Eleventh Edition

Global Edition

Entrepreneurship and Effective

Small Business Management

Norman M. Scarborough

Presbyterian College

Jeffrey R. Cornwall

Belmont University

PEARSON

Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto

Delhi Mexico City Säo Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

Contents

Preface 23

Acknowledgments 26

SECTION I The Rewards and Challenges of Entrepreneurship 29

Chapter 1 Entrepreneurs: The Driving Force Behind Small Business 29 The Role of the Entrepreneur 30 What Is an Entrepreneur? 33 • ENTREPRENEURSHIP IN ACTION Space: The Next Entrepreneurial

Frontier? 37 How to Spot Entrepreneurial Opportunities 38

Monitor Trends and ExploitThem Early On 38 Travel—and Be Inspired 39 Take a Different Approach to an Existing Market 39 Put a New Twist on an Old Idea 39 Look for Creative Ways to Use Existing Resources 40 Realize That Others Have the Same Problem You Do 40 Take Time to Play 40 Notice What Is Missing 40

The Benefits of Owning a Small Business 41 Opportunity to Gain Control over Your Own Destiny 41 Opportunity to Make a Difference 41 Opportunity to Reach Your Füll Potential 42 Opportunity to Reap Impressive Profits 42 Opportunity to Contribute to Society and Be Recognized for Your Efferts 42 Opportunity to Do What You Enjoy Döing 43

The Potential Drawbacks of Entrepreneurship 43 Uncertainty of Income 43 Risk of Losing Your Entire Invested Capital 43 Long Hours and Hard Work 44 Lower Quality of Life Until the Business Gets Established 44 High Levels of Stress 44 Complete Responsibility 45 Discouragement 45

Why the Boom: The Fuel Feeding the Entrepreneurial Fire 45 Entrepreneurs as Heroes 45 Entrepreneurial Education 45 Shift to a Service Economy 45 Technology Advancements 45 Outsourcing 46 Independent Lifestyle 46 E-Commerce, the Internet, and Mobile Computing 46 International Opportunities 47 • IN THE ENTREPRENEURIAL SPOTLIGHT Collegiate Entrepreneurs 47

6 CONTENTS

The Cultural Diversity of Entrepreneurship 48 Young Entrepreneurs 48 Women Entrepreneurs 49 Minority Enterprises 50 Immigrant Entrepreneurs 51 Part-Time Entrepreneurs 52 Home-Based Business Owners 52 Family Business Owners 52 Copreneurs 54 Corporate Castoffs 55 Corporate "Dropouts" 55 Retired Baby Boomers 56

The Contributions of Small Businesses 56 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Bulletproofing Your

Start-Up 58 Putting Failure into Perspective 59 How to Avoid the Pitfalls 60

Know Your Business in Depth 60 Prepare a Business Plan 61 Manage Financial Resources 61 Understand Financial Statements 61 Learn to Manage People Effectively 62 Set Your Business Apart from the Competition 62 Maintain a Positive Attitüde 62

Condusion—and a Look Ahead 62 Chapter Review 63 • Discussion Questions 64

Chapter 2 Ethics and Social Responsibility: Döing the Right Thing 65 An Ethical Perspective 67

Three Levels of Ethical Standards 68 Immoral, Amoral, and Moral Management 69 The Benefits of Moral Management 70 Establishing an Ethical Framework 71

Why Ethical Lapses Occur 72 An Unethical Employee 73 An Unethical Organizational Culture 73 Moral Blindness 73 Competitive Pressures 73 Opportunity Pressures 73 Globalization of Business 73

Establishing and Maintaining Ethical Standards 74 Establishing Ethical Standards 74 Maintaining Ethical Standards 74 • ENTREPRENEURSHIP IN ACTION Don't Just Do It, Do It Right 77

Social Entrepreneurship 77 • IN THE ENTREPRENEURIAL SPOTLIGHT Making a Profit and Making

a Difference 78 Social Responsibility 79 Business's Responsibility to the Environment 80 Business's Responsibility to Employees 81

