Final Chapter 5 6 7 8 on Entrepreneurship and small business development

Chapter 5       Forms of Business Ownership

Key words: Sole Proprietorship, Partnership, Corporations, Joint Venture

Introduction                                                                                                                        

      The most attractive form of business ownership meets the specific needs of the business and its owners in these eight areas:

1.       Tax considerations

2.       Liability exposure

3.       Start-up and future capital requirements

4.       Control

5.       Managerial ability

6.       Business goals

7.       Management succession plans

8.       Cost of formation

Business owners may need to make concessions due to the trade-offs associated with eight these factors.

The major forms of ownership include:                                                                          

·         Sole proprietorship

·         Partnership

·         Corporation

·         S corporation

·         Limited liability company

·         Joint venture

The data regarding the distribution of the percentage of each business form and the percentage of total business sales revenues illustrates the dominate forms of business ownership. Refer to Figure 5.1.     

I.    The Sole Proprietorship                                                                                                 

      The sole proprietorship is the most popular type of ownership, defined as business owned and managed by one individual.

      Advantages of the sole proprietorship include:

            1.   Simple to create

            2.   Least costly form of ownership to begin

            3.   Profit incentive

            4.   Offers total decision-making authority

            5.   No special legal restrictions

            6.   Easy to discontinue

Disadvantages of the sole proprietorship include:                                                           

            1.   Unlimited personal liability

            2.   Limited skills and capabilities

            3.   Feelings of isolation

            4.   Limited access to capital

            5.   Lack of continuity for the business

      The sole proprietorship has implications regarding the claims of the business’s creditors and the owner’s personal assets. They are treated the same under this unlimited liability situation.                                              

II.  The Partnership                                                                                                             

      A partnership is an association of two or more people who co-own a business for the purpose of making a profit. This association between the owners is defined by the partnership agreement and The Uniform Partnership Act (UPA), which codifies the body of law dealing with partnerships.

      Advantages of a partnership include:                                                                              

            1.   Easy to establish

            2.   Complementary skills

            3.   Division of profits

            4.   Larger pool of capital

            5.   Ability to attract limited partners

      Types of partnerships include:                                                                                         

1.      Limited partnership

2.      Limited liability partnership

3.      Master limited partnership

      Additional partnership advantages include:                                                                      

            1.   Easy to establish

            2.   Complementary skills

            3.   Division of profits

            4.   Larger pool of capital

            5.   Ability to attract limited partners

      This list can be expanded further to include:

            6.   Little governmental regulation

            7.   Flexibility

            8.   Taxation

      Disadvantages of partnership include:                                                                             

            1.   Unlimited liability of at least one partner

            2.   Capital accumulation

            3.   Difficulty in disposing of partnership interest without dissolving the partnership

            4.   Lack of continuity

            5.   Potential for personality and authority conflicts

      Limited partnerships are composed of at least one general partner to actively participate in the business and one or more limited partners that look much like investors in the business, each with specific roles.      

III. Corporations                                                                                                                  

      The corporation is a separate entity apart from its owners, and may engage in business, make contracts, sue and be sued, and pay taxes. It is a legal entity and represents the most complex form of business ownership.

      “C corporations” are creations of the state and are categorized as either:

            1.   Domestic corporation

            2.   Foreign corporation

            3.   Alien corporation

      Corporation can be publicly held by many, or closely held by a relatively small number of owners.                              

      The process of incorporation includes:

            1.   Certificate of Incorporation

            2.   Bylaws

      Advantages of a corporation include:                                                                               

            1.   Limited liability of stockholders

            2.   Ability to attract capital

            3.   Ability to continue indefinitely

            4.   Transferable ownership

      Disadvantages of a corporation include:                                                                          

            1.   Cost and time involved in the incorporation process

            2.   Double taxation

            3.   Potential for diminished managerial incentives

            4.   Legal requirements and regulatory red tape

            5.   Potential loss of control by the founder(s)

IV.   Other Forms of Ownership                                                                                         

      “S” corporation: An “S” corporation, standing for “small,” is the same as any other corporation, except that a distinction applies for federal income tax purposes.

