Entrepreneurship and Management Luis Ortiz, Ph.D. October 18, 2003 Economic Development Center.

Entrepreneurship and Management

Luis Ortiz, Ph.D.

October 18, 2003Economic 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

So Many Hats!!!

Product & Product & ServiceService DevelopmentDevelopment•Develop/Improve

OperationsOperations•Day-to-Day•Improve Procedures

OwnerOwner

SalesSales•Prospect•Present•Close

MarketinMarketingg•Study markets•Advertising•Promotion

Finance/Finance/

AccountinAccountingg•Bookkeeping•Accounting•Credit

ManagemeManagementnt•Plan/Prioritize•Organize•Direct/Control•Evaluate

Human Human ResourcesResources•Hiring/Firing•Training•Motivating

Where do I start?

We know BUSINESS is everything...

management marketing finance accounting economics business law International Business

FinanceSmall Business Taxes BookkeepingSmall Business Loans/Financing

TechnologyQuickBooksInternet MarketingBuilding a Web Page

International TradeDoing business with Mexico

Selling to MaquiladorasMarketing & Advertising Selling Strategies Advertising Techniques

EDC MissionEDC MissionEDC MissionEDC Mission

Goal:Goal: To Grow Businesses and Create JobsTo Grow Businesses and Create Jobs

Designed:Designed: To maximize business success by To maximize business success by coupling financial programs with managerial and coupling financial programs with managerial and technical assistancetechnical assistance

What drives EDC:What drives EDC: Seeing businesses succeed by Seeing businesses succeed by PlanningPlanning through well developed business plans through well developed business plans and and Seeking Professional AdvisorsSeeking Professional Advisors, while , while avoiding the avoiding the problems of staffingproblems of staffing and and understanding that years of understanding that years of educationeducation do not do not necessarily correlate with success.necessarily correlate with success.

The Nature of GoalsThe 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?

1990 1995 1998Incorporate 647,675 768,180 790,569New Firms 769,124 819,477 842,357

How many small businesses opened?

1990 1995 1998Incorporate 647,675 768,180 790,569New Firms 769,124 819,477 842,357

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1990 1995 1998

IncorporateNew Firms

Source: Dun and Bradstreet Corp. and U.S. Department of Labor

1990 1995 1998Bankruptcies 63,912 50,516 53,214Failures 60,746 71,194 71,811 (125,025)Terminations 837,511 863,699 849,839

1990 1995 1998Bankruptcies 63,912 50,516 53,214Failures 60,746 71,194 71,811 (125,025)Terminations 837,511 863,699 849,839

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1990 1995 1998

BankruptciesFailuresTerminations


How many small businesses closed?

Business Dissolution Rates (%)

all firms franchises 1-4 jobs 5 or moreafter 2 yrs. 23.7 25.4 8.3 6after 4 yrs. 52.7 59.2 19.6 13.1after 6 yrs. 62.2 61.6 23.5 21.1after 8 yrs. 70.9 72.5 46.5 30

Business Dissolution Rates (%)

all firms franchises 1-4 jobs 5 or moreafter 2 yrs. 23.7 25.4 8.3 6after 4 yrs. 52.7 59.2 19.6 13.1after 6 yrs. 62.2 61.6 23.5 21.1after 8 yrs. 70.9 72.5 46.5 30

0

10

20

30

40

50

60

70

80

all firms franchises 1-4 jobs 5 or more

after 2 yrs.after 4 yrs.after 6 yrs.after 8 yrs.


32%33%

11%

2%

6%

16%

0%

5%

10%

15%

20%

25%

30%

35%

Less 25 25-34 35-44 45-54 55-64 Older65

Who Starts Businesses by Age GroupWho Starts Businesses by Age Group

Characteristics Of EntrepreneursCharacteristics Of Entrepreneurs

EntrepreneurialPersonality

VisionVision Tolerance For FailureTolerance For Failure

High Energy LevelHigh Energy Level CreativityCreativity

Need To AchieveNeed To Achieve Tolerance For AmbiguityTolerance For Ambiguity

Self-ConfidenceSelf-Confidence Internal Locus Of ControlInternal 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?Why are you going into business?