Cultural Diversity in the Workplace 82 DrugTesting 85

CONTENTS 7

HIV/AIDS 86 Sexual Harassment 87 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Avoid Sexual

Harassment Charge; 90 Privacy 92 • ENTREPRENEURSHIP IN ACTION Think Before You Hit "Post"

on Facebook 92 Business'; Responsibility to Customers 93

Right to Safety 93 Right to Know 94 Right to Be Heard 94 Right to Education 94 Right to Choice 95

Business's Responsibility to Investors 95 Business's Responsibility to the Community 95 Condusion 96 Chapter Review 96 • Discussion Questions 97

Chapter 3 Creativity and Innovation: Keys to Entrepreneurial Success 99 Creativity, Innovation, and Entrepreneurship 100 Creativity—Essential to Survival 104

Can Creativity Be Taught? 106 Creative Thinking 106 • IN THE ENTREPRENEURIAL SPOTLIGHT The Ingredients of Creativity 107

Barriers to Creativity 109 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Questions to Spur

the Imagination 113 How to Enhance Creativity 114

Enhancing Organizational Creativity 114 Enhancing Individual Creativity 119 • IN THE ENTREPRENEURIAL SPOTLIGHT How to Create a Culture

of Creativity and Innovation 124 The Creative Process 125

Step 1. Preparation 125 Step 2. Investigation 126 Step 3. Transformation 126 Step 4. Incubation 127 Step 5. Illumination 129 Step 6. Verification 129 Step 7. Implementation 130

Condusion 130 Chapter Review 131 • Discussion Questions 131

Chapter 4 Strategie Management and the Entrepreneur 133 Building a Competitive Advantage 136 The Strategie Management Process 138

Step 1. Develop a Clear Vision and Translate It into a Meaningful Mission Statement 139 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Thriving

on Change 141 Step 2. Assess the Company's Strengths and Weaknesses 142 Step 3. Scan the Environment for Significant Opportunities andThreats Pacing the Business 143 Step 4. Identify the Key Factors for Success in the Business 144

CONTENTS

Step 5. Analyze the Competition 146 Step 6. Create Company Goals and Objectives 150 • ENTREPRENEURSHIP IN ACTION Vizio: Disrupting Another Market 152 Step 7. Formulate Strategie Option: and Select the Appropriate Strategie: 153 • IN THE ENTREPRENEURIAL SPOTLIGHT Strategie; for Success 158 Step 8. Translate Strategie Plans into Action Plans 159 Step 9. Establish Accurate Controls 160

Condusion 162 Chapter Review 163 • Discussion Questions 164

SECTION II Launching a Venture: Entry Strategies 165

Chapter 5 Choosing a Form of Ownership 165 The Sole Proprietorship 167

Advantages of a Sole Proprietorship 168 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Get That Name

Right! 169 Disadvantages of the Sole Proprietorship 170 • ENTREPRENEURSHIP IN ACTION The Pain of Partnership 171

The Partnership 172 The Uniform Partnership Act 174 Advantages of the Partnership 174 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Avoid

a Business Divorce 176 Disadvantages of the Partnership 177 Limited Partnerships 178 Limited Liability Partnerships 179

The Corporation 179 Requirements for Incorporation 179 Advantages of the Corporation 180 Disadvantages of the Corporation 182 Professional Corporations 183

The S Corporation 183 Advantages of an S Corporation 184 Disadvantages of an S Corporation 185 When Is an S Corporation a Wise Choice? 185

The Limited Liability Company 185 Sodal Enterprises 188 • IN THE ENTREPRENEURIAL SPOTLIGHT From the Life on the Street

to Running a Business 188 Nonprofit Organization 189 Chapter Review 191 • Discussion Questions 192

