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Chapter 05 - How to Form a Business
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___________________________________ ____________________________________
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What skills and/or capital are missing? __________________________________________
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What can you do to get what is needed? _________________________________________
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Name: ___________________________
Date: ___________________________
critical thinking exercise 5-2
INDEPENDENT RESEARCH: SMALL-BUSINESS OWNERSHIP
Choose a business in either your hometown or a town or city near your school. Approach the
owner and request an interview about his or her business. Here are a couple of tips:
1. What type of business ownership does the business use?
2. Why was this form of ownership chosen?
3. If sales were to double, would the business then choose another form?
a. If so, which form?
b. Why?
4. How many hours per week does the owner spent at his or her business?
5. Does the owner plan to have the business continue in the family? If yes, describe the plan.
6. If the owner could change one thing in building his or her business, what would that be?
7. What advice does he or she have for a new entrepreneur?
Chapter 05 - How to Form a Business
8. Prepare a short recommendation about business ownership in this specific business for presenta-
tion to the class.
Name: ___________________________
Date: ___________________________
critical thinking exercise 5-3
CHOOSING A FORM OF BUSINESS OWNERSHIP
The needs of the businessperson starting a new business are a major consideration when deciding
the best form of business ownership. The kind of business being started is also important to consider
when deciding to make your new business a sole proprietorship, partnership, or corporation. Look at the
list of new businesses below. Indicate the form of ownership you think would be best for each business.
Give the reason for your selection.
Chapter 05 - How to Form a Business
Law firm
Underwear
manufacturer
Child care center
notes on critical thinking exercise 5-3
SWIMMING POOL REPAIR
FLOWER SHOP
INTERNET-BASED SPECIALTY STORE
The answer to this would depend on the size envisioned for the specialty store. A small seller of a
few specialty products could operate as a sole proprietorship, if the owner had the necessary skills. Orders
could be taken without human assistance. Initial investment, excluding inventory, would be low.
TERMITE CONTROL SERVICE
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TEXTBOOK PUBLISHING COMPANY
A textbook publishing company calls for a corporate type of structure because the costs of pub-
lishing a text are so high. The cost of publishing this text plus all the supplements—instructor’s manual,
LAW FIRM
UNDERWEAR MANUFACTURER
An underwear manufacturer would likely need buildings and equipment that could not be ob-
tained without much capital. That calls for incorporating and raising those funds through the sale of stock.
This is much like the publishing case.
CHILD CARE
A child care center could very well be a sole proprietorship if it was small enough. Employees
could be hired to do all that was necessary. On the other hand, a partner may be needed to help finance
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bonus
cases
bonus case 5-1
BUILDING COMPUDYNE
The global security firm Compudyne is one of the biggest and most successful security compa-
nies in the world, which produces prison equipment and surveillance gear and helps protect government
buildings against terrorism. After the 1998 bombings of two U.S. embassies in Africa, Compudyne’s
business supplying blast-resistant windows and doors to most of the embassies around the world doubled.
After the terrorist attack on the U.S.S. Cole in 2000, the company was hired to provide shoreline protec-
tion for the U.S. Navy and Air Force. And following the attacks on the World Trade Center and the Pen-
tagon on September 11, 2001, Compudyne started fielding calls from federal and state government agen-
cies around the country asking for help in protecting “at-risk assets” like nuclear power plants.
In large part, the credit for Compudyne’s resurgence goes to Marty Roenigk. A former investment
executive at Travelers, he took over the company in 1995, streamlined its operations, made a series of
strategic acquisitions, and encouraged the discovery of new technologies that could fight new threats.
Some of the company’s recent success is undoubtedly due to being in the right business at the right time,
but the better part goes to Roenigk’s ability to figure out a simple strategy and execute it extremely well.
Roenigk owned a private manufacturer called MicroAssembly Systems, which made tiny screws
originally used to assemble cameras. Roenigk had built the company to about $1.6 million in revenues
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With lingering terrorism fears, Compudyne enjoyed a surging demand for its security products. In
January 2004 the firm secured Army and Navy orders for security bollards and pop-up barriers that sent
its stock up 14%. But the company’s financial position has recently deteriorated. Compudyne reported a
“sharp curtailment” of prison and jail construction contracts. For 2005 the company reported a loss of
$8.2 million.
discussion questions for bonus case 5-1
1. What does this case teach you about finding opportunities for forming your own business?
2. Is being in the right place at the right time an accident, or are some people more clever than oth-
ers at being in the right place at the right time?
