LongCh1 - Christian Brothers University



9 The Location Plan

|— |CHAPTER 9 LECTURE NOTES |

|1 |Identify the factors affecting choice of a business location. | |

|PPT 9-1 |Locating the Brick-and-Mortar Startup |

|Chapter 9 |Importance of the location decision |

|The Location Plan |Begin by appealing to the common-sense notion that the best product at the lowest price will not sell |

| |if it is inaccessible. |

|PPT 9-2 |Emphasize the difficulties associated with changing locations. |

|Looking Ahead |If several students live off campus, ask them to relate their location concerns relative to the campus.|

| |(Some probably wish they lived closer to campus, others farther away.) |

|PPT 9-3 | |

|Locating the Brick-and-Mortar | |

|Startup | |

|PPT 9-4 |Key factors in selecting a good location |

|Location Options for the Startup |Customer accessibility. See if you have a student seated next to a boyfriend or girlfriend. If so, |

| |point out that location selection is related to accessibility. |

|PPT 9-5/TM 9-5 |Business environment conditions. Referring again to seating in the class, ask if seat selections were |

|Five Key Factors in Determining a |made to avoid street noise near a window or otherwise to improve environmental conditions. |

|Good Business Location |Many states have enterprise zones that offer location incentives in order to attract businesses |

|[Acetate 9-5] |Resource availability. If you have a left-handed student, point out that he or she may have chosen a |

| |desk (location) designed for a left-hander. |

|PPT 9-6 |Nearness to raw materials—abundant source of materials are easily accessible |

|Key Factors in Selecting |Suitability of labor supply—low wage pool, technical training |

|a Good Location |Availability of transportation—accessible to trains, planes, railroads, etc. |

| |Personal preference of the entrepreneur. Continue with the seating example. Ask whether students |

| |chose their class seating location simply because they had a personal preference for the front or back |

| |row. |

|PPT 9-7, 8, 9 |Site availability and costs. Suppose it cost $1 to sit in the front row, $2 to sit in the second row, |

|Key Factors in Selecting |etc. Where would students choose to sit? |

|a Good Location |Site availability—a business incubator may be right for a new startup |

| |Site costs—most make decision to lease or buy. Leasing is recommended for new firms. Avoid cash outlay |

| |and reduce risk |

| |Designing and equipping the physical facilities |

| |Challenges in equipping the physical facilities |

| |Manufacturing equipment. (Note: Generally speaking, it is difficult to get students interested in the |

| |subject of manufacturing equipment.) |

| |General-purpose equipment—cheap and flexible |

| |Special-purpose equipment—expensive, inflexible, efficient |

| |Retail store equipment. You may choose to stress retail equipment, especially recent advances in |

| |supermarket checkout technology. |

|PPT 9-10 |Office Equipment |

|Designing and Equipping the |Computers |

|Physical Facilities |Fax machines |

| |Copiers and printers |

|PPT 9-11 |Telephone systems |

|Equipping the Physical Facilities |Challenges in Designing the Physical Facilities |

| |Building size and configuration depends on the nature of the business |

|PPT 9-12/TM 9-12 |Building Image |

|Manufacturing Equipment |Building must match the image desired. |

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|PPT 9-13 | |

|Retail Store and Office Equipment | |

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|2 |Describe the attraction and challenges of a home-based business. | |

|PPT 9-14 |Locating the Startup in the Entrepreneur’s Home |

|Locating the Startup in the |The attraction of home-based businesses |

|Entrepreneur’s Home |Financial considerations (reduced costs) |

| |Family lifestyle considerations (desire to spend more time near family) |

|PPT 9-15 |The Challenges of Home-based businesses |

|Home Based Business |( Discuss potential conflicts between business and family interests in the home setting. Is this |

| |conflict similar to that between students’ study responsibilities and personal interests in a |

|PPT 9-16/TM 9-16 |residential setting? |

|Entrepreneur’s Reasons for |Business image—must maintain a professional atmosphere |

