Chap. 6 the struggle for survival and prosperity

Chapter 6

CHAPTER 6

THE STRUGGLE FOR SURVIVAL

AND PROSPERITY

AIZELL A. BERNAL MGNT 9BSBA 3 MR. ABELITO QUIWA

Objectives

To know what are the problems in small firms and larger firms.

To know how a firm will survive To know how will they maintain

growth and development To know how to make profit

Outline

I. Problems in Small Firmsi. Identification of Small Firmsii. Lack of Competitive Edgeiii. Relying on “Thinks” instead of Factsiv. Crises Resulting from Faulty or No Planningv. Lack of Competent Professional Advicevi. Lack of Capitalvii. Lack of Cash Planning viii. Managerial Problems

a. Lack of General Managerial Abilitiesb. Lack of Specific Managerial Experiencec. Inability to Change Managerial Styled. Succeeding-Generation Management Gaps

Outline

II. Problems in Larger Firms i. Clearly, Fully, Specifically Stated Objectives

and Policiesii. No Unified Sense of Directioniii. Inadequacy in an Important Functional Areaiv. People Problemsv. Lack of Living by Marketing Conceptvi. Lack of Good Controls or Too Many Too Latevii. Lack of International Mentalityviii.Visions of Grandeur

PROBLEMS IN SMALL FIRMS

Identification of Small Firms1. Management is independent because managers

are the owners.2. There are three or fewer top managers so that

functional areas must be managed by a single manager.

3. The area of operations is localized.4. The market area is localized unless a direct

mail type of sales is used.


Lack of Competitive Edge

For success, every business needs some reason for being, something that the firm does that is desirable from its customer’s viewpoint and that sets it apart from, and gives it an edge over, its competition.

The means for survival

The following questions should be asked:

Is the competitive edge based on facts?

Is the competitive edge based on accurate cost data?

Is the competitive edge with the firm’s capabilities and constraints?

Is the competitive edge based on conditions that are likely to change rapidly?


Lack of Competitive Edge

“thinks” - tend to rely on guesses, hunches, hearsay, and intuition.

To prevent such poor decision-making “thinks” from being used, the following questions might be used as the basis for making a decision:

1. How can I check to find out if the so-called facts are really true?

2. Is there any contradictory evidence?3. What interpretation of the “thinks”

would fit the situation, but result in a different decision?

4. What additional solid facts are needed to make a good decision, and how can I get them?


Relying on “thinks” instead of facts

Faulty or no planning is evident time after time to consultants to small firms.

Two reasons:1. It is so broad in implication

that it cuts across practically every other small business pitfall.

2. Telling someone to use good planning in running a business is like telling a twelve year-old to use good management in running a grass cutting business.


Crises Resulting from Faulty or No Planning

What kind of planning should prospective retailers do before they open? At the very least they should:

1. Decide upon the type of merchandise or service to be offered based upon research.

2. Determine the competitive edge of the store.

3. Analyze the physical requirements based upon space-productivity ratios and normal rent range as a percentage of estimated sales.

4. Evaluate the store location, including community, area, and specific site evaluation.



What kind of planning should prospective retailers do before they open? At the very least they should:

5. Assess the competition.6. Segment the market

target group.7. Decide upon all of the

merchandising policies.8. Plan the financial

management of the store.



The ABC’s of Planning1. Outline every factor you are

going to plan.A small business might make a list of the factors it wishes to plan, such as the following:

• The competitive edge• Marketing research• Product information• Marketing plans• Action timetable• Numbers plan• Controls



The ABC’s of Planning

2. Determine possible sources of information

3. Gathering facts and organizing them

4. Make the decisions and put them into action

5. Evaluate and update your plan



Many small business owners do not seem to realize that professionals can be hired from nominal amounts to:

1. Set up their books (accountants)2. Add protective clauses to

contracts that will prevent surprising and often unpleasant legal actions from occurring (attorney)

3. Help save substantial amounts of money by buying the right insurance in the right amount (insurance advisor)

4. Perform or supply reliable market studies that may change the entire course of the business (market researchers)


Lack of Competent Professional Advice

A highly successful businessman make these suggestions regarding the hiring of professionals:

1. The best is not necessarily either the most expensive or the cheapest.

2. Ask plenty of questions.3. You are not married to the consultant.4. Do not try to be your own professional.5. Look for consultants who are future oriented,

the ones who can help prepare you for things that have not yet happened but probably will, or might happen.