Chapter 6 Franchising and the Entrepreneur 193 What Is a Franchise? 195 Types of Franchising 196 The Benefits of Buying a Franchise 196

A Business System 197 Management Training and Support 198 Brand-Name Appeal 199 Standardized Quality of Goods and Services 199 National Advertising Programs 199 Financial Assistance 200 Proven Products and Business Formats 201

CONTENTS 9

Centralized Buying Power 201 Site Selection and Territorial Protection 201 Increased Chance for Success 202

Drawbacks of Buying a Franchise 203 Franchise Pees and Ongoing Royalties 203 Strict Adherence to Standardized Operations 204 Restrictions on Purchasing 204 Limited Product Line 205 Market Saturation 205 Limited Freedom 206 No Guarantee of Success 206

Franchising and the Law 206 • ENTREPRENEURSHIP IN ACTION After the Cheering Stops 209

The Right Way to Buy a Franchise 210 Evaluate Yourself 211 Research the Market 211 Consider Your Franchise Options 212 Get a Copy of the FDD and Study It 212 Talk to Existing Franchisees 213 Ask the Franchisor Some Tough Questions 213 Make Your Choice 215 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Make Sure You Select

the Right Franchise 215 Franchise Contracts 216

Termination 218 Renewal 218 Transfer and Buybacks 218 • IN THE ENTREPRENEURIAL SPOTLIGHT The Allure of Franchising 218

Trends in Franchising 219 Changing Face of Franchisees 219 Multiple-Unit Franchising 220 International Opportunities 220 • IN THE ENTREPRENEURIAL SPOTLIGHT The Middle East: A Hot Spot

for Franchising 221 Smaller, Nontraditional Locations 223 Conversion Franchising 223 Refranchising 223 Area Development and Master Franchising 223 Cobranding 224 Serving Dual-Career Couples and Aging Baby Boomers 225

Franchising as a Growth Strategy 225 Unique Concept 225 Replicable 225 Expansion Plan 226 Due Diligence 226 Legal Guidance 226 Support for Franchisees 226

Condusion 226 Chapter Review 226 • Discussion Questions 227

Chapter 7 Buying an Existing Business 229 Buying an Existing Business 231

Advantages of Buying an Existing Business 231 Disadvantages of Buying an Existing Business 233

10 CONTENTS

The Search Stage 236 Self-Inventory 236 Develop a List of Criteria 237 Potential Candidates 237 Investigation 238 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Don't Get Burned

When You Buy a Business 240 The Deal Stage 240

Methods for Determining the Value of a Business 241 • IN THE ENTREPRENEURIAL SPOTLIGHT Bond Coffee 250 Negotiating the Deal 251 Letter of Intent 254 The Due Diligence Process 255 • ENTREPRENEURSHIP IN ACTION What's the Deal? 259

The Transition Stage 260 Chapter Review 261 • Discussion Questions 262

Chapter 8 New Business Flanning Process: Feasibility Analysis, Business Modeling, and Crafting a Winning Business Plan 263 Conducting a Feasibility Analysis 265

Industry and Market Feasibility Analysis 265 Product or Service Feasibility Analysis: Is There a Market? 270 Financial Feasibility Analysis: Is There Enough Margin? 271 Entrepreneur Feasibility: Is This Idea Right for Me? 273

Developing and Testing a Business Model 275 Value Proposition 275 Customer Segments 276 Customer Relationships 276 Channels 276 Key Activities 276 Key Resources 276 Key Partners 276 Revenue Streams 277 Cost Structure 277 • ENTREPRENEURSHIP IN ACTION The Evolution of CoolPeopleCare's

Business Model 278 The Benefits of Creating a Business Plan 279 Three Tests That Every Business Plan Must Pass 280

Reality Test 280 CompetitiveTest 280 Value Test 280 • IN THE ENTREPRENEURIAL SPOTLIGHT The Battie of the Plans 281

