Entrepreneurship: Starting and Operating a Small Business

584 Pages·2012·24.819 MB·English

by  Steve Mariotti, Caroline Glackin

starting
and
ENTREPRENEURSHIP
operating
a small business
3rd edition
HONEST
te(t
Steve Mariotti
Caroline Glackin
Step-by-Step Guidance to Build and Present Your Business Plan!
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ENTREPRENEURSHIP
STARTING AND OPERATING
A SMALL BUSINESS
Third Edition
Steve Mariotti Caroline Glackin
•
PEARSON
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Library of Congress Cataloging-in-Publication Data
MariotSttie,v e
Entrepreneurssthairpt:ai nndgo peratian sgm alblu sineI sSst evMea riotCtair,o liGnlea cki-n3. rde d.
p.e m.
ISBN-1937:8 -0-13-278408-5
ISBN-100-:1 3-278408-4
1.N ew busineesnst erprises-Manage2m.eE nntt.r epreneursIh.Gi lpa.c kiCna,r olinIeI .T itle.
HD62.5.M3526071 3
658.1'1-dc23
2011036239
10 9 8 7 6 5 4 3 2
PEARSON ISBN1 0: 0-13-278408-4
ISBN1 3:9 78-0-13-278408-5
.,
Contents
_______________ _
UNIT 1 Entrepreneurial Pathways 1 Making the Business Work Personally
and Professionally 24
Chapter 1 Entrepreneurs Recognize A Business Must Make a Profit to Stay in
Opportunities 2 Business 24
Profit Is the Sign That the Entrepreneur Is
Entrepreneurship Defined 3
Adding Value 24
What Is an Entrepreneur? 3
Profit Results from the Entrepreneur's
The Economic Questions 4 Choices 24
Voluntary Exchange 5 Seven Rules for Building a Successful
Benefits and Challenges of Free Business 25
Enterprise 5 The Team Approach 25
What Is a Small Business? 6
Chapter 2 The Business Plan: Road Map
Why Be an Entrepreneur? 6
to Success 36
The Desire to Make Money Is Not the Only
Reason to Start a Business 8 Feasibility Analysis: Will My Idea Work? 38
Definitions of Success-Monetary and Analyzing Product and/or Service
Other 8 Feasibility 38
Taking the Long View 9 Analyzing Market and Industry Feasibility 39
Analyzing Financial Feasibility 42
Benefits and Costs of Becoming an
Entrepreneur 9 What Is a Business Plan? 42
Cost/Benefit Analysis 10 Why Do You Need a Business Plan? 43
Opportunity Cost 11 Writing a Business Plan Early Will Save You
Avoiding Missteps 11 Time and Money 43
Your Business Plan Is the Key to Raising
Entrepreneurial Options 13
Capital 44
How Do Entrepreneurs Find Opportunities
The Business Plan Is an Operations Guide 44
to Start New Businesses? 14
Business Plan Components 45
Entrepreneurs Creatively Exploit Changes in
OurWorld 15 Cover Page and Table of Contents 46
Executive Summary: A Snapshot of Your
Where Others See Problems, Entrepreneurs
Recognize 0 pportunities 15 Business 46
Mission and Culture: Your Dreams for the
Train Your Mind to Recognize Business
Opportunities 16 Organization 46
Company Description: Background and Track
Entrepreneurs Use Their Imaginations 16
Record 47
An Idea Is Not Necessarily an
Opportunity Analysis and Research: Testing
Opportunity 16
Ideas 47
Opportunity Is Situational 17
Marketing Strategy and Plan: Reaching
The Five Roots of Opportunity in the Customers 48
Marketplace 18
Management and Operations: Making the
Integrating Internal and External Plan Happen 49
Opportunities 18
Financial Analysis and Projections:
Establishing Strategies 19 Translating Action into Money 51
Paths to Small Business Ownership 20 Funding Request and Exit Strategy: The Ask
Securing Franchise Rights 20 and the Return 54
Appendices: Making the Case in Greater
Buying an Existing Business 20
Detail 55
Licensing Technology 21
Business Plan Suggestions 55
Do Not Take Unfair Advantage of Someone
Else's Creativity 22 resenting Your Business Plan 57
The Many Faces of Entrepreneurship 22 Business Plan and Venture Competitions 58
iV CONTENTS
Honest Tea Business Plan 63 Getting Information Directly from the Source:
Primary Research 131
Chapter 3 Creating Business from Getting Information Indirectly: Secondary
Research 132
Opportunity 90
Market Research Helps You Know Your
Apple and the Personal Computer 91
Customer 134
Business Definition 92
Do You Know 10 People Who Love Your
What Sort of Organization Do You Want? 93
Product? You May Have a Winner! 135
Your Company's Core Values 93
