CHARACTERISTICS OFBUSINESS

UNIT 1

Did you know that only 1% of small businesses export their goods. 42% of large businesses export their goods. Why do you think that is?

The operation of an organization that satisfies human needs and wants by providing goods and services for the purpose of making a profit.

SO WHAT DOES IT MEAN?•Define “organization”.•

•Distinguish between “need and want.” Define and give example.

“Goods and services.” Which is tangible and which is intangible.” Define and give example.

CIRCLE THE CORRECT ANSWER1. Goods and services that are necessary for living such as food,

clothing, shelter are NEEDS WANTS ADVERTISING2. Goods and services that are not necessary for living such as games,

entertainment are NEEDS WANTS ADVERTISING3. Many times people think they need things that they in fact want due to

the power of SCARCITY ADVERTISING DISTRIBUTION4. A time when there are not enough goods and services to meet

people's needs is SCARCITY ADVERTISING DISTRIBUTION5. This is an important part of economics that ensure people's needs and

wants are met SCARCITY ADVERTISING DISTRIBUTION

DEFINITION OF BUSINESS

In order to understand PROFIT, there are a few terms you need to know:

“Earned income” (aka sales revenue)Income earned from sale of product.

“Cost” (aka cost of goods sold)Amount paid for product

“Gross Profit”Sales revenue - Cost of goods sold

“Net Profit”Gross profit minus expenses (costs incurred by a

business)

YOU DO THE MATH TO SEE IF YOU EARNED A PROFIT.

You're selling t-shirts for your company product. You purchase 100 t-shirts @ $5.00 per t-shirt from Hoover Design.You sell your t-shirts at $10.00 per t-shirt; you owe $15.00 in advertising; and $30 in salaries to workers.

How much do you owe Hoover Design? (Cost of goods sold)

How much will you make from the sale of your t-shirts? (Earned income or revenue from sale of product)

What is your gross profit? (Revenue - cost of goods sold)

What are your total expenses?

Have you made a net profit or a net loss? How much?

BUSINESSES ARE EITHER INDUSTRIAL OR COMMERCIAL ENTERPRISES:

1. Industrial Business -- produce goods used by other businesses or organizations tomake things; do not sell directly to consumers.Ex: Company that mines iron ore to make steel; power plants; factories, etc.

2. Commercial Business – sell to consumers.Ex: retailers, banks, restaurants, hospitals, etc.

King Camp Gillette’s father was a part-time patent agent and inventor. Seventeen-year-old Gillette became a traveling salesman and, following in his father’s inventive footsteps, tried to improve the products he sold. While shaving one morning on the road, he had a brainstorm – to develop a razor that had a safe, inexpensive and disposable blade. His 1904 patent of the double-edged “safety razor” blade changed the history of shaving

Did you know. . .?

Original billboard featuring safety razors 1904)

Three Major Activities of a Business1. Production - making a product or providing a

service.a) Manufacturing firms – produce the goodsb) Service Firms – provide specialized

assistance through use of skilled workers (aka knowledge workers)

Service firms outnumber manufacturing firms.

Did you know. . .?

There were over 28 million companies in the U.S. in 2004 (Corporations, Partnerships, Sole Proprietorships); 2006, there were 26.8 million; 2007, 27 million companies– 99% small businesses; 29.6 million companies in 2008—99.9% small businesses;2010 – latest report indicates there are 24,653,098 small businesses in the United States.

2. Marketing—how goods and services are exchanged between producers and consumers.

FOUR P’S OF MARKETING Price, Place, Product, Promotion, Price

3. Finance—money matters related to running a business

2. To stay in business, must meet customer needs.

LIST FIVE WAYS BUSINESSES CAN AND HAVE CHANGED TO STAY IN BUSINESS DURING THIS RECESSIONhttp://www.atouchofbusiness.com/acey-gaspard/business/recession.htmhttp://www.billshrink.com/blog/12-mistakes-businesses-should-avoid- during-a-recession/script

Changing Nature of Business

1. Business is dynamic and constantly changing.

Global CompetitionAbility of profit-making organizations to compete with other businesses in other countries through Freedom of Trade. Global Competition is the driving force behind major decisions made by most large companies today.

