Enterprise, Business Growth and Size (Copy)

• Enterprise and Entrepreneurship
  • Benefits
    • Independence- own boss
    • Can work on own ideas
    • If successful, fame and money
    • Profitable then income is all for them
    • Personal interests and skills are used.
  • Drawbacks
    • Risks of losses
    • Capital required to start own business
    • Lack of knowledge and experience issues
    • Opportunity cost can be high
• Characteristics of Successful Entrepreneurs
  • Hardworking
  • Risk taker
  • Creative and can consider new ideas and innovations
  • Optimistic about the future
  • Self-confident and does not rattle with useless criticism
  • Innovative and can look beyond what the market currently offers
  • Independent and can work on their own
  • Effective Communicator and can communicate ideas to others effectively
• Business Plan
  • Includes description of the business
  • Products and services offered, or to be offered
  • The market size, predicted growth and target market etc. Including competition analysis
  • Business location and supply chain/ distribution channel
  • Organization structure and management
  • Financial forecasts and business strategy
• Why government support businesses
  • They employ people and reduce unemployment
  • Competition in the market increases so lower prices and better product quality
  • Output increases and economy benefits as well
  • Benefit the society with products and services
  • Further growth and help improve the future extensively
• How governments can help startups
  • Training and help on how to bring ideas to fruition
  • Enterprise zones and other subsidized low-cost premises
  • Financing options and low cost/ low interest loans
  • Grants as well
  • Labor supply and training of potential employees
  • Research facilities and universities to help the entrepreneurs
• Who wants to measure business size
  • Investors to decide if they should invest in a business
  • Governments to determine the tax rates for small and large businesses
  • Competition to compare size and profitability
  • Workers to know how secure their job is
  • Banks to determine if they are willing to give loans
• Methods of measuring business size
  • Number of people employed
    • But can not be a good approach for capital intensive businesses
      • Businesses where more capital is required than labor
  • Value of output
    • Remember, many firms with high value output may have low volume
    • Some computer firms employing only 15-20 people can generate millions of dollars in revenue
  • Value of Sales
    • Sales may have a low margin so profit may be low
  • Capital Employed
    • Not a good idea for labor intensive businesses
    • Where labor is the main determinant than capital
• Why owners want to expand the business
  • Higher profits
  • Better status
  • Lower average costs
  • Larger market share and can determine what happens in the market

Benefits of Business growth to owners

• More profits
• More prestige
• Better status
• Higher salaries for managers of big firms
• Economies of scale so average cost lower
• Larger market share
  • Big name in the industry like Apple in smartphones

Business Growth

• Internal Growth is where a business opens new branches

  • Slower
  • Easier to maintain

• External Growth

  • Takeover

    • One business takes over another business or buys it out, or gain majority shares in the business. The one that takes over is called predator and the one that is taken over is called the prey.

  • Merger

    • When the managers or directors of 2 companies or businesses design their business into a single business.
    • Horizontal Integration
      • One firm merges with another firm in same industry and same level of production
        • A health care manufacturing business enter merges with another healthcare products manufacturing business
      • Reduces the competition in the industry
      • Larger so economies of scale
      • More market share for the combined business
    • Vertical Integration
      • Same industry but different stage of production. Doing this means that a manufacturing business shall become its own supplier or retailers
        • A car manufacturing business merges with a car selling retail business
      • Forward vertical integration is merging with a business at a later stage of production
        • Outlet of products for the initial business
        • Profit margin of retailer absorbed by manufacturer
        • Retailer can be prevented from selling products of other owners
        • Consumer needs and preferences can be identified
      • Backward Vertical Integration
        • Assured source of supply
        • Profit margin of supplier absorbed
        • Supplier could be prevented from supplying others
        • Cost of components can be controlled
    • Conglomerate integration
      • Different industry
        • A car manufacturing business merges with a wheat production business
      • More Than one industry so if business fails in one industry can still survive from the other industry.
      • Transfer of ideas between different industries leading to new and better products.

What are the problems related to the growth of a business and how to control them?

• Management and control difficulty
  • Small units can be operated with decentralization
• Poor communication
  • Smaller units
  • Latest equipment
• Financial needs
  • Expand slowly
  • Long term finance availability
• Integration problems
  • Good communication to introduce a different style of leadership.

Why some business stay small

• The type of industry the business is in

  • For example car repair businesses
  • Personal services like tailors

• Market Size

  • If the total market is small then business to stay small

• Owner’s objectives

  • Some owners find it easier and more convenient to keep the business small