|Operating a Home-Based Business |Legal considerations |

|[Acetate 9-16] |Zoning ordinances—local land may pose problems for home-based businesses |

| |Tax issues |

| |Insurance considerations |

| |Technology and home-based businesses (advances such as personal computers, fax machines, voicemail, and|

| |E-mail help home-based businesses to compete with commercial-site businesses). |

| |( Ask students to cite examples of home-based businesses they know of and to list the strengths and |

| |weaknesses of these. |

|3 |Explain how the Internet enhances business startup. | |

|PPT 9-17/TM 9-17 |Locating the Startup on the Internet |

|Locating the Startup on the |The Internet provides many opportunities for small businesses and a global presence. |

|Internet |What is E-Commerce? (Electronic Commerce) |

|[Acetate 9-17] |Benefits of E-Commerce Startups |

|PPT 9-18 |Small firms can compete with bigger businesses on a more level playing field. |

|Benefits of E-Commerce to Small |Shortened (compressed) sales cycle |

|Firms |One-on-one customer relationships through Electronic Customer Relationship Marketing (eCRM) |

| |E-Commerce Models |

| |A business model describes a group of shared characteristics, behaviors, and goals that a firm follows |

| |and should include: |

| |Types of customers served |

| |Business-to-Business Model (B2B)—selling to businesses |

| |Business-to-Consumer Model (B2C) |

| | is a good example |

|PPT 9-19/TM 9-19 |B2C model enjoys the advantages of speed of access, speed of transaction, and 2417 e-tailing |

|E-Commerce Business Models |Auction site models—web based businesses who sell products by auction |

| |EBay is a classic example of auction site models |

| |Degree of Online Presence |

| |Content/Information-Based Model |

|PPT 9-20/TM 9-20 |Web site provided access on company information but cannot conduct buy or sell transactions |

|Types of Customers Served |Have students provide examples of such web sites. |

|[Acetate 9-20] |Transaction-Based Model |

| |Can buy or sell on the web site (online stores) |

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|PPT 9-21 | |

|Degree of Online Presence | |

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|( |Using Computerized Business Plan Programs Such as BIZPLANBuilder and Business | |

| |Plan Pro | |

| |As part of laying the foundation for preparing your own business plan, respond to the following |

| |questions regarding location. |

| |How important are your personal reasons for choosing a location? |

| |What business environment factors will influence your location decision? |

| |What resources are most critical to your location decision? |

| |How important is customer accessibility to your location decision? |

| |What special resources do you need? |

| |How will the formal site evaluation be conducted? |

| |What laws and tax policies of state and local governments have been considered? |

| |What is the cost of the proposed site? |

| |Is an enterprise zone available in the area where you want to locate? |

| |Physical Facility Questions: |

| |What are the major considerations in choosing between a new and existing building? |

| |What is the possibility of leasing a building or equipment? |

| |How feasible is it to locate in a business incubator? |

| |What is the major objective of your building design? |

| |What types of equipment do you need for your business? |

| |Home-Based Startup Location Questions |

| |Will a home-based business be a possibility for you? |

| |What are the advantages and disadvantages of a home-based business? |

| |Have you given consideration to family lifestyle issues? |

| |Will your home project the appropriate image for the business? |

| |What zoning ordinances, if any, regulate the type of home-based business you want to start? |

| |Internet Startup Questions |

| |What type of customers will be served by the Internet startup? |

| |What degree of online presence will you strive for? |

|— |SOURCES OF AUDIO, VIDEO, AND OTHER INSTRUCTIONAL MATERIALS |

Something Ventured is a comprehensive video primer with 26 half-hour programs produced to parallel this textbook. The video entitled Where to Hang the Sign points out that the selection of a location for a new business should not be random or coincidental. The video for this lesson looks at factors new business owners consider in selecting a region, city, or town in which to establish a business. Viewers join prospective business owners as they work through the decisions necessary to choose a site for a new business or evaluate the site of an existing business. Contact your South-Western/ITP sales rep or ITP Faculty Support (fax (415) 592-9081 or E-mail review@).