The Elements of a Business Plan 282 Title Page and Table of Contents 283 The Executive Summary 283 Mission and Vision Statement 283 Company History 284 • IN THE ENTREPRENEURIAL SPOTLIGHT A Business Plan: Don't Launch

Without It 284 Description of Firm's Product or Service 285 Business and Industry Profile 286 Goals and Objectives 286 Business Strategy 286

CONTENTS 11

CompetitorAnalysis 287 Marketing Strategy 287 Visualizirig a Venture's Risks and Rewards 291

What Lenders and Investors Look for in a Business Plan 293 Capital 293 Capacity 293 Collateral 293 Character 293 Conditions 293

The Pitch: Making the Business Plan Presentation 294 Condusion 296 Suggested Business Plan Elements 296 Chapter Review 299 • Discussion Questions 300

SECTION III Building a Marketing Plan 301

Chapter 9 Building a Bootstrap Marketing Plan 301 Creating a Bootstrap Marketing Plan 302 • IN THE ENTREPRENEURIAL SPOTLIGHT Bootstrap Marketing

in the New Music Industry 304 Market Diversity: Pinpointing the Target Market 305 Determining Customer Needs and Wants Through Market Research 306 How to Conduct Market Research 308 • IN THE ENTREPRENEURIAL SPOTLIGHT Bootstrap Marketing Using

Databases 310 Plotting a Bootstrap Marketing Strategy: Building a Competitive Edge 311

Find a Niche and Pill It 312 Retain Existing Customers 313 Concentration on Innovation 313

The Marketing Mix 316 Product 316 Promotion 324 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Marketing

to Millenniais 326 Price 330 Place 331

Chapter Review 332 • Discussion Questions 332

Chapter 10 Creative Use of Advertising and Promotion 333 Define Your Company s Unique Solling Proposition 334 Creating a Promotional Strategy 335

Publicity 335 Personal Selling 337 • ENTREPRENEURSHIP IN ACTION Should an Ambulance Service Hire

Its First Sales Repräsentative? 339 Advertising 340

Selecting Advertising Media 342 Media Options 344 • LESSONS FROM THE STREET-SMART ENTREPRENEUR E-Mail Ads That

Produce Results 350 How to Prepare an Advertising Budget 367 How to Advertise Big on a Small Budget 368

Cooperative Advertising 368 Shared Advertising 369

Stealth Advertising 369 Other Ways to Save 369

Chapter Review 369 • Discussion Questions 370

Chapter 11 Pricing and Credit Strategies 371 Pridng: A Creative Blend of Art and Science 372 Three Powerful Pricing Forces: Image, Competition, and Value 376

Price Conveys Image 376 Competition and Prices 377 Focus on Value 378

Pricing Strategies and Tactics 379 New Product Pricing: Penetration, Skimming, or Sliding 380 Pricing Techniques for Established Products and Services 382 • IN THE ENTREPRENEURIAL SPOTLIGHT How to Compete with Cheap

Knockoffs of Your Successful Product 383 • ENTREPRENEURSHIP IN ACTION Social Coupons: Beneficial—or Just Piain

Bad—for Business? 387 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Enhancing Your

Company s Pricing Power 389 Pricing Techniques for Retailers 390

Markup 390 Pricing Techniques for Manufacturers 392

Direct Costing and Pricing 393 Computing a Break-Even Selling Price 393

Pricing Techniques for Service Businesses 395 The Impact of Credit on Pricing 397 • ENTREPRENEURSHIP IN ACTION To Accept Credit Cards or Not:

That Is the Question 397 Credit Cards 398

Chapter Review 400 • Discussion Questions 401

Chapter 12 Global Marketing Strategies 403 Why Go Global? 406 Going Global: Strategies for Small Businesses 409

