MGMT 3000 Exam 2

What is the highest-valued private startup in the world?

Bytedance

What percentage of startups started as home businesses?

Over 69%

What percentage of startups have become profitable?

40%

What percentage of startups have less than $25k during startup?

58%

What is Entrepreneurship?

The process of intimating a business venture, organizing the necessary resources, assuming the associated risks and enjoying the rewards

Entrepreneur

Someone who engages in entrepreneurship

What percent of all U.S. businesses are small businesses?

99%

What percent of businesses fail within the first year?

20%

What percent of businesses fail by the end of the second year?

30%

What percent of business fail by the end of the fifth year?

50%

What percent of businesses fail by the end of the decade?

70%

Top 10 reasons why startups fail

No market need, ran out of cash, not the right team, get outcompeted, pricing/cost issues, poor product, need business model, poor marketing, ignore customers, mis-timed

Most important traits of Entrepreneurs

Need for Autonomy

Entrepreneurial sacrifice - ability to persevere after struggles or defeat

High energy

Need to achieve - internally motivated

Self-confidence

Internal Locus of Control

Awareness of passing time

Tolerance for ambiguity

Social Entrepreneurship

Combines the traditional entrepreneur with a mission to change the world for better, helps solve a social problem

Benefit Corporation - "B" Corporation

Type of for-profit corporate entity, authorized by 36 U.S. states that includes positive impact on society, workers, the community and the environment in addition to profit

Launching a Start-up

Start with an idea, write a business plan, choose a legal structure, arrange financing

Sources of Entrepreneurial Motivation

Joined family business, to control my future, to be my own boss, to fulfill a dream, downsized or laid off

What is a business plan?

A document specifying business details prepared by an entrepreneur before opening a new business.

Why is planning important for an entrepreneur?

It forces the entrepreneur to carefully think through the issues/problems associated with starting and developing the business.

Why is a business plan often required?

To attract investors or secure funding.

Characteristics of a Business Plan

Clear, compelling vision, realistic financial projections, profile of potential customers and target markets, details about the industry and competitors, evidence of an effective management team, critical risks and solutions, sources and uses of start-up funds and operating funds

What is a Sole Proprietorship?

An unincorporated business owned by an individual for profit.

What percentage of businesses in the United States are Sole Proprietorships?

The majority of businesses.

What are the legal requirements for a Sole Proprietorship?

There are few legal requirements.

What type of ownership and control does a Sole Proprietorship provide to the owner?

Total ownership and control.

What type of liability does the owner of a Sole Proprietorship have?

Unlimited liability.

Partnership

Unincorporated business owned by two or more people

What does a formal partnership agreement specify?

How partners share responsibility and resources as well as how partners contribute expertise

What type of liability do the owners of a partnership have?

They have unlimited liability

What is a corporation?

An artificial entity certified by the state and legally existing apart from its owners.

How does a corporation affect owner liability?

It limits the owner's liability.

How are taxes handled in a corporation?

A corporation must pay taxes on its income.

What is a key feature of a corporation regarding continuity?

A corporation provides continuity since it exists separate from the owner.

What funding option is available to corporations?

A corporation has the option to raise funds through the sale of stock to investors.

What is debt financing?

Borrowing money that must be repaid at a later date to start a business.

What are some sources of debt financing?

Family and friends, personal credit cards, bank loans, small business administration (SBA).

Equity Financing

Funds that are invested by others in exchange for ownership in the company

Venture Capital Firms

Group that invests money in new or expanding businesses for ownership and potential profits

Crowdfunding

Raising capital from small amounts from many investors, usually through social media and the internet

What is franchising?

Franchising is when a franchise owner sells the right to offer products/services and their process under its brand name in exchange for a selling fee and ongoing sales fees.

What is a disadvantage of franchising?

A disadvantage of franchising is a lack of control, as franchisors likely dictate prices, location, supplies, etc.

What is another disadvantage of franchising related to purchases?

Franchise owners most likely have to purchase equipment, buildings, and supplies from the franchisor.

What is an advantage of franchising related to management?

An advantage of franchising is that the franchise owner provides management help and expertise.

What is an advantage of franchising related to brand recognition?

An advantage of franchising is the known name brand.

What is an advantage of franchising related to financial projections?

An advantage of franchising is reliable financial projections.