Independence Personal Fulfillment Lifestyle Change Respect Money Power

Socialized Power Personalized Power

Reward Coercive legitimate Expert Referent

Self Actualization

Esteem needs

Affection needs

Safety

Physiological

Source: Maslow, 1943; French and Raven, 1959


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


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.

Personal FitBusiness

Fit

Financial Fit

Three Way Fit

Source: Michael Porter, Harvard

Remote Environment

Internal EnvironmentManagers and Employees

Culture and Resources

Society Technology

Global Economy

Unions

SuppliersGovernment Agencies

and Administrators

Local CommunitiesFinancial Intermediaries (Banks)

Competitors

Customers

Activist Groups

Venture Partners

External Environment

IndustryCompetitors

Competition Among Existing firms

Suppliers

Substitutes

Customers

PotentialEntrants

Bargaining power of customers

Bargaining power of suppliers

Threats of new entrants

Threat of substitute products or services

Five forces that impact every business

Source: Michael Porter, Harvard

Business LevelMission and Goals

RemoteEnvironment

History and Inertia

Business LevelStrategies

Business LevelStrategy &

Implementation

Business Successes

and Failures

ExternalEnvironment

Internal Environment

Main Influences on the Mission and Goals of the Business

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 AnalysisProduct Quality Price Service Location Marketing OtherService Program

Your Business

Competitor #1

Competitor #2

Competitor #3

Personal Expenses

Expenses Amount Home Mortgage/Rent 500$ Taxes State/Federal 250 Real Estate 45 Other 10 Insurance Health 85 Home Owner's 45 Automobile 85 Life 25 Auto Loan Payment 475 Other Loan Payment 150 Telephone 60 Gas/Electricity Utilities 140 Wastes Disposal 25 Educational Expenses 120 Medical/Dental Expenses 45 Auto Expenses 35 Food At Home 350 Eating Out 300 Clothing 150 Household Supplies 75 Recreation & Entertainment 100 Savings & Investments 200 Cash Contributions 50 Other Expenses 100 TOTAL EXPENDITURES 3,420$

Operating Expense (Ongoing)

VARAIBLE EXPENSES Salary of Owner 3,420$ (Minimum Living Expenses) Employee Wages 1,360 Professional Fees (Accounting, Legal) 75 Advertising 250 Materials & Inventory 1,000 Supplies 350 Telephone (Long distance) 175 Maintenance (Petty Cash, Postage, Shipping) 250 Other (List) 200 Total Varaible Expenses 7,080

FIXED EXPENSES Rent: Building 550 Equipment 350 Utilities 200 Telephone (Base Fee) 100 Taxes & Licenses 45 Insurance 125 Other 100 Total Fixed Expenses 1,470

TOTAL BUSINESS EXPENSES PER MONTH 8,550$

Start-Up Expenses (One Time)

Item(s) AmountEquipment 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

Business’s Resume

Timetable for operations

Modeling tool

Tracks progress

Attachments to the Business PlanAttachments 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 $ources of Capital, From Most Common to Least CommonCommon to Least Common$ources of Capital, From Most $ources of Capital, From Most Common to Least CommonCommon 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

CASH

Total Project Cost

- Less: Your Injection

= Projected Amount Needed

Types of Business Organizations

Record Keeping

Regulations

Financing

Small Business Development Center

Feasibility

How to Start a Business

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


Record Keeping

Regulations

Financing


Feasibility

Feasibility

How to Start a Business Financing

A Business Plan

Monthly Set of Financial Projections–Income Statement–Cash Flow Statement–Balance Sheet

Breakdown of Loan request. How will you use the money?

