Making components is preferable to buying them from an outside vendor when using
idle plant capacity would boost production efficiency, in-house production would
protect a secret design, or the firm can reduce the cost of investment by purchasing
equipment that will soon be obsolete.
The opportunity to exit a business is triggered by an interested seller.
You Make the CallSituation 3
A business incubator rents space to a number of small firms that are just beginning
operations or are fairly new. In addition to supplying space, the incubator provides a
receptionist, computer, conference room, fax machine, and copy machine. It also offers
management counseling and assists new businesses in getting reduced advertising rates
and reduced legal fees. One client of the incubator is a jewelry repair, cleaning, and
remounting service that does work on a contract basis for pawn shops and jewelry
stores. Another is a home health-care company that employs a staff of nurses to visit the
homes of elderly people who need daily care but who cannot afford or are not yet ready
to go to a nursing home.
Question 1 Evaluate each of the services offered by the incubator in terms of its
usefulness to these two businesses. Which of the two businesses seems to be a better fit
for the incubator? Why?
Question 2 If rental costs for incubator space were similar to rental costs for space
outside the incubator, would the benefits of the services offered seem to favor location
in the incubator? Why or why not?
Revenue and cash receipts are always recorded at the time a sale is made.
Most of the time, customers go to a brick-and-mortar store with the intent of shopping
or purchasing.
You Make the CallSituation 5
One night, Charles Dunn saw an infomercial on television, that advertised a franchise
for a gourmet-coffee store. One month later, he signed a franchise agreement and paid
the initial $20,000 fee. He quit his job and took a second mortgage on his home to raise
the $100,000 of capital required by the franchisor. Dunn did no market research; he
didn’t look at other franchises. His store was the first of its kind in the area, and it had
no name recognition. Shortly after Dunn opened his doors, another store from the same
franchisor opened a few miles away. After another year, Dunn shut down his business.
Question 1 What types of research should Dunn have conducted prior to buying the
franchise?
Question 2 What kinds of training should this franchisor have provided to Dunn?
Question 3 What types of contractual issues should Dunn have considered in order to
get a better deal?
Because help-wanted advertising tends to be ineffective, most well-managed
organizations reject this method of recruitment.
From a practical business standpoint, choosing to locate a business in one’s home
community offers no advantages.
Personal selling is an effective method for promoting products such as razor blades.
Name and describe the two broad-based strategy options that a firm can select when
pursuing a competitive advantage in the marketplace.
Product advertising makes potential customers aware of a particular product or service
and their need for it.
You Make the Call – Situation 1
In the following statement, a business owner attempts to explain and justify his
preference for slow growth in his business.
I limit my growth pace and make every effort to service my present customers in the
manner they deserve. I have some peer pressure to do otherwise by following the advice
of expertsthat is, to take on partners and debt to facilitate rapid growth in sales and
market share. When tempted by such thoughts, I think about what I might gain. Perhaps
I could make more money, but I would also expect a lot more problems. Also, I think it
might interfere somewhat with my family relationships, which are very important to me.
Question 1 Should this venture be regarded as entrepreneurial? Is the owner a true
entrepreneur?
Question 2 Do you agree with the philosophy expressed here? Is the owner really doing
what is best for his family?
Question 3 What kinds of problems is this owner trying to avoid?
The income statement answers the question: “How profitable is the business?”
Jan Woodring is considering investing in a business. To see the firm’s financial position
over a period of time, she should look at its balance sheet.
Define the term market and explain the key ingredients of that definition.