            The criteria for businesses seeking “S” status are that the venture must:

·         Be a domestic (U.S.) corporation

·         Not have a nonresident alien as a shareholder

·         Have only one class of common stock so all shares have the same rights

·         Limit shareholders to individuals, estates, and certain types of trusts

·         Not have more than 100 shareholders

·         Have less than 25 percent of the corporation’s gross revenues during three successive tax years came from passive sources

            Advantages of an S corporation include:

·         Retains all of the advantages of regular corporations

·         Passes all profits/losses through to individual shareholders

·         Avoids double taxation

·         Avoids taxes paid on assets that have appreciated in value and are sold

            Disadvantages of an S corporation include:

·         Increase in individual tax rates above maximum corporate tax rate

·         Many fringe benefits cannot be deductible business expenses

      Choosing an “S” corporation wisely is important to optimize the advantages this entity offers.

      The Limited Liability Company (LLC): The limited liability company is a cross between a partnership and a corporation. LLCs offer many of the advantages of both, but are not subject to the restrictions incurred by “S” corporations. LLCs offer the tax advantage of a partnership, the legal protection of a corporation, and maximum operating flexibility. These advantages make the LLC an attractive form of ownership for smaller companies across many industries.                                                                                   

      Creating an LLC is much like creating a corporation through establishing the articles of organization and an operating agreement.

      LLCs are limited to no more than two of the following corporate concepts:
                                                                                                                                               

·         Limited liability

·         Continuity of life

·         Free transferability of interest

·         Centralized management

      Professional Corporation: Professional corporations are designed to offer professionals—lawyers, doctors, dentists, accountants, and others—the same advantages of the corporate form of ownership.     

Joint Venture: A joint venture is much like a partnership, except the joint venture is formed for a specific and limited purpose. For example, multiple investors may form a joint venture to build a building, sell it, and dissolve the joint venture when that sale is finalized.                                                                                           

Chapter 6       Franchising and the Entrepreneur

Key words: Franchises

Introduction                                                                                                                          

The number of franchises has grown tremendously. In fact, a new franchise opens somewhere in the world every eight minutes!

The number of U.S. franchises has increased consistently since the 1970s, and the continued growth since the mid–1980s documents that franchises continues to play a significant role in the U.S. business economy.     

Franchising is a business structure comprised of semi–independent business owners (referred to as the franchisees) that pay fees and royalties to a parent company (referred to as the franchiser) in return for the right to be identified with its trademark, to sell its products or services, and often to use its business format and system.     

The connection between the franchiser and the franchisee is unique and involves what is often a highly structured and defined business relationship regarding:                                                   

·         Site selection

·         Design

·         Employees

·         Products and services

·         Prices

·         Purchasing

·         Advertising

·         Quality control

·         Support

I.    Types of Franchises                                                                                                        

      There are three types of franchising systems:

1.      Tradename franchising

2.      Product distribution franchising

3.      Pure (or comprehensive or business format) franchising

      One of the primary reasons for interest in a franchise system is that the franchisee is able           to tap into the proven experience and guidance that the franchise offers.                                                       

II.  The Benefits of Buying a Franchise                                                                              

      Benefits of franchising include:

·         Management training and support

·         Brand name appeal

·         Standardized quality of goods and services

·         National advertising programs

·         Financial assistance – Refer to Figure 6.3: Franchisor Financial Assistance

·         Proven products and business formats

·         Centralized buying power

·         Site selection and territorial protection

·         Greater chance for success

These benefits have proven to have a positive impact on the success rate of franchises, beginning in the first year of operation, compared to nonfranchise ventures.                                                    

III. The Drawbacks of Buying a Franchise                                                                         

      There are some negative attributes of buying a franchise and those include:

·         Franchise fees and profit sharing  

·         Strict adherence to standardized operations

·         Restrictions on purchasing

·         Limited product line

·         Unsatisfactory training programs

·         Market saturation

·         Less freedom

      The 10 myths regarding franchising are that:                                                                   

1.      Franchises will be safer and will not fail

2.      Franchises will be economical

3.      Franchises will be more successful based on its size

4.      Franchises will be able to have improvement potential

5.      Franchises will be “all the same”

6.      Franchises will enable the owner to be removed from day–to–day management

7.      Franchises will be a business anyone can do

8.      Franchises will be the cheapest business option

9.      Franchises will be taking care of my business problems

10.  Franchises will be a business “I” can run things the way “I” want to

IV. Franchising and the Law                                                                                               

In response to problems that occurred in the 1950s to the franchising boom and the associated franchisers who defrauded their franchisees, strict laws attempt to prevent such behavior.

