creative than self-disciplined. T or F 9. It is smarter to focus on the big picture instead of business details. T or F 10. Most entrepreneurs are ethical people. T or F So You Think You Know Entrepreneurs? 1. Most people start their own business to make lots of money. False—The number one reason is a desire for independence. 2. You don’t need a lot of money to start a business. True—Most entrepreneurs start with $10,000 or less. 3. It is important to have a great idea. False—A great idea helps, but companies like Sony and Walt Disney started without a great idea. 4. The bigger the risk, the bigger the reward! False—Risk, while always present, must be managed. Successful entrepreneurs do it well. 5. Successful entrepreneurs are born to have their own business. False—Sometimes inspiration doesn’t strike until you have worked for someone else for a while. 6. If you haven’t started a business by the time you are 30, you are too old. False—You are never too old to start a business. Colonel Harland Sanders, born September 9, 1890, actively began franchising his chicken business at the age of 65. 7. You don’t need a business plan for success. False—It is better to have one, but companies like Pizza Hut and Crate and Barrel started without one. 8. It’s better to be creative than self-disciplined. False—Hard work and discipline wins over creativity! 9. It is smarter to focus on the big picture instead of business details. False—Details matter! The successful entrepreneur has a good grasp of all areas of the business. 10. Most entrepreneurs are ethical people. True—Dishonesty is a recipe for failure. People will not trust or help someone without a reputation for integrity. Let’s Brainstorm! You and your team have been given the task of developing a new service business idea for a potential client. In the next five minutes, please brainstorm and list as many new service business ideas as you can. There are only a few rules. First, all ideas are acceptable at this stage. Nothing should be ruled out as silly, impractical, or even antisocial. Improvements on existing services should also be listed. Do not consider cost or practicality. This service must appeal to aging baby-boomers 50 years old or older, who work in professional or high-level corporate careers. They work an average 60- to 80-hour week and make a minimum $100,000 per year. They like to look good, be social, and stay healthy. Time is a big issue for them. HINT: Think of problems these folks may have that could be solved by a service. You have 10 minutes. Let’s Brainstorm! Instructor Notes One group of services might relate to health issues. For example: • At-home teeth cleaning and whitening • A service that fills out insurance forms and handles claims • A message service that calls when any medical provider is running late Another group might be related to domestic errands. For example: • A service where someone comes in once a week to water plants, replace light bulbs, check for adjustments to be made to appliances or any other fixes • At-home oil change for the car A third group might be purchasing. Perhaps the following: • Menu planner and grocery shopper • Automatic replacement/delivery of items such as printer cartridges, paper, and other home office items • Gift shopper, wrapper, and shipper Other groupings could be social events, laundry, organization, travel, computer technology, etc. OK—I Have an Idea—Now What? Your Aunt Carole has come to you and your classmates for help with her new product. After years of frustration, aggravation, bites, and scratches from her beloved but bad-tempered long-haired cats when attempting to groom them, Aunt Carole has developed a new product—the “Happy Pet” mat remover. The “Happy Pet” electronically stimulates individual hairs to separate with no pulling or tugging on sensitive skin. Even the worst mat comes out easily. It is no more than two ounces, small enough to fit the owner’s palm, and made of soft rubber. It would come with an automatic recharger similar to that of a cell phone. You have done some research and found that according to the 2009–2010 National Pet Owners Survey, Americans own approximately 90 million cats. Even if only 20 percent of them have long hair, that is a substantial market for a small business. In your groups, decide what advice you would give Aunt Carole to help her succeed. You might start by considering the market viability of the idea. How do you find out if people will actually pay for something like this? Who is most likely to buy it? You have 15 minutes. OK—I Have an Idea—Now What? Instructor Notes Some of the suggestions students will come up with might include: • Seek help and guidance from the SBA, SCORE volunteers, Small Business Institutes and Development Centers, as well as SBA publications. • Investigate grooming products available in pet stores, catalogs, and online. If similar products exist, how are they advertised and priced? • Talk to friends and acquaintances who own cats and have similar problems. Find out how they feel about “Happy Pet.” • Talk to several veterinarians and get their point of view. • Find out if Aunt Carole actually wants to have a small business and is willing to put out the effort to get it started. • Does Aunt Carole have enough money for the initial investment? • Who will help Aunt Carole write the business plan so that she can get loans if she needs them? • Determine what skills Aunt Carole has and what skills she will need to start and run a business. Most Creative Business/Product Combination Contest In a weak economy, people are generally interested in ways to save both time and money. Creative combinations of services and products can be very