Creating a Presence on the Web 409 • IN THE ENTREPRENEURIAL SPOTLIGHT Going Global One Step

ata Time 411 Relying on Trade Intermedianes 412 The Value of Using Trade Intermediaries 413 Joint Ventures 415 Foreign Licensing 416 International Franchising 416 • ENTREPRENEURSHIP IN ACTION Growing Beyond the Borders 419 Countertrading and Bartering 420 Exporting 420 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Finding Your Place

in the World 428 Establishing International Locations 430 Importing and Outsourcing 430

Barriers to International Trade 432 Domestic Barriers 432 International Barriers 433 Political Barriers 434

CONTENTS 13

Business Barriens 434 Cultural Barriers 435

International Trade Agreements 436 World Trade Organization 436 North American Free Trade Agreement 437 The Dominican Republic-Central America Free Trade Agreement 437

Condusion 437 Chapter Review 439 • Discussion Questions 439

Chapter 13 E-Commerce and Entrepreneurship 441 Factors to Consider Before Launching into E-Commerce 444 Ten Myths of E-Commerce 446

Myth 1. If I Launch a Site, Customers Will Flock to It 446 Myth 2. Online Customers Are Easy to Please 448 Myth 3. Making Money on the Web Is Easy 448 Myth 4. Privacy Is Not an Important Issue on the Web 448 Myth 5. "Strategy? I Don't Need a Strategy to Seil on the Web! Just Give Me a Web Site, and the Rest Will Take Care of Itself" 449 Myth 6. The Most Important Part of Any E-Commerce Effort Is Technology 450 Myth 7. On the Web, Customer Service Is Not as Important as It Is in a Traditional Retail Store 450 Myth 8. Flashy Web Sites Are Better Than Simple Ones 451 Myth 9. It's What's Up Front That Counts 452 Myth 10. My Business Doesn't Need a Web Site 452

Strategies for E-Success 453 Focus on a Niche in the Market 454 Develop a Community 454 Attract Visitors by Giving Away" Freebies" 455 Make Creative Use of E-Mail, but Avoid Becoming a "Spammer" 455 Seil the "Experience" 456 Make Sure Your Web Site Says "Credibility" 457 Make the Most of the Internets Global Reach 457 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Make Your

Business Ready for Global E-Commerce 459 Go Mobile 460 Promote Your Web Site Online and Offline 461 Use Social Media Tools to Attract and Retain Customers 461 • ENTREPRENEURSHIP IN ACTION Enhancing E-Commerce with Social

Media 462 Capture Local Traffic 463 Develop an Effective Search Engine Optimization Strategy 463

Designing a Killer Web Site 466 Decide How to Bring Your Site to Life 467 Start with Your Target Customer 467 Give Customers What They Want 467 Select an Intuitive Domain Name 467 Make Your Web Site Easy to Navigate 469 Provide Customer Ratings and Reviews 470 Offer Suggestion: for Related Products 470 Add Wish List Capability 470 Create a Gift Idea Center 470 Establish the Appropriate Call to Action on Each Page 470

14 CONTENTS

Build Loyalty by Giving Online Customers a Reason to Return to Your Web Site 470 Establish Hyperlinks with Other Businesses, Preferably Those Selling Products or Services That Complement Yours 470 Include an E-Mail Option, an Address, and a Telephone Number on Your Site 471 Give Shoppers the Ability to Track Their Orders Online 471 Offer Web-Only Specials 471 Ilse the Power of Social Media 471 Use Customer Testimonials 471 Follow a Simple Design 471 Assure Customers That Online Transactions Are Secure 473 Post Shipping and Handling Charges Up Front 473 Create a Fast, Simple Checkout Process 473 Provide Customers Multiple Payment Options 473 Confirm Transactions 473 Keep Your Site Fresh 473 Rely on Analytics to Improve Your Site 473 Test Your Site Often 473 Consider Hiring a Professional Designer 474 • IN THE ENTREPRENEURIAL SPOTLIGHT Web Site Makeovers 474 Tracking Web Results 475 Software Solutions 475

