Part I: Organization of a Business

Planning A Business 1

Introduction to Business 3e
Jeff Madura
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 Organization of a Business

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 Business Defined
A business is an enterprise that provides
products or services desired by
customers.

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 Key Business Decisions
• Product
– What type of product should be produced?
• Production
– How should the product be produced?
• Promotion
– How should the product be promoted?
• Financing
– How should the company obtain funds to
finance the cost of producing the product?
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 Business Decisions

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 The primary function of
management is...

to maximize shareholders’ wealth!

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 Welcome to Wal-Mart
• “Everything we do is designed to build
shareholder value over the long haul.”

Wal-Mart
Business Online

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 Key stakeholders
• Stakeholders: ‘individuals or groups which have an
interest in the business strategy of the organisation.’

• Key stakeholders: ‘individuals or groups which can

influence the business strategy of the organisation.’

• Need to create value for key stakeholders for them to

support the organisation

• Shareholders are just one group of ‘stakeholders’.

Some shareholders may be ‘key stakeholders’
 Key Stakeholders
• Owners
– Entrepreneurs
– Co-owners
– Stockholders
• Creditors
• Employees
– Managers
• Suppliers
• Customers

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Stakeholders – some of which may be ‘key’

External
Special-
Stakeholders
Customers Interest
Unions Groups
Internal Stakeholders

Employees Investors
Investors

Management
Board of
Directors
Creditors
Suppliers
Government General
Public
 Interaction among Owners, Employees,
Customers, Suppliers, and Creditors

Copyright © 2004 South-Western. All rights reserved. Exhibit 1.1 1–11

 Creating a Business Idea
• Recognize your unique skills and
experience
• Identify a competitive advantage.

• Determine necessary resources.

• Assess feasibility of the idea.

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Recognize Skills and Experiences
• Education

• Experience

• Hobbies

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Identify a Competitive Advantage
• Better

• Faster

• More Convenient

• Cheaper

• Different
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 Competitive Advantage:
M. Porter
• Low cost leadership

• Differentiation

• Focus

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 Think Outside The Box
  

  

  
Determine the Necessary Resources

• Employees

• Facility

• Machinery

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 Assess the Feasibility
• Market Research
– Customer’s Needs and Wants

• Assess Business Environment

• Feasibility - Estimate costs and benefits

of the business, including sales forecasts
and all expenses.

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 Success Stories
• Domino’s Pizza
– Managhans bought bankrupt pizza parlor
– Started with little funding
– Now generates sales of $1 billion per year
• Jeremy’s Micro Batch Ice Cream
– Applied microbrewery concept to ice cream
– Makes ice cream in small batches, sold in limited
editions
• Glow Dog, Inc.
– Sells light-reflective clothing for pets
– After two years, average annual sales of $1 million
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 Lessons to Remember
• Successful businesses do not require a
great invention.
– Many focus on making life more convenient
for customers (eg. Gojek, Shopee,Tokopedia,
Alibaba.com, Amazon.com, OVO, Gopay).
• Some business ideas will fail—but
entrepreneurs can learn from failures and
make revisions.

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 Impact of Technology
• Technology defined
– Knowledge or tools used to produce
products and services
• Information technology
– Represents over 1/3 of the growth in U.S.
output
– Reduces cost of producing products
– Workers in technology industries earn more
than workers in other industries.

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 Impact of Technology
• E-business or e-commerce
– Use electronic communications to produce
or sell products and services
 Sales to individual customers
 B2B e-business: transactions between a business
and its suppliers
 Generates $301 billion in revenue and creates 1.2
million jobs each year

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 E-Business Examples
• Amazon
– Online seller of books, music and other products
– Low overhead costs allow price discounting
• Google
– Internet search engine and the most visited site on
the Web
– Offers variety of services - free email, web page
hosting, custom-designed start-up pages
– Generates revenue by selling advertising
• eBay
– Online auction service
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 Successful E-Businesses
• Started out small
• Created to sell a product or service that was
not offered by competitors
• Transformed how traditional firms conducted
business
– Improved communication with customers
– Improved information flow
– Improved efficiency
– Complemented traditional business operations

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 Key Functions of Business
• Management
– Means by which employees and other resources
are used by the firm
• Marketing
– Means by which products and services are
developed, priced, distributed, and promoted to
customers
• Finance
– Means by which firms obtain and use funds for their
business operations

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 Common Business Decisions
• Management Decisions
– What equipment is needed?
– How many employees should be hired?
– How can employees be motivated to perform
well?

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 Common Business Decisions
• Marketing Decisions
– What price should be charged?
– Should the product be changed to be more
appealing to customers?
– Should the firm use advertising or some
other strategy to promote its product?

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 Common Business Decisions
• Finance Decisions
– Should financial support come from the sale
of stock or from borrowing money or some
combination?
– Should the firm attempt to obtain borrowed
funds for a short-term or long-term period?
– Should the firm invest funds in a new
business project?

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 How Business Decisions
Affect a Firm’s Earnings

Copyright © 2004 South-Western. All rights reserved. Exhibit 1.4 1–29

Other Key Functions of Business
• Accounting
– Summary and analysis of the firm’s financial
condition
– Used to make various business decisions
• Information systems
– Information technology, people, and
procedures that provide appropriate
information to make effective decisions

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 A Business Plan
• Detailed description of the proposed
business
– Description of the product or service
– Types of customers the business would
attract
– Competition
– Facilities needed for production

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Why Do I Need A Written Business Plan?
• To persuade potential lenders and
investors
• To encourage you to be specific

• To evaluate the feasibility of your idea

• To help you define your vision of your

business

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 Developing a Business Plan
• Assess the Business Environment
– Economic environment
– Industry environment
– Global environment
• Develop Management Plan
– Organizational Structure
– Production
– Human Resources

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 Developing a Business Plan
• Marketing Plan
– Target Market
– Product Characteristics
– Pricing
– Distribution
– Promotion
• Financial Plan
– Financing
– Feasibility

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 Online Resources
• Advice and basic information
– Yahoo’s Small Business site
– American Express
– Small Business Administration
• Financing Options
– Quicken Small Business
– Garage.com
– The Elevator
• Business Planning Software
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 Assessing a Business Plan
• Potential revenue
• Potential demand for product or service

• Potential expenses

• Profit potential

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 Expected Monthly Expenses of CHC

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 Expected Performance of CHC
in the First Year

Copyright © 2004 South-Western. All rights reserved. Exhibit 1.7 1–38