PROTECTIONISM – system of protection domestic producers by using:Tariffs: high taxes levied by a government on imported goods that make them less competitive with domestic products (ex: steel from Brazil) Tariffs raise consumer pricesSubsidies - monies paid by government to domestic producers that allow them to sell goods more cheaply than their foreign competitors. (ex: agricultural subsidies to farmers – coupons for fuel, insecticides, etc.)Quotas: maximum number of imported goods a country will allow

What do quotas prevent?

During this recession, is the U. S. practicing protectionism? Check out the FYI below

FYIOn January 28, 2009, the US House of Representatives passed

the American Recovery and Reinvestment Act of 2009. Out of the bill's 700 text pages, a small half-page section attracted enormous media attention: the section requiring that all public projects funded by the stimulus plan must use only iron and steel produced in the US. The US Senate draft, which is being debated in Washington this week, includes a broad Buy American provision that goes further than the House bill, expanding the requirement to all manufacturing products. NOTE: Buy American provision dropped due to world-wide pressure

WTO - WORLD TRADE ORGANIZATION sets rules for trading and settles disputes– 150 nations belong to this organization (i.e. China accused US of Protectionism 8-12-09)

MFN - MOST FAVORED NATION STATUS within WTO provided trade advantages such as reduced tariffs

Two things necessary to compete:•EFFECTIVENESS--you’re doing things that lead to results in the realm of your responsibilities.

•EFFICIENCY--getting your things done in a manner that consumes just the appropriate amount of energy and resources & money

•Ex: As technology continues to improve, hybrids will continue to become more and more efficient. The hybrid’s use of battery packs is increasingly becoming more effective.

Can you be effective and not efficient?

Can you be efficient and not effective?

1. Achieving effectiveness requires common sense and skill2. It requires TQM – Total Quality Management—commitment

to excellence accomplished by teamwork, innovation, and continual quality improvement

THREE PRESTIGIOUS AWARDS FOR QUALITY IMPROVEMENT:

a) Malcolm Baldrige b) Deming AwardNational Quality Japan onlyAward U.S.only

Achieving Effectiveness which is doing things that lead to results

EVERYONE IS 100% RESPONSIBLE FOR THE FINISHED PRODUCT

Dr. W. Edward Deming

C) ISO – Industrial Organization for Standardization — network of national standards institutesfrom 140 countries working inpartnership quality rated.

International award

Malcolm

Baldrige

Achieving Efficiency Which means getting your things done in a manner that consumes just the appropriate amount of energy and resources & money Did the greatest recession since the depression provide many companies to downsize—become more effective and more efficient?

INCREASE EFFICIENCY BY:a) Specialization

b) Technology and Innovation

c) Reorganization1) Downsize—cut back goods and

services provided-- shrinking firm size/number of employees. (aka: job cuts/ layoffs)

million jobs lost, many forever - Yahoo! Finance2) Empowerment—letting workers

decide how to perform their work tasks and offer ideas on how to improve work processes.(IBM, GE, General Motors, Honeywell)

IS IT EFFICIENT TO USE 4 PEOPLE TO CHANGE A LIGHT BULB?

Income that escapes being recorded in the GDP & is estimated in trillions of dollars.

The first is: Gross Domestic Product--GDP

Total market value of all final goods produced and services provided in a country in one year.

Underground Economy

TWO MEASURES OF A NATION’S WEALTH

GDP2010 – 14.639.6 BILLION (2nd qtr.)2009 -14.075 BILLION (1ST qtr)2008 – 14.33 TRILLION2007 -$13.22 TRILLION (est.)2006 -$13.2 TRILLION2005 - $12.36 TRILLION2004 - $11 TRILLION2003 - $9 TRILLION

U.S. Gross Domestic Product, or GDP, is the amount of goods and services, measured at market prices, produced within the country during a particular time period (usually a year). 1991 Economic Report to the President used GDP rather than GNP and it continues today.

Gross National Product, or GNP, is the amount of goods and services produced by residents of a country, regardless of where that production takes place.

Ex: German-owned car factory operating in the US, the profits from the factory would be counted as part of German GNP rather than US GNP

Do you know what happened in 1991?