Ensuring Web Privacy and Security 476 Privacy 476 Security 476

Chapter Review 479 • Discussion Questions 480

SECTION IV Building a Financial Plan 481

Chapter 14 Creating a Solid Financial Plan 481 Basic Financial Reports 482

The Balance Sheet 483 The Income Statement 484 The Statement of Cash Flows 486

Creating Projected Financial Statements 487 Projected Statements for the Small Business 487

Ratio Analysis 493 12 Key Ratios 494 • IN THE ENTREPRENEURIAL SPOTLIGHT Pitcher Strikes Out While

Trying to Hit a Home Run 503 Interpreting Business Ratios 504

What Do All These Numbers Mean? 507 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Gaining

a Competitive Edge 509 Break-Even Analysis 510

Calculating the Break-Even Point 511 Adding a Profit 512 Break-Even Point in Units 512 Constructing a Break-Even Chart 513 Using Break-Even Analysis 514 • IN THE ENTREPRENEURIAL SPOTLIGHT Open Book

Management 515 Chapter Review 516 • Discussion Questions 516

CONTENTS 15

Chapter 15 Managing Cash Flow 517 Cash Management 518 Cash and Profits Are Not the Same 521 • IN THE ENTREPRENEURIAL SPOTLIGHT Cash Flow and Pass-Through

Entities 522 Preparing a Cash Budget 523 • LESSONS FROM THE STREET-SMART ENTREPRENEUR A Short Season 524 Step 1: Determining an Adequate Minimum Cash Balance 526 Step 2: Forecasting Sales 526 Step 3: Forecasting Cash Receipts 530 Step 4: Forecasting Cash Disbursements 530 Step 5: Estimating the End-of-Month Cash Balance 532 • ENTREPRENEURSHIP IN ACTION Rowena's Cash Budget 533

The "Big Three" of Cash Management 534 Accounts Receivable 534 Accounts Payable 538 Inventory 540 • IN THE ENTREPRENEURIAL SPOTLIGHT Be Ready for Inflation! 542

Bootstrapping to Avoid the Cash Crunch 543 Bootstrapping Overhead 544 Bootstrapping Employee Costs 546 Bootstrapping Operating Costs 546 Other Tools for Bootstrapping and Preserving Cash 546

Condusion 549 Chapter Review 549 • Discussion Questions 550

Chapter 16 Sources of Equity Financing 551 Flanning for Capital Needs 554

Fixed Capital 554 Working Capital 555

Sources of Equity Financing 555 Funding from Founders 556 • IN THE ENTREPRENEURIAL SPOTLIGHT Bootstrapping a Technology

Start-Up 558 Friends and Family Members 559 Crowdfunding 560 Accelerators 562 • ENTREPRENEURSHIP IN ACTION Launching a Business in a University

Accelerator 563 Angels 564 Strategie Investments Through Corporate Venture Capital 567 • IN THE ENTREPRENEURIAL SPOTLIGHT Funding Does Not Ensure

Success 568 Venture Capital Companies 569 Policies and Investment Strategies 570 Public Stock Sale ("Going Public") 575

Chapter Review 577 • Discussion Questions 578

Chapter 17 Sources of Debt Financing 579 • IN THE ENTREPRENEURIAL SPOTLIGHT A Tale of Two Borrowers 582

Sources of Debt Capital 583 Commercial Banks 583

16 CONTENTS

Short-Term Loans 584 Intermediate- and Long-Term Loans 586 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Maintain

a Positive Relationship with Your Banker 586 Nonbank Sources of Debt Capital 587 Asset-Based Lenders 587 Trade Credit 589 Equipment Suppliers 590 Commercial Finance Companies 590 Stock Brokerage Houses 591 Insurance Companies 591 Credit Unions 591 Bonds 592 Private Placements 592 Small Business Investment Companies 593

