**ChapterOneTakingRisksandMakingProfitswithintheDynamicBusinessEnvironmentCopyright?2010bytheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin**ProfileA17-year-oldhighschoolstudentReopenedsmalltown’sonlygrocerystoreBorrowed$22,000tobuybuilding&fixturesWorkedtosave$10,000tostockthestoreWorked90-100hoursperweekPaidoffloaninoneyearNICKGRAHAM

MainStreetMarket**EntrepreneurshipandWealthBuildingGoods--Tangibleproductssuchascomputers,food,clothing,carsandappliances.Services--Intangibleproductsthatcan’tbeheldinyourhandlike,education,healthcare,insurance,recreationandtravel.Successinbusinessisoftenbasedonthestrategyoffindinganeedandfillingit.GOODSandSERVICESLG1**EntrepreneurshipandWealthBuildingBusiness--Anyactivitythatseekstoprovidegoodsandservicestootherswhileoperatingataprofit.Entrepreneur--Apersonwhoriskstimeandmoneytostartandmanageabusiness.

Successfullyfillingamarketneedmeansyoucouldmakemoneyforyourselfandprovidejobsforothers.BUSINESSand

ENTREPRENEURSHIPLG1**Revenues,ProfitsandLossesRevenue--Thetotalamountofmoneyabusinesstakesinduringagivenperiodbysellinggoodsandservices.Profit--Theamountofmoneyabusinessearnsaboveandbeyondwhatitspendsforsalariesandotherexpenses.Loss--Occurswhenabusiness’expensesaremorethanitsrevenues.REVENUE,PROFITANDLOSSLG1**MatchingRiskwithProfitRisk--Thechanceanentrepreneurtakesoflosingtimeandmoneyonabusinessthatmaynotproveprofitable.Businessestakerisks,butwithgreatriskscouldcomegreatprofit.RISKLG1**BusinessesAddtotheStandardofLivingandQualityofLifeTaxesareusedtoprovide:HospitalsSchoolsLibrariesPlaygroundsRoadsFireProtectionPoliceProtectionEnvironmentalProgramsSupportforPeopleinNeedHOWISTAXMONEYUSED?LG1**BusinessesAddtotheStandardofLivingandQualityofLifeQualityofLife--Thegeneralwell-beingofasocietyintermsofitspoliticalfreedom,naturalenvironment,education,healthcare,safety,amountofleisureandrewardsthataddtopersonalsatisfaction.QUALITYofLIFELG1**RespondingtotheVariousBusinessStakeholdersStakeholders--Allthepeoplewhostandtogainorlosebythepoliciesandactivitiesofabusinessandwhoseconcernsthebusinessesneedtoaddress.WhoareStakeholders?

CustomersEmployeesStockholdersSuppliersDealers

CommunityMembersMediaElectedOfficialsEnvironmentalists

STAKEHOLDERSLG1**RespondingtotheVariousBusinessStakeholdersOutsourcing--Contractingwithothercompanies(ofteninothercountries)todosomeofthefirm’sfunctionsInsourcing--ForeigncompaniesopeningofficesandfactoriesintheUnitedStates.OUTSOURCING

andINSOURCINGLG1**UsingBusinessPrinciplesinNonprofitOrganizationsNonprofitOrganization--Anorganizationwhosegoalsareforthebettermentofthecommunity,notfinancialgains.NONPROFITORGANIZATIONSLG1**UsingBusinessPrinciplesinNonprofitOrganizationsUnitedWaySalvationArmyAmericanRedCrossAmericanHeartAssociationAmericanCancerSocietyWELL-KNOWNNONPROFITS

intheUNITEDSTATESLG1**ProgressAssessmentWhat’sthedifferencebetweenrevenueandprofit?What’sthedifferencebetweenstandardoflivingandqualityoflife?What’srisk?Howisitrelatedtoprofit?Whatdothetermsstakeholders,outsourcingandinsourcingmean?PROGRESSASSESSMENT**EntrepreneurshipVersusWorkingforOthersTheUPSThefreedomtosucceed.Makeyourowndecisions.Highpossibilityofwealth.Hireyourownstaff.TheDOWNSThefreedomtofail.Nopaidvacations.Nohealthinsurance.Nodaycare.THEUPSandDOWNS

ofENTREPRENEURSHIPLG2**ArtforaCause,acompanythatcreatesandsellshand-paintedtoolsandfurniture,employsspecialneedschildrenandadultsthroughoutMichigan.Thecompanydonatesaportionofitsprofitstolocalcharities.HIRINGPEOPLE

withSPECIALNEEDS

(SpotlightonSmallBusiness)**TheImportanceofEntrepreneurstotheCreationofWealthLandLaborCapitalEntrepreneurshipKnowledgeEntrepreneursusewhatthey’velearnedtogrowtheirbusinessesandincreasewealth.FIVEFACTORSofPRODUCTIONLG2**ProgressAssessmentWhataresomeoftheadvantagesofworkingforothers?Whatbenefitsdoyouloseasanentrepreneur?Andwhatdoyougain?Whatarethefivefactorsofproduction?Whichonesseemtobethemostimportantforcreatingwealth?PROGRESSASSESSMENT**TheBusinessEnvironmentTODAY’SDYNAMIC

BUSINESSENVIRONMENTLG2**TheEconomicandLegalEnvironmentAgovernmentcanpromotebusinessby…Minimizingspendingandkeepingtaxesandregulationstoaminimum.Allowingprivateownershipofbusinesses.Minimizinginterferencewiththefreeexchangeofgoodsandservices.Passinglawsthatenablebusinesspeopletowriteenforceablecontracts.Establishingacurrencythat’stradableinworldmarkets.Minimizingcorruption.GOVERNMENT’SROLE

inBUSINESSLG3**TheEconomicandLegalEnvironmentLeastCorruptDenmarkNewZealandSwedenSingapore

MostCorruptSomalia&Myanmar(tie)IraqHaitiAfghanistanSources:F,June2008andTransparencyInternational,2009.CORRUPTIONWORLDWIDELG3**

You’redoingaprojectathomethatrequirespaper,pensandothermaterialsavailableatwork.You’venoticedotheremployeestakinghomethesematerialsandyou’rethinkingofdoingthesame.

