Solution Manual for Small Business Management: Launching and Growing Entrepreneurial Venture

Solution Manual for Small Business Management:

Launching and Growing Entrepreneurial Ventures,
19th Edition, Justin G. Longenecker,

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Chapter 9: The Location Plan

CHAPTER 9: THE LOCATION PLAN

CHAPTER OUTLINE
9-1 Locating the Brick-and-Mortar Startup
LO1: Describe the five key factors in locating a brick-and-mortar startup.
9-1a The Importance of the Location Decision
i) Brick-and-mortar facility – The traditional physical facility from which
businesses have historically operated.
ii) Choice of location more vital to some businesses:
(a) As this topic is discussed, have students indicate where they purchase
products and tell why they choose that location.
(b) Ask students whether they live on campus or off campus. Then ask them to
give the advantages and disadvantages of living on campus or off campus,
and have them relate those advantages and disadvantages to business
locations.
9-1b Key Factors in Selecting a Good Location
i) Exhibit 9.1 lists five key factors in determining a good business location.
ii) Others factors relevant to the location decision include the following:
(a) Neighbor mix
(b) Security and safety
(c) Services
(d) Past tenants’ fate
(e) Location’s life-cycle stage
iii) Customer Accessibility
(a) Ask students why they are sitting in their particular seat in class. Does their
seat selection have anything to do with the person sitting next to them
(boyfriend or girlfriend)?
(b) Convenience goods require location close to target customers.
(c) Services must be readily accessible.
(d) Access critical for some businesses.
(e) Site-selection software helps business owners.
iv) Business Environment Conditions
(a) Can hinder or promote success.
(b) Competition, legal requirements, tax structure, weather.
(c) Nearly all cities have regulations that restrict new business operations under
certain circumstances.
1. Zoning ordinances – Local laws regulating land use.
v) Availability of Resources
(a) Access to raw materials
(b) Suitability of the labor supply
(c) Availability of transportation
vi) Personal Preference of the Entrepreneur
(a) Locating in one’s home community sometimes makes sense, but may be poor
choice.

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Chapter 9: The Location Plan

(b) Personal preferences that drive the location decision are as varied as the
entrepreneurs who make it.
vii) Site Availability and Costs
(a) Suppose it cost $1 to sit in the front row, $2 to sit in the second row, etc.
Where would students choose to sit? Why?
(b) Business incubator – A facility that provides shared space, services, and
management assistance to new businesses.
(c) Ultimately depends on evaluation of all relevant costs.
(d) Decide whether to lease or buy.
9-2 Designing and Equipping the Physical Facilities
LO2: Discuss the challenges of designing and equipping a physical facility.
9-2a Challenges in Designing the Physical Facilities
i) Ideal building practical and not extravagant
ii) Depends on the functional requirements of the enterprise
9-2b Challenges in Equipping the Physical Facilities
i) Have students discuss each of the different types of equipment, and tell how the
physical facilities needs differ for each type of equipment. Have the students
indicate how important each type of equipment is in terms of doing business.
ii) Manufacturing Equipment
(a) General-purpose equipment – Machines that serve many functions in the
production process.
(b) Special-purpose equipment – Machines designed to serve specialized
functions in the production process.
iii) Retailing Equipment
(a) Includes racks or counters, storage racks, shelving, mirrors, seats for
customers, customer pushcarts, cash registers.
(b) High-income market fixtures must meet expectations of customers.
iv) Office Equipment
(a) Furniture, storage cabinets required.
(b) Used office furniture may be less expensive.
(c) Decisions should be made that take the future needs of the business into
account.
9-2c Business Image
i) Impression of the business vital to perception by customers.
ii) Color and interior design should be considered.
iii) Image considered the engine of sales.
9-3 Locating the Startup in the Entrepreneur’s Home
LO3: Recognize both the attraction and the challenges of creating a home-based startup.
i) Home-based business – A business that maintains its primary facility in the
residence of its owner.
(a) Discuss the attraction of a home-based business when the economy is good
and when it is poor. Ask students whether they feel that home-based
businesses increase in either situation.

