Business OwnershipTest Marketing

Week 4 – October 26, 2004

FM20731 – Entrepreneurship

2

Women-owned Businesses

• Increased 89% from 1987 to 1997• 8.5 million businesses!• By 1999, $3.6 trillion• 27.5 million employees

– 35-40% greater than Fortune 500 co’s

3

Why the Increase?

• Dissatisfaction with corporate life– Layoffs– Glass ceiling

• Lower pay

• Limited advancement

• Desire for balanced life– A startup is not the answer!

• Desire for challenge– 44% cited this reason for starting a business

• Really, many factors

4

Average Receipts Per Firm

$151,129

$582,482$891,043 $847,639

$1,986,111

$804,677

$259,218

$3,381,951

All firms Firms with Paid Employees

WomenMenEqualAll U.S.

• Why are women’s businesses smaller?

5

Reasons why Smaller?

• Motivational Differences– Other things more important than money

• Flexibility

– Different measures of success than men– Other concurrent pursuits

6

Women-Owned by Industry

3% 2% 2% 2%

17%

9%

55%

10%11%

3% 4% 4%

14%11%

43%

7%

Construct. Manufact. Transport. Wholesale Retail Finance Services Other

Women-owned

All U.S.

• Service companies usually smaller

7

Reasons why Smaller?

• Newer companies– But growing quickly

• Possible obstacles– Access to capital– Banks, SBA, others are changing this

8

Things are Changing• Many women are having success• Second-generation women taking over• Corps working to improve• Women may lead new wave of business

– More modern business styles• Cooperative

• Less hierarchical

• Better for changing environment

9

Minority Entrepreneurs

% Change in Self-Employment 1988-1998

1.1%

28.7%

56.5%

30.1%

White Black Asian Hispanic

10

African-American

• 108% increase in businesses 1987-1997– Almost 900,000– Expected to reach 2.2 million by 2010

• $59.3 billion in revenue in 1997– 109% increase

• 35% in NY, CA, TX, FL• 24% of firms in DC

11

Long History of A.A. Entrep.

• James Forten– Successful Phila. Businessman– Late 18th century

• Madam C. J. Walker– First African-American Female Millionaire– Late 1800’s

• 1910, most likely to be self-employed– Of all ethnic and racial groups

12

AA-Owned by Industry

7%

1%

9%

3%

11%

5%

53%

14%11%

3% 4% 4%

14%11%

43%

7%

Construct. Manufact. Transport. Wholesale Retail Finance Services Other

African-American-owned

All U.S.

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Barriers for African-Americans

• Discrimination• Biggest: Access to capital

• As with women, being addressed

14

Asians and Pacific Islanders• 1.06 million businesses in 1997

– 180% increase over 1987

• $275 billion in receipts– 463% increase!

• Majority in CA, NY, TX, and HI– HI has largest %, NY largest number

• Glass ceiling– Viewed as good engineers, no managers

15

Asian Group Owned by Industry

3% 3% 4%6%

21%

8%

44%

11%11%

3% 4% 4%

14%11%

43%

7%

Construct. Manufact. Transport. Wholesale Retail Finance Services Other

Asian & Pacific Islanders

All U.S.

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Asian Group Ethnicity

18.2%

27.7%

9.2% 9.3%

14.8%

10.7%

7.7%

1.7%0.4%

AsianIndian

Chinese Filipino Japanese Korean Vietnamese Other Asian Hawaiian Other

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Asian Successes

• Many industries• 5,000 hotel owners, 8,000 hotels

– 33% have graduate degrees– 80% have at least college degree

• 1/3 of Silicon Valley firms by early 90’s

18

Hispanic (in 1997)

• 1.2 million firms

• 1.3 million employed

• $186.3 billion in revenue

• CA, TX, FL, and NY largest numbers

• NM highest % Hispanic-owned

19

Hispanic-Owned by Industry

13%

2%

7%

3%

13%

5%

42%

16%

11%

3% 4% 4%

14%11%

43%

7%

Construct. Manufact. Transport. Wholesale Retail Finance Services Other

Hispanic

All U.S.

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Hispanic-Owned by Ethnicity

39.3%

23.9%

15.7%

10.4%

5.8% 4.8%

Mexican L. American Other Hisp. Cuban PuertoRican

Spanish

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Hispanic Successes

• Various industries• Serving Hispanic community• Restaurant industry

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Family Businesses• Account for 78% of all job creation• 60% of all employment• Over 80% of N. American businesses• Majority of international businesses• 35% of Fortune 500• Some surprises:

– Ford, J&J, Marriott, Motorola, Nordstrom, Philip Morris, Wal-Mart, Walt Disney

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Advantages of Family Business• Stability• Trust• Resilience• Positive public perception• Speed• Ability to sacrifice for long haul

• Only if everyone gets along!