Federally Sponsored Programs 594 Economic Development Administration 594 Department of Housing and Urban Development 594 U.S. Department of Agriculture's Rural Business and Cooperative Program and Business Program 595 Small Business Innovation Research Program 595 • ENTREPRENEURSHIP IN ACTION Where Do We Turn Now? 596 The Small Business Technology Transfer Program 596

Small Business Administration 596 SBA Express Loan Programs 597 SBA Loan Programs 597

State and Local Loan Development Programs 603 • IN THE ENTREPRENEURIAL SPOTLIGHT Alternative Sources

of Financing 603 Other Methods of Financing 604

Factoring Accounts Receivable 604 Leasing 605 Cash Advances 605 Peer-to-Peer Loans 606 Credit Cards 606

Where Not to Seek Funds 606 Chapter Review 607 • Discussion Questions 608

SECTION V Building an Operating Plan 609

Chapter 18 Location, Layout, and Physical Facilities 609 Stages in the Location Decision 610

Selecting the Region 611 Selecting the State 614 Selecting the City 617 The Final Site Selection 624 • ENTREPRENEURSHIP IN ACTION The Ideal Spot 624

Location Criteria for Retail and Service Businesses 626 Trade Area Size 626 Customer Traffic 627 Adequate Parking 627 Reputation 628 Visibility 628 The Index of Retail Saturation 628 Reilly's Law of Retail Gravitation 629

CONTENTS 17

• IN THE ENTREPRENEURIAL SPOTLIGHT Transformed Locations 629 Location Option; for Retail and Service Businesses 630

Central Business District 631 Neighborhood Locations 631 Shopping Centers and Mails 631 Near Competitors 634 Shared Spaces 635 Inside Large Retail Stores 635 Nontraditional Locations 635 Home-Based Businesses 635 On the Road 636 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Launch

a Successful Pop-Up Shop 636 The Location Decision for Manufacturers 638 Foreign Trade Zones 638 Business Incubators 639

Layout and Design Considerations 640 Size and Adaptability 641 External Appearance 641 Entrances 642 The Americans with Disabilities Act 642 Signs 643 Interiors 643 Drive-Through Windows 644 Sight, Sound, Scent, and Lighting 645 Sustainability and Environmental^ Friendly Design 647

Layout: Maximizing Revenue:, Increasing Efficiency, and Reducing Costs 647 Layout for Retailers 647 • IN THE ENTREPRENEURIAL SPOTLIGHT The Secrets of Successful Retail

Layouts 649 Layout for Manufacturers 650

Chapter Review 653 • Discussion Questions 654

Chapter 19 Supply Chain Management 655 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Manage

Supply Chain Risk 659 Creating a Purchasing Plan 660 Quality 662 Quantity: The Economic Order Quantity 667

Cost of Units 669 Holding (Carrying) Costs 669 Setup (Ordering) Costs 670 Solving for EOQ 670 EOQ with Usage 673

Price 674 Trade Discounts 674 Quantity Discounts 674 Cash Discounts 675

Timing—When to Order 677 Managing the Supply Chain: Vendor Analysis and Selection 682 • IN THE ENTREPRENEURIAL SPOTLIGHT Integrating Local Suppliers into

a Complex Supply Chain 683 Vendor Certification 685 The Final Decision 687

18 CONTENTS

• IN THE ENTREPRENEURIAL SPOTLIGHT Back in the USA 688 Legal Issues Affecting Purchasing 690

Title 690 Risk of Loss 690 Insurable Interest 691 • ENTREPRENEURSHIP IN ACTION Supply Chain Innovation

at Mother Dairy 691 Receiving Merchandise 692 Selling on Consignment 692

Chapter Review 693 • Discussion Questions 693

Chapter 20 Managing Inventory 695 Inventory Control Systems 700

Perpetual Inventory Systems 700 • IN THE ENTREPRENEURIAL SPOTLIGHT An Ideal Inventory

