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MQM 223 Midterm Review Guide FINAL

by: Jessie Frank

MQM 223 Midterm Review Guide FINAL MQM 223

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This study guide covers the key topics in each chapter that will be on the midterm. There are also note cards attached in a separate document.
Intro to Small Business Management
Terry Lowe
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mqm 223 midterm test exam lowe terry
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This 18 page Study Guide was uploaded by Jessie Frank on Saturday February 27, 2016. The Study Guide belongs to MQM 223 at Illinois State University taught by Terry Lowe in Spring 2016. Since its upload, it has received 210 views. For similar materials see Intro to Small Business Management in Business, management at Illinois State University.

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Date Created: 02/27/16
MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER ONE The BRIE Model What is BRIE an acronym for? Boundary, Resources, Intention, Exchange BOUNDARY creating a place for your business in space and in people’s minds Opening a bank account for the business (BRIE)Boundary Registering the business name with the state (BRIE) Boundary Creating business cards and/or stationery (BRIBoundary Purchasing a domain name (BRIE) Boundary Creating a business Web site(BRIE) Boundary Obtaining a business telephone line (BRIE) Boundary Identifying a place for the business at home or elsewhere (Boundary RESOURCES the things that make up the business, like money, products, knowledge, etc. Organizing a start-up team (BRIE)Resources Obtaining copyright, patents, trademarks (BRIEResources Purchasing raw materials, inventory, supplies (BRIE) Resources Acquiring major items (equipment, facilities, property) (BRResources Hiring employees and managers (who do not share ownership) (BRIE) Resources Participating in classes or workshops on starting a business (BRIE)Resources Participating in programs that help new businesses get established like SIFE, CEO or SBIDA (on Web site) (BRIE) Resources INTENTION demonstrating a determination to get the business going and for it to be successful Thinking about the business (BRIE) Intention Undertaking marketing and promotional efforts (BRIE) Intention Developing your product or service (BRIE) Intention Beginning your full-time commitment to the business (> 35 hrs/wk) (BRIE)Intention Preparing a business plan (BRIE) Intention Defining market opportunities (BRIE) Intention MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM Developing projected financial statements (BRIE) Intention EXCHANGE making investments in and sales from the business Generating sales revenue (BRIE) Exchange Arranging child care to work on business (BRIEExchange Establishing credit with a supplier (BRExchange Saving money to invest in the business (BRIE) Exchange Investing money in the business (BRIE) Exchange Seeking funds from financial institutions or others (BRIE) Exchange Seeking funds from spouse or household partner (BRIEExchange Seeking funds from current employer (BRIE) Exchange What is the reason of the BRIE model? To help you combine the 4 elements to determine how to start your small business. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER THREE Environmental Scanning for Small Business (emphasis on page 56) Skill Module 3.2 and on the Online Learning Center. There are several low-cost and relatively fast ways to monitor the environment. They include:  Looking for trends and future-looking articles in the trade and professional press of your industry or those of members of your task environment (see Skill Module 3.1).  Asking your customers, suppliers, banker, attorney, and accountants what they see on the horizon for business in general, for business in your community in general, or for your industry or line of business in particular.  Keeping notes on the things that bother you about the way work is done now, or what bothers you about how something has changed (whether a product, service, or process you deal with), and periodically do some fast research (typically searching on the Web) on what causes it and how others feel about it. For opinion Web sites, try ePinions, Yelp, Amazon, Buzzillions, Mouthshut, TrustedReviews, ConsumerSearch, or CitySearch.  Subscribing to a couple of magazines/newsletters (online or hard copy) or online newsfeeds or blogs outside your area of business. In the science/technology area, for example, look at Discover, Wired, Scientific American, or even Popular Mechanics . For online versions, you can subscribe to the RSS feed or a summary e-mail to several of the print magazines, or online sources like Gizmag. For all of these, tag or record interesting ideas so you can come back to them when you have time to think. By the way, you can find a list of online and print magazines organized by topic areas on Yahoo! Directory’s News and Media section ( _and_Media). MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER FOUR The SCAMPER Model What does the acronym SCAMPER stand for? Substitute, Combine, Adapt, Magnify/Modify, Put to other uses, Eliminate, Rearrange/Reverse Substitute: Think of what you might substitute for something else to form a new idea. A feature that allows your customers to order directly from a Web site rather than visiting your store or ordering