CHAPTER OUTLINE. Spotlight: Use my Accent. (

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1 CHAPTER OUTLINE Spotlight: Use my Accent ( 1 Locating the Brick-and-Mortar Startup Describe the five key factors in locating a brick-and-mortar startup. The Importance of the Location Decision Exhibit 9-1 Location Options for the Startup Brick-and-mortar store traditional physical store from which businesses have historically operated Choice of location more vital to some businesses As this topic is discussed have students indicate where they purchase products and tell why they choose that location. Ask students whether they live on campus or off campus. Then ask them to give the advantages and disadvantages of living on campus or off campus. Then have them relate those advantages and disadvantages to business locations. Key Factors in Selecting a Good Location Exhibit 9-2 Five Key Factors in Determining a Good Business Location Neighbor mix Security and safety Services Past tenants fate Location s life-cycle stage Customer Accessibility Ask students why they are sitting in their particular seat in class. Does their seat selection have anything to do with the person sitting next to them (boyfriend or girlfriend)? Convenience goods require location close to target customers Services must be readily accessible Access critical for some businesses Site-selection software helps business owners Business Environment Conditions Can hinder or promote success Competition, legal requirements, tax structure, weather Enterprise zones state-designated areas that are established to bring jobs to economically deprived regions through regulatory and tax incentives Availability of Resources Access to Raw Materials Suitability of the Labor Supply Availability of Transportation Personal Preference of the Entrepreneur 92

2 Locating in one s home community sometimes makes sense, but may be poor choice Site Availability and Costs Suppose it cost $1 to sit in the front row, $2 to sit in the second row, etc. Where would students choose to sit? Why? Site Availability Business incubator facility that provides shared space, services, and management assistance to new businesses (temporary space) Ultimately depends on evaluation of all relevant costs Decide whether to lease or buy 2 Designing and Equipping the Physical Facilities Discuss the challenges of designing and equipping a physical facility. Challenges in Designing the Physical Facilities Ideal building practical and not extravagant Depends on the functional requirements of the enterprise Challenges in Equipping the Physical Facilities Have students discuss each of the different types of equipment and tell how the physical facilities needs differ for each type of equipment. Have the students indicate how important each type of equipment is in terms of doing business. Manufacturing Equipment General-purpose equipment machines that serve many functions in the production process Special-purpose equipment machines designed to serve specialized functions in the production process Retailing Equipment Includes racks or counters, storage racks, shelving, mirrors, seats for customers, customer pushcarts, cash registers High-income market fixtures must meet expectations of customers Office Equipment Furniture, storage cabinets required Used office furniture may be less expensive Decisions should be made that take the future needs of the business into account Business Image Impression of the business vital to perception by customers Color and interior design should be considered Image considered the engine of sales 3 Locating the Startup in the Entrepreneur s Home Recognize the attraction and the challenges of creating a home-based startup. Home-based business A business that maintains its primary facility in the residence of its owner Discuss the attraction of a home-based business when the economy is good and when it is poor. Ask students whether they feel that home-based businesses increase in either situation. 93

3 The Attraction of Home-Based Businesses Financial Considerations - Helps increase profits by reducing costs Family Lifestyle Considerations desire to spend more time with family members The Challenges of Home-Based Businesses Professional Image major challenge, critical to maintain professional office Legal Considerations Zoning ordinances local laws regulating land use Tax issues must have a separate space to claim a tax deduction 4 Locating the Startup on the Internet Understand the potential benefits of locating a startup on the Internet. What is E-Commerce? Paperless exchange of business information via the Internet Benefits of E-Commerce to Startups Allows new venture to compete with bigger businesses on a more level playing field Can compress the sales cycle reducing the time between receiving an order and converting the sale to cash Electronic Customer Relationship Marketing (ecrm) electronically based system that emphasizes customer relationships E-Commerce Business Models Discuss M-Commerce with students. How have cell phones such as the iphone helped or hindered this type of commerce? Group of shared characteristics, behaviors, and goals that a firm follows in a particular business situation Type of Customers Served Business-To-Business Models (B2B) business model based on selling to business customers electronically Business-To-Consumer Models (B2C) business model based on selling to final consumers electronically 24/7 e-tailing electronic retailing providing round-the-clock access to products and services Disintermediation situation where a wholesaler in a B2B operation chooses to bypass the middleman and sell its product or service directly to the final consumer Consumer-To-Consumer Models (C2C)- business model usually set up around internet auctions sites that allow individuals and companies to list items available for sale to potential bidders. Auction Site Models web-based businesses offering participants the ability to list products for consumer bidding 94 Nature of Online Presence Content-Based Model business model in which the website charges a fee for access to information but does not offer the ability to buy and sell products and services