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Chapter 9: The Location Plan

9-3a The Attraction of Home-Based Businesses

i) Half of all U.S. business owners choose to run their businesses primarily out of
their home.
ii) Financial Considerations: Helps increase profits by reducing costs
iii) Family Lifestyle Considerations: Desire to spend more time with family members
9-3b The Challenges of Home-Based Businesses
i) Professional Image: Major challenge, critical to maintain professional office
ii) Legal Considerations
(a) Zoning ordinances – Local laws regulating land use.
(b) Tax issues – Must have a separate space to claim a tax deduction.
(c) Insurance considerations – Homeowner’s policy is not likely to cover an
entrepreneur’s business activities.
9-4 E-Commerce: Locating a Startup on the Internet
LO4: Understand the potential benefits of locating a startup on the Internet.
i) E-commerce – Electronic commerce, or the buying and selling of products or
services on the Internet.
9-4a Benefits of E-Commerce for Startups
i) Allows new venture to compete with bigger businesses on a more level playing
field
ii) Can compress the sales cycle reducing the time between receiving an order and
converting the sale to cash
9-4b E-Commerce Business Models
i) Discuss e-commerce with students. How have cell phones such as the iPhone
helped or hindered this type of commerce?
ii) Group of shared characteristics, behaviors, and goals that a firm follows in a
particular business situation
iii) Type of Customers Served
(a) Business-to-Business (B2B) Models – A business model based on selling to
business customers electronically.
(b) Business-to-Consumer (B2C) Models – A business model based on selling to
final consumers electronically.
1. Disintermediation – The bypassing of a middleman by a producer or
wholesaler in order to sell its product or service directly to the final
consumer.
(c) Consumer-to-Consumer (C2C) Models – A business model usually set up
around Internet auctions sites that allow individuals to list items available for
sale to potential bidders.
1. Auction sites – Web-based businesses offering participants the ability to
list products for consumer bidding.
iv) The Nature of Online Presence
(a) Information-Based Model – A business model in which a website simply
offers information about a business, its products, and other related matters.
(b) Content-Based Model – A business model in which a website provides
information (content) that attracts visitors, usually with the hope of generating
revenue through advertising or by directing those visitors to other websites.

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Chapter 9: The Location Plan

(c) Transaction-Based Model – A business model in which a website provides a

mechanism for buying or selling products or services.
(d) Emerging Options – Blogging or Web logging.
9-4c Internet-Based Businesses and the Part-Time Startup Advantage
i) Decisions:
(a) Give up an existing job or jump full-time into the startup
(b) Hold on to the job while getting the part-time business going on the side

ADDITIONAL DISCUSSION QUESTIONS

1. What are the key attributes of choosing a good business location? Which of these
would probably be most important for a retail location? Why?
Five key factors affecting the desirability of a business location are personal preference,
business environment conditions, resource availability, customer accessibility, and site
availability and costs. 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. Which resource factors might be most vital to a new manufacturing venture that
produces residential home furniture? Why?
This chapter emphasizes three major resource factors—access to 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 that 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.) While the skill level of local labor may not be as critical as
the access to 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 factor in the location for the firm.
3. 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.
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.

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Chapter 9: The Location Plan

4. Under what conditions would it be most appropriate for a small business to buy rather
than lease a building for its operations?
More small business owners choose to purchase rather than lease their building (57%,
according to one study), but the benefits of leasing can sometimes outweigh the gains of
owning:

