Chapter 9 The Location Plan1

9The Location Plan

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CHAPTER 9 LECTURE NOTES

1 / Identify the factors affecting choice of a business location.
PPT 9-1
Chapter 9
The Location Plan
PPT 9-2
Looking Ahead
PPT 9-3
Locating the Brick-and-Mortar Startup /
  1. Locating the Brick-and-Mortar Startup
  2. Importance of the location decision
  • Begin by appealing to the common-sense notion that the best product at the lowest price will not sell if it is inaccessible.
  • Emphasize the difficulties associated with changing locations.
  • If several students live off campus, ask them to relate their locationconcerns relative to the campus. (Some probably wish they lived closerto campus, others farther away.)

PPT 9-4
Location Options for the Startup
PPT 9-5/TM 9-5
Five Key Factors in Determining a Good Business Location
[Acetate 9-5]
PPT 9-6
Key Factors in Selecting
a Good Location
PPT 9-7, 8, 9
Key Factors in Selecting
a Good Location
PPT 9-10
Designing and Equipping the Physical Facilities
PPT 9-11
Equipping the Physical Facilities
PPT 9-12/TM 9-12
Manufacturing Equipment
PPT 9-13
Retail Store and Office Equipment /
  1. Key factors in selecting a good location
  2. Customer accessibility. See if you have a student seated next toaboyfriend or girlfriend. If so, point out that location selection is related toaccessibility.
  3. Business environment conditions. Referring again to seatingin the class, ask if seat selections were made to avoid street noise near awindow or otherwise to improve environmental conditions.
  • Many states have enterprise zones that offer location incentives in order to attract businesses
  • 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.
(1)Nearness to raw materials—abundant source of materials areeasily accessible
(2)Suitability of labor supply—low wage pool, technical training
(3)Availability of transportation—accessible to trains, planes,railroads, etc.
  1. Personal preference of the entrepreneur. Continue with the seating example. Ask whether students chose their class seating location simplybecause they had a personal preference for the front or back row.
  2. Site availability and costs. Suppose it cost $1 to sit in the front row, $2 to sit in the second row, etc. Where would students choose to sit?
(1)Site availability—a business incubator may be right for a newstartup
(2)Site costs—most make decision to lease or buy. Leasing isrecommended for new firms. Avoid cash outlay and reduce risk
(3)Designing and equipping the physical facilities
(4)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
  1. Retail store equipment. You may choose to stress retail equipment, especially recent advances in supermarket checkout technology.
  2. Office Equipment
  1. Computers
  2. Fax machines
  3. Copiers and printers
  4. Telephone systems
  5. Challenges in Designing the Physical Facilities
  • Building size and configuration depends on the nature of the business
  1. Building Image
  2. Building must match the image desired.

2 / Describe the attraction and challenges of a home-based business.
PPT 9-14
Locating the Startup in the Entrepreneur’s Home
PPT 9-15
Home Based Business
PPT 9-16/TM 9-16
Entrepreneur’s Reasons for Operating a Home-Based Business
[Acetate 9-16] /
  1. Locating the Startup in the Entrepreneur’s Home
  2. The attraction of home-based businesses
  1. Financial considerations (reduced costs)
  1. Family lifestyle considerations (desire to spend more time near family)
  1. The Challenges of Home-based businesses
Discuss potential conflicts between business and family interests inthe home setting. Is this conflict similar to that between students’study responsibilities and personal interests in a residential setting?
  1. Business image—must maintain a professional atmosphere
  2. Legal considerations
  • Zoning ordinances—local land may pose problems for home-basedbusinesses
  • 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 ofand 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
[Acetate 9-17]
PPT 9-18
Benefits of E-Commerce to Small Firms
PPT 9-19/TM 9-19
E-Commerce Business Models
PPT 9-20/TM 9-20
Types of Customers Served
[Acetate 9-20]
PPT 9-21
Degree of Online Presence /
  1. Locating the Startup on the Internet
  • The Internet provides many opportunities for small businesses and a global presence.
  • What is E-Commerce? (Electronic Commerce)
  • Benefits of E-Commerce Startups
  • Small firms can compete with bigger businesses on a more level playing field.
  • Shortened (compressed) sales cycle
  • 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)
  • Amazon.com is a good example
  • B2C model enjoys the advantages of speed of access, speed oftransaction, and 2417 e-tailing
  • Auction site models—web based businesses who sell products byauction
  • EBay is a classic example of auction site models
  • Degree of Online Presence
  • Content/Information-Based Model
  • Web site provided access on company information but cannot conduct buy or sell transactions
  • Have students provide examples of such web sites.
  • Transaction-Based Model
  • Can buy or sell on the web site (online stores)

 / 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.
  1. How important are your personal reasons for choosing a location?
  2. What business environment factors will influence your location decision?
  3. What resources are most critical to your location decision?
  4. How important is customer accessibility to your location decision?
  5. What special resources do you need?
  6. How will the formal site evaluation be conducted?
  7. What laws and tax policies of state and local governments have been considered?
  8. What is the cost of the proposed site?
  9. Is an enterprise zone available in the area where you want to locate?
Physical Facility Questions:
  1. What are the major considerations in choosing between a new and existing building?
  2. What is the possibility of leasing a building or equipment?
  3. How feasible is it to locate in a business incubator?
  4. What is the major objective of your building design?
  5. What types of equipment do you need for your business?
Home-Based Startup Location Questions
  1. Will a home-based business be a possibility for you?
  1. What are the advantages and disadvantages of a home-based business?
  2. Have you given consideration to family lifestyle issues?
  3. Will your home project the appropriate image for the business?
  4. What zoning ordinances, if any, regulate the type of home-based business you want to start?
Internet Startup Questions
  1. What type of customers will be served by the Internet startup?
  2. 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 ).

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. 187-191Five 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.

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

p. 189Enterprise 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.

  1. 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.

  1. 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 - 191The 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.

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

p. 193General-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.

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

p. 191A 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.

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

p. 194 - 195Some 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.

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

p. 195The 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.

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

p. 197 - 199Business-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.

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

p. 198B2B (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.

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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.

  1. 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.

  1. 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.