Whatistheproblemwiththissituation? Whatareyouralternatives? Whataretheconsequencesofeachalternative? Whatpathwillyouchoose? Isitethical?ETHICSBEGINSwithYOU

(MakingEthicalDecisions)**HowTechnologyBenefitsWorkersandYouTechnology--Everythingfromphonestocopiersandthevarioussoftwareprogramsthatmakebusinessesmoreeffective,efficientandproductive.Effectiveness--Producingthedesiredresult.Efficiency--Producinggoodsandservicesusingtheleastamountofresources.Productivity--Theamountofoutputyougenerategiventheamountofinput(example:hoursyouwork).BENEFITSofTECHNOLOGYLG4**TheGrowthofE-CommerceE-Commerce--ThebuyingandsellingofgoodsontheInternet.B2C:BusinesstoConsumerB2B:BusinesstoBusinessE-COMMERCELG4**UsingTechnologytoBeResponsiveDatabases--Anelectronicstoragefilethatenablesstorestomonitorwhatyoubuyandhelpsthemknowwhattocarryinstock.IdentityTheft--Gatheringofindividuals’personalinformation,suchasSocialSecurityandcreditcardnumbers,forillegalpurposes.DATABASES

andIDENTITYTHEFTLG4**UsingTechnologytoBeResponsivetoCustomersFollowthesestepstohelpprotectyourself:ProtectyourSocialSecurityNumber.Shredfinancialdocumentsanditemswithpersonalinformation.Don’tgiveoutpersonalinformationunlessyouknowwhoyouaredealingwith.Usestrongpasswords.Neverclicklinksinsuspiciousemails.Monitoryourcreditreport.Source:FederalTradeCommission,October2008.PROTECTYOURSELF

fromIDENTITYTHEFTLG4**TheCompetitiveEnvironmentCustomerswantqualityproductsatagoodpricewithexcellentcustomerservice.Becausebusinessismorecustomer-driven,somemanagersgivefrontlineemployeesmoredecision-makingpower.Empowerment--

Givingfrontlineworkerstheresponsibility,authority,andfreedomtorespondquicklytocustomerrequests.USINGEMPOWERMENT

toCOMPETEinTODAY’SMARKETLG5**TheSocialEnvironmentandManagingDiversityPopulationshiftsarecreatingopportunitiesforsomeandlimitingothers.Diversityhasgrownfromjustrecruitingminorityandfemaleworkers.Growthofsingle-parenthouseholdshaveencouragedbusinessestoimplementprogramssuchasfamilyleaveandflextime.U.S.POPULATIONCHANGESLG6**Source:U.S.CensusBureau,,March2009.TheSocialEnvironmentandManagingDiversityWHOWILLSUPPORT

SOCIALSECURITY?

NumberofWorkersperRetireeLG6**TheSocialEnvironmentandManagingDiversityDemography--Thestatisticalstudyofthepopulationintermsofsize,densityandcharacteristicslike,age,race,genderandincome.DEMOGRAPHYLG6**TheSocialEnvironmentSource:U.S.CensusBureau,,October2008.DEMOGRAPHYoftheU.S.by

AGELG6**TheSocialEnvironmentSource:Newsweek,,January2009.DEMOGRAPHYoftheU.S.

byRACEin2005LG6**TheSocialEnvironmentSource:Newsweek,,January2009.DEMOGRAPHYoftheU.S.

byRACEin2050LG6**TheGlobalEnvironmentGrowthofglobalcompetitionIncreaseoffreetradeamongnationsMoreefficientdistributionsystemsandcommunicationadvances.IMPORTANTCHANGEStothe

GLOBALENVIRONMENTLG7**TheGlobalEnvironmentWars,likethoseinIraqandAfghanistan,costbillionsofdollars.Taxmoneyisdiverted.Costofsecuritygoesup.Costofinsurancegoesup.INCREASINGCOSTSofthe

GLOBALENVIRONMENTLG7**TheEcologicalEnvironmentClimateChange--Movementofthetemperatureoftheplanetovertime.ManycompanieslikeGE,CocaCola,BritishAirwaysandShellareshiftingtheirpracticestosaveenergyandproduceproductsthatcauselessharmtotheenvironment.Thisprocessiscalledgreening.GLOBALGREENINGLG7**It’snotnecessarytoradicallychangeyourlifestyletomakeanecologicaldifference.Hereareafewwaystoyoucanmakesmallchangestohelp.BuyareusablegrocerybagBuyenergyefficientlightbulbsRecyclemoreDrivefewermilesorrideyourbikeUselesswaterRunlesselectricalequipmentBuylocalproduceBuyahybridcarGETTINGINVOLVED

PERSONALLY

(ThinkingGreen)**ProgressAssessmentWhatarefourwaysthegovernmentcanfosterentrepreneurship?What’sthedifferencebetweeneffectiveness,efficiencyandproductivity?What’sempowerment?Whataresomeofthemajorissuesaffectingtheeconomytoday?PROGRESSASSESSMENT**TheEvolutionofU.S.BusinessAgricultureEraManufacturingEraServiceEraInformation-BasedEraTheEVOLUTIONofBUSINESSLG8**Progress