3. What does this case teach you about making the most of a bad thing?
notes on discussion questions for bonus case 5-1
1. What does this case teach you about finding opportunities for forming your own business?
2. Is being in the right place at the right time an accident, or are some people more clever than oth-
ers at being in the right place at the right time?
3. What does this case teach you about making the most of a bad thing?
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bonus case 5-2
FRANCHISE OR INDEPENDENT? WHAT FITS YOUR MOLD?
In 2003, Rusty and Beth Adcock opened up the fourth franchised unit of Country Fisherman, a
small, Mississippi-based, family-owned restaurant group. Rusty and Beth were switching gears from the
corporate worlds of electrical wholesale distribution and retail marketing. Obviously there would be a
learning curve.
When the Adcocks and Tumas worked out their deal with the Brookhaven franchise, it was the
first franchise agreement sold subsequent to the restaurant being established. At the time, the Tumas had
initially owned all of the first three restaurants. Later they sold the Mendenhall unit to a relative. So, basi-
cally, the deal being done with the Adcocks was the first independently run unit the Tumas would be sell-
ing.
While the Tumas had created a franchise model for their enterprise, the Adcocks were in charge
of their own destiny. The Tumas provided simple menu plans, inventory guidelines, and volume pricing
contracts with their franchise agreement. During the first week or two after opening the Brookhaven unit,
the Tumas did help with hands-on assistance to make sure the unit got under way as the others they had
opened. However, once the “wheels were in motion,” the Adcocks were virtually on their own. The
Tumas would provide answers to questions and solutions to problems when called upon.
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discussion questions for bonus case 5-2
1. What are the advantages of buying a franchise operation? What are the disadvantages?
2. What do you think is key to any business, whether franchise or independent?
3. What are the advantages of owning your own independent business? What are the disadvantages?
4. If you decided to start your own or buy a business, which route would you take? Franchise or
uniquely you? Cash-based, service-based, or inventory retail/wholesale? Why?
notes on discussion questions for bonus case 5-2
1. What are the advantages of buying a franchise operation? What are the disadvantages?
2. What do you think is key to any business, whether franchise or independent?
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3. What are the advantages of owning your own independent business? What are the disad-
vantages?
4. If you decided to start your own or buy a business, which route would you take? Franchise or
uniquely you? Cash-based, service-based, or inventory retail/wholesale? Why?
Each student will have to answer this for himself or herself.
endnotes
i Source: “Most Admired Companies,” Fortune, March 21, 2011.
ii Source: “Fortune 500 Companies,” Fortune, May 23, 2011.
iii Sources: Jim Mallory, “Compaq Board Ousts Rod Canion,” Newsbytes News Network, October 25, 1981; Alan
Goldstein, “Houston Firm Plans to Create Virtual Library,” The Dallas Morning News, April 6, 2000, p. D10; Nan-
cy Perry, “Steven Jobs: Seeding a New Apple?” Fortune, September 2, 1985, p. 11; Philip Elmer-DeWitt, “Comput-
ers: The Love of Two Desk Lamps,” Time, September 1, 1986, p. 66; February 7, 2005; Peter Burrows, “Apple:
What’s Steve Jobs Up To?” BusinessWeek, March 17, 1997; John Cook, “Many Young Start-Up Founders Making
Way for Seasoned CEOs,” Seattle Post-Intelligence, August 25, 2000; Ron Grover, “Is Steve Jobs About to Move
His Cheese?” BusinessWeek Online, February 10, 2003; Jim Jewell, “Questions Follow Fuller’s Firing from Habitat
for Humanity,” Christianity Today; Matthew Yi, “Jobs Return Rejuvenates Firm,” San Francisco Chronicle, March
26, 2006.
vii Source: Gwen Moran, “Franchising’s Green Scene,” Entrepreneur, August 2009.
viii Source: Jason Daley, “Despite the Slowdown at Home, U.S. Franchises Expand Abroad,” Entrepreneur, May
2011.
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