D.E. Visuals offers a video titled Retail Site Selection, which discusses what entrepreneurs should consider when evaluating a potential store location. The video covers freestanding sites, business-associated sites, and planned shopping centers and discusses the principle of cumulative attraction, vacant stores, parking, visibility, leases, and restrictive covenants. The 19-minute video costs $120. Another video, Visual Merchandising, discusses how to build visual merchandising presentations through the proper use of display principles, layouts, and arrangements. Special topics include the use of balance, promotion, lines, and props to enhance visual pulling power; this video sells for $125. Call (800) 736-6438.

A useful article on home-based businesses can supplement the text material: Steve Ditlea, “Home Is Where the Office Is,” Nation’s Business, Vol. 83, No. 11 (November 1995), pp. 41–44.

|— |Answers to end-of-chapter |

| |discussion questions |

1. What are the key attributes of a good business location? Which of these would probably be most important for a retail location? Why?

p. 187-191 Five key factors affecting the desirability of a business location are personal preference, environmental conditions, resource availability, customer accessibility, and site availability/cost. Their relative importance depends on the nature of the business. Since customers usually visit retail stores, customer accessibility is generally the most important factor to a retailer.

2. What is the special appeal of an enterprise zone to an entrepreneur seeking the best site for his or her business?

p. 189 Enterprise zones are designed to lure businesses to an economically deprived area by offering regulatory and tax relief. These benefits can be substantial, though they are not sufficient to offset the negative effects of poor management or an ill-conceived business idea. In any case, economic zones can provide a generous boost to help “jump start” a new business.

3. What resource factors might be most vital to a new manufacturing venture that produces residential home furniture? Why?

The chapter emphasizes three major resource factors—the closeness of raw materials, suitability of the supply of labor, and the availability of transportation. These would all be important to a residential home furniture manufacturer, especially one which competes primarily on cost/price. For example, the profit-to-weight ratio of the product is low, so transporting raw materials over long distances may be cost prohibitive. (This explains the grouping of furniture manufacturers near major supplies of hardwood timber in the southeastern United States.) And while the skill level of local labor may not be as critical as the closeness of raw materials, the cost of that labor is certainly an important factor. Finally, transportation is essential to the operation of a furniture manufacturer, so this is also an important of location for the firm.

4. Is the hometown of the business owner likely to be a good location? Is it logical for an owner to allow personal preferences to influence a decision about business location? Explain your answers.

p. 190 - 191 The business owner’s hometown may be either a good or a bad location. The fact that it is a hometown may provide certain advantages in that the owner knows the community and the cultural background of the people. It may also be simpler to establish credit and banking connections in one’s hometown. Economic advantages or disadvantages of the location are unaffected by the fact that it is a hometown.

Yes, it may be logical for the owner to consider personal preference in locating a business. A business owner is also an individual, and he or she may be happier in one part of the country than in another. However, personal considerations of this type should be weighed against any economic disadvantages that a favorite location might have.

5. Discuss the conditions under which a new small manufacturer should buy (a) general-purpose equipment and (b) special-purpose equipment.

p. 193 General-purpose equipment would be acquired by low-volume, job-lot producers filling nonrepetitive orders with specialized requirements. For a new and different order, for example, a machine shop lathe could be set up with different tooling from that used on the previous order.

Purchase of special-purpose equipment rather than general-purpose equipment would typically be justified in cases in which a high-volume operation was assured. Large-volume production is necessary to justify investment in special-purpose equipment. The equipment cost can then be spread over many units of production so that the per-unit cost is minimized.

6. Under what conditions would it be most appropriate for a new firm to buy rather than rent a building for the business?

p. 191 A new firm may find it logical to buy a building if no satisfactory space is otherwise available or if the expense of adapting leased space is great. Also, business may occasionally have such specialized operating requirements that a unique structure is needed. For most new firms, renting is the best choice.