4 Information-Based Model business model in which the website provides information about a business, its products, and other related matters but doesn t charge for its use Transaction-Based Model business model in which the website provides a mechanism for buying or selling products or services Emerging Models blogging or web logging Internet-Based Businesses and the Part-Time Startup Advantage Decision Give up and existing job and more full-time into the startup Hold on to the job while getting the part-time business going on the side SOURCES OF VIDEO AND OTHER INSTRUCTIONAL MATERIALS AtexInc offers a video titled Visual Merchandising that discusses how to build visual merchandising presentations through the proper use of display principles, layouts, and arrangements. Special topics include the use of balance, promotion, lines, and props to enhance visual pulling power; this video sells for $125 in VHS, $135 in DVD. Go to their Web site at or call toll-free A useful article on home-based businesses can supplement the text material: Steve Ditlea, Home Is Where the Office Is, Nation s Business, Vol. 83, No. 11 (November 1995), pp , or online at ANSWERS TO END-OF-CHAPTER DISCUSSION QUESTIONS 1. What are the key attributes of a good business location? Which of these would probably be most important for a retail location? Why? Five key factors affecting the desirability of a business location are personal preference, environmental conditions, resource availability, customer accessibility, and site availability/cost. Their relative importance depends on the nature of the business. Since customers usually visit retail stores, customer accessibility is generally the most important factor to a retailer. 2. What is the special appeal of an enterprise zone to an entrepreneur seeking the best site for his or her business? Enterprise zones are designed to lure businesses to an economically deprived area by offering regulatory and tax relief. These benefits can be substantial, though they are not sufficient to offset the negative effects of poor management or an ill- 95

5 conceived business idea. In any case, economic zones can provide a generous boost to help jump start a new business. 3. What resource factors might be most vital to a new manufacturing venture that produces residential home furniture? Why? The chapter emphasizes three major resource factors the closeness of raw materials, suitability of the supply of labor, and the availability of transportation. These would all be important to a residential home furniture manufacturer, especially one that competes primarily on cost/price. For example, the profit-toweight ratio of the product is low, so transporting raw materials over long distances may be cost prohibitive. (This explains the grouping of furniture manufacturers near major supplies of hardwood timber in the southeastern United States.) And while the skill level of local labor may not be as critical as the closeness of raw materials, the cost of that labor is certainly an important factor. Finally, transportation is essential to the operation of a furniture manufacturer, so this is also an important of location for the firm. 4. Is the hometown of the business owner likely to be a good location? Is it logical for an owner to allow personal preferences to influence a decision about business location? Explain your answers. The business owner s hometown may be either a good or a bad location. The fact that it is a hometown may provide certain advantages in that the owner knows the community and the cultural background of the people. It may also be simpler to establish credit and banking connections in one s hometown. Economic advantages or disadvantages of the location are unaffected by the fact that it is a hometown. Yes, it may be logical for the owner to consider personal preference in locating a business. A business owner is also an individual, and he or she may be happier in one part of the country than in another. However, personal considerations of this type should be weighed against any economic disadvantages that a favorite location might have. 5. What is the difference between general-purpose equipment and special-purpose equipment? What are the advantages and disadvantages of each? 96 General-purpose equipment requires a minimal investment and may be used in many different operations which special-purpose equipment is more limited in use because it serves specialized functions. An advantage of general-purpose equipment is that it may be more easily sold in the case of a business dissolution or more easily sold and replaced by more useful equipment if found less useful. This type of equipment offers flexibility when the technology is not yet well developed or there are design changes. The disadvantage of general-purpose equipment is that it may not provide the exact process required. Special-purpose equipment can

6 reduce costs when the technology is fully established. However, it is more limited in its application and may be very expensive originally as well as to replace. It may have little or no resale value. 6. Under what conditions would it be most appropriate for a new firm to buy rather than lease a building for the business? A new firm may find it logical to buy a building if no satisfactory space is otherwise available or if the expense of adapting leased space is great. Also, business may occasionally have such specialized operating requirements that a unique structure is needed. For most new firms, renting is the best choice. 7. What factors should an entrepreneur evaluate when considering a home-based business? Be specific. Some relevant factors are zoning laws, impact of the business on family life, impact of family life on the business operation, the need to work as a team with others in the firm, and customer client expectations. The effect of the home location on personal and family life may conceivably be positive, but it can easily be destructive. These and perhaps other issues must be weighed in judging the practicality of basing a business in the home. 8. Discuss how zoning and tax laws might impact the decision to start a home-based business. The intent of most residential laws is to protect a neighborhood s residential quality. Noise and parking problems arise many times when a resident is used as the home based for a business. This was the problem perceived by Lauren Januz when a neighbor s landscaping business created perking congestion in her area-discussed on p. 243 of the text. Local governments should be contacted to gain approval for the type business that will be located in a home. Also, there are tax issues related to what can and what cannot be treated as business expenses when the home is the business office. A good tax accountant should be consulted to answer these questions before locating the venture in the home. 9. Discuss the two different ways of categorizing business models used for e- commerce. Business-to-business models are designed to help a firm sell to other businesses, which can offer the benefit of more efficiency in buying and selling. The businessto-consumer model focuses on sales to the end user, offering advantages such as speed of access, speed of transaction, and 24/7 access. However, there is a downside to this model (e.g., consumers are hesitant to give out credit card information over the Internet, they can t touch and see the product they are 97

