Transcript Entrepreneurship and Management Luis Ortiz, Ph.D. October 18, 2003

Entrepreneurship and
Management
Luis Ortiz, Ph.D.
October 18, 2003
Economic Development Center
Agenda

Economic Development Center






Who we are and what we do
Facts and Statistics
Business Plan and Strategies
Market Research (data for Business Plan)
Management Skills
Questions and Answers (Survey and Evaluation)
Purpose of the Course

To create awareness of the resources

To provide guidance and orientation in the business
development process

Business plan’s importance

Enhance our management skills
Where do I start?
So Many Hats!!!
Owner
Product & Service
Development
•Develop/Improve
Sales
•Prospect
•Present
•Close
Finance/
Accounting
•Bookkeeping
•Accounting
•Credit
Marketing
•Study
markets
•Advertising
•Promotion
Operations
•Day-to-Day
•Improve
Procedures
Human
Resources
•Hiring/Firing
•Training
•Motivating
Management
•Plan/Prioritize
•Organize
•Direct/Control
•Evaluate
We know BUSINESS is everything...

management

marketing

finance

accounting

economics

business law

International Business
Finance
Small Business Taxes
Bookkeeping
Small Business Loans/Financing
Technology
QuickBooks
Internet Marketing
Building a Web Page
International Trade
Doing business with Mexico
Selling to Maquiladoras
Marketing & Advertising
Selling Strategies
Advertising Techniques
EDC Mission
Goal: To Grow Businesses and Create Jobs
Designed: To maximize business success by coupling
financial programs with managerial and technical
assistance
What drives EDC: Seeing businesses succeed by
Planning through well developed business plans and
Seeking Professional Advisors, while avoiding the
problems of staffing and understanding that years of
education do not necessarily correlate with success.
The Nature of Goals

Write them down

The world has a funny habit of making
room for those who know where they are
going.
Entrepreneurial Spirit
• Every 30 seconds of every day, someone
somewhere in the United States starts a new
business. Every 30 seconds someone stakes their
money, their labor, their good name on the
unshakable belief that they can make or provide
something bigger, better, faster, or cheaper than the
next person.
Facts and Statistics
BUSINESSES IN THE U.S.


There are more than 21,000,000 small business in the U.S.
16,000,000 have the owner as the sole employee. 5,000,000 have
between 1 and 500 employees.
Small businesses…
 employ 53% of the private workforce.





provide 47% of all sales receipts.
provide 55% of innovations.
account for 35% of federal contract dollars.
account for 28% of jobs in high technology
sectors.
account for 51% of private sector output.
Entrepreneurial Spirit Seminar
• In America today, smaller businesses, with fewer
than 20 employees, create 98% of all new jobs.
How many small businesses opened?
Incorporate
New Firms
1990
647,675
769,124
1995
768,180
819,477
1998
790,569
842,357
900,000
800,000
700,000
600,000
500,000
400,000
Incorporate
New Firms
300,000
200,000
100,000
0
1990
1995
1998
Source: Dun and Bradstreet Corp. and U.S. Department of Labor
How many small businesses closed?
1990
63,912
60,746
837,511
Bankruptcies
Failures
Terminations
1995
50,516
71,194
863,699
1998
53,214
71,811 (125,025)
849,839
900,000
800,000
700,000
600,000
Bankruptcies
Failures
Terminations
500,000
400,000
300,000
200,000
100,000
0
1990
1995
1998
Source: Dun and Bradstreet Corp. and U.S. Department of Labor
Business Dissolution Rates (%)
after 2 yrs.
after 4 yrs.
after 6 yrs.
after 8 yrs.
all firms franchises
23.7
25.4
52.7
59.2
62.2
61.6
70.9
72.5
1-4 jobs
8.3
19.6
23.5
46.5
5 or more
6
13.1
21.1
30
80
70
60
50
after 2 yrs.
after 4 yrs.
after 6 yrs.
after 8 yrs.
40
30
20
10
0
all firms
franchises
1-4 jobs
5 or more
Source: Dun and Bradstreet Corp. and U.S. Department of Labor
Who Starts Businesses by Age Group
35%
33%
32%
30%
25%
20%
16%
15%
11%
10%
6%
5%
2%
0%
Less 25
25-34
35-44
45-54
55-64
Older
65
Characteristics Of Entrepreneurs
Vision
Tolerance For Failure
High Energy Level
Creativity
Entrepreneurial
Personality
Need To Achieve
Tolerance For Ambiguity
Self-Confidence
Internal Locus Of Control
What makes an Entrepreneur?
+
+
+
+
ORGANIZED
CREATOR
IMPROVER
MANAGER
(Plan, Staff, organize, and decision-making) [Administer, maintain,
control, short-term view, ask how and when, initiate, accept the status quo, do things right.]
+ LEADER
(control, motivate, charismatic) [Innovate, develop, inspire, long-term view,
ask what and why, originate, challenge the status quo, do the right things.]
--------------------= ENTREPRENEUR ! ! !
Why are you going into business?