7. What factors should an entrepreneur evaluate when considering a home-based business? Be specific.

p. 194 - 195 Some relevant factors are zoning laws, impact of the business on family life, impact of family life on the business operation, the need to work as a team with others in the firm, and customer client expectations. The effect of the home location on personal and family life may conceivably be positive, but it can easily be destructive. These and perhaps other issues must be weighed in judging the practicality of basing a business in the home.

8. Discuss how zoning and tax laws might impact the decision to start a home-based business.

p. 195 The intent of most residential laws is to protect a neighborhood’s residential quality. Noise and parking problems arise many times when a resident is used as the home based for a business. This was the problem perceived by Lauren Januz when a neighbor’s landscaping business created perking congestion in her area-discussed on p. 195 of the text. Local governments should be contacted to gain approval for the type business that will be located in a home.

Also, there are tax issues related to what can and what cannot be treated as business expenses when the home is the business office. A good tax accountant should be consulted to answer these questions before locating the venture in the home.

9. Discuss the two different ways of categorizing business models for e-commerce.

p. 197 - 199 Business-to-business models are designed to help a firm sell to other businesses, which can offer the benefit of more efficiency in buying and selling. The business-to-consumer model focuses on sales to the end user, offering advantages such as speed of access, speed of transaction, and 24/7 access. However, there is a downside to this model (e.g., consumers are hesitant to give out credit card information over the Internet, they can’t touch and see the product they are interested in, Web sites can be difficult to load). Auction site models allow the efficient listing of products and bidding between potential buyers, and businesses using this model (e.g., eBay) have been among the most successful of all Internet-based businesses.

10. Contrast B2B and B2C businesses. Identify some of the reasons final customers give for not using online shopping.

p. 198 B2B (business-to-business) firms sell only to other businesses, whereas B2C (business-to-consumer) firms sell to end users or final consumers of the product or service. Some reported reasons for consumers not wanting to buy online include the following: discomfort with putting credit card information on the Web, preferring to see a product before purchasing it, not being able to talk to a sales representative, not having enough information to make a purchase decision, finding the product too expensive relative to alternatives, finding the process takes too long, and a number of other reasons.

|— |COMMENTS ON CHAPTER “YOU MAKE THE CALL” SITUATIONS |

Situation 1

1. How important will the location decision be to these two entrepreneurs? Why?

Restaurants need customers and the “right” kind of customers to survive. Customer accessibility is always important to a restaurant. This means that the location decision may be the single decision that determines whether or not the entrepreneurs have a chance to be successful! Unless there are plans to operate a really unique restaurant that will attract customers from far away, then the restaurant is going to need to be where there is high traffic - either car or foot.

2. What types of permits and zoning ordinances might they need to consider if they decide to pursue their dream?

There will likely be a number of local permits to be obtained for this type of business. The local Health Department will most likely be involved fostering sanitary food preparation. If a new building is constructed, then a number of building permits will be needed. Certain areas may not be served this will also require a permit. Certain areas may not be zoned to permit the restaurant to operate. This will, of course, eliminate some sites from consideration.

3. How could a presence on the Internet help with the success of this venture?

By developing and maintaining an Internet site the restaurant can hope for additional promotion of their restaurant. The site can be used to generate excitement about dining at the restaurant and also communicate what kinds and assortments of foods are available. Also, the site can provide telephone numbers for reservations and maps for travel for those unfamiliar with the area. Any awards that the restaurant may receive can be publicized on the site.

Situation 2

1. What impact, if any, do you think that Internet-based businesses have had on Wheeler-Valine's business?

It would be easy to blame the drop in her firm’s revenues on Internet competition, especially in light of comments Sally received from some of her old customers, saying they can more easily bid on the products they want through eBay than going to her auctions. However, there may be other issues that explain her problems. Since she travels to the home of the deceased to conduct the on-site sale, her expenses may be higher than normal and therefore her prices (the commission she gets) are probably high. This may be impacting demand for her services. She also takes all unsold items from the auctions back to her store for sale on consignment. The expense of maintaining the brick and mortar store has been substantial.