Solution 702 Partial Inventory Control Systems 702 Physical Inventory Count 706 Radio Frequency Identification Tags 706 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Best Practices

in Inventory Management 708 Just in-Time Inventory Control Techniques 709

Just-in-Time Techniques 709 Turning Slow-Moving Inventory into Cash 711 Protecting Inventory from Theft 713

Employee Theft 713 • ENTREPRENEURSHIP IN ACTION A Thief Within 719 Shoplifting 720 • ENTREPRENEURSHIP IN ACTION A Tale of Two Shoplifters 724

Condusion 728 Chapter Review 728 • Discussion Questions 729

Chapter 21 Staffing and Leading a Growing Company 731 The Entrepreneur s Role as Leader 732 Hiring the Right Employees: The Company s Future Depends on It 735

How to Hire Winners 736 • ENTREPRENEURSHIP IN ACTION Facebook Interview

Process 742 Conducting the Interview 743 • ENTREPRENEURSHIP IN ACTION Building an Intentional Culture

at Zappos 747 Building the Right Culture and Organizational Structure 748

Managing Growth and a Changing Culture 750 • IN THE ENTREPRENEURIAL SPOTLIGHT What a Great Place

to Work! 751 Team-Based Management 752

Communicating Effectively 753 Improving Communication 754 Listening 755 The Informal Communication Network: The "Grapevine" 756

The Challenge of Motivating Workers 756 Empowerment 756 Job Design 758 Rewards and Compensation 760

• LESSONS FROM THE STREET-SMART ENTREPRENEUR Sabbaticals 763 Performance Feedback 764 Performance Appraisal 765

Chapter Review 767 • Discussion Questions 768

SECTION VI Legal Aspects of Small Business: Succession, Ethics, and Government Regulation 769

Chapter 22 Management Succession and Risk Management Strategies in the Family Business 769 Family Businesses 770

ßenefits of Family Businesses 770 The Dark Side of Family Businesses 771 Characteristics of Successful Family Businesses 773

Exit Strategies 776 Selling to Outsiders 777 Selling to Insiders 777 • LESSONS FROM THE STREET-SMART ENTREPRENEUR How to Set Up

an ESOP 779 Management Succession 780 • IN THE ENTREPRENEURIAL SPOTLIGHT Can Your Family Business Survive

for Centuries? 783 Developing a Management Succession Plan 784

Buy-Sell Agreement 788 Lifetime Gifting 789 Setting Up a Trust 789

Risk Management Strategies 791 The Basics of Insurance 793

Types of Insurance 794 • IN THE ENTREPRENEURIAL SPOTLIGHT The Aftermath of a Storm 798

Controlling Insurance Costs 805 Chapter Review 807 • Discussion Questions 808

Chapter 23 The Legal Environment: Business Law and Government Regulation 809 The Law of Contracts 811

Agreement 811 Contractual Capacity 814 Legality 815 Breach of Contract 816

The Uniform Commercial Code 816 Sales and Sales Contracts 817 Breach of Sales Contracts 819 Sales Warranties and Product Liability 819

Protection of Intellectual Property Rights 822 Patents 823 Trademarks 826 • ENTREPRENEURSHIP IN ACTION Protecting Your Brand 827 Copyrights 828 Protecting Intellectual Property 828

The Law of Agency 829 Bankruptcy 830

Forms of Bankruptcy 831

• IN THE ENTREPRENEURIAL SPOTLIGHT A Second Chance at Success 833 Government Regulation 834

Trade Practices 835 Consumer Protection 837 • LESSONS FROM THE STREET-SMART ENTREPRENEUR Are Your Ads Setting

You Up for Trouble? 838 Consumer Credit 839 Environmental Law 840 • ENTREPRENEURSHIP IN ACTION Small Businesses and Eminent

Domain 841 The Affordable Care Act 842

Chapter Review 843 • Discussion Questions 844

APPENDIX The picturebooth co. 845

Cases 859

Endnotes 874

Index 912