Why are Large Firms Slow to Change?

I an economy where change is inevitable, why are large firms slow to change? Large conglomerates, you know, the fortune 500's of today's society are faced with the change or die concept. Natural selection for the current economy.

Large firms often have difficulty adjusting to a changing business environment. They suffer from what Richard Daft refers to as "structural inertia" or the inability to adapt to a changing market. Regardless of whether it is the large investment in company assets (equipment, property,trained staff, etc.), decision makers/higher ups with firm viewpoints, or the difficulty in regards to changing company culture, these larger more established firms are finding it difficult to adapt to changing business environments.

The larger the organization, the larger the investment in assets. Equipment, a building and highly trained staff require a hefty investment by the company. If an organization invests in the above for a product, they will be less likely to react quickly to a change in the product mix in the near future. With funds tied up in their current product the organization will be less soluble, thus slower to react to a changing market.

By nature, large firms are bureaucratic with policies and procedures set firmly in place to maintain corporate structure and compliance. "By nature a bureaucracy causes businesses to be slow to respond to changing markets and customer demands" (Melvin). These structured environments provide the highest manager on the food chain with primary decision making power. This isolation of the primary decision makers
equates to a lapse from the time ideas and opportunities are addressed before they make it up the corporate ladder and are implemented.

The corporate culture for many large firms has been created over an extended period of time. Employees and managers alike become are trained in the methods of the current culture.In a changing environment many will become resistant to the change in the corporate culture that they are accustomed to. If employees and staff fail to perceive the potential benefits of a change in the current corporate culture they may become less cooperative and begin to fear the change. This avoidance may spread like wildfire throughout an organization as the previous stability has been removed and they are uncertain about their changing environment.

The rather slow ability of large firms to change does however open the door for new businesses to emerge and fill the current niche. These new firms will begin to siphon customers from established firms and may eventually become the conglomerate of tomorrow. Large firms must find ways to adapt to changing markets and become flexible like their smaller counterparts.

Daft, Richard. Organization Theory and Design. Cengage Learning, 2008. Apr. 23, 2010.

Melvin, Katherine. Size Matters - Large vs. Small Companies. Mar. 10, 2010. .

To Buy or Not to Buy, That is the Question

In a world of budgeting, saving and a credit crises, the majority of the public does to have access to infinite resources to purchase a largely successful conglomerate. While everyone does not necessarily have the opportunity to buy a business with a proven track record of profitability, everyone does have the opportunity to create a venture of their own.Think about it for a moment. You have decided that you would like to own a certain type of business. You are ready to unleash your passion, do you buy a form of that businesses with proven profitability or do you create your own path and launch a start-up? The choice is really yours or I guess I should say your budget's.

Operating Business
A business that is already in operation has overcame the original obstacles of start up. It has an established customer base, location, inventory and suppliers, and trained employees on staff. These benefits leave room for you to purchase the business and make the necessary updates without starting from scratch. Statistically this proves to be a better idea than launching a venture of your own, but the industry average for successfully complete ting a business purchase from "putting in an offer that is accepted and that offer going to the closing table is 50%" (Sierchio). Buyers must be well prepared/informed and ready to discover discrepancies in the sellers information. You must find out exactly why the business is for sale and ensure that this is a problem that you can fix. Poor management and lack of training are fixable, but a poor location may be a little bit more difficult.

Business Start-up
For many entrepreneurs purchasing a business that is all ready in operation is out of their budgetary means, myself included. These entrepreneurs decide to unleash their passion and launch their own business. Statistics are no longer on your side, but drive very well may be. These entrepreneurs must find an affordable location for their business, search for vendors, advertise, hire employees and begin the process of building a client base. Everything that comes with the purchase of a profitable business, you must now create on your own. These objectives alone can cost a small fortune, thus do not underestimate during the formation of your business plan. You are going to need all of the funding you can get and you are still going to have to think very "guerrilla minded". According to essortment, "When you open a business from the ground floor, you make the rules and you decided how you want it to run. Your business is designed completely by you." I find this extremely motivating, it speaks directly to my entrepreneurial drive.

Two Ways to Buy
You have chosen to buy a business that is already in operation. Way to go moneybags! There are two basic methods to purchasing a business, the acquisition of stock or through the purchase of the assets. Stock acquisitions involve either a direct stock purchase or a merger. This method may reveal previously unknown contingent liabilities that you will be responsible for after purchase. The purchase of assets both tangible and intangible on the other hand proves to be a tax advantage for you the buyer. Not only can you opt to purchase only the assets that you feel are necessary for the successful operation of the business, you may also reduce your company taxes through the mark up and depreciation of tangible assets. While this method is not nearly as appealing for the seller it is a clear advantage for you the buyer.

Goodwill
Many businesses come with an implied "goodwill" concept. For example the trademark associated with certain franchises will come with an implied "goodwill" towards the brand. The concept may be transferred to the buyer during the initial stages of operation, but it is the responsibility of the new owner to maintain the "goodwill" within the business. You may choose to purchase a business that has a proven client base and a track record of profitability, but if you provide poor customer service and an inferior product you are tainting the "goodwill" of the business. The seller can not be held liable for your indiscretions as the new owner of this business. The concept technically/contractually can not be transferred or purchased.

Click Here to view George Sierchio's article on Buy-a-Business.

Gaeblers Resources for Entrepreneurs also has a great article on the Ways to Buy a Business. Click Here to view the article.

Franchise...what, not to mention why?

Businesses with a proven track record of profitability and those that may be easily duplicated are often franchised. According to Wikipedia, "Franchised businesses operated 767,483 establishments in the United States in 2001, counting both establishments owned by franchisees and establishments owned by franchisors." A franchise may be built around a product or a service. The Cheeseburger at the McDonalds in Jackson Hole is exactly the same as the cheeseburger you would purchase at the McDonalds in Asheville, NC. Standardization is key to the overall success of franchises nationwide.