Franchise Disclosure Document (FDD): In 2008, the FTC replaced the Uniform Franchise Offering Circular (UFOC) with the Franchise Disclosure Document (FDD). The FDD establishes full disclosure and guidelines for the franchising company. The FDD requires all franchisers to disclose detailed information to prospective franchisees before any offer or sale of a franchise. This document contains 23 major topics in its disclosure statement.

Trade Regulation Rule: Enacted by the Federal Trade Commission (FTC) requiring all franchisers to disclose detailed information on their operations at the first personal meeting or at least ten days before a franchise contract is signed, or before any money is paid. In this section, the twenty–three major topics required by the Trade Regulation Rule are discussed as well.

Red flags to detect dishonest franchisers occur when franchises:                                     

·         Fail to provide sufficient documentation

·         Have marginally successful or no prototypes

·         Offer a poorly prepared operations manual

·         Promise future earning with no documentation

·         Demonstrate a franchise turnover or termination rates

·         Experience an unusual amount of litigation by franchisees

·         Discourage having your attorney review the contract

·         Have no written documentation

·         Exert a high degree of pressure

·         Claim to be exempt from federal disclosure laws

·         Promise high profits with minimal effort

·         Are reluctant to provide a list of referral franchisees

·         Respond with evasive, vague answers to your questions

Potential franchisees need to be aware and cautious when they see these signs. These issues may indicate that there are real concerns and, in the worst-case scenario, deception.

V.  The Right Way to Buy a Franchise                                                                                

      The steps to consider buying a franchise are:

1.      Evaluate yourself

2.      Research your market

3.      Consider your franchise options

4.      Get a copy of the franchiser’s FDD

5.      Talk to existing franchisees

6.      Ask the franchiser some tough questions

7.      Make your choice

      Factors that make a franchise appealing include an association with:                              

·         A unique concept

·         The potential profitability

·         The benefits of a registered trademark

·         A proven business system

·         Training programs

·         Its affordability

·         The relationships with other franchisees:

VI. Trends Shaping Franchising

Franchising has experienced three major growth waves since its beginning with fast–food activity in the 1970s, service businesses in the 1980s, and low–cost franchises that focus on specific market niches.

Today, franchisees are better educated, are more sophisticated, have more business acumen, and are more financially secure than those of the past. Other trends include:
                                                                                                                                         

·         Multiple–unit franchising

·         International opportunities

·         Smaller, nontraditional locations

·         Conversion Franchising

·         Master franchising

·         Piggybacking (combination or multi–branded franchising)

·         Serving dual–career couples and baby boomers

Section II.        Building the Business Plan:

                             Beginning Considerations

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Chapter 7       Buying an Existing Business

Key words: Existing Business

Introduction                                                                                                                          

Some entrepreneurs choose to buy existing businesses rather than start their own. In a typical year, between 500,000 to one million businesses are bought and sold. Purchasing an established business can offer many advantages—if the entrepreneur knows what they are really buying and if the business is priced right.

I.    Buying an Existing Business                                                                                          

A prospective owner must ask several key questions before buying an existing business.

·         Is it the right type of business for the market?

·         What experience do I bring to the venture?

·         What is the success potential?

·         What changes are needed—and how extensive are they—to realize the full potential of the value of the business?

People buy businesses for different reasons. As described in Figure 7.1: Types of Business Buyers, we can categorize buyers into four areas:                                                                                     

1.      Main street buyers

2.      Corporate refugees

3.      Serial entrepreneurs

4.      Financial buyers

      Advantages of buying an existing business include:                                                        

·         A successful existing business may continue to be successful.

·         An existing business may already have the best location.

·         Employees and suppliers are established.

·         Equipment is installed and productive capacity is known.

·         Inventory is in place and trade credit is established.

·         The new business owner hits the ground running.

·         The new owner can use the experience of the previous owner.

·         Easier financing.

·         It's a bargain (maybe?).

      Disadvantages of buying an existing business include:                                                   

·         It's a loser (maybe?).

·         The previous owner may have created ill will.

·         The business location may have become/is unsatisfactory.

·         Equipment and facilities may be obsolete or inefficient.

·         Change and innovation are difficult to implement.

·         Inventory may be outdated or obsolete.

·         Accounts receivable may be worth less than face value. Figure 7.1                     

·         Changes may be difficult to implement.                                                               

·         Inventory may be stale.