by mail is an example of substitution. Sometimes solutions derived through SCAMPER cues are very “way out” and lead people to some creative ideas for solving annoying problems. One city in the Netherlands, for example, was experiencing a growing litter problem (not unlike your own town or city, no doubt), and the civic leaders tried all the usual ways of fixing the problem: They increased the number of trash bins around the city, they posted signs reminding people not to litter, and they fined people for littering. Nothing seemed to help. Then they got a breakthrough idea: a tiny recording device was installed inside trash bins, and every time someone pushed the lid to deposit litter, a joke would play from the recorder! Not surprisingly, it was not too long before the litter problem declined. Idea Trigger: What opportunities can you think of that come as a result of substituting or replacing something that already exists? Combine: Think of possible combinations you can make that result in something entirely different. Not long ago, if you wanted to buy a book, you went to a store that typically carried only books, and if you wanted to buy a cup of coffee you went to a coffee shop, and if you wanted to hear music you went to a club or theater. Today, you can have all three under one roof at many establishments, including big ones such as Barnes & Noble, but also some smaller businesses such as Tattered Cover Book Stores in Denver, Colorado. Also, when you buy gasoline at the service station, you most likely can pick up some groceries along with basic auto supplies, and maybe even CDs or videotapes. Idea Trigger: What separate products, services, or whole businesses can you put together to create another distinct business? Adapt: Think about what could be adapted from products or services that already exist. Many successful businesses are founded on the concept of adaptation. It’s a popular innovation strategy that can be just as effective, and much more likely in the real world, than business opportunities that are the result of radical innovations such as inventions. You may remember the original Book-of-the-Month Club that sent members a different book every month. What adaptations can you find? How about beer-of-the-month, pasta-of-the-month, and many other variations? Did you know that one day a manufacturer of toilet tissue received a shipment of paper that was too thick to use? The manufacturer could have thrown it out, but instead the manufacturer improvised, and paper towels were introduced! Sometimes adaptations occur when entrepreneurs try their best to work with scarce resources. Idea Trigger: What could you adapt from other industries or fields to your business? Magnify or modify: Taking an existing product and changing its appearance or adding more features or increasing the hours your store is open or making its advertising more dramatic are some ways you could magnify or modify your idea. Ally Bank is a relatively small, new, online financial services company that is currently expanding nationally using ads proclaiming this in some very dramatic and humorous ways, poking fun at the traditional fees that banks and other MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM financial service companies charge for checking accounts, for example. The goal is for such messages to be remembered by potential customers, and the effect is to make the business stick out among its competitors. There is much a small business can do to create memorable images and advertising for itself, and it does not need expensive television ads to do it. The letter M also can cue you to “minimize” something. The microchip industry was born, for example, when someone asked the question, “What if we shrunk them?” Idea Trigger: What could I make more noticeable or dramatic, or different in some way from my competitors? It need not be in the product itself, but it could be the way you advertise or treat the customer during the transaction that becomes memorable. Put to other uses: Think of ways you could generate a high number of opportunities for your product or service beyond what it is traditionally used for. A few years ago, Arm & Hammer Baking Soda was known as a product customers used by the teaspoonful every few weeks when they baked a batch of cookies or a cake. The problem for Arm & Hammer was that it wasn’t selling a lot of boxes of the stuff since it tended to sit in people’s kitchen cupboards for years. At 59 cents a box, that doesn’t bring tremendous sales revenues. One day, the company brought together a group of employees and gave them the challenge to think of all the uses for baking soda (besides baking) that they could. Ideas took off, and today the company produces an entire line of baking soda–related products that bring a handsome return in profits. Can you think of some? (Hint: washing clothes, refrigerators that smell, a product cats use, etc.) Antoine Fuerchtwanger sold frankfurters at the Chicago Exposition over 100 years ago, and his customers complained that they burnt their fingers when holding them. Fuerchtwanger tried gloves, but customers kept walking off with them. Finally, he took some rolls that a baker had made, cut them in half down the middle, and placed the frankfurters inside them. Hotdogs met buns, and today it’s hard to imagine one without the other. Idea Trigger: Suppose you learned that all the traditional