2. In what way(s) could she use e-commerce to grow her business?

As noted in this chapter, the Internet offers different types of opportunities to the entrepreneur. For example, one can use the Internet for e-commerce by providing information to existing customers and potential new customers. Sally might want to consider a Web site, which would be a source of information for people who are seeking out on-site auctions that they might attend as buyers. She might also use the Internet as a means to locate those individuals who would like to have an estate auction conducted by someone like Sally.

3. How much presence on the Web, if any, do you think she should consider?

Sally did get “her feet wet” on the Web by selling a few bowls, figurines, and vases on eBay, but she was not impressed with the results. The time required to prepare photos and descriptions to post alongside her offerings, plus the effort to respond to prospective buyers’ e-mail inquires, was more trouble than she thought it was worth. However, providing a web site for informational purposes might end up being the full extent of her presence on the web.

4. What do you think will happen to this firm if it ignores the Internet?

To completely ignore the Internet would be a mistake. The greater issue is to decide the degree of online presence she wants. Sally needs to find someone to show her how the business can benefit, which would be likely to get her excited about its potential for her business.

Concluding Note The business Estate Administrators was first opened in 1990. The plummet in sales was apparently too much for the firm to continue operations as they were, and Sally apparently didn’t have a desire to establish an Internet site, so the business closed in 2000. One analyst says this was the result of Internet competition, or it may be that her prices were too high.

Situation 3

1. Evaluate each of the services offered by the incubator in terms of its usefulness to these two businesses. Which of the two businesses seems to be a better fit for the incubator? Why?

Assuming the receptionist answers the telephone, this service can be of value to both businesses. Having someone answer the telephone is usually superior to using an answering machine. It seems unlikely that either business would derive much benefit from use of the conference room or fax machine. No doubt the copy machine would have its advantages. Also, the computer might be useful for billing, maintaining customer records, and so on. The greatest potential advantage would seem to lie in the management counseling that is available. If it is of good quality, it could be of immense value in helping these businesses get off to a good start. The jewelry business may be basically the work of a tradesperson. Therefore, the home health-care firm would probably be the better fit.

2. If rental costs for incubator space were similar to rental costs for space outside the incubator, would the benefits of the services offered seem to favor location in the incubator? Why or why not?

The services make this location advantageous, particularly for the home health-care company.

Situation 4

1. What do you see as potential problems with locating Moore’s new business at home?

One of the drawbacks of operating a business from the home is the potential conflict between business demands and parental responsibilities. For example, Moore’s children may find it difficult to understand why their mother turns her attention away from them whenever the phone rings. Creating a sense of spatial and nonspatial boundaries may help with this. Home-based businesses also find that it is difficult to maintain an appropriate business image, but this could be minimized in Moore’s case if she establishes a professional image in all phone contact with clients and schedules consultations on-site (rather than at the home) whenever possible. Home-based businesses must also consider legal restrictions (e.g., zoning ordinances) since these can present a hurdle to the entrepreneur—an unlikely impediment in Moore’s case since she lives in a rural location. Finally, Moore will need to consider the location decision in general if her home is so far away from her target market that it makes business contact impractical.

2. What do you see as the major benefits for Moore of a home-based business?

One of the obvious benefits to a home-based business in this case is that it would permit Moore to spend more time with her children, which is important to her. Beyond this, locating at home would also reduce costs significantly by eliminating the need to rent office space. This is very important when the entrepreneur is starting the business “on a shoestring” and does not have an established client base to get revenues flowing quickly, as appears to be the case in this situation.

3. How could Moore use technology to help her operate a home-based business?

Advancements in technology help to blur the perceptual distinctions between home-based and other businesses. Personal computers, fax machines, e-mail, voice mail, and other technological tools are sure to prove helpful in this situation. Moore should be certain to obtain a personal computer to keep track of business receipts and disbursements and establish an e-mail address to maintain contact with current and potential clients. At little additional cost, she could also purchase Internet access and post a Web site to promote her business and provide information (e.g., available services and prices) that customer would find helpful.

|— |Answers to exploring the web exercises |

For each chapter, the instructor’s manual will include a short summary of suggested results students will have after completing the various Web exercises. Because the Web is a constantly changing medium, the answers may vary, and the links may change as well. Thus, answers are only suggested, and the URL for resources, where required, is provided.