·         Accounts payable may be worth more than face value.

·         The business may be overpriced.

II.  Steps in Acquiring a Business                                                                                        

More than half of business acquisitions fail to meet the buyers’ expectations. The correct way to evaluate a match is to:

·         Analyze your skills, abilities.

·         Prepare a list of potential candidates.

·         Investigate and evaluate candidate businesses and evaluate the best one.

·         Explore financing options—the seller is a potential source.

·         Ensure a smooth transition—communicate with employees, listen and ask.

III. Evaluating an Existing Business – The Due Diligence Process                                   

A potential buyer should explore a business opportunity by examining five critical areas.

1.   Why does the owner want to sell?

There are many reasons business owners plan to sell their companies and knowing that motivation will be beneficial to the buyer.                                                                                    

2.      Assess the physical condition of the business:

·         Accounts receivable

·         Lease arrangements

·         Business records

·         Intangible assets

·         Location and appearance

3.   What is the potential for the company's products or services?

·         Product line status

·         Potential for company’s products or services

·         Customer characteristics and composition

·         Competitor characteristics and composition

4.   What legal aspects should you consider?                                                             

·         Liens

·         Bulk transfers

·         Contract assignments

·         Covenants not to compete

·         Ongoing legal liabilities

5.   Is the business financially sound?                                                                        

·         Income statements and balance sheets for past 3-5 years

·         Income tax returns for the past 3-5 years

·         Owner's compensation (relatives, skimming)

·         Cash flow

The acquisition process involves seven key steps as described in Figure 7.2: The Acquisition Process:              

1.      Identify and approach the candidate

2.      Sign the nondisclosure statement

3.      Sign the letter of intent (LOI)

4.      Buyer’s due diligence investigation

5.      Draft the purchase agreement

6.      Close the final deal

7.      Begin the transition

IV. Methods for Determining the Value of a Business                                                       

Business valuation is partly an art and partly a science. Establishing a price for a privately held business may be difficult due to the nature of the business itself. Good will may be a key consideration.

      There are a few rules for establishing the value of a business:

·         There is no single best method to determine a business's worth. The best way is to compute the value using different methods and choose the one that justifiably results in a realistic value.

·         Both parties, buyer and seller, must be satisfied with the deal.

·         Both the buyer and seller should have access to business records.

·         Valuations should be based on facts, not fiction.

·         Both parties should deal with one another honestly and in good faith.

Business valuation techniques include:

            The basic balance sheet methods offer two techniques:                                            

                  The balance sheet technique

                  Adjusted balance sheet technique

            Earnings approach with three variations:

                  Variation 1: Excess earnings method

                  Variation 2: Capitalized earnings approach

                  Variation 3: Discounted future earnings approach

            Market approach

      We will now address each of these earnings approaches.

The balance sheet technique determines “book value” of net worth by subtracting total liabilities from total assets.       

The earnings approach has three variations. The first variation, the excess earning method, includes six steps:        

1.      Computing the adjusted tangible net worth

2.      Calculating the opportunity cost of investing

3.      Projecting earnings for the next year

4.      Computing extra earning power (EEP)

5.      Estimating the value of the “goodwill” intangibles

6.      Determining the value of the business

The capitalized earnings method is a second variation. This method is based on the net earnings after deducting the owner’s salary over the rate of return.                                                        

The discounted future earnings method is a third variation and five steps are a part of this technique.                               

1.      Forecasts projected earnings for five years.

2.      Discount these projections based on a weighted average of future earnings at the appropriate present value rate.

3.      Estimate the earnings stream beyond five years.

4.      Discount this estimate using the present value factor for year 6.

5.      Compute the value of the business.

The market approach involves two steps:                                                                       

1.      Computes the average price earnings (P-E) ratio for as many similar businesses as possible.

2.      Multiplies the average P-E ratio by next year’s forecasted earnings.

V.  Understanding the Seller's Side                                                                                    

A recent study found that 64 percent of closely held companies expect to sell their businesses within three years.

Structuring the deal is one of the most important decisions a seller can make. Tax implications can be significant; therefore, a skilled tax planner can help. Exit strategy options include:

·         Straight business sale

·         Sale with an agreement to stay on

·         Form a family limited partnership

·         Sell a controlling interest

·         Restructure the company – Figure 7.5: Restructuring a Business for Sale

·         Sell to an international buyer                                                                                

·         Use a two-step sale

·         Establish an employee stock ownership plan (ESOP)                                          

VI.    Negotiating the Deal                                                                                                     

      Factors affecting the negotiation process involve:

·         How strong is the seller's desire to sell?