What percentage of McDonald's restaurants are owned by independent local franchises as of 2025?

Approximately 95%

What is the minimum amount of non-borrowed, unencumbered liquid personal resources required to be considered for a McDonald's franchise?

$750,000

What is the estimated cost range to open a McDonald's restaurant?

$1.47 million to $2.64 million

What is the one-time franchise fee for opening a McDonald's restaurant?

$45,000

What percentage of gross sales must a franchisee pay to McDonald's Corp?

5%

What percentage of gross sales must a franchisee contribute to the national advertising funds?

4%

The importance of goals according to Drucker

Any business enterprise must build a true team and weld individual effort into a common effort. Each member of the enterprise contributes something different, but they must all pull in the same direction, and their contributions must fit together to produce a whole-without gaps, without friction, without unnecessary duplication of effort

Goal

Desired future circumstances or condition that the organization attempts to realize

Plan

Blueprint for goal achievement specifying the necessary resource allocations, schedules, tasks, and other actions

Planning

Determining the organization's goals and defining the means for achieving them

Mission

Reasons for organization's existence

Mission statement includes

Reason the organization exists, how they differ from their competitors, may include statement of their value

Levels of goals and plans

1. Mission Statement

2. Strategic Goals/Plans (Senior Management)

3. Tactical Goals/Plans (Middle Management)

4. Operational Goals/Plans (Lower Management)

Strategic Goals

Broad statements describing where the organization wants to be in the future, long term

Strategic Plans

Define the action steps to attain strategic goals

Tactical Goals

The results that major divisions and departments intend to achieve in support of the strategic goals, applies to middle management

Tactical Plans

What major departments/divisions will do to reach the tactical goals

Operational Goals

Results expected from departments, groups and individuals in support of tactical goals

Operational Plans

Specify action plans toward achieving operational goals, Each employee needs to contribute to the org's mission

Characteristics of Effective Goals

Are specific and measurable, have a defined time period, cover key result areas, are challenging but realistic, are linked to rewards

Performance Management

Managers use operational goals to direct/manage employees

Planning approaches: management by objectives (MBO) developed by single use plans and standing plans

Key Performance Indicators (KPIs)

Tool used to assess what is important to an organization and how well the organization is progressing toward achieving its strategic goal

Management by Objectives (MBO)

System whereby managers and employees define goals and use the goals to assess performance

Advantages of MBO

Employees and managers focus on activities that will ead to goal achievement, increase employee level of motivation, aligns workers' goals of department in support of tactical goals

Single-use Plans

Plans developed to achieve objectives that are not likely to be repeated in the future

Standing Plans

Ongoing plans that provide guidance for tasks or situation that occur repeatedly within the organization

Benefits of Planning

Provide a source of motivation and commitment, guide resource allocation, guide to action (employee behavior), sets a standard of performance

Limitations of Planning

Can create too much pressure, can create a false sense of certainty, may cause rigidity in a turbulent environment, can get in the way of intuition

Contingency Planning

Define company resources to be taken in the case of emergencies, setbacks or unexpected conditions

Stretch Goals

Reasonable yet highly ambitious and compelling goals, characterized by both extreme difficulty and extreme novelty, that energize people and inspire excellence

Crisis Planning

Preparing organization, managers and employees to cope with catastrophic events that could destroy the firm

What does it mean to think strategically?

Take the long-term view, see the big picture, consider the impact of the external environment

Strategic Management

Set of decisions and actions used to formulate and execute strategies that will provide a competitively superior fit between the organization and its environment to achieve organizational goals

Strategy

Plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage, and attaining the organization's goals

Competitive Advantage

What sets the organization apart from its competitors and provides it with a distinctive edge for meeting customer needs

Possible sources of competitive advantage

Customer support, natural resources, brand, intellectual property, access to skilled labor, quality, new technology, distribution network

Corporate-level strategy

Pertains to the organization as a whole and the combinations of business units (more than one) and product lines that makeup the corporate entity

Business-level strategy

Pertains to each business unit or product line and describes the basis on which the business unit (product line) competes within its industry

Functional-level strategy

Pertains to the major functional departments within the business unit. Functional areas of business including accounting, marketing, HRM, R&D, manufacturing and others depending on the line of business

Strategic Business Units (SBUs)

Business divisions of the organization that have a unique business mission, product line, competitors, and markets