msc in clinical research january 2011 module 7: different types of business kamal sehdev

MSc in Clinical Research

January 2011

Module 7: Different Types of Business

Kamal Sehdev

Why do businesses exist?

Why do businesses exist?

• To develop a good idea• To employ people• To make things • To provide services• To make money (profits)• For charitable reasons

Often: To provide return on shareholder capital

To develop a good idea

Also known as Enterprise

People who take risks to develop good ideas are Entrepreneurs

A good example is Richard Branson and Virgin

Virgin started off as a mailorder record business but now includes:

AirlineTrainsCarsDrinksInsuranceTelephonesBanking……..

Most of them came about because Richard Branson thought he could improve on goods or services which already existed

It is easy to forget that this often applies in most industries.

Completely new ideas are less common than most people believe.

To make a profit

• By selling something at a price that is

higher than it cost to produce

• Profit is the return on investment made by the owner, or owners

• If they are not making a profit, they may

decide to sell up and invest in something else

Most profit seeking businesses seek to achieve

some of the following:

Survival – making sure that the business does not fail

Growth – increasing the size of the business by winning more customers, or opening new branches

International Growth – selling goods abroad

Maximising profit

Increasing market share – gaining more customers, beating the opposition

Efficiency – minimising costs

Quality – produce goods of a very high standard

Other aims – eg Bodyshop, Co-Op

There are five popular options for starting up in business.  You could:

• buy an existing business• become an agent for a larger firm• become a sub-contractor to other businesses - or offer business services• open a shop, factory or office• or buy a franchise

Starting up a business

The Form

You'll also have to think about the way you operate your business. Most people set up as a sole trader (one person owns 100% of the business); in a partnership (setting up a firm with two or more people); or as a limited company.

Starting up a business

There are pros and cons to the way each of the above operates.

If you can start trading without spending a lot on overheads and equipment, a sole trader is probably the best option.

If you are planning a high-risk venture that needs a lot of capital up front, you should probably choose a limited company.

Which form is best for me?

• By sector • By size

• By ownership

• By location

How do we classify businesses?

• Private individuals

• Governments

• Public shareholders

• Trusts etc.

Sometimes a combination of these

Who Owns Businesses?

• Manufacturing

• Services

• Financial

• Legal (arguably services)

Some types of Business

Different Sizes of Business

• Very large companies - often multinational

• Large companies - >250 employees

• Small / medium enterprises (SMEs) (50-250 employees)

• Small companies (1-50 employees)

The sector of small and medium sized enterprizes (SMEs) is an important factor in most economies. In Germany, for instance, there over 3 million SMEs.

These are 99.3 % of all enterprises subject to VAT and generate 44.8 % of the total turnover subject to VAT. SMEs carry out 46.0 % of gross investments; hence contribute significantly to total demand.

SMEs

These different types of companies require different strategies for successful management. The decisions that need to be made will often be different.

SMEs have a good reputation for their ability to innovate and for their close customer relationships. Smaller businesses, however, have some disadvantages that make it difficult for them to compete with the large players in their industry.

Business Management

What are the main areas companies operate in?

Healthcare Sector Companies

What are the main areas companies operate in?

Healthcare Sector Companies

• Medical instrument / devices companies

• Therapeutics / pharmaceutical companies

• Equipment / consumable suppliers

• Consultancies

Medical instrument / devices companies

• Surgical instruments

• Consumables / supplies

• Laboratory instruments

• Diagnostics

What are the issues that concern them?

Obviously they need the right productin the right marketplace at the rightprice

Large companies have considerable inertia(don’t make quick decisions)

Large companies have money to invest

Large companies are responsible to a diverse group of shareholders

What are thedifferences between small

and large companies?

Large companies can take on patent disputes and win

Large companies can wield influence e.g. on governments

What are thedifferences between small

and large companies?

Small companies can make quick decisions

Small companies have tight loyal workforce

but

Small companies often have less money and influence

What are thedifferences between small

and large companies?

What other issues concern them?

Like all innovative technologiesdiagnostics requires front-end investment

- to develop the product- to satisfy regulators- to establish the market

May use a consultant to - assess feasibility

- assess the market

Their potential investor may do this (due diligence)

How will they know if their product is good?

Established large company will have an R&D budget

Medium size public company might make a rights issue

Small company will need an investor

How is the money to do this found?

• You could phone a friend or involve a member of your family

• An established bank

• Raise it yourself

• Go to a business angel, VC or similar

Who might the investor be?

http://www.bbaa.org.uk/portal/

Business angels are wealthy individuals who invest in high growth industries in return for equity.

Sometimes they invest alone, or they may form a partnership of investors.

Business Angels

Business Angels

Often make their skills, experience and contacts available as well.

Typical funding level £10k - £250k

Not averse to high risk

Quick decisions

May be difficult to find

Venture Capitalistshttp://www.bvca.co.uk/

VC investments are generally high-risk

Offer the potential for above-average returns and/or a percentage of ownership of the company

A VC fund is a pooled investment vehicle (often a partnership)

Primarily invests the financialcapital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans

In a typical venture capital fund, the general partners receive an annual management fee equal to 2% of the committed capital to the fund and 20% of the net profits of the fund (a so-called "two and 20" arrangement)

He will want to manage his investment and ensure an appropriate return at the right time

What will the investor want?