Midterm Review, Part 3 All new business owners in the United States are required by law to prepare a business plan and submit it to the U.S. Small Business Administration for approval before they can legally open their doors to the public. I know the first sentence of advice to would be entrepreneurs is usually "go create a business plan." But my experience in writing about and learning from entrepreneurs for the last three decades is that creating a painfully detailed business plan really doesn't make much sense. The longer you plan, the longer you are not in the marketplace. And that means three things are happening, and none of them good. 1. No revenues are coming in. 2. Someone could beat you to the punch and introduce your great idea before you do. 3. The market is changing and as a result you could fall out of step. To use an extreme example to make the point, while you are planning how to make the world's best VCR, the market shifts to DVRs. Only about 10% of all nonfarm businesses qualify as small businesses using the definition of the Small Business Administration. Of all nonfarm businesses in the United States, almost 97 percent are considered small by SBA standards. While the first job for many people is working for a small business, most of the permanent new jobs are created by larger corporations. 1
Small businesses have generated 65% of the new jobs since 1995. Entrepreneurs are well advised to avoid starting businesses in the same market in which they were previously employed. The rule of thumb is: Have three years experience in a comparable business first. ( before starting your own business in a given industry.) All bankers and most investors will require an entrepreneur to present a well-conceived, well-researched, and well-written business plan before they will consider making a loan to or investing in that business. Answer: True. A business plan is mandatory for talking with bankers or other investors. (The only possible exception is some friends and family may not require one.) A good business plan describes the nature of the proposed business, the target market, the competitive advantages, and the qualifications of the owners. Answer: True. 2
A business plan is a detailed written statement that describes the nature of the business, the target market, the advantages the business will have over the competition, and the resources and qualifications of the owners. State and local governments often act as venture capitalists. Venture capitalists: Individuals or companies that invest in new businesses in exchange for partial ownership of those businesses. Leading is the management function of designing the structure of the organization so that everyone can function together. Leading: Creating a vision for the organization and guiding, training, coaching, and motivating others to work effectively to achieve the organization s goals and objectives. 3
Organizing: A management function that includes designing the structure of the organization and creating conditions and systems in which everyone and everything work together to achieve the organization s goals and objectives. The CIO, COO, and CFO positions would be correctly classified as top management positions. Answer: True. Top management consists of the president and other key company executives. Job titles and abbreviations you re likely to see often (in top management) are chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO), and chief information officer (CIO). Effective leadership includes both the ability to embrace, create, and manage change and the ability to promote ethical behavior within the organization. Answer: True. Communicate a vision and rally others around that vision Establish corporate values Promote corporate ethics Embrace change Stress accountability and responsibility 7-23 Research has shown that a participative/democratic leadership style works best today and the other styles aren t needed any longer. 4
no one style of leadership works best in all situations. - Understanding Business, 11 th edition, page 197. As a management function, the main focus of controlling is to keep complete and up-to-date records of the organization's financial transactions for tax and regulatory purposes. Establishing clear standards against which performance will be measured, measuring performance against those standards, then rewarding people and/or taking corrective action, as appropriate. Although top managers often possess these skills, they usually make less use of their skills than do supervisory managers. SKILLS NEEDED at VARIOUS LEVELS of MANAGEMENT b. technical McGraw Hill Education. 5
The Management Team section of a business plan should: Section 3 Management Team Include an organization chart, job descriptions of listed positions, and detailed résumés of the current and proposed executives. c. read like a series of resumes for each of the founders of the company. planning is the process of developing plans that will be used only if conditions change in specified ways, or if specified events occur. Contingency planning: The process of preparing alternative courses of action that may be used if the primary plans don t achieve the organization s objectives. b. Contingency After selling his last business and retiring, Chad joined SCORE. In his work with SCORE, Chad will most likely find himself: b. providing modest amounts of free consulting time to aspiring entrepreneurs and current small business owners in his geographic area on a part-time, volunteer basis, coordinated through the local Small Business Development center or SCORE office. Service Corps of Retired Executives (SCORE): An SBA office with volunteers from industry, trade associations, and education who counsel small businesses at no cost. 6
Which of the following suggestions would an experienced business owner most likely offer to someone who is thinking about becoming a business owner themselves? c. If you haven t already done so, get some experience by working for a successful businessperson in the industry or type of business in which you are planning to open your business. The rule of thumb is: Have three years experience in a comparable business first. ( before starting your own business in a given industry.) At Lifeline Pharmaceuticals, highly regarded research personnel rely on top management to provide strategic direction. Beyond that, researchers work on their own to develop new drugs to satisfy customer needs and achieve the company s profit objectives. Apparently, middle management at Lifeline practices leadership. a. free rein Free-rein leadership: Leadership style that involves managers setting objectives and employees being relatively free to do whatever it takes to accomplish those objectives. When managing brand new employees (new to both the company and the workforce), leadership style is most often the most effective style. a. the autocratic Autocratic leadership This style is effective in emergencies. (It) is also effective sometimes with new, relatively unskilled workers who need clear direction and guidance. 7
Micropreneurs are: b. entrepreneurs willing to accept the risk of starting and managing the type of business that remains small, lets them do the type of work they want to do, and offers them a balanced lifestyle. Micropreneurs: Entrepreneurs willing to accept the risk of starting and managing the type of business that remains small, lets them do the kind of work they want to do, and offers them a balanced lifestyle. 8