WHY IS IT IMPORTANT TO UNDERSTAND THE BASIC OF THE GDP?

The second is:

Individual Well Being -Financial condition of individuals -

INDIVIDUAL WELL BEING ANSWERS QUESTIONS SUCH AS:

HOW ARE YOU DOING?DO YOU HAVE A NEW JOB, HIGHER

INCOME?DID YOU TAKE A VACATION THIS YEAR?DID YOU BUY A NEW HOME?DO YOU HAVE MORE MONEY TO SPEND?

Is your family one of the 7.9 million jobs lost during recession?

One who starts, manages, and owns a business.

Entrepreneur

SUCCESS DEPENDS ON BEING EFFICIENT AND EFFECTIVE.

FACT:

ONE OUT OF EVERY 4-5 NEW BUSINESSES

FAIL WITHIN THREE YEARS.

Get in, get it done, get it done right, and get out,” ______ once said. Indeed, this has been his motto from his earliest days assisting his father’s real estate business to his multi-million dollar deals in the high stakes world of Manhattan real estate. He has earned a reputation as a ruthless, cunning and suave businessman who can spot a business opportunity a mile away. He has turned the deal-making process into an art form and he has demonstrated that he can come back swinging after even the hardest of challenges to wind up again on top. Estimated to be worth over $2 billion, ________ has secured his name as one of the greatest entrepreneurs of the 20th century.

WHO IS THIS ENTREPRENEUR?

a) 98% of all businesses in US are classified “small”. (Mom and Pop Operations)

b) revenue generated accounts for half of GDP.c) half of all small businesses close within first

five years.d) mostly retail/service businessese) many earn less than $250,000 in yearly

revenues.f) over half the total number of workers in this

country are employed by businesses with fewer than 500 employees.

SMALL BUSINESSAny business that is operated by one

or up to 500 employees .

When you hear the name Donald Trump, chances are that the first thing to pop into your head is not bankruptcy. Today, the

Trump brand has come to symbolize all that is lavish and extravagant. From his marble-lined hotels to his billion-dollar golf courses, little about Donald Trump would suggest bankruptcy. However, in his early years, Donald Trump was no different from every other entrepreneur who struggles to grow their business. In fact, he came so close to the brink of bankruptcy on more than one occasion that his success today is all the more remarkable.

Did you know. . .?

Growth of Small BusinessMost large businesses began as

small businesses.

Most large businesses began as small businesses.

a)Tandy - 1919 as leather supply store (acquired RadioShack 1963; 2000 took RadioShack name

b)Starbucks - began in 1971 when three academics— English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker—opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle. Each invested $1,350 and borrowed another $5,000. Chose the name Starbucks in honor of Starbuck, the coffee-loving first mate in Herman Melville's Moby Dick.

c)Papa Johns - In 1984, "Papa" John Schnatter (23) knocked out a broom closet located in the back of his father's tavern (Mick's Lounge), sold his prized 1972 Z28 Camaro, purchased $1,600 worth of used restaurant equipment, and began selling his pizzas to the tavern's customers.

Do you know who Bette Nesmith Graham is?

She dropped out of high school and worked as a secretary. As a single mother she worked at the Texas Bank & Trust in Dallas. The advent of electric typewriters raised problems for Graham: She discovered that errors made using the new type writer ribbons could not be erased. An amateur artist, she invented a white liquid that could be painted over the typewritten error. Initially she named her invention "mistake out." She made the liquid in her kitchen and rounded up her son and his friends to bottle the liquid in her garage. Orders for the product-- renamed "Liquid Paper"--poured in. Liquid Paper soon became a standard product in all offices. In 1979, Graham sold Liquid Paper to the Gillette Company for 47 million dollars plus royalties for every bottle sold till 2000. Graham died in 1980.

Growth of Franchise BusinessFranchise — legal agreement between a company and distributor to sell a product or service under special conditions

Franchisor parent corporation

Franchisee your business

Franchisee pays initial fee to franchisor 3-9%

Franchisee gets help in store site selection, guidance,training, advice

KEY TO FRANCHISE: Exclusive right to sell franchisor's product under their name.