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Disadvantages of Family Business

• Family issues spill over into business• Success in family different than in bus.

25

Entrepreneurial Couples

• 1.8 million by 1993• 66% increase in 80’s

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Ups and Downs of Entrep. Couple

• Spouses can do shifts @ work & home• Marriage and careers intertwined

– Divorce may cause one to lose business

• Conversation at home about business• Too much togetherness• Not enough togetherness if shifts

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Advice for Entrep. Couples• Each have specific responsibilities

– Written agreement can help

• Must have same goals, same vision• What if couple divorces?

– One may have to buy other out

– Might have to sell business• If can’t come up with cash or agree how

– Prenuptial agreement advised• Or postnuptial if already married

28

Bringing in the Children• Only successful 20% of the time!• Only 13% of third generation• Why?

– Don’t want to work the business• Disinterested in industry

• Don’t want to live in parents’ shadow

– Sibling rivalry

– Hard for parents to let go• Want things done their way

29

Succession Plan• Transferring assets/ownership is easy• Transferring leadership is hard• Should be done over time• Strategize

– Timing

– When will children be capable?

• Make plans clear!– So children know what is coming

– Everyone should understand expectations

30

Other Issues

• Sell to outsider or employees– An often overlooked option

• Active vs. inactive family members– Will all get same part of business?– Will those that don’t get compensated?

31

Low entry vs. delayed entry• Children start entry level

– Learn business from ground up

– “Earn” it

– May not be good at training own children

• Work elsewhere, come in as management– Don’t know business as well

– Jealousy

• No universal right answer

32

Hiring and Compensation

• Best to hire family only if qualified• Best to pay at market rates• Should have a genuine interest• OK for bonuses, but separately

33

Choosing a Successor

• Problem if several are interested• Appointing one may hurt others• Shared responsibility is difficult

34

Final Project• Teams of 3-5• Best if mix of FM and FD students• There will be work time during class• Today:

– Determine Teams

– Brainstorm product ideas, choose one• Can be a line of products

• You do not need to prototype, but can help

– Create a Mission Statement

– Make plans for test marketing

35

Create a Business Plan• Mission Statement

(wk 3)• Product idea(s) and

description(s)– Test Marketing (wk 4)

• Bus. Envirmnt (wk 2)• Marketing Plan (prior

courses, wk 6)

• Management Team (wk 7)

• Financial Data (wk 9)• Legal Considerations

(wk 7)• Risks & Assumptions

(wk 10)

36

Other Elements You Might Include

• Sources of Financing (week 8)

• Exit Strategy (week 10)

• Insurance Requirements (week 7)

37

Basics of Market Research

• Collect– Gather from sources

• Analyze– Statistics

• Interpret– Theorize

• Systematic– Consistent

– Random

• Relevant!

Collect, analyze, and interpret in a systematic manner data relevant to a particular marketing

question

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Primary Data

• Original information (usually)

• Collected for a specific study

• Can be very expensive

39

Survey Methods: Telephone Study

• Most popular method• Expensive

– People– Computers– Tolls

• Very fast and accurate (+- 3%)• Missing: Unlisted phone numbers

– May be an important part of market

• TV overnights – nightly polls

40

Survey Methods: Personal Survey

• In person, at location – often at a mall

• Can be least expensive– Do it yourself

• Very focused – single location

• Bias problems– People can be suspicious– Answer what they think you want to hear– Make up answers

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Survey Methods: Focus Groups• Gather small representative group to ask detailed questions

• Log session – get to know better

• Usually compensate participants

• Sponsor is frequently not known

• Observers hidden behind one-way mirror

42

Survey Methods: Mail Survey

• Much slower – 10 days to get 80% of those who respond

• Single-digit % response rate typical– Most people throw away– Payment doesn’t help– Selfish reasons increase response rates

• e.g. after-stay hospital survey

• Questions must be worded very carefully• Anonymous and non-threatening

43

Sample

• Representative number of people from a specific universe

• Everyone has equal chance of selection – (i.e. it must be random to be useful)

• Can be surprisingly small and still be useful

44

Other Sources of Primary Data• Customer check-out

– Supermarket discount cards– Radio Shack

• In-store observation– Successful buyers always on floor

• Post-sale survey forms– Warranty forms– Packed with delivery

• Crutchfield

• Negative form “why didn’t you buy”• Newsletter “feedback” forms

45

Homework

• Study for Midterm

• Begin Test Marketing

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Next Class – November 2

• Midterm Exam

• Teams– Continue working on project