·         Is seller willing to finance part of purchase price?

·         Must the seller close the deal quickly?

·         What deal structure fits your needs?

·         What are tax consequences for both parties?

·         Is seller willing to stay on as a consultant?

·         What general economic conditions exist in the industry?

Buyers have specific criteria they look for. They want to get the business at the most attractive price possible with favorable payment terms that minimize the amount of cash they pay up front.                                      

Seller are seeking the highest price possible with the most desirable terms to maximize the cash they receive and minimize their tax burden.                                                                                         

The Five Ps of Negotiating include:                                                                               

1.      Preparation

2.      Poise

3.      Persuasiveness

4.      Persistence

5.      Patience

Chapter 8       Building a Powerful Marketing Plan

Key words: Marketing, Guerilla marketing strategies, Target markets , Demographics, Market research, Tracking trends, Price, product life cycle, total quality management, Devotion to quality, unique selling proposition, power of publicity

Introduction                                                                                                                          

Creating a solid business plan improves an entrepreneur’s odds of building a successful company. The business plan captures many of the topics discussed, and in addition, it includes a concise statement of how an entrepreneur plans to achieve success in the marketplace. This section focuses on building the marketing plan.

I.    Building a Guerrilla Marketing Plan                                                                          

Marketing is the process of creating and delivering desired goods and services to customers and involves all of the activities associated with winning loyal customers.

Guerilla marketing strategies are unconventional, low-cost, creative techniques – small companies can get more “bang” from their marketing bucks. This allows the required marketing investment to fit the often limited marketing resources of the organization.                                                                                                

      A guerilla marketing plan should accomplish four objectives:                                       

1.      It should determine customer needs and wants through market research.

2.      It should pinpoint the specific target markets the company will serve.

3.      It should analyze the firm's competitive advantages and build a marketing strategy around them.

4.      It should help create a marketing mix that meets customer needs and wants.

II. Pinpointing the Target Market

Target markets are the specific groups of customers at whom the company aims its goods or services.

Pinpointing the target market offers greater marketing efficiency. Mass marketing techniques of the past are expensive and risky. The marketing strategy can then reach that specific targeted group that has the highest propensity to buy and be an ongoing customer.                                                                                                        

Target customers must permeate the entire business—merchandise, music, layout, décor, Web site, and the total experience.   

Market research can be invaluable to better understand, segment, and identify target markets.

III.   Determining Customer Needs and Wants Through Market Research                  

Market research serves as the foundation for the marketing plan. Its objective is to learn how to improve the level of satisfaction for existing customers and to find ways to attract new customers. By performing some basic market research, small business owners can detect key demographic and market trends. Market research does not have to be time consuming, complex, or expensive to be useful.

Demographics are the characteristics and trends of a population including age, income, gender (composition), education, household size, race, and ethnicity. For example, we can quickly gain information regarding the growth rate of U.S. populations by many criteria, such as race.

Market research is the vehicle for gathering this information and can avoid basing your marketing plan on assumptions rather than facts.

Tracking trends can be a valuable and affordable way to get a pulse on markets. Faith Popcorn, a marketing consultant and author, offers tips to help spot significant trends:
                                                                                                                                         

·         Read as many current publications as possible

·         Monitor blogs and newsgroups

·         Watch the top 10 TV shows

·         See the top 10 movies

·         Talk to at least 150 customers a year about what they're buying and why

·         Talk with the 10 smartest people you know

·         Listen to your children—What trends are they tracking?

      Market research begins with defining the objective and collecting the data.                  

      This is based on successful one-to-one marketing that:                                                  

·         Collects information on your existing customers

·         Identifies your best customers

·         Enhances your products and services

·         Welcomes customer complaints

·         Offers exceptional quality

·         Understands your customers’ buying cycle

·         Calculates the long-term value of customers

      Conducting market research involves four steps:                                                            

Step 1: Define the objective

Step 2: Collect the data

Step 3: Analyze and interpret data

Step 4: Draw conclusions and act

Relationship Marketing                                                                                                

One way these companies can do this is through relationship marketing, or customer relationship management, referred to as CRM.