7 interested in, Web sites can be difficult to load). Auction site models allow the efficient listing of products and bidding between potential buyers, and businesses using this model (e.g., ebay) have been among the most successful of all Internetbased businesses. 10. Contrast B2B and B2C businesses. Identify some of the reasons final consumers give for not shopping online. B2B (business-to-business) firms sell only to other businesses, whereas B2C (business-to-consumer) firms sell to end users or final consumers of the product or service. Some reported reasons for consumers not wanting to buy online include the following: discomfort with putting credit card information on the Web, preferring to see a product before purchasing it, not being able to talk to a sales representative, not having enough information to make a purchase decision, finding the product too expensive relative to alternatives, finding the process takes too long, and a number of other reasons. COMMENTS ON CHAPTER YOU MAKE THE CALL SITUATIONS Situation 1 1. How important was the location decision to these two entrepreneurs? Why? The decision to relocate was a very important decision for Stengard and Piel. The tax breaks and financial assistance, and an affordable and available work force helped the company to grow beyond its former capacity in St. Louis. The larger facility has allowed S&P Crafts to expand their business and increase the size of their operation. 2. What types of permits and zoning ordinances did Stengard and Piel need to consider before deciding to relocate? Stengard and Piel would need to consider zoning regulations dealing with manufacturing operations as well as those relating to accessibility of the raw materials for those operations. Permits for parking, type of business operations, those involving public permits (such as restrooms required and whether these are public or not), and building permits if expansion is required may be important. Some of these might be handled by the economic development organization and/or the new facility to which they moved. 3. How could Stengard and Piel use the Internet to expand the business of S&P Crafts? 98

8 The Internet is an opportunity for expansion that works well if the target customer uses the Internet. If the target audience doesn t use the Internet then expansion using this method would need to include expanding the target market to include individuals who use the Internet and who would use the product. Situation 2 1. What do you see as potential problems with locating Moore s new business at home? One major problem, since Moore is planning to cook and serve meals, is the size of her home kitchen. In addition, public health considerations would affect her business and require permits to operate. Distance from customers may be a major problem unless Moore is willing to go to the customer, which would require Moore to have adequate transportation. Zoning may also affect whether this business could be located in Moore s home. Moore may find it difficult to provide specific space for the business as required for IRS purposes if Moore intends to take deductions for business space in the home. 2. What do you see as the major benefits for Moore of a home-based business? The major benefits for Moore would be time with her children (which may not be possible in this location), full control of the business, and lower expenses since she would not need to rent a location for the business. 3. How could Moore use technology to help her operate a home-based business? Moore could use the Internet to advertise her business in locations beyond her small town. She could also expand her business eventually with cost efficient professional kitchen equipment. Situation 3 1. What are the major advantages that Schragger will enjoy as the result of having this most unique site? Some of the major advantages of this site are: customer accessibility/convenience- convenient access for customers. Workers will have access to Subway without having to be inconvenienced by leaving their job site which has logistical complications. business image- Subway will benefit from expanded Goodwill by serving their customers in this unique and complex way. 99

9 2. What major disadvantages and special challenges will the company likely run into as a result of this towering location? Disadvantages might include, safety - serving food at this unique location. Also, finding employees who are willing to work in this environment could pose a challenge. Another challenge may be working in this unusual work space and lastly adequate planning for all needed food and non-food supplies. 3. Do you think that it was a good idea for Schragger to locate a SUBWAY franchise in this way? What other uncommon locations can you think of that small business have used r are using to their advantage? Student answers will vary but lively discussion should ensue. SUGGESTED SOLUTION TO CASE 9: COOKIES-N CREAM 1. What are some location advantages that Cookies-N-Cream has that a brickand-mortar retailer doesn t have? Are there any drawbacks to a mobile vendor s choice of location? Overhead costs are reduced and availability and convenience of goods to target customers is greatly increased. Also, mobile vendors are a growing trend, Cookies-N-Cream can take advantage of this growing demand. Drawbacks to this type of location are, reliability on the proper working of the vehicle. Should the vehicle breakdown, you won t be able to service your customers. Another drawback may be city regulations prohibiting you from parking and selling your product. 2. Discuss site costs, retailing and office equipment, and other financial considerations of a mobile vendor such as Cookies-N-Cream. Administrative work is increased to ensure that you are in compliance with multiple city regulations. Other costs include costs to maintain and service the mobile unit, smaller working environment means that you have to stock up on and/or produce product more often. A home office will be needed in order to attend to all the back-of-the-house administrative details. 100

10 3. What legal considerations affect Cookies-N-Cream s choice of location? How do those compare with the legal considerations of brick-and-mortar and homebased businesses? Legal considerations include city permits for each city you sell product, taxes, and health code permits. All of these considerations need to be addressed, as well as county regulations. With a brick-and-mortar and a home-based business, you may still have to contend with these same regulations if you do business in multiple counties and / or cities. 101