Independence
Personal Fulfillment
Lifestyle Change
Respect
Money
Power


Socialized Power
Personalized Power





Reward
Coercive
legitimate
Expert
Referent
Source: Maslow, 1943; French and Raven, 1959
Self Actualization
Esteem needs
Affection needs
Safety
Physiological
Entrepreneurial Spirit
In 1998, the average number of hours
that business owners worked per week was
64…….
….. and it hasn’t gotten any better.
10 years doing what they own!
Close 2-4 times before getting it right!
Success 25% w/o Business Plan 75% w/ Business Plan
Entrepreneurial Spirit
Owning your business can be a wonderful
opportunity:
• To be your own boss.
• To take charge of your financial future.
• To work 7 days a week, 24 hours a day, with
no pay check at the end.
10 Myths of Business Ownership
1. I can start living off the business
immediately.
2. I’ll be my own boss.
3. I’ll get rich overnight.
4. I have nothing to lose (OPM).
5. Will give me independence.
More Myths….
6. Will allow me time off any time I want.
7. Will let me control the business.
8. Will make a lot of money.
9. Will be easy to do.
10. Will be easy to get funding for my great
idea.
Three Way Fit
Business
Fit
Personal
Fit
Financial
Fit
Remote Environment
Technology
Society
External Environment
Suppliers
Competitors
Government Agencies
and Administrators
Internal Environment
Managers and Employees
Culture and Resources
Unions
Financial Intermediaries
(Banks)
Activist Groups
Venture Partners
Local Communities
Global Economy
Source: Michael Porter, Harvard
Customers
Five forces that impact every business
Potential
Entrants
Threats of new entrants
Bargaining power
of suppliers
Bargaining power
of customers
Industry
Competitors
Suppliers
Customers
Competition Among
Existing firms
Threat of substitute products
or services
Substitutes
Source: Michael Porter, Harvard
Main Influences on the Mission and Goals
of the Business
Internal
Environment
External
Environment
Business Level
Mission and Goals
Business Level
Strategies
Remote
Environment
History and
Inertia
Business Level
Strategy &
Implementation
Business
Successes
and Failures
Market Research
(Data for the Business Plan)
Competitor Profile
