Relationship marketing involves the following five steps:

1.      Collect meaningful customer information and compile it as a database

2.      Mine the database to identify “best” customers

3.      Use the information to develop lasing relationships with “best” customers

4.      Attract more customers who fit the “best” customer profile

5.      Stay in contact with customers between sales

There are four levels of customer sensitivity, beginning at the base of the “steps” in the illustration:                    

·         Level 1: Customer Awareness

·         Level 2: Customer Sensitivity

·         Level 3: Customer Alignment

·         Level 4: Customer Partnership

Guerrilla marketing strategies complement this and propose that a company:

IV. Plotting a Guerrilla Marketing Strategy: How to Build a Competitive Edge
                                                                                                                                               

A company can establish a competitive edge when customers perceive that one organization’s products or services are superior to those of its competitors. Successful entrepreneurs often use the special advantages that flow from their companies’ small size to build a competitive advantage over their larger rivals.

      We will address these guerilla marketing principles:

·         Find a niche and fill it

·         Use the power of publicity

·         Don’t just sell, entertain

·         Strive to be unique; create an identity for your business

·         Connect with customers on an emotional level

·         Create an identity for your business through branding

·         Embrace social networking

·         Start a blog

·         Create online videos

·         Focus on the customer

·         Be devoted to quality

·         Pay attention to convenience

·         Concentrate on innovation

·         Be dedicated to service and customer satisfaction

·         Emphasize speed

Let’s begin with finding a niche and filling it. As we learned in Chapter 3, Strategic Management and the Entrepreneur, many successful small companies choose their niches carefully and defend them well. A niche strategy allows a small company to maximize the advantages of its size and to compeer effectively.  

The power of publicity and be another cost effective way to get exposure to your target market. Writing articles, sponsoring events, and getting online exposure are just a few of the ways to leverage publicity.

Don’t just sell: entertain! Retail stores and restaurants apply the principle of entertailing to entice and amaze customers.

Strive to be unique through creating a one-of-a-kind image for customers enabling you to stand out from competitors.

Connect with customers on an emotional level by building trust and defining a unique selling proposition, know as a USP.   

The unique selling proposition offers a key customer benefit of a product that sets it apart from its competition. It answers the question: “What’s in it for me?” Communicate the unique selling proposition consistently and often!    

There is a correlation between branding and a unique selling proposition, as illustrated in Figure 5.1: The Connection between Branding and a USP.                                                                     

Building a brand is how businesses create an identity and an image for their customers.                                        

Embrace social networking by getting connected through Facebook, MySpace, LinkedIn and other social networking sites. This can be simple, it does not cost to participate, and prove to be powerful way to connect with existing and prospective customers.                                                                                                                  

Start a blog to expand your reach on the Web. Follow these guidelines:                       

·         Be honest, balanced , and interesting when writing a blog

·         Post blog entries consistently so that readers have a reason to return

·         Ask customers for feedback.

·         Strive to cultivate the image of an expert of a trusted friend on a topic that is important to you customers.

·         Use services such as Google Alerts that scan the Web for a company’s name and send e-mailers when it finds posts about a company.

·         Promote the blog via e-mail and promotional Web sites.

Create online videos and in the process:                                                                         

·         Think “edutainment”

·         Be funny

·         Connect with current events

·         Involve their customers keep it short.

·         Keep it short

Guerilla marketing strategies can be instrumental in building a brand for your business in a number of ways as long as you always focus on the customer. Focusing on the customer allows you to optimize your marketing and profitability potential. As we will address again, every business depends on customer satisfaction. If you can't take care of your customers, someone else will!                      

In addition to the text

The Principles of Customer Experience Management (CEM) address the need to establish:                                     

·         An intimate understanding of each customer’s needs, want preferences, and peculiarities

·         A personal, customer-specific message in marketing, sales, service, and advertising

·         A consistent, courteous, and professional treatment by everyone

·         A responsive, rapid handing of requests, questions, problems, and complaints

·         Helpful information and advice delivered proactively

·         The involvement of caring, well-trained people

·         Long-term view of the company/customer relationship with an emphasis on sustaining an ongoing relationship

·         Frequent and visible demonstrations of commitment to nurturing this relationship

A focus on the customer can directly correlate to higher customer retention rates and is based on the response to these four questions:                                                                                     

1.      What are we doing right?

2.      How can we do that even better?

3.      What have we done wrong?

4.      What can we do in the future?

Guerrilla marketing strategies help to attain customer focus in a direct and economical manner.                                       

Devotion to quality is another point of differentiation. Quality goods and services are a prerequisite for survival. Today quality is more than just a slogan. Businesses buy into operational strategies like total quality management (TQM) where quality is in the product or service and in every other aspect and component of the business as well. It is important to understand how customers (American customers and others) define quality in the products and services they purchase.                                 