Lack of Competent Professional Advice

Starting a business without enough capital is given as the reason for failure of many small business.

Major problem in inability to forecast financial needs for a year.

Things that may lead to the downfall of small business owner are:

1. Lack of capital planning2. Neglect of anticipating capital

requirements3. Too much haste4. Too little patience


Lack of Capital

Capital can be conserved in many ways and often cash planning presents facts that will answer the following questions allowing proper decisions to be made:

1. Shall we hire extra sales personnel?

2. Shall we spend more on advertising?

Cash planning avoids too much concentration on growth without consideration of the money constraints that have often caused direct consequences for the small business owner.


Lack of Cash Planning

Methods to conserved cash1. Slow down excessive growth2. Avoid investments in fixed assets

that can often be leased at favorable rates

Cash analysis and planning will also direct attention to other means of conserving cash which are luxuries the small business person cannot afford.

The more widespread the line of products offered, the higher the inventory and the lower the chance for economies of scale.


Lack of Cash Planning

Managerial problems covers:

1. Lack of general management abilities

2. Lack of specific managerial experience in the industry

3. Inability to change managerial style as the business grows

4. Succeeding generation management gaps


Managerial Problems

Entrepreneurs should ask themselves the following soul-searching questions before they decide to start their own businesses:

1. Will I enjoy being my own boss, working pretty much by myself, making my own decisions or would I prefer working with others in a larger organizations where the decisions are not solely on my shoulders?

2. Am I the kind of person who, If I work for myself, will ruin my personal life by taking my worries home every night?

3. Can I work extremely long hours?

PROBLEMS IN SMALL FIRMSManagerial ProblemsLack of General Management Abilities

Entrepreneurs should ask themselves the following soul-searching questions before they decide to start their own businesses:

4. Am I capable of carefully controlling expenses and at the same time spending money when the right opportunity presents itself?

5. Has my past decision-making ability proven satisfactory?

6. Can I honestly say that I have the general management experience and know-how to run a business?

PROBLEMS IN SMALL FIRMSManagerial ProblemsLack of General Management Abilities

The key individual must not only have general management ability but in many fields, but also must have specific know-how for the particular industry.

For example, the apparel business, a combination of production-financial individual will go into partnership with a sales-oriented person. The failure rate in small apparel businesses is appalling.

Reasons why do they make this error:1. They think they can master the skill

rapidly2. They fail to identify the one most

important skill that separates the winners from all others.

PROBLEMS IN SMALL FIRMSManagerial ProblemsLack of Specific Managerial Experience

The owner-manager is a doer. This may include:

Opening up early in the morning Sweeping out the accumulated

mess Seeing that the work is started Opening the mail Making the bank deposits Taking a customer to lunch Settling a dispute between

employees Writing an ad Helping with a production

bottleneck Wearily locking the door at night

PROBLEMS IN SMALL FIRMSManagerial ProblemsInability to Change Managerial Style

A person works diligently and long and build a business, but the sons or daughters may not have interest or the capabilities to run the business.

The problem for the original owner becomes twofold:

1. Does the “next-in-line” have both the desire and the ability?

2. If not, what preparation needs to be made to ensure the survival of the business?

PROBLEMS IN SMALL FIRMSManagerial ProblemsSucceeding–Generation Management Gaps

Problems to be solved are:1. Who will operate the business?2. In case of death, will there be

enough capital left to operate the business?

3. How do you prevent squabbles among the heirs that will impair the earnings of the business?

4. Is the business always in a condition to be sold at a fair price?

The answers to these questions: An owner or part-owner of a small or medium sized firm must plan in advance for these eventualities, unpleasant as they may be.


If the planning is done many heartaches can be minimized or eliminated. Some of the possibilities might be:

1. Training a successor over a period of years.2. A voting trust with a preselected person given

voting control.3. Sufficient life insurance payable to the business to

insure payment of an agreed upon fair amount for the deceased’s share of the business.