From the standpoint of the Franchisor, a franchise is a method to increase stores nationwide or within a set market, without the risk or liability. Thus, while the Franchisee has an easy business model to follow during startup and a direct stake in the businesses, they also have greater incentive to make the franchise successful. In the case of a franchising agreement, the franchisee pays the franchisor the associated fees in regards to both purchasing rights to use the trademark and the training, marketing and mentoring services of the franchisor. These fees are often referred to as a set "management fee" paid to the franchisor.

The Franchisor in return will grant the rights to the franchise for a set period of time and a location or territory. The franchise must be thought of as a temporary lease, the franchisee never really owns the business, they are borrowing or renting the rights to operate under the proven business model, trademark and standardization. The Franchisor will also offer or suggests products, equipment, uniforms, etc. that should be purchased by the franchisee to ensure that the trademark is successfully displayed/implemented and that the standardization within the franchise is maintained. The Franchisor serves as a mentor/training leader under the set forth "management fee" and will aid the franchisee and their employees during the initial start up of the franchise, but it is the primary responsibility of the franchisee to learn to operate and run their franchise. The Franchisor holds little to no liability if the venture is unsuccessful.

Franchise vs. Company Owned
The best representation of the difference between a Franchise and a Company Owned store would be the simplistic approach, "All franchises are chains, but not all chains are franchises."

In the case of a franchise, the franchisor maintains little to no liability and places little to no resources into the creation of the store. The franchisee provides all of the capital required during the start up and operation of the business. Also the Franchisee will be extremely motivated to maintain a successfull venture primarily because it it their investment at stake if the venture fails.

On the opposite as a company owned business you will receive the total profits from the bottom line, that would otherwise go to the franchisee in regards of a franchise. A franchisor only maintains the right to the previously set royalty fee. Other benefits include the addition of assets to the balance sheet in the form of stores created, but as a negative, company funds are also tied up in each and every building created. Company owned businesses also maintain the risk of each venture, whereas the franchisee assumes the risk in the franchise agreement.

Regardless of the differences between franchising and maintaining company owned stores, the subject rarely remains divided. Franchisors often retain ownership of the best locations within their company and franchise the remaining or additional locations to franchisees nationwide. The mix is simply the best method to promote growth within their company.

Entrepreneur.com has a great article on franchising vs. building chain stores for company growth. Check it out by clicking here.

The Entrepreneurial Spirit

Entrepreneurial in spirit you may say. My mother chose to start her own business rather than return to work after I was born. I guess the thought of leaving me with the nanny while she was slaving away in corporate America was a little less than appealing. I began working in her office at the ripe age of nine playing secretary and steadily gained more responsibilities within her company as I grew older, thus the entrepreneurial spirit was planted, nurtured and grown over the decades since. The personal considerations that I saw in my mother, during the success of her business venture far outweighed the lost vacations and the long hours spent at the office. As an entrepreneur she showed great passion, endless drive, and the ability to excercise her creative mindset to make her business the successful enterprise it was.

Passion
An entrepreneur must be passionate about his/her business. The entrepreneur that begins a venture that they are less than passionate about will ultimately fail. Your passion is your energy, the fire that fuels your business. According to Nelson Bolles, "One of the marks of successful entrepreneurs is their enthusiasm about their businesses.When you're passionate about what you do, [prospective clients] would rather give their business to you than to your competitor." Let your passion fuel your business. You, the entrepreneur, are the greatest representation of your business. If you are passionate, bursting with positive energy, and excited about your business, your customers will feed off of your energy and become excited about your business as well. Passion plays more of a role in your business than you would think. It is part of what makes the field of Entrepreneurship so exciting and a refreshing twist.

Entrepreneurial Drive
Realizing your passion and choosing to start a venture in a field you are passionate about is a great start, but sustaining the quest for excellence is quite another. This is where Entrepreneurial Drive comes into play. Successful entrepreneurs, including Richard Branson, saw something in the world that needed to change, acted upon it and in return was extremely successfull. Branson successfully launched Virgin Atlantic Airways, Virgin Mobile and various other ventures primarily because he saw a need or something that needed to change and he acted upon it. Steven Berglas explains, " (entrepreneurs)don't question their motivation; don't wonder whether or not they are taking risks; don't ask themselves, 'Will this work?'Instead, they just act--passionately, indefatigably, in pursuit of a goal." The drive that many successful entrepreneurs poses pushes them to not only make great changes in the many wrongs of society, but also to create business ventures that are worthy of great accolade.

Creative Thinking
The opportunity to think independently and openly outside of the realm of normal day in day out tasks is yet another benefit/characteristic of the Entrepreneur. Small business owners often operate on limited resources, thus initiatives such as guerilla marketing play a large role in the success of their business. Thinking outside of the box to make the best use of your resources is essential to maintaining a successful business. For example, a bakery is in great need of additional marketing assistance, but their resources to do so are slim. Across town a local independent magazine is throwing a bridal party for area brides to be, complete with a giveaway drawing package. The bakery reads about the party and negotiates additional ad space in the magazine in exchange for donating a cake for the raffle package at the bridal show. Thinking outside the normal methods of business, both companies received services they needed without exchanging a dime. Think creatively, entrepreneurship/small business ownership is your opportunity to exercise your creative freedom.

Whether or not the Entrepreneurial Spirit is something you are born with, something that is instilled within you, or something that you may have picked up during school, it is the greatest opportunity that you have been given. Satisfaction may only come from launching the venture you have been dreaming about, as the passion is stirring within. If the saying is true, "Failure is just another learning experience." Go for it, what do you really have to loose.