Comprehensive Study Notes: External Environments, Internal Factors, Market Dynamics, Social Responsibility, Small Business & Entrepreneurship (Ch3)

External Environments

Domestic: external environment describing where/area a business operates and generates revenue; example: United States
Global: international context; example: receiving raw materials from other regions via trade agreements; practical example: a sauce made in one country (e.g., Mexico) affected by drought or political unrest elsewhere, leading to price changes due to global forces
Technological: impact of telecommunications and electronics; example: whether we are using up-to-date devices to send messages
Political-legal environment: relationship between business and government; government decisions affect business through policies (e.g., encouraging startups, changes in taxes); examples include tariffs and tax changes
Sociocultural environment: catering to community tastes and health concerns; example: a restaurant using more natural organic ingredients and avoiding additives like red-40 due to health concerns
Economic environment: conditions in the state of the economy; example: unemployment levels influencing product pricing (budget-friendly vs premium options)
Note: these are presented as external factors that influence business operations

Internal Factors

Labor (Human Resources): capabilities and contributions of employees (e.g., coders, accountants, servers)
Physical and intellectual contributions of people: the tangible and intangible inputs from people that drive value
Capital: financial resources required for a business (e.g., obtaining credit, taking out loans, or using savings)
Intrapreneur: inside-the-firm equivalent of an entrepreneur; someone who continues an entrepreneur’s spirit/vision after initial idea creation
Information resources: data and information used for decision-making (e.g., economic data, market forecasts, weather trends, Nielsen ratings); these are non-physical inputs
Order of importance (as stated): ext{Entrepreneur}
ightarrow ext{Capital}
ightarrow ext{Labor}
ightarrow ext{Information resources}
ightarrow ext{Physical resources}
Market economy: shared value framework where businesses earn profits and customers have their wants/needs satisfied by goods/services

Supply and Demand; Market Equilibrium

Demand: willingness of buyers to purchase a good or service
Supply: ability and willingness of producers to offer a good or service for sale
Surplus: occurs when S > D (Supply exceeds Demand)
Shortage: occurs when D > S (Demand exceeds Supply)
Demand curve and supply curve depict relationships leading to equilibrium price
As price increases, quantity demanded tends to decrease (law of demand)
Equilibrium price ( P_{eq} ): the optimal price where the supplier and consumer are both satisfied; described as the price where quantity demanded equals quantity supplied for a given product category
Market price (equilibrium price): Qd = Qs at P_{eq}; this price guides company pricing, production, and inventory decisions

Social Responsibility, Stakeholders, and Consumer Rights

Social responsibility: maximizing positive contributions and minimizing negative ones; includes charitable work and environmental stewardship
Overall aim: balance commitments to stakeholders (beyond just shareholders), including environmental sustainability
Stakeholders: individuals or groups affected by a company, including investors, vendors, suppliers, contractors, employees, customers/consumers, the environment, and the local community
Organizational stakeholders: investors, vendors, suppliers, contractors, employees, customers/consumers, environment, local community
Consumerism: protecting the rights of consumers in their dealings with businesses
Consumer Bill of Rights: framework to prevent exploitation of consumers; developed in the 1960s; examples of rights and labels include:
- Safe products and safety labels
- Warning labels
- Nutrition labels
- Allergen labels
- Flammable labels
- Expiration dates
- Do not consume labels (e.g., skincare or pregnancy warnings)
- Choking hazards
- Addictive warnings on nicotine/tobacco products
Product warnings and disclosures examples:
- Hair dryer warnings
- Energy drinks (caffeine warnings)
- Spice warnings
- Safe practices on medicines (child safety protocols)
- Coffee caution (hot beverage)
- Sharp objects warnings
- Age requirements for use
- Be informed; Be heard (feedback channels)
- Courteous service and responsive customer feedback
Responsibilities toward customers: fair pricing, anti-collusion practices, anti-price gouging (e.g., surge pricing in airports, theaters, amusement parks)
Ethical advertising: avoid exaggeration, avoid misleading terms, avoid inappropriate or offensive content (examples discussed in advertising contexts)
New class notes (8/29/25): Responsibility toward employees includes:
- Work-life balance (e.g., attending a child’s school event)
- Professional development (e.g., workshops)
- Respectful treatment of terminated employees

Responsibility Toward Stakeholders and Environment (Expanded)

Responsibility toward employees (examples):
- Work-life balance
- Professional development opportunities
- Respectful treatment of terminated employees
Responsibility toward investors: avoid irresponsible behavior (e.g., insider trading; misrepresentation of finances per GAAP)
- Insider trading: using confidential information for stock transactions
- Misrepresentation of finances: accurate accounting per GAAP; avoid inflating or deflating numbers
Responsibility toward suppliers and the community:
- Build mutually beneficial partnerships with suppliers; avoid abrupt changes that overburden suppliers
- Community involvement: local and international programs and charities; maximize positive impact
Responsibility toward the environment:
- Reduce air, water, and land pollution
- Green marketing of environmentally friendly goods
- Promote sustainable products and packaging; adopt eco-friendly production/materials
- Carbon offset and environmental restoration initiatives
- Greenwashing: misleading consumers about environmental friendliness (examples include certain “green” marketing claims when actual practices are not sustainable)

