Business Administration
Unit 1
Business and Its Environment
Chapter 1 – Characteristics of Business
Small business
management
Organized to follow the life cycle of
an entrepreneurial venture from
concept through implementation
into harvesting or replication.
Most innovative
companies
Nike – digital
Dropbox – store,sync
sports division
and share files securely
Amazon – fast
Uber - online tech cab
online delivery of
anything
service
Square – sparked
Urban clothing line
mobile payments
Ecko Unlimited-
What is an entrepreneur?
They are engaged in the buying
and selling of products or
services in order to make
money.
Product – something that exists in nature or is
made (tangible)
Service – labor or expertise exchanged for money
(intangible)
Types of business
Making a product or providing a service
– Manufacturing firms produce goods
• Johnson & Johnson/Microsoft
Providing a service
– Assistance to satisfy specialized needs
through skilled workers
• Doctor / Accountant / Web Design
Service firms far outnumber mfg. firms
Industry/Sector
An area of the economy in which
businesses share the same or related
products or services.
– (10 – 12) major sectors
• Finance, Technology, Energy
• Retail Sales, Communications,
Transportation, Health Care, Utilities,
Agriculture, Mining, Manufacturing.
2 Types of Businesses
Industrial/Manufacturing
Commercial/Services
Industrial/Manufacturing
Business
Produce goods used by other
businesses to make things
– Basic Material Companies – Apple,
Exxon Mobil, Coach, Crocs,
Campbell Soup
Emerging market nations have few
mfg. firms –
Commercial/Service
Business
Marketing
– Retailers: Home Depot, Walmart,
Walgreens
Finance
– Banks & Investment Companies –
JPMorgan, Bank of America
Services
– Comcast, AT & T, Hilton Hotels
12 Industries That Are
Growing in 2015
Health Care
High Tech Equipment
Manufacturing
The Auto Industry
Transportation
Computer Systems
Design
Social Networking
Changing Nature of Business
Five ways that entrepreneurs find
opportunities to create new business:
– 1. Use a new technology to produce a new product.
– 2. Use an existing technology to produce a new
products.
– 3. Use and existing technology to produce an old
product in a new way.
– 4. Find a new source of resources
– 5. Develop a new market for an existing product.
Global Competition
Ability to compete with businesses in
other countries
– Other countries have industrialized
• Efficient, greater variety, lower prices
– American businesses had to change
Global competition is the force behind
major decisions of large companies today
Establishing Strategies
Total Quality Management
– Commitment to excellence
– Teamwork & continual improvement
– Training from experts
SWOT Analysis
– Evaluating strengths, weaknesses, opportunities and
threats
– Integrating internal and external opportunities
Five Roots of Opportunity in
the Marketplace
Problems that your business can solve.
Changes in laws, situations or trends.
Inventions of totally new products or services.
Competition find a way to beat the competition on
price, location, quality, reputation, reliability or
speed.
Technological Advances scientists may invest
new technology, but entrepreneurs figure out
how to use and sell it.
3 Ways To Efficiency
Specialization of effort
Better technology & innovation
Reorganization
Specialization
Specialize in an area
– Expert in industry (Niche)
Mass Production
– Up-to-date equip. in factory production
• Computers & Robots
– Large quantities of identical goods
– Costs decrease to consumers
Technology & Innovation
Technology includes
– Equipment, manufacturing processes &
materials
• Better quality goods/services
• Built faster at lower cost
– Technology = staying ahead of competitors
Reorganization
Late 80’s to early 90’s & recent recession
– Companies had slow growth
– Competition from other nations
Downsize
– Cutting back goods/services & employees
– Needed better ways to compete
Reorganization
Empowerment
– Workers decide how to perform their jobs,
ideas on improving processes
– Drastically changed role of workers
• Past – narrow tasks, little decision making
• Improved quality of work & efficiency
• Fewer managers due to skilled workers
Entrepreneurship
Entrepreneur
– Person who starts, manages & owns a
business
– Few gvt. controls promote starting a
business
– New businesses may have:
• Physical facility (store) or individual working
in home office, internet business
What is Small Business?
The public often thinks of business only in terms
of “big” business – ExxonMobil, Apple, Microsoft,
Nike
Small business – companies having fewer than
500 employees and less than $5 million market
capitalization.
– 26.8 million businesses in the US and 99.9%
are small firms with fewer than 500 employees.
– 52% of US businesses are home-based
Paths to Small Business Ownership
Franchising – legal and commercial relationship
between the owner of a trademark, service mark,
trade name or advertising symbol.
Acquisition - buying an existing business.
Licensing Technology – enter into a contract to
use technology without purchasing the rights to
own it.
Microenterprises – firms with five or fewer
employees
Franchise Business
Legal agreement where distributor buys
rights to sell franchising company’s
product/service under company’s name
& trademark
– McDonald’s, Applebee’s Restaurants, Subway
Franchisor – parent company
Franchisee – distributor of franchised
product/service
Franchise Business
Franchise agreement usually
includes initial fee to franchisor and
% of weekly sales (3-8%)
Franchisee gets in return
– Help selecting location, exclusive
rights to sell in specific geographic
area, training & advice
Risks of Ownership
Businesses fail for many reasons
– 1 out or 4-5 fail within 3 years
– ½ close within 6-7 years
• Some voluntarily close
– Sell to another larger company
Failure Reasons
64.1% - Economic causes
– Low profit/sales, industry weakness
23.9% - Financial Causes
– Expenses & debt
End of Chapter 1