uses for your product had disappeared and that you have trailer truckloads out back with tons of product. What other uses might there be? Aim for quantity, and allow outrageous ideas to flow along with more mundane ones. Who knows what new applications you may find. Eliminate: Search for opportunities that arise when you get rid of something or stop doing something. What products or services emerged when these questions were asked: What if people didn’t have to leave their houses to go grocery shopping? What if you could buy something (or do bank transactions) without leaving your car? Idea Trigger: What could I get rid of or reduce that would eliminate something my customer has to do, and as a result give the customer more than he or she expected? Rearrange or reverse: One of the best examples of this technique is shown in the opening vignette to this chapter. Magnetic Poetry is a product that by definition is about rearranging things to inspire ideas. Other examples include using reverse psychology or paradox to challenge old ways of thinking, for example, using stimulants to calm hyperactive children. Idea Trigger: What can you rearrange or reorder in the way your product or service appears, or the way businesses in your industry usually look or are decorated or located? MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM SCAMPER is a very effective method for helping business owners and their employees come up with alternative solutions and opportunities. The method works because it helps you to step outside the usual way you look at opportunities or try to solve problems. It offers cues that push you outside your traditional areas of expertise, to consider what interesting new forms might be out there that you could try. We know that highly creative individuals are people who usually ask lots of questions. Creative business owners similarly question and challenge the way things appear, to see if they can find a new way of doing things. When you see a highly innovative business, don’t think that there is something especially magical or lucky about the entrepreneur or the situation. It’s more likely that the person or team behind the business is simply persistent about asking questions. Following are several recommendations to help you put yourself and your business in an innovative frame of mind. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER FIVE Success Factors for Part Time Businesses When you decide to pursue part-time entrepreneurship, there are usually two major questions: What kind of product or service do you want to offer and how do you want to organize your part- time business? Chapter 4 discussed the process for coming up with a good (and maybe even a creative) idea for your business. In this chapter we will focus more on how you would get that business started part time. For the second question, about how to organize your business, there are usually three key considerations for part-time small business start-ups:  The cost to start-up your new part-time business.  The time to start-up your business.  The permanence of the business you are creating. For part-time businesses, you want a low cost of start-up, since you probably will not have a lot of money to invest, and may not get great returns to pay off expensive start-up efforts. Time to start-up is also best when shortest, since you are looking for a basic idea of what might and might not work. The more time and energy you spend preparing for a small-scale part-time business, the longer it takes to make a profit. The good news is that in most cases, the cost to start-up and the time to market are closely related. Permanence is related to the concept of legitimacy discussed in Chapter 2 . For a small-scale, part-time firm, it may be hard to have a lot of the indicators of legitimacy. What customers want to know is that the firm is likely to be around for awhile, to provide customer service and future sales. That is the fundamental idea of permanence. The three considerations are at the heart of most peoples’ decisions about their mode of entry to part-time entrepreneurship. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER SIX Buying an Existing Business: Advantages and Disadvantages The second most common way to enter small business management is to purchase an existing business. Buying an existing business has important advantages over creating a start-up. However, purchasing a business has its own, unique set of risks. Advantages of Purchasing an Existing Business  Established customers provide immediate sales and cash inflows. Because the business is already successful, it has proven that there is sufficient demand for its products and services to operate profitably.  Business processes are already in place in an existing, operating business. This eliminates the need to hire employees, find vendors, set up accounting systems, and establish production processes.  Purchasing a business often requires less cash outlay than does creating a start-up. The seller will often provide financing that makes it possible for you to buy the business. Disadvantages of Purchasing an Existing Business  Finding a successful business for sale that is appropriate for your experience, skills, and education is difficult and time-consuming.  It is very difficult to determine what a small business is worth. The value of a small business can never be known with certainty. You must rely on analyses, comparisons, and estimates.  