Attention to convenience is an important part of this relationship experience. Customers want convenience. Studies show that customers rank convenience at the top of their purchasing criteria. Successful companies must show that it is easy for customers to do business with them.

Areas to offer customer convenience include:                                                                

·         Location

·         Hours

·         Delivery services

·         Payment options

·         Transaction efficiency

·         Additional “extra” experiences

·         Product bundling

·         Product adaptation

·         Communication efficiency

Concentration on innovation is a key to future success. In order to keep up with changing markets, small businesses must be innovative. Small businesses are frequently leaders in innovation even though they may lack resources compared to larger businesses.
                                                                                                                                               

Dedication to service and to consistent customer satisfaction is one way to achieve the goal of “customer astonishment.” Dedication to service deals with these twelve attributes:
                                                                                                                                               

·         Listening to customers

·         Defining a “superior space”

·         Setting standards and measurements for performance

·         Examining your service cycle

·         Hiring the right employees

·         Training those employees to deliver superior service—every time!

·         Empowering employees

·         Treating employees with respect and value

·         Using technology to provide improved service

·         Using mystery shoppers to measure customer service

·         Rewarding superior service

·         Getting top managers’ support

·         Viewing developing stellar customer service as an investment, not an expense

Emphasis on speed enables companies to be competitive and reduce the time it takes to develop, design, manufacture, and distribute a product, which results in reduced costs, increased quality, and increased market share.  

A small business Web site can enable it to sell its products around the world. It is a phenomenal commercial opportunity that offers businesses a worldwide marketing and distribution system. The Internet is the “Great Equalizer” for entrepreneurs in a world of larger and more powerful competitors. Today’s business students and entrepreneurs are on the frontier of an industry and market that will likely see tremendous growth in the next few years. The opportunity is now. We will talk more about the power of the Web throughout the course, specifically in Chapter 9, E-Commerce and the Entrepreneur, and how the Internet continues to change the face of business.    

V.  The Marketing Mix

The “four Ps” of the marketing mix are essential elements in developing a solid marketing strategy and an executable marketing plan.                                                                                              

1.      Product

2.      Place—or distribution

3.      Price

4.      Promotion

Establishing a sound marketing strategy—that fits the resources and objectives of the organization—is a critical aspect of the plan and future for the business. A “great product” must be deep, indulgent complete, elegant, and emotive. Figure 8.2: Five Characteristics of a Great Product illustrates this concept.       

The product life cycle plays an important role in the marketing mix. It is important to realize that the five stages of the PLC impact marketing strategy. The five stages of the product life cycle are illustrated in Figure 5.3: The Product Life Cycle.                                                                                

1.      Introductory                                                                                                         

2.      Growth and acceptance                                                                                        

3.      Maturity and competition                                                                                    

4.      Market saturation                                                                                                 

5.      Product decline                                                                                                    

This creates the product life cycle curve and allows us to plot an anticipate performance as the product progresses through each stage. In reality, it does not follow this smooth predictable curve, but the product life cycle does provide insight that can assist the entrepreneur to make decisions and develop strategy.

Figure 8.4: Time between Introduction of Products illustrates the concept of overlapping strategy that companies use to optimize the product life cycle’s effects.
                                                                                                                                         

Channels of distribution for consumer goods, or the “place” aspect of the four Ps, may be direct—manufacturer to consumer—or through a more complex channel delivery system that involves wholesalers, distributors, and/or retailers.                                                                                            

Channels of distribution for industrial goods, or the “place” for business-to-business dealings, may be direct or simply through a single wholesaler.                                                                  

Price is a key factor in the decision process and small business have the opportunity to focus attention on non-price elements, such as free trail offers, free delivery, lengthy warranties, and money back guarantee. We will address the role of price in detail in Chapter 10, Pricing Strategies.                 

The goal of promotion is to inform and persuade. Advertising and other communication techniques can create a specific and compelling image to create a positive perception about all aspects of the business and the value it offers.