Who are your major competitors?
What are the major strengths and weaknesses of each?
Where are they located?
How long have they been in business?
What are their business hours?
Who is their target market?
How heavy is their customer traffic?
What quality level are they offering?
What is their inventory level?
How many employees do they have?
How knowledgeable are their employees?
How many product lines do they have?
What about their suppliers?
What about their marketing?
Do you know of their plan for expansion?
Have any gone out of business lately?
Competitor Analysis
Product
Service
Your Business
Competitor #1
Competitor #2
Competitor #3
Quality
Price
Service
Location
Marketing
Program
Other
Personal
Expenses
Expenses
Home Mortgage/Rent
Taxes
State/Federal
Real Estate
Other
Insurance
Health
Home Owner's
Automobile
Life
Auto Loan Payment
Other Loan Payment
Telephone
Gas/Electricity Utilities
Wastes Disposal
Educational Expenses
Medical/Dental Expenses
Auto Expenses
Food
At Home
Eating Out
Clothing
Household Supplies
Recreation & Entertainment
Savings & Investments
Cash Contributions
Other Expenses
TOTAL EXPENDITURES
Amount
$
500
250
45
10
85
45
85
25
475
150
60
140
25
120
45
35
350
300
150
75
100
200
50
100
$ 3,420
Operating
Expense
(Ongoing)
VARAIBLE EXPENSES
Salary of Owner
(Minimum Living Expenses)
Employee Wages
Professional Fees (Accounting, Legal)
Advertising
Materials & Inventory
Supplies
Telephone (Long distance)
Maintenance (Petty Cash, Postage, Shipping)
Other (List)
Total Varaible Expenses
FIXED EXPENSES
Rent: Building
Equipment
Utilities
Telephone (Base Fee)
Taxes & Licenses
Insurance
Other
Total Fixed Expenses
TOTAL BUSINESS EXPENSES PER MONTH
$ 3,420
1,360
75
250
1,000
350
175
250
200
7,080
550
350
200
100
45
125
100
1,470
$ 8,550
Start-Up
Expenses
(One Time)
Item(s)
Amount
Equipment
$ 15,000
Installation
18,500
Utility Deposits
350
Licenses & Permits
125
Beginning Inventory
1,800
Remodeling
2,500
Pre-Advertising
1,200
Cash
16,000
Other
1,000
Total Estimated
$ 56,475
Cash Needed
What can a Business Plan do for you?



Reality Check

Modeling tool

Tracks progress
Business’s Resume
Timetable for operations
Attachments to the Business Plan








Tax Returns (Business & Personal)
Resumes
Written Estimates
Personal Financial Statements
Contracts / Agreements
Org. Charts / Job Descriptions
Appraisals / Blue Prints / Floor Plans
Other Relevant Information
Ok, It is True,
Some Businesses have grown big without a formal
Business Plan….
But…
• Times Have Changed.
• Most of us are not as talented/lucky as the famous
entrepreneurs.
The 5 C’s of Credit
•
•
•
•
•
Character
Capacity
Conditions
Collateral
Capital
$ources of Capital, From Most
Common to Least Common

Personal Savings, Insurance, Retirement (0%)

Family or Friends (2-7%)

Suppliers

Personal Loans

Banks (10-16%)

Private Investors (18-25%)

Public Sources

Venture Capital (20-40+%)
What are lending officers looking for in
the business plan?
They want answers to the following:

Is there clear evidence of market acceptance?

Is there a sufficient market for the product/service?

Do you have a single-minded focus on your
opportunity?

Do you have any advantage over you competition?

Is the Management Team experienced and capable?

Are your financial projections REALISTIC.