• A large cash outlay is avoided, which can be especially important for a new small
firm that lacks adequate financial resources.
• Risk is reduced by minimizing investment and by postponing commitments for space
until the success of the business is assured and facility requirements are better known.
• It is usually more affordable to lease in a high-image area than to buy in a prime
location.
• Leasing allows the entrepreneur to focus on running the business rather than
managing a property.
5. What is the difference between general-purpose equipment and special-purpose
equipment? What are the advantages and disadvantages of each?
General-purpose equipment requires a minimal investment and may be used in many
different operations. Special-purpose equipment is more limited in use because it serves
specialized functions. An advantage of general-purpose equipment is that it may be more
easily sold in the case of a business dissolution or more easily sold and replaced by more
useful equipment if found less useful. This type of equipment offers flexibility when the
technology is not yet well developed or there are design changes. The disadvantage of
general-purpose equipment is that it may not provide the exact process required. Special-
purpose equipment can reduce costs when the technology is fully established. However, it
is more limited in its application and may be very expensive to purchase as well as to
replace. It may have little or no resale value because it is specialized for a singular
purpose.
6. What factors should an entrepreneur evaluate when considering a home-based
business? Be specific.
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. Financial considerations
such as taxes and insurance also need to be considered. These and perhaps other issues
must be weighed in judging the practicality of basing a business in the home.
7. How might zoning and tax laws impact the decision to start a home-based business?
The intent of most residential laws is to protect a neighborhood’s residential quality.
Noise and parking problems arise many times when a residence is used as the home base
for a business. As discussed in this chapter, this was the problem perceived by Lauren
Januz when a neighbor’s landscaping business created parking congestion in her area.
Local governments should be contacted to gain approval for the type of 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.

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Chapter 9: The Location Plan

8. Define and describe B2B, B2C, and C2C businesses. What is the major thrust of each
of these three models?
Business-to-business (B2B) 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 (B2C) model focuses on sales to the end user, offering advantages such as
speed of access, speed of transaction, and 24/7 access. The consumer-to-consumer (C2C)
model is usually set up around Internet auction sites that can help even the smallest of
businesses gain access to a worldwide market with great convenience. 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, websites can
be difficult to load, etc.). 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.
The B2B model offers three main advantages over brick-and-mortar retailing: convenient
use, immediate transactions, and round-the-clock access to a broad array of products and
services. The B2C model offers market reach and flexibility that would not otherwise be
available. The C2C model generates most of its revenue through listing fees and
commissions. These Web-based businesses offer participants the ability to list products
for consumer bidding.
9. What are the primary features of the information-based, content-based, and
transaction-based models of e-commerce? Which of these offers the greatest business
potential? Explain your answers.
A website built on the information-based model offers information about a business, its
products, and other related matters but doesn’t charge for its use. It is typically just a
complement to an existing brick-and-mortar facility. Many small businesses use this
model for their online operations. Research has shown that the Internet has become the
first stop for consumers who need information on a local business. So it makes sense for
small companies to create websites that can then be picked up by consumer searches.
The content-based model of e-commerce is a variation of the information-based
alternative in that it also features a website that provides access to information but not the
ability to make purchases. Rather than selling products or services, a content-based
website provides information (content) for those who visit it, usually with the hope of
attracting a healthy stream of visitors. In most cases, this online traffic can be
“monetized” assuming that is what the creator has in mind.
In a transaction-based model, a website is set up to provide a mechanism for buying or
selling products or services. The transaction-based model could be considered the center
of the e-commerce universe, with online stores where visitors go to shop, click, and buy.
Entrepreneurs who create the most benefit for their customers are far more likely to
succeed. Websites that make false or overstated claims are usually short-lived, as the
news of their misdeeds spread quickly on the Internet. As with brick-and-mortar
operations, online businesses must have integrity and deliver genuine value to their
customers in order to be successful.

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Chapter 9: The Location Plan

10. What are some of the emerging options for making money in an Internet-based
business? Which of these has the greatest potential for profits and long-term growth?
Bloggers produce online journals to trade comments with friends and other readers, but
these can also be managed as a money-making venture. Small firms have found blogs
easy to use and thus an attractive platform from which to promote the sale of an
overstocked item or to give an employee special recognition. Web traffic on a blog can
also generate substantial income from advertising and paid links.
Another option is to create podcasts, the audio or video files that are distributed over the
Internet and can draw a listenership of more than 46 million people.
Other entrepreneurs are exploiting the reach of YouTube or Pinterest to create a
following that can be turned into profit. YouTube has organized a Partner Program that
allows high-traffic content creators to display ads on their videos and earn a percentage of
the revenues generated whenever a visitor clicks on one of those ads. New online
business concepts are being created all the time, and alert entrepreneurs are finding ways
to cash in on them.

