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MSc in Clinical Research
January 2011
Module 7: Different Types of Business
Kamal Sehdev
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Why do businesses exist?
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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
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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
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Virgin started off as a mailorder record business but now includes:
AirlineTrainsCarsDrinksInsuranceTelephonesBanking……..
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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.
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Completely new ideas are less common than most people believe.
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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
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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
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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
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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
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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
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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?
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• By sector • By size
• By ownership
• By location
How do we classify businesses?
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• Private individuals
• Governments
• Public shareholders
• Trusts etc.
Sometimes a combination of these
Who Owns Businesses?
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• Manufacturing
• Services
• Financial
• Legal (arguably services)
Some types of Business
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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)
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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
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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
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What are the main areas companies operate in?
Healthcare Sector Companies
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What are the main areas companies operate in?
Healthcare Sector Companies
• Medical instrument / devices companies
• Therapeutics / pharmaceutical companies
• Equipment / consumable suppliers
• Consultancies
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Medical instrument / devices companies
• Surgical instruments
• Consumables / supplies
• Laboratory instruments
• Diagnostics
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What are the issues that concern them?
Obviously they need the right productin the right marketplace at the rightprice
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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?
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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?
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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?
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What other issues concern them?
Like all innovative technologiesdiagnostics requires front-end investment
- to develop the product- to satisfy regulators- to establish the market
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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?
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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?
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• 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?
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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
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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
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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)
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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)
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He will want to manage his investment and ensure an appropriate return at the right time
What will the investor want?