Is the project compatible with the institution’s
lending policies and how will the loan be paid back?
Survival Strategies
• Focus completely on satisfying the customer.
• Study the success of others.
• Gather and analyze management information regularly.
• Continuous improvement involving everyone.
• Embrace change with a positive attitude.
Source: Dan Taylor, Pres. Data Staar Communications
The Business Plan
“If you aim at nothing, you will hit it
every time”
-Theodore Roosevelt
Small businesses don’t plan to fail…
they fail to plan.
How to Start
a Business
Small Business
Development Center
Feasibility
Types of Business
Organizations
Record Keeping
Regulations
Financing
CASH
Total Project Cost
- Less: Your Injection
= Projected Amount Needed
How to Start
a Business
Small Business
Development Center
Feasibility
Types of Business
Organizations
Record Keeping
Regulations
Financing
Feasibility
The cost of reality (example)
10,000 Mo. Bus. Exp.
60,000 Working Capital
+ 40,000 One Time Cost
= 100,000 two ways to see it
Projected Amount Needed
How to Start
a Business
Small Business
Development Center
Feasibility
Types of Business
Organizations
Record Keeping
Financing
Supporting Documentation
 A Business Plan
 Monthly Set of Financial Projections
–Income Statement
–Cash Flow Statement
–Balance Sheet
 Breakdown of Loan request. How will you
Regulations
Financing
use the money?
 Sources and Uses of equity capital (New
business or additional injection)
How to Start
a Business
Small Business
Development Center
Feasibility
Types of Business
Organizations
Record Keeping
Regulations
Financing
Financing
Supporting Documentation
 A Business Plan
 Copies of any notes to be refinanced
 Bids, proposals, estimates for:
•Capital equipment
•Leasehold improvements
•Construction
What is a Business Plan?
It is a document that convincingly
demonstrates that your business can sell
enough of its product or service to make a
satisfactory profit and be attractive to
potential backers.
It is a selling document. It sells your business
and its executives to potential backers, from
bankers to investors to partners to employees.
A short written document that serves as a
guide to your future, provides direction and
focus, and helps you model your business and
avoid problems.
Helps conceptualize business and set
reasonable and achievable goals.
Attracts lenders and investors.
Provides an organized view of your business.
Details research from the feasibility study,
management, sales, marketing, finances, etc...
A Business Plan, should attract YOU to the
business.
A Business Plan, should attract others into the
business.
A Business Plan gives you confidence.
A Business Plan improves your chances of
success.
A Business Plan Provides a road map for your
business.
Remember: No one can create your plan for you.
Lenders are interested in the strategies for
reaching financial projections.
Show how you plan to set your business apart
from competitors.
Identify your market, offer evidence that
customers for your product or service exist.
Develop realistic financial forecasts (be sure to
explain how they were derived)
Key Elements of any Business Plan
1. Executive Summary/Introduction
2. Description of Products/Services
3. Manufacturing & Operations Plan
4. Marketing Strategy and Competitor Analysis
5. Sales Plan
6. Management Plan
7. Financial Analysis
The Length 8-15 pages
Attachments to the Business Plan
Tax Returns (Business & Personal)
Resumes
Written Estimates
Personal Financial Statements
Contracts / Agreements
Org. Charts / Job Descriptions
Appraisals / Blue Prints / Floor Plans
Other Relevant Information
The bottom line in Business

Employee relations

Communication

Networking

Differentiation/Innovation
Explaining the Employee
Behavior Model
Three basic classifications of Employees
1) Extra-Role Behavior Employees (OCB +)
2) Contractual Agreement Employees (=)
3) Sub-Optimal Employees (-)
Social Comparison

Equity / Social Capital


Inputs/Outputs (=) with comparison to
referent others
Social exchange affects all areas of life

(guanxi – inhwa – fairness – palanca)
Theoretical Model of Employee
Work Behavior
Organizational Justice
Distribution of rewards
Procedure of the organization
Interaction with co-workers & managers
Trust/commitment
OCB
Job Performance
Job Satisfaction
Pay
Co-worker/managers
Job itself
Policy/advancement
Source:Bateman & Organ, 1983; Konovsky & Pugh, 1994; Moorman, 1991; Organ, 1988
Explaining the Employee
Behavior Model

Organizational Commitment
(Morrison, 1994)
Develops over time w/ the organization

Disposition or Affect

Organizational Trust
(Hartman et al. 1987)
(Konovsky & Pugh, 1994)
Develops over time w/ the organization and managers
Explaining the Employee
Behavior Model

Job Satisfaction

(Iafffaldano & Muchinsky, 1985; Locke, 1976; Lagace, et al. 1993)
Work itself
Pay
Co-Workers
Advancement/Company Policy
Management

J S – Affects/Correlates
 employee absenteeism, turnover intent, organizational sabotage,
organizational theft, stress, health, life satisfaction, and
organizational commitment
Explaining the Employee
Behavior Model
Organizational Justice - Equity Theory (Adams)

Distributive Justice (Homan, 1961)
 the fairness of the allocation of the reward

Procedural Justice (Thibaut & Walker, 1975)
 procedure used in allocating resources

Interactional Justice (Bies & Moag, 1986; Tyler & Bies, 1990)
 quality of treatment received from the manager
Explaining the Employee
Behavior Model