4. A buy-and-sell agreement with funding either through loans or insurance to prevent dilution of control.

5. A regular plan of stock gifts to family members.


If the planning is done many heartaches can be minimized or eliminated. Some of the possibilities might be:

6. A life insurance plan payable to heirs so that cash to pay taxes will be available.

7. Selling part of the stock either to investors or the public while the business is good.

8. Converting the owner’s equity to preferred stock and giving the heirs common stock, which would then have a lower value but would insure voting control.

9. Developing an outside board of directors knowledgeable and interested in the business who would then be available for help, sound advice, and possibly an investment in the business.


PROBLEMS IN LARGER FIRMS

Medium and large business firms are discussed together because they have common differences from, and advantages over, the small firm:1. They have an individual manager for each

major functions.2. They have access to large capital markets.3. Either the companies serve broad markets,

have a diversified line of products, or both.

Pitfalls are often the result of inherent conflicts associated with:

1. Strong managerial style differences as well as viewpoints among various important executives.

2. The diverse personal goals of the top executives which may not be compatible with the overall goals of the enterprise.

3. The highly visible differences between the firm and its environment.



Chief Executive is responsible for success, mediocrity, or failure of both large and small firm.

Strong Chief Executive may be able to reconcile these conflicts or may only succeed in submerging them so that they are at least temporarily hidden.

Weaker Chief may hardly be aware that they exist until they break out into the open and breed disaster.

PROBLEMS IN LARGER FIRMSClearly, Fully, Specifically Stated Objectives and Policies

The best managed firms have written objectives and policies covering:

1. The specific industries in which the firm operates

2. The competitive edge it has and is seeking

3. The constraints it recognize4. Specifics regarding its marketing

posture5. People goals6. Financial objectives with a

timetable 7. New product policy8. Research and development goals

and policies9. Production objectives10. The organization structure

The best managed firms have written objectives and policies covering:

11. Long-range planning procedure and responsibility

12. Accounting and control systems

13. Inter- and intra company communications policies

14. A complete set of objectives and policies for each separate division

15. The sum of the numbers for resources utilized and returns expected for the division to tie into and support the overall corporate goals

PROBLEMS IN LARGER FIRMSClearly, Fully, Specifically Stated Objectives and Policies

Lack of unified sense of direction is without a doubt the most difficult, single problem of the chief executive and total enterprise.

Conflicts come about for many reasons. Some of them are:

1. Age differences2. Previous training3. Vocational aspirations4. Natural styles of leadership5. Differing social positions,

speeds of thought, technical abilities, educational backgrounds


No Unified Sense of Direction

The law averages procedures one firm from having superiority in all functional areas over all of its competitors for any long period of time.


Inadequacy in an Important Functional Area

The real fundamental differences between businesses in the same field of endeavor is always people.

It is helpful to divide the analysis into subheadings similar to the following:

1. Board of Directors2. Chief Executive Officer


People Problems

It should be pointed out that the marketing concept has been generally followed by our largest corporations.


Lack of Living by the Marketing Concept

“They no longer work,” it is meant that any of the following may have happened:

1. The paperwork became so voluminous that the really important controls were buried in reams of electronic data processing paper that were either never studied or barely reviewed.

2. Responsibility was passed down the line.3. The optimum level for any given control was not

specifically spelled out in advance.4. By the time the right person got the report, it

was too late for that person to do much about it, including making certain it did not happens again.


Lack of Good Controls or Too Many Too Late

Fear of the unknown This fear of

international business has been strong that many firms did not even try to establish an overseas branch of their business.


Lack of International Mentality

One of the most common problems of large companies is the psychotic desire for rapid growth.


Visions of Grandeur

Summary

In this Chapter, we have attempted to point out and explain some of more important and most frequently observed management lapses that cause small business mediocrity or failure.

Progress in large firms is very spotty. Some do well, others stagnate. Sheer size alone is no guarantee of success. In final analysis the major roadblock in the way of prosperity as well as the prime mover behind those firms who are unusually successful is the chief executive officer.

Business

Chap. 6 the struggle for survival and prosperity