Customer Research 135
Your Company's Mission Is to Satisfy
Industry Research: The 50,000-Foot
Customers 94
Perspective 137
Your Company's Vision Is the Broader
Perspective 95 Make Market Research an Integral Part
of Your Business 139
Your Company's Culture Defines the Work
Environment 95 How Customers Decide to Buy 139
The Decision Process 96 Owning a Perception in the Customer's
Your Competitive Advantage 97 Mind 140
Find Your Competitive Advantage by Deter­ Features Create Benefits 140
mining What Consumers Need and Want 98
Home Depot Teaching Customers So They
You Have Unique Knowledge of Your Will Return 141
Market 98
Needs, Wants, and Demands 142
The Six Factors of Competitive Advantage 99
Which Segment of the Market Will You
Is Your Competitive Advantage Strong
Target? 142
Enough? 100
Successful Segmenting: The Body Shop 143
Checking Out the Competition 101
The Most Chocolate Cake Company 102 Applying Market Segmentation Methods 143
Competitive Strategy: Business Definition The Product Life Cycle 145
and Competitive Advantage 104 Is Your Market Saturated? 146
Strategy versus Tactics 105
Market Positioning: Drive Home Your
Feasibility Revisited: The Economics of One Competitive Advantage 147
Unit as a Litmus Test 105
Developing a Marketing Plan 147
Defining the Unit of Sale 106
Cost of Goods Sold and Gross Profit 106
Your Business and the Economics of One Chapter 5 Developing the Right Marketing Mix
Unit 107
and Plan 156
The Cost of Direct Labor in the EOU 109
The Four Marketing Factors 158
Hiring Others to Make the Unit of Sale 109
Product: What Are You Selling? 158
Going for Volume 110
Create Your Total Product or Service
Determining the Value of a Business 112
Concept 159
Unit 1 Entrepreneurial Pathways: Nicole
Focus Your Brand 159
Miller Company 122
Ford's Focus on Success: The Mustang 160
How to Build Your Brand 160
UNIT 2 Integrated Marketing 127
Price: What It Says about Your Product 162
Chapter 4 Exploring Your Market 128
Strategies and Tactics for Effective
Markets and Marketing Defined 130 Pricing 162
A Business That Markets versus a Market­ Place: Location, Location, Location! 165
El'ten Business 130
Key Factors in Deciding upon a Location 166
Market Research Prepares You for
Promotion: Advertising + Publicity 166
Success 13'0
Use Integrated Marketing Communications
Research Your Marl<et before You Open Your
Business 130 for Success 167
Types and Methods of Resear-ch 131 Reinforce the Company's Unique Selling
Proposition 168
CONTENTS V
Promotional Planning 168 Analyze Your Sales Calls to Become a Star
Salesperson 208
Determine a Promotional Budget 168
The Advertising Advantage 170 Turning Objections into Advantages 209
Use Technology to Sell 209
Types of Advertising 170
The One-Minute Sales Call 210
Media Planning and Buying: Focus on Your
Customer 171 Successful Businesses Need Customers
Marketing Materials Should Reinforce Your Who Return 211
Competitive Advantage 171 Customer Service Is Keeping Customers
Sales Promotion Solutions 171 Happy 211
The Costs of Losing a Customer 213
When to Use Promotional Tools 172
Advertising Specialties 173 Customer Complaints Are Valuable 213
Trade Show Exhibits 173 The Better Business Bureau 213
Mall Carts and Kiosks 173 Customer Relationship Marketing
Systems 214
Alternative Marketing 174
Why Does CRM Matter? 215
E-Active Marketing 175
Components of CRM for the Small
Publicity Potential 179 Business 216
Generating Publicity 179 How Technology Supports CRM 217
Telling the Story 180
Unit 2 Integrated Marketing: Ken Done
Sample Press Release 180
Studios 225
Follow Up a Press Release 182
Public Relations 182 UNIT 3 Show Me the Money:
The Fifth P: Philanthropy 182
Finding, Securing, and
Cause-Related Marketing 183
Managing It 229
Gaining Goodwill 183
Not-for-Profit Organizations 183 Understanding and Managing
Teach for America and Upromise 184 Start-Up, Fixed, and Variable
What Entrepreneurs Have Built 184 Costs 230
You Have Something to Contribute 184
What Does It Cost to Operate a
Developing a Marketing Plan 185 Business? 231
Marketing Analysis 185 Start-Up Investment 232