OCB defined (Dennis Organ, 1988)
Better way to address performance


“Actions by organization’s members that
exceed the formal requirements of their job”




Go beyond the formal requirements
Discretionary in nature
Not directly recognized by the organization
(Bateman & Organ 1983; Organ, 1988; Organ & Konovsky, 1989)
Explaining the Employee
Behavior Model
U.S. forms of OCB
Altruism
Conscientiousness
Civic Virtue
Sportsmanship
Courtesy
Example
Helping coworker with a project (new machine)
Switching vacation dates with another employee
Never missing a day of work
Coming to work early or staying late if needed
Attending voluntary meeting and functions
Reading memos, email, etc… to keep up with the
organizations new information (sharing it with others)
Not finding fault with the organization
Making do without complaints
“Turning the other cheek” to avoid unnecessary
problems
Explaining the Employee
Behavior Model

OCBs in a Chinese cultural setting
Protecting company resources
Caring for the organization’s resources
Do not abuse the organization’s policies
Interpersonal harmony
Uses power in an inappropriate manner
Takes and seeks undeserved credit
Farh, Earley, and Lin, 1997
Explaining the Employee
Behavior Model

OCBs in a Mexican cultural setting
Protecting company resources
Caring for the organization’s resources
Do not abuse the organization’s policies
Interpersonal harmony
Uses power in an inappropriate manner
Takes and seeks undeserved credit
Altruism
Helping coworker with a project (new machine)
Switching vacation dates with another employee
Civic Virtue
Attending voluntary meeting and functions
Reading memos, email, etc… to keep up with the organizations new information (sharing it with others)
Courtesy
In everyday interactions
Loyalty
To the immediate manager and then to the organization
Development – Learning – Teaching
Desarrollo – personal growth for the benefit of the organization
Ortiz 1999; 2000
Organizational Behavior
Research
Three types of dispositions/affect
Employees response to equity situations
Entitled Individuals
(work outputs >inputs to work)
Equity Sensitive Individuals
(work outputs = inputs to work)
Benevolent Individuals (-)
(work outputs < inputs to work)
(Hartman et al. 1987)
Old and the new







Production Orientated
Minimize defects
Autocracy/paternalism
Centralized control/ decisions
Business Strategy as short
term
Work organization promotes
alienation & hiding
information
People as expendable/
exchangeable parts







Market (relationship) Orientated
Eliminate source of defects
Democracy / Humanism
Decentralized control/decisions
Business Strategy as long term
Work organization promotes
learning commitment &
collaboration
People as resources to be
developed
Positive manager and leader
characteristics

Experience



Empathy (understanding others situation)
Relationship (long-term)
Fairness (unbiased)

“You MUST learn From the mistakes of others! You can’t
possibly live long enough to make them all yourself…”
(Sam Levenson 1911-1980)
Managerial Implications
Recommendations

These recommendations are viewed as important in this investigation:

1) have an “open house” once a year
2) gain subordinate’s trust by showing them that you are “buena gente”
3) motivate employees with that which they value
4) use the diversity that you are given to gain new ways to achieve more
5) pursue organizational citizenship behavior from all employees
6) make a conscious effort to show the organization’s fairness (unbiased)
7) continue educating your workforce
8) walk the floor if possible once a day
9) effort and trying to speak at the employee/customer is valued








The bottom line in management





Fairness
Equity
Expectation
Communication
Feedback
Effective meetings
Follow these 12 steps to more efficient and effective meetings:
 Prepare a meeting agenda.
 Distribute the agenda in advance.
 Consult with participants before the meeting.
 Get participants to go over the agenda.
 Establish specific time parameters.
 Maintain focused discussion.
 Encourage and support participation of all members.
 Maintain a balanced style.
 Encourage the clash of ideas.
 Discourage the clash of personalities.
 Be an effective listener.
 Bring proper closure.
Useful Websites for Businesses









www.allbusiness.com
www.businessplan.com
www.intranet.com
www.agillion.com
www.bizjournals.com
www.sba.gov
www.nmsbdc.org
www.lvsmedc.org
edc.nmhu.edc