High success rate—only 5-10% fail

WHY DO YOU THINK THE SUCCESS RATE FOR A FRANCHISE IS SO MUCH HIGHER THAN THAT OF A SMALL BUSINESS?

Subway royalties and feesa) based on gross sales minus sales tax.b) royalty is 8% to companyc) 3.5% advertising fee paid to Subway d) franchise Advertising Fund

Colonel Sanders was 65 when he started Kentucky Fried Chicken

Ray Kroc was in his 50's when he started growing McDonalds.

DID YOU KNOW. . .?

Disadvantages of Franchise Ownership1) Costly to implement; ongoing royalties cut into the profits

2)Franchisors usually require franchisees to follow their operations manual to a tee to ensure consistency limiting franchisee creativity.

3) Franchisees must be very good at following directions in order to maintain the image and level of service already established.

Advantages of Franchise Ownership1)Higher likelihood of success since a proven business formula is in place.

The products, services, and business operations have already been established.

ONLY 5-10% OF FRANCHISES FAIL2)Bankers usually look at successful franchise chains as having a lower risk

of repayment default and are more likely to loan money based on that premise.

3)The corporate image and brand awareness is already recognized. Consumers are generally more comfortable purchasing items they are familiar with and working with companies they know and trust.

4)Franchise companies usually provide extensive training and support to their franchisees in effort to help them succeed.

5)Many times products and services are advertised at a local and national level by the main franchise companies. This practice helps boost sales for all franchisees, but individual franchisees don't absorb the cost.

Risks of Ownership to any business owner:a) Competition from other businessesb) Price increasesc) Style changesd) Competition from new productse) Changes in economic conditions

(recession)f) Unsatisfactory profitsg) Loss of business through

unforeseen events (flood, fire, etc)

Obligations of Ownership1. To customers2. To workers3. To management4. To competitors5. To investors6. To public

TO TREAT PEOPLE FAIRLY, HONESTLY, AND ETHICALLY

INTRAPRENEURSHIPA. Intrapreneur—entrepreneurship within a company.--employee who is given funds and freedom to create a department within a company to develop a new product, process or service.--employee risks neither salary nor savings--company benefits by keeping creative employees--consumers benefits from new and better

products introduced at a quickened pace.1. 3M 2. Macintosh 3. Intel

In the early 1970s, Art Fry was in search of a bookmark for his church hymnal that would neither fall out nor damage the hymnal. Fry noticed that a colleague at 3M, Doctor Spencer Silver, had developed an adhesive in 1968 that was strong enough to stick to surfaces, but left no residue after removal and could be repositioned. Arthur Fry took some of Spencer Silver's adhesive and applied it along the edge of a piece of paper. His church hymnal problem was solved!

Arthur Fry soon realized that his "bookmark" had other potential functions when he used it to leave a note on a work file, and co-workers kept dropping by, seeking "bookmarks" for their offices. This "bookmark" was a new way to communicate and to organize. 3M Corporation crafted the name Post It Note for Arthur Fry's new bookmarks and began production in the late 70s for commercial use.

DID YOU KNOW. . .?

B. ESOP – Employee Stock Ownership Plan-- Employees buy shares in company--15 million American workers own stock in

companies.--United Airlines, Proctor & Gamble, Avis.--ESOP's have shown to increase productivity--ownership motivates employees to make their

company a success.

ESOP NO GUARANTEED SUCCESSWeirton Steel's 20-year experiment in worker-ownership ended in bankruptcy May 2003 leaving thousands of workers with worthless stock. Pension promises broken and health benefits terminated.

Weirton earned profits of around $500 million between 1984 and 1990, of which workers shared $170 million. The mill also provided 8,000 jobs. It appeared that Weirton had risen like phoenix from the ashes. Worker-ownership seemed vindicated, and an organizational form found in ESOPs that might revitalize America's rust belt industry.

However, profits turned to increasingly large losses thereafter, $230 million in 1993, $320 million in 2001, and almost $700 million in 2003. Management slashed the workforce by two-thirds and Weirton's worker-owners saw the value of their stock collapse from $14.50 in 1989 to a few cents in 2003.

DID YOU KNOW. . .?