Existing managers and employees may resist change. It can be very difficult to convince employees to adapt to new business methods, procedures, and processes that can provide increased profits.  The reputation of the business may be a hindrance to future success. Sellers are usually reluctant to tell you about problems that the business has. Business owners are especially sensitive about discussing past disputes and lawsuits with vendors and customers.  The business may be declining because of changes in technology.  The facilities and equipment may be obsolete or in need of major repair. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER EIGHT Elevator pitches Elevator Pitch A 30-second (100 words or less) action-oriented description of a business designed to sell the idea of the business to another. An elevator pitch is an action-oriented description of your business that is somewhat longer than a vision statement or tagline. It is designed to open the door to a more in-depth dialogue. Even when it doesn’t lead to any specific business, this information about your business should be memorable enough so that the listener can tell others about your business. The idea of the elevator pitch is that you are alone with a prospective customer or investor for the length of an elevator ride, say, around 30 seconds. That comes out to 100 words or less. This description is used in one-on-one business settings and when someone asks for more detail after hearing your concept. In a time when politicians develop sound bites and a good phrase can make a product (Altoids, for example, are “curiously strong”), having a high-quality concept or elevator pitch for your business is more important than ever. In life there are “needs” and there are “wants.” We think we can cover both in a single bite . . . At Red Jett Sweets we are intent on baking a cupcake that sends mind, body and soul to a whole new place. Whether you are a traditionalist or an adventurer, you will find a cupcake for every craving. We offer a number of crowd-pleasing flavors on a regular basis as well as a rotating menu of featured cupcakes that simply sparkle with innovation and wit. All that and we’ll deliver our sweet sensations right to your door. So next time you encounter that “can’t-live-without-it” impulse, give us a call! Red Jett Sweets. Have Sugar. Will Travel. The above elevator pitch leads with the hook—luring us to think about needs and wants and food all at once. It follows up with the purpose of the service—providing outstanding cupcakes. For a familiar type of business like this one, you talk about what makes your firm unique or superior to the competition. If your pitch were for a new type of service, you would want to give the listener more details about how it works than may otherwise appear in an elevator pitch. The pitch ends with where the business is now—seeking sales from customers, although this could also be where you close asking for money from seed investors. This is about 115 words and would take about half a minute to say. Note that a lot of it sounds like a sales pitch, and that is intentional. Listeners might be customers or investors, but either way, the goal is to sell them on the idea and their need for it. With this background, Skill Module 8.1 explains how to craft an elevator pitch. How to write an elevator pitch Elevator pitches have four success factors: the hook, the purpose, the what and where, and the delivery. First, find a hook—something about your product or service that people would remember and take to heart. “We tutor kids others call too difficult.” “When government or industry wants to find the newest businesses, they come to us.” “We are one of the nation’s biggest suppliers of parts for old Corvettes.” MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM Stan Mandel supervises Wake Forest University’s Elevator Pitch Competition, so he knows pitches. He suggests using analogies. If you’re planning a large, discount pen store, you might say “We will be a Walmart for pens.” For CellTunes, it might be “We’ll be the Home Shopping Network for music.” It helps people quickly understand your firm. Great pitches or concepts aim to get the listener to ask questions or take some other form of “next step.” Stan suggests different pitches for different sorts of audiences—investors, customers, suppliers, and so forth. Second, focus on the purpose your product or service serves for the customer. Do not talk skills (“I am a graphic designer.”); talk about how you make customers happy (“I produce designs that sell books!”). Third, tell the listener the business’s situation: where the business “is at”—if it’s a start-up, state what the business is seeking (funding, partners, distributors, etc.). If it is operating, tell the listener where he or she can buy the product or service. Once your elevator pitch is written, you need to become conversationally perfect in your delivery. You want to be able to give the pitch or concept dozens, even hundreds, of times. Yet it is important that the pitch does not sound memorized. It needs to sound like regular conversation, preferably a conversation whose topic excites you. To achieve this, you must master the material, and then keep working on it so that it becomes a natural part of what you say to others. Have family and friends listen to it. Consider using a video camera to see how natural you seem when making the pitch. Remember, the elevator pitch is often the first real insight people have about your business, so it is essential to have a pitch that flows and sells for you. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER NINE Pricing Strategies (Table 9.1 – pg. 295) MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER TEN Strategies of CRM (Figure 10.3 – pg. 336) What does CRM stand for? Customer Relationship Management The Strategies of market growth: Market penetration a strategy whose goal is growth, based on selling more of the firm’s product or service to the existing customer base Product expansion a strategy whose goal is growth, based on selling existing customers a product or service they have never brought before Market expansion a strategy whose goal is growth, based on selling in areas or to groups previously not served by the business Diversification a strategy whose goal is growth, based on adding new products or services to the firm’s existing collection of offerings. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM CHAPTER ELEVEN Location (pages 363-370) What is typically the first location choice for entrepreneurs in a businehometown – it offers convenience and a familiar setting, and it eliminates a lot of possible family issues. What are some valid business reasons for opening a business in your hometown? 1. The local banker knows you and is more likely to loan you money 2. You know your market – the potential customers in the area – and understand their wants and needs 3. You have seen an unmet need that you can fill 4. Friends and family (usually local) are often the first customers and are great at spreading the word about your business. What are some compelling reasons to consider an alternate location, apart from your hometown? 1. What are the businesses like in your area? 2. Local zoning ordinances specify what sorts of businesses are allowed and not allowed in specific locations. 3. Certain types of businesses may be banned or severely restricted. 4. State and local pollution doing business to the point that other locations may be more favorable. 5. State and local taxes. 6. Attractive incentives for new businesses ranging from tax credits to low-interest loans, from favorable business laws to business incubators. Choosing location because of reasons tied to the customer: 1. Your hometown may not be the best place for you to find your target market customers. 2. Population growth or decline. 3. Income levels 4. Predicted increases or decreases in income. Choosing location based on the type of business you are planning: 1. What areas will provide you with the necessary employees, if you need skilled labor? 2. Do you need to be near raw materials or particular methods of transportation? 3. Who are your competitors? MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM 3 Typical Locations for Service Firms: 1. At the client’s location 2. At a mutually accessible location 3. At your firm’s location Types of businesses at the Client’s Location:  House or office cleaning  Pest control  Remodeling  Lawn and gardening  Carpet cleaning What do you need for businesses at the client’s location?  Business headquarters – can be at home office with enough room to store and maintain equipment  Reliable transportation  Range of client’s locations must be planned to prevent transportation times from being manageable. Types of businesses at a Mutually Accessible Location: Services have too much specialized equipment to be readily transported and a need for at least some client involvement  Barbershops  Dentists offices  Video rental stores  Restaurants Types of businesses at a Remote Location: face-to-face meeting with the client are infrequent; ideal for home-based businesses.  Medical transportation  Data processing  Fulfillment centers  Some consulting work Biggest advancement of Remote Location businesses: they can be located anywhere in the world. MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM Contract manufacturing an existing firm with the correct manufacturing capabilities makes your product for you Sheltered workshop a nonprofit organization or institution that provides business services by using handicapped or rehabilitated workers Categories of Site Selection: 1. High customer contact businesses 2. Low customer contact businesses Types of High customer contact businesses:  Medical or legal offices, restaurants, retail, dry cleaners 3 critical site selection considerations: 1. Traffic 2. Customer ease 3. Competition Additional Considerations for site selection: 1. Traffic generators 2. Parking Traffic generators other businesses that bring customers (generate traffic) to the area Low customer contact businesses:  Manufacturing businesses, head-quarters of location-based services, remote location services  Customer access is relatively unimportant  Critical component are employee access, reasonable costs, and the space necessary to do your business.  Commercial space in park or light industrial park- located near transportation routes, have rail spurs, and are designed for industrial activities. General comments on site selection:  Look for “for sale” and “for rent” signs  Use real estate agents to assist you o May know landlords o Have market statistics MQM 223 Lowe STUDY GUIDE FOR MID TERM EXAM


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