Intro to Business: A Primer Companion text to CapsimCore® Business Simulation Edition 2 If you would like to purchase a paperback version of Intro to Business: A Primer, Edition 2, please search for the book on Amazon. The Black & white version is $19.99.: Capsim Managment Simulations, Inc. Copyright © 2021 by Capsim Management Simulations, Inc. Edited by Wendy Guest. All rights reserved. No part of this publication may be reproduced, distributed, or trans- mitted in any form or by any means, including photocopying, recording, or other elec- tronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Content Manager,” at the address below. 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Capsim Management Simulations +1(312) 477-7200 www.capsim.com Table of Contents Introduction ................................................................................................................................1 Overview: what is a business? ............................................................................................... 7 Marketing: how do we identify, entice and add value for customers? ........................19 Production: how does a business create goods and services to sell? ......................... 34 Accounting: how do we keep track of the money? ......................................................... 47 Finance: how do we raise funds, reward shareholders, and manage our assets? ....60 Strategy: how does it all work together? ........................................................................... 79 Ethics: doing it right – social responsibility and ethical decision making .................. 99 Selling your company and making brilliant business presentations ..........................116 Case Stories Application ......................................................................................................126 Index ....................................................................................................................................... 130 Introduction One way to learn about business is to read textbooks, learn definitions, discuss case studies, and pass an exam. With Intro to Business: A Primer, in conjunction with Cap- simCore Business Simulation, we take a less theoretical and more hands-on approach. We’re going to learn business by managing a business. The approach makes sense for two reasons. First, business itself is practical. If there were a single true theory of business success, then every person who started a business and followed the theory would be able to create a profitable and sustainable enterprise. Unfortunately, it’s not that simple. Business requires the practical application of people, skills, ideas and money, and it requires some trial and error before you succeed. Sec- ond, it is in that process of trial and error that mastery develops. If you want to master the basics of business, rather than learn only the theory, this program is for you. CapsimCore is a basic business simulation designed to give you hands-on experience in running a company. It provides the