Sources and Uses of equity capital (New business or additional injection)

Supporting Documentation


Record Keeping

Regulations

Financing


Feasibility

How to Start a Business Financing

A Business Plan

Copies of any notes to be refinanced

Bids, proposals, estimates for: •Capital equipment •Leasehold improvements•Construction

Supporting Documentation


Record Keeping

Regulations

Financing


Feasibility

What is a Business Plan?What is a Business Plan?What is a Business Plan?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 PlanKey Elements of any Business Plan

1. Executive Summary/Introduction2. Description of Products/Services3. Manufacturing & Operations Plan4. Marketing Strategy and Competitor Analysis5. Sales Plan6. Management Plan7. Financial Analysis

The Length 8-15 pages

Attachments to the Business PlanAttachments to the Business Plan

Tax Returns (Business & Personal)ResumesWritten EstimatesPersonal Financial StatementsContracts / AgreementsOrg. Charts / Job DescriptionsAppraisals / Blue Prints / Floor PlansOther Relevant Information

Employee relations

Communication

Networking

Differentiation/Innovation

The bottom line in Business

Three basic classifications of Employees

1) Extra-Role Behavior Employees (OCB +)

2) Contractual Agreement Employees (=)

3) Sub-Optimal Employees (-)

Explaining the Employee Explaining the Employee Behavior ModelBehavior Model

Social ComparisonSocial Comparison

Equity / Social Capital Inputs/Outputs (=) with comparison to

referent others

Social exchange affects all areas of life (guanxi – inhwa – fairness – palanca)

OCB

Organizational Justice

Job SatisfactionJob Performance

Trust/commitment

Theoretical Model of Employee Theoretical Model of Employee Work BehaviorWork Behavior

Source:Bateman & Organ, 1983; Konovsky & Pugh, 1994; Moorman, 1991; Organ, 1988

Distribution of rewardsProcedure of the organizationInteraction with co-workers & managers

PayCo-worker/managersJob itselfPolicy/advancement

Organizational Commitment (Morrison, 1994)

Develops over time w/ the organization

Disposition or Affect (Hartman et al. 1987)

Organizational Trust (Konovsky & Pugh, 1994)

Develops over time w/ the organization and managers


Job Satisfaction (Iafffaldano & Muchinsky, 1985; Locke, 1976; Lagace, et al. 1993)

Work itselfPayCo-WorkersAdvancement/Company PolicyManagement

J S – Affects/Correlates employee absenteeism, turnover intent, organizational sabotage,

organizational theft, stress, health, life satisfaction, and organizational commitment


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


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)


U.S. forms of OCB Example

Altruism Helping coworker with a project (new machine)

Switching vacation dates with another employee

Conscientiousness Never missing a day of work

Coming to work early or staying late if needed

Civic Virtue Attending voluntary meeting and functions

Reading memos, email, etc… to keep up with the organizations new information (sharing it with others)

Sportsmanship Not finding fault with the organization

Making do without complaints

Courtesy “Turning the other cheek” to avoid unnecessary problems


OCBs in a Chinese cultural setting

Protecting company resourcesCaring for the organization’s resources

Do not abuse the organization’s policies

Interpersonal harmonyUses power in an inappropriate manner

Takes and seeks undeserved credit

Farh, Earley, and Lin, 1997


OCBs in a Mexican cultural settingProtecting company resourcesCaring for the organization’s resourcesDo not abuse the organization’s policiesInterpersonal harmonyUses power in an inappropriate mannerTakes and seeks undeserved creditAltruism Helping coworker with a project (new machine)Switching vacation dates with another employeeCivic VirtueAttending voluntary meeting and functionsReading memos, email, etc… to keep up with the organizations new information (sharing it with others)CourtesyIn everyday interactionsLoyaltyTo the immediate manager and then to the organizationDevelopment – Learning – TeachingDesarrollo – personal growth for the benefit of the organization


Ortiz 1999; 2000

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)

Organizational Behavior Organizational Behavior ResearchResearch

Old and the newOld 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 Positive manager and leader characteristicsleader 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 ImplicationsManagerial ImplicationsRecommendationsRecommendations

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 Useful Websites for BusinessesBusinesses

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

Entrepreneurship and Management Luis Ortiz, Ph.D. October 18, 2003 Economic Development Center.

Documents

Transcript of Entrepreneurship and Management Luis Ortiz, Ph.D. October 18, 2003 Economic Development Center.