New Notes on Small Business & Entrepreneurship (Chapter 3; SBA, Financing, and Structure)

What makes something a small business vs a large business:
- Independence (not part of a larger corporation)
- Number of employees (fewer than a threshold; commonly considered under 500–1500 depending on definition; notes specify fewer than 1500 as a practical threshold)
- Revenue and profitability and relative market influence
Small Business Administration (SBA): government agency that assists small businesses
Statistics (as cited in the notes):
- 85\% of all businesses have under 20 employees
- The workforce share: 23\% of the workforce
- 97\% of all businesses have fewer than 100 employees
- Service businesses account for over half of all small businesses (examples: tech services, law services, accounting services)
- Retail stores and construction companies also represent substantial portions of small businesses

Entrepreneurship and Business Planning

Entrepreneur: willingly accepts risks and opportunities of creating and operating a new venture
- Key traits: resourceful, confident, creative, people-oriented (customer relations), strong desire to be one’s own boss, comfort with uncertainty and risk, openness to employee ideas, adaptability rather than stubbornness
Entrepreneurship: process of seeking opportunities under conditions of risk
Distinctive competencies in entry to established markets:
- Established market: many competitors; defined criteria; hard to stand out
- Option 1: find a niche (untapped segment) e.g., allergen-friendly bakery in a saturated market
- Option 2: be the first mover (first to market) with potential advantages but risk of imitation by competitors
Starting a new business: importance of a business plan that describes strategy and implementation; the idea should drive decisions about staffing, capital use, etc.
- 1. Executive Summary: snapshot of the business
- 2. Company Overview: competitive advantages (what makes the business stand out)
- 3. Market Analysis: industry, target market/audience, competition, how you’ll be better, projected growth

Financing, Franchises, and Business Structures (SBA and Beyond)

SBA notes (9/3/25): SBA funding and Small Business Development Centers (SBDC), local offices offering guidance on market trends, demographics, licensing/taxes, etc. (e.g., Shenandoah Valley center near JMU)
Franchise: arrangement where a franchisee buys the right to sell the franchiser’s goods or services
Financing a small business:
- SBA loans often preferred by lenders due to their backing; they assess credit history and provide more flexible terms
- Venture capital (VCs): groups of investors that fund startups in exchange for ownership stakes and a share of profits; provide capital and strategic help
- Cosigner: someone who signs a loan and bears responsibility; common for non-traditional loans (e.g., business loans) and can help but adds risk
Key takeaway: VCs typically require equity stake in return for capital; loans require repayment with interest, often secured by collateral

Business Structures and Taxes

SBA loans are frequently recommended for startups
Sole proprietorships, partnerships, and LLCs offer tax benefits (e.g., deductions for business expenses) compared to some other structures
Limited partner vs general partner:
- Limited partner: silent investor; liability limited to the extent of their investment; cannot manage the business
- General partner: unlimited liability; responsible for debts and obligations of the business
Statistics on business forms (as noted):
- 71.95\% of businesses are sole proprietorships
- 10.6\% are partnerships
- Majority of sales revenue comes from corporations, while sole proprietorships account for only 3.82\% of sales revenue

Corporations and Taxation (Ch. 3 Focus; Test Preparation)

Corporations’ main disadvantage: double taxation on profits for shareholders (corporate level taxes plus taxes on dividends to shareholders)
Ways to avoid double taxation: form an LLC or S corporation (hybrid entities that combine features of corporations and partnerships)
Test preparation tips (as noted):
- For slide 3 (Ch. 1) know the difference between domestic, global, and technological external environments
- For slide 4, identify which resource is being discussed

Chapter 2 & Chapter 3: External Environments, Stakeholders, and Business Plan Components (Recap)

External environments: revisit the five factors of production and their descriptions
Supply and demand curves: understand how they interact with pricing; S > D
ightarrow ext{surplus}
ightarrow ext{price decreases}; D > S
ightarrow ext{shortage}
ightarrow ext{price increases}
Chapter 2 focus areas: consumerism, Consumer Bill of Rights, social responsibility, organizational stakeholders
Chapter 3 focus areas: services, retail, and construction as common business types (three most common in the notes)
Components of a business plan (Chapter 3 slide 7):
- Executive Summary
- Company Overview
- Market Analysis
Components of a business plan (Chapter 3 slide 8, the remaining three):
- Marketing Plan
- Operations Plan
- Financial Plan
Study strategy: focus on Chapter 3 as most content-rich; then Chapter 2, then Chapter 1; use the PowerPoint as a study guide
Practice notes: understand how to apply the concepts to example slides (domestic/global/technological; resource references) for the test