Exercise 1

a. The Web site lists numerous questions that one should consider when selecting the general area. Below are the following:

• Is the site located near potential customers?

• Where is the competition?

• How long have the competitors been in this area, and how strong are they?

• Are there potential employees nearby?

• Is the area convenient for you?

• Is the location convenient and accessible to traffic? Near public transportation? Accessible by pedestrians?

• What are the occupancy rates in the area?

• What is the business climate in the area?

• Is the area growing or declining?

• What are market rents for the type of space desired?

• What services does the town or city provide?

• Are there zoning regulations or signage restrictions that will affect your business?

• How safe is the area?

• Are there adequate support services nearby, such as suppliers, printers, distribution centers, etc.?

• Are there conveniences for you and your staff, such as restaurants, cleaners, shops, etc.?

b. Once you've narrowed down the area, evaluate the location based on the following:

• Is there adequate parking for employees, customers, and delivery vehicles?

• Will you have to pay extra for parking?

• Is the rent affordable?

• Is there room for expansion?

• Can you get insurance at a reasonable cost at this location?

• Are there any building or health codes that would affect your business?

• Are there adequate storage facilities on site?

• Will you be able to have good visibility? Signage?

• Will people be able to find you?

• Does the building or location have the amenities that you need?

• Have you considered your finish out requirements?

• Does the location have adequate wiring, including for voice and data communications?

Exercise 2

a. Answers will vary.

b. There are two requirements for a home business to receive a tax deduction.

Requirement #1: You must regularly use part of your home exclusively for a trade or business (see Section 1, below).

Requirement #2: You must be able to show one of the following:

• You use your home as your principal place of business.

• You meet patients, clients or customers at home.

• You use a separate structure on your property exclusively for business purposes.

Exercise 3

Students’ answers will vary. The following is a list of topics covered on this Web site:

• Domain Names

• Rules for Webmasters

• Doing Business Online

• Consumer Issues

• Stay Out of My Computer

• Trade Secrets

|— |SUGGESTED SOLUTION TO CASE 9: |

| |The chocolate farm |

1. Which, if any, of the five key location factors discussed in Chapter 9 do you believe were considered prior to making the decision to locate this venture on the Web? Explain

In one manner or other these two young entrepreneurs probable considered all five location factors. Their lack of funding directed them to the incubator for help and also played a key role in locating on the Web. They had to have the ingredients to make the chocolates, therefore, resource availability was considered. The entrepreneurs’ personal preferences was probably the biggest factor since they were still in school and living at home.

2. In what additional areas could these entrepreneurs possibly obtain valuable assistance from the business incubator?

The Denver Enterprise Center incubator has obviously been very valuable to the entrepreneurs by providing the commercial kitchen. Also, it is possible that the incubator staff might provide management advice, clerical assistance, as well as certain office machines such as a copier.

3. After visiting the Web site of this business at , comment on the content you found there. Is the Web business a “transaction-based” type of e-commerce? Why or why not?

The web site is easy to navigate and contains considerable information about chocolate products and related products which can be ordered on the site. Therefore, it is correct to classify their Web business as transaction-based. Each item you select for purchase is added into a “shopping cart” which can then be accessed to complete the transaction. There is a $10 minimum to order online.

4. Is this business, in your opinion, large enough to warrant a CRM system? Why or why not?

This business is ready for a CRM system and may already be using its customer database for that purpose. The site has a “My Account” page which contains each customer’s past order history. A November 2004 article in People Magazine estimated their gross sales to be $1 million. Also, the entrepreneurs recently won a U. S. Postal Service entrepreneur contest—beating out 5,000 other competitors. Elise, now 16, is a high school junior and Evan, 19, is a freshman at California’s Claremont McKenna College.

Look at the “Our Story” feature on the Web site to learn more about the awards and recognition these two entrepreneurs have received.

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