Marketing as a Fixed Cost 186 Brainstorm to Avoid Start-Up Surprises 232
Calculate Your Breakeven Point 187 Research the Costs 235
Keep a Reserve Equal to One-Half of Start-Up
Chapter 6 Smart Selling and Effective Investment 235
Customer Service 200 Predict the Payback Period 236
Estimate Value 236
Selling Skills Are Essential to Business
Success 201 Variable and Fixed Costs: Essential Building
Selling Is a Great Source of Market Blocks 236
Research 202 Calculating Critical Costs 237
The Essence of Selling Is Teaching 202 Calculating Total Gross Profit (Contribution
The Principles of Selling 202 Margin) 237
The Sales Call 204 Calculating EOU When You Sell Multiple
Products 238
Electronic Mail, Blogs, and Newsgroups 204
Fixed Operating Costs 240
Prequalify Your Sales Calls 205
Fixed Operatin-g Costs Do Change over
Focus on the Customer 205
Time 241
The Eight-Step Sales Call 206
:Allocate Your Fixed Operating Costs Where
Three Call Behaviors of Successful Possible 242
Salespeople 208
The Dangers of Fixed Costs 242
Vi CONTENTS
How Inflation Can Hurt Small Business Noncash Expenses Can Distort the Financial
Owners 243 Picture 297
Using Accounting Records to Track Fixed The Working Capital Cycle 297
and Variable Costs 244
The Cyclical and Seasonal Nature of Cash
Three Reasons to Keep Good Records Every
Flows 298
Day 244
Reading a Cash Flow Statement 298
Suggestions for Keeping Good Records 244
The Cash Flow Equation 300
Cash versus Accrual Accounting
Methods 246 Forecasting Cash Flow: The Cash
Budget 301
Recognizing Categories of Costs 246
Creating a Healthy Cash Flow 303
Chapter 8 Using Financial Statements
Managing Inventory to Manage Cash 304
to Guide a Business 256
Managing Receivables to Manage
Scorecards for the Entrepreneur: What Cash 305
Do Financial Statements Show? 257
The Cash Effect of Accounts Receivable 305
Income Statements: Showing Profit and The Life Cycle of Accounts Receivable 305
Loss over Time 258
The Financing of Accounts Receivable 306
Parts of an Income Statement 258
Managing Accounts Payable to Manage
A Basic Income Statement 259 Cash 307
The Double Bottom Line 259 Negotiating Payment 307
An Income Statement for a More Complex
Timing Payables 308
Business 261
Capital Budgeting and Cash Flow 308
The Balance Sheet: A Snapshot of
The Burn Rate 309
Assets, Liabilities, and Equity at a Point
in Time 262 The Value of Money Changes over
Time 310
Short-and Long-Term Assets 264
The Future Value of Money 310
Current and Long-Term Liabilities 265
The Present Value of Money 311
The Balance Sheet Equation 265
Taxes 313
The Balance Sheet Shows Assets and
Liabilities Obtained through Financing 265 Cash and Taxes 313
The Balance Sheet Shows How a Business Filing Tax Returns 313
Is Financed 266 Collecting Sales Tax 314
Analyzing a Balance Sheet 266 Tax Issues for Different Legal Structures 314
Depreciation 268 Make Tax Time Easier by Keeping Good
Financial Ratio Analysis: What Is It Records 314
and What Does It Mean to You? 269
Income Statement Ratios 269
Chapter 10 Financing Strategy 324
Return on Investment 269
Going It Alone versus Securing
\ Return on Sales 271
Financing 326
Common-Sized Statement Analysis 271
How Often Do Small Businesses Really
Balance-Sheet Analysis 272
Fail? 326
Current and Quick Ratios 272
What Is the Best Type of Financing for You
Debt Ratios: Showing the Relationship
and Your Business? 327
between Debt and Equity 273
Operating-Efficiency Ratios 274 Gifts and Grants 328
Debt Financing 328
Cash Flow and Taxes 294
Debt Financing: Pros and Cons 329
Cash Flow: The Lifeblood of a
Business 295 Equity Financing 330
The Income State-ment Does Not Show Equity Financing: Pros and Cons 330
Available Cash 295 Where and How to Find Capital That Works
for You 332
CONTENTS vii
Having an Excellent Business Plan Goes a Small Claims Court 371
Long Way 332 Arbitration 371
How Capital Sources Read Your Business A Contract Is No Substitute for Trust 371
Plan 332
The Uniform Commercial Code (UCC) 372
Family and Friends 332
The Law of Agency 372
Financial Institutions and Dimensions
of Credit 335 Bankruptcy 373
Community Development Financial Protecting Intangible Assets: Intellectual