popular in such times. The bank that has a coffee shop on its premises, the laundromat and pub combination, or the drug store with a resident nurse practitioner—all of these offer synergy and potential cost savings to both the business and the customer. Your instructor has assigned you to a team. Your task in the next 10 to 15 minutes is to discuss possible combinations of products or businesses that might be attractive to hard-working people who are watching their budgets. Choose the most attractive alternative to present to your classmates. You will then be asked to vote for the best new business idea. You will have a limited time to present so be sure to indicate who the most likely customers for your new business will be and how they will benefit from the business. Also, be prepared to explain why these combinations work and if you see potential cost savings for either the business or the customer. Most Creative Business/Product Combination Contest Instructor Notes This is a short, fun exercise that encourages creativity. Small groups of three would be ideal for this project. You may choose to expand this exercise to request more detail from the students. You could direct students to the Kaboodle shopping Web site (http://www.kaboodle.com/gadgets/omg), and show them some of the very creative product ideas shown there. This exercise could also be adapted for a presentation or homework, depending on time and the size of the class. RUNNING A BUSINESS—PART 2 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. Graeter’s: A Fourth-Generation Family Business 1. Graeter’s current management team bought the business from their parents, who did not have a formal succession plan in place to indicate who would do what. Do you think the current team should have such a plan specifying who is to step into the business, when, and with what responsibilities? Why or why not? The current owners should definitely prepare a succession plan, not only to ensure the company continues to operate smoothly should one or more of them choose to retire, but also to prevent destructive conflicts and disagreements among family members about how the company should continue to be run at that time. While the three appear to have stepped smoothly and willingly into roles for which they have been trained since childhood, there is no guarantee that any of their own children will be ready or willing to assume the reins, or when. Preparing a succession plan provides the opportunity for all members of the family to discuss what they see as the company’s future and what role they hope to play in it, as well as what skills and education they might bring to that role, how they will share decision making, and so on. It will be particularly helpful if the company’s future management team is cross-generational. 2. Graeter’s hired management consultants to help improve its training procedures and expand distribution. “I think my cousins and I all have come to realize we can’t do it alone,” says the CEO. Why do you think the management team made this decision? Does the involvement of outside consultants move Graeter’s further from its roots as a family business? Simply hiring consultants does not reduce the Graeter family’s control over or ownership of the firm. Franchising did more to reduce the family’s control than bringing consultants in. Management’s decision does suggest that the current owners recognize the opportunities they need to take advantage of in order for the business to remain competitive and grow. They also correctly assessed the challenges they would face in expanding and the specific training and skills they needed to add to their management team to make it happen. 3. Do you agree with Graeter’s decision to stop franchising? Explain your answer. Given the owners’ focus on maintaining the traditional, almost artisanal, quality of all Graeter’s products, it was probably a wise step to close the franchise operations, even though they had operated successfully. The company now owns not only all of its retail outlets but all of its manufacturing operations as well, substantially lowering the risk that quality might not remain high and uniform. This protects the brand’s reputation and also ensures that Graeter’s can expand without regard to potentially competing with any franchisees. BUILDING A BUSINESS PLAN—PART 2 Before students start the company and industry component of the business plan, remind them to correct any weaknesses or problem areas in Part 1. The Company and Industry Component In this section, students should provide information about the background of the company; choice of legal business form; information on the products or services to be offered; and a description of potential customers, current competitors, and the business’s future. Refer students to Chapter 4, “Choosing a Form of Business Ownership,” and Chapter 5, “Small Business, Entrepreneurship, and Franchises.” Both chapters should help students answer many questions in this section of the business plan. Specifically, refer students to content regarding: • Partnerships, types of partners, the partnership agreement, and advantages and disadvantages of partnerships. • The corporate form of ownership and its advantages and disadvantages. • Other types of business ownership. • A profile of the small-business sector, industries that attract small businesses, the people in small business, and why small businesses fail. • The importance of small businesses in our economy. • Advantages and disadvantages of small business. Once again, refer students to the text to review the guidelines for developing a business plan. If students’ new business venture is a franchise, refer