SUGGESTED ANSWERS TO YOU MAKE THE CALL EXERCISES

Situation 1
1. How important was the location decision to these two entrepreneurs? Why?
The decision to relocate was a very important decision for Stengard and Piel. The tax
breaks, financial assistance, and an affordable and available workforce helped the
company to grow beyond its former capacity in St. Louis. The larger facility has allowed
S&P Crafts to expand its business and increase the size of its operation.
2. What types of permits and zoning ordinances did Stengard and Piel need to consider
before deciding to relocate?
Stengard and Piel need to consider zoning regulations dealing with manufacturing
operations as well as those relating to accessibility of raw materials for those operations.
Permits for parking, type of business operations, public permits (such as restrooms
required and whether these are public or not), and building permits if expansion is
required may be important. Some of these might be handled by the economic
development organization and/or the new facility to which they moved.
3. How could Stengard and Piel use the Internet to expand their business?
The Internet is an opportunity for expansion that works well if the target customer uses it.
If the target audience doesn’t use the Internet, then expansion would need to include
expanding the target market to include individuals who do use it and would use the
product.

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Chapter 9: The Location Plan

Situation 2
1. What are the major advantages that Maple is likely to enjoy as the result of operating
out of a pop-up store?
The major advantage for Maple would be exposing people to her products without the
costs of maintaining a brick-and-mortar location, particularly in a popular area, for a long
period.
2. What are the major disadvantages and special challenges that the company is likely to
run into as a result of following this strategy?
The setup cost for the short run could be a disadvantage. Also, a trendy area in Chicago
might not have been the best location for Maple’s products. Some customers might have
liked her products but missed the connection to the website.
3. Do you think that it was a good idea for Maple to try this approach? Can you think of
any other options that might have worked even better for her?
Student answers will vary but lively discussion should ensue.
Situation 3
1. What are some potential problems that Roundtree will face if she locates her new
business at home?
Distance from customers may be a major problem unless Roundtree is willing to go to the
customer, which would require Roundtree to have adequate transportation. Zoning may
also affect whether this business could be located in Roundtree’s home. Roundtree may
find it difficult to provide specific space for the business as required for IRS purposes if
Roundtree intends to take deductions for business space in the home. Working from
home with two small children may also be problematic.
2. What do you see as the major benefits for Roundtree of a home-based business?
The major benefits for Roundtree would be time with her children (which may not be
possible in this location), full control of the business, and lower expenses since she would
not need to rent a location for the business.
3. How could Roundtree use technology to help operate a home-based business?
Roundtree could use the Internet to advertise her business in locations beyond her small
town.

SUGGESTED SOLUTION TO CASE 9: COOKIES-N-CREAM

1. What are some location advantages that Cookies-N-Cream has that a brick-and-mortar
retailer doesn’t have? Are there any drawbacks to a mobile vendor’s choice of
location?
Overhead costs are reduced and availability and convenience of goods to target customers
are greatly increased. Also, mobile vendors are a growing trend, and Cookies-N-Cream
can take advantage of this growing demand. One drawback to this type of location is the
reliability of the vehicle. Should the vehicle break down, the vendor won’t be able to
service its customers. Another drawback may be city regulations prohibiting parking and
selling the product.

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Solution Manual for Small Business Management: Launching and Growing Entrepreneurial Venture

Chapter 9: The Location Plan

2. Discuss site costs, retailing and office equipment, and other financial considerations of
a mobile vendor such as Cookies-N-Cream.
Administrative work is increased to ensure that a vendor is in compliance with multiple
city regulations. Other costs include costs to maintain and service the mobile unit. A
smaller working environment means that you have to stock up on and/or produce product
more often. A home office will be needed in order to attend to all the “back-of-the-house”
administrative details.
3. What legal considerations affect Cookies-N-Cream’s choice of location? How do those
compare with the legal considerations of brick-and-mortar and home-based
businesses?
Legal considerations that need to be addressed include city permits for each city in which
its sell product, taxes, and health code permits. County regulations also need to be
understood and addressed. Both brick-and-mortar and home-based businesses may have
to contend with these same regulations if they do business in multiple counties and/or
cities.

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