Institutions 336 Property 375
Venture Capitalists 338 Trademarks and Service Marks 375
Angels 338 Copyright 377
Insurance Companies 339 Electronic Rights 377
Vendor Financing 339 Patents 378
Federally Supported Investment Protecting Tangible Assets: Risk
Companies 340 Management 379
Financing for Rural/Agricultural Insurance Protects Your Business from
Businesses 340 Disaster 379
Youth Financing 340 Basic Coverage for Small Business 380
How Insurance Companies Make
Youth Entrepreneur Funding Sources 341
Money 381
Self-Funding: Bootstrap Financing 341
Protect Your Computer and Data 382
Accessing Sources through Online
Disaster Recovery Plans 382
Networking 341
Licenses, Permits, and Certificates 383
Useful Sites 342
Investors Want Their Money to Grow: Chapter 12 Operating for Success 392
Can You Make It Happen? 342
Operations Permit Businesses to Deliver
How Stocks Work 343 on Their Promises 394
How Bonds Work 344 The Production-Distribution Chain 394
Unit 3 Show Me the Money: Finding, Supply Chain Management 395
Securing, and Managing It: Finding Suppliers 395
Fastsigns 355 Managing Inventory 396
Facilities Location and Design 398
UNIT 4 Operating a Small Business
Key Factors in Deciding upon a
Effectively 359 Location 399
Facilities Design and Layout 403
Chapter 11 Addressing Legal Issues
Special Considerations for Home-Based
and Managing Risk 360 Businesses 404
Business Legal Structures 361 Special Considerations for Web-Based
Sole Proprietorship 361 Businesses 406
Partnership 363 Defining Quality: It Is a Matter of Market
Positioning 406
Corporation 364
Profits Follow Quality 406
Tips for Entrepreneurs Who Want to Start
a Nonprofit Organization 366 Organization-Wide Quality Initiatives
Contracts: The Building Blocks of Benchmarking 408
Business 369 ISO 9000 408
Working with an Attorney 369
Drafting a Contract 370 Total QualitfManagement 409
Letter of Agreement 371 Malcolm Baldrige Award 410
Breach of Contract 371 Using Technology to Your Advantage 410
viii CONTENTS
Computer Access Is Essential 411 Unit 4 Operating a Small Business
Capture the Potential of the Telephone 411 Effectively: Mo's Chowder 459
Identify Market-Specific Software and
Technology 412 UNIT 5 Cashing in the Brand 463
Electronic Storefront (Web Site) 412
Chapter 14 Franchising, Licensing, &
Chapter 13 Management, Leadership, & Ethical
Harvesting: Cashing in Your
Practices 424
Brand 464
The Entrepreneur as Leader 425
What Do You Want from Your
Leadership Styles That Work 426 Business? 465
How Entrepreneurs Pay Themselves 426 Continuing the Business for the Family 466
Manage Your Time Wisely 427 Growth through Diversification 466
Business Management Building a Growth through Licensing and
Team 429 Franchising 467
What Do Managers Do? 429 Focus Your Brand 467
Adding Employees to Your Business 430 When Licensing Can Be Effective 467
Franchising Revisited from the Franchisor
Growing Your Team 436
Perspective 468
Creating and Managing Organizational
How a McDonald's Franchise Works 468
Culture 436
Do Your Research before You Franchise 469
Determining Organizational Structure 437
Harvesting and Exiting Options 469
Getting the Best Out of Your Employees 438
When to Harvest Your Business 469
Human Resources Fundamentals 438
How to Value a Business 470
Performance Management 440
The Science of Valuation 471
Firing and Laying Off Employees 442
Creating Wealth by Selling a Profitable
Ethical Leadership and Ethical Business 471
Organizations 443
Harvesting Options 472
An Ethical Perspective 443
Exit Strategy Options 474
Establishing Ethical Standards 443 Investors Will Care about Your Exit Strategy,
Corporate Ethical Scandals 444 Too 475
Doing the Right Thing in Addition to Doing Unit 5 Cashing in the Brand:
Things Right 445
Avocent Corporation 484
Balancing the Needs of Owners, Customers,
and Employees 446 Appendix 1 The Daily Perc 489
Social Responsibility and Ethics 446 Appendix 2 Sample Student Business Plan 527
Leading with Integrity and Examples 447 Appendix 3 BizBuilder Business Plan 556
Encourage Your Employees to Be Socially Appendices 4-8 available online
Responsible 447 Index 564