them to Chapter 5 for information about franchising and its advantages and disadvantages. Review of Business Plan Activities Make sure that students resolve any issues in this component of their business plan before beginning Part 3. Again, make sure that their answers in each part are consistent with the entire business plan. They should also write a brief statement that summarizes all the information for this part of the business plan. Chapter 5 Video Case: Murray’s Cheese: More Cheese Please RUNNING TIME: 5:59 Chapter 5 discusses small business, entrepreneurship, and franchises. A small business is one that is independently owned and operated for profit and is not dominant in its field. Small businesses have been responsible for a wide variety of inventions and innovations, some of which have given rise to new industries. Historically, small businesses have created the bulk of the nation’s new jobs. A franchise is a license to operate an individually owned business as though it were part of a chain. Franchising has grown tremendously since the mid-1970s. The next century will present unique challenges and opportunities for small-business owners. Concepts Illustrated in the Video • Business Culture • Customer Service • Low-Budget Advertising • Marketing • Partnership • Passion • People Skills • Personal Selling • Retail Environment • Quality VIDEO CASE SUMMARY Murray’s Cheese began in 1940, as a wholesale butter and egg shop. When the current president, Rob Kaufelt, purchased the shop in 1991, it was little more than a local hole-in-the-wall. Kaufelt and his staff made the decision to focus on high-quality gourmet cheeses from around the world. Today, people come from all over to sample Murray’s cheeses and to learn about cheese. Although Murray’s has extended its product line to include gourmet meats, crackers, olives, and dried fruit, cheese remains its core product. Murray’s Cheese has been voted by Forbes as “the best cheese shop.” Its success prompted Kroger to seek it out as a partner in its chain of supermarkets. Murray’s is still small, with about 70 employees, and has an advertising budget of zero dollars. Instead of advertising, Murray’s relies on providing great customer service and creating positive word of mouth to promote its products and to secure its reputation. Personal selling is key. The company recruits salespeople who are passionate about both cheese and people and trains them carefully. All customers get to taste free samples of cheese before they buy it. Critical-Thinking Questions Using information from the case and the video, answer the following questions: 1. How does Murray’s overcome one of the most common limitations facing small companies: its nonexistent advertising budget? Instead of advertising, Murray’s comes up with press-worthy activities to market its products. For example, the company throws wine and cheese parties to help build its customer base. Murray’s partnership with Kroger facilitates advertising for the small cheese company. Although Murray’s has no advertising budget, Kroger has a considerable budget to spend on advertising. Through their partnership, Kroger handles the advertising while Murray’s handles the more creative forms of publicity. 2. What are some of the advantages of being a small business that Murray’s can (or does) take advantage of? What disadvantages might it face as a small firm? A major advantage of small business that Murray’s is able to capitalize on is its ability to build personal relationships with customers and employees. As a small company, it is easier to form relationships with employees and train them to use consistent business tactics. As a result, the company has built a strong and loyal customer base because of its employees’ ability to reach out to customers through personal selling tactics. Some of the disadvantages that Murray’s faces as a small company include greater risk of failure, limited potential, and limited ability to raise capital. 3. Do you think the partnership with Kroger will have a negative or a positive effect on the unique experience customers expect from Murray’s? Why? For Murray’s, one of the risks of forming a partnership with Kroger is the possibility that the agreement will dilute the company’s strong customer service within Kroger cheese shops. To avoid this, Murray’s should ensure that it will have the same freedom and flexibility that it would in its independent stores. For example, even in Kroger stores, Murray’s should still be in charge of recruiting, hiring, and training employees that sell cheese. Chapter 5 Lecture Launcher: Just Me and My Cousin Jake VIDEO SUMMARY Urban Farmz may be structured as an S corporation for tax purposes, but at its heart, it is still a small business started by a couple of entrepreneurs. “Everyone is just sort of a freelancer,” Caleb says about the Urban Farmz team when a writer from Growing Green magazine contacts him to do a story about it. “We can’t really do salaries,” he says. However, even though Urban Farmz is a local company, it is on the Web and can sell everywhere. “And no, Urban Farmz doesn’t have any franchises yet,” Caleb tells the writer. “Its advertising budget is also limited at this point—mostly just of word of mouth.” The business’s small advertising budget doesn’t stop Caleb from doing a little public-relations work during the interview, though. When he discovers one of Urban Farmz’s trucks is near by the writer, he vows to send some produce in the person’s direction. Solution Manual for Business William M. Pride, Robert J. Hughes, Jack R. Kapoor 9781133595854, 9780538478083, 9781285095158, 9781285555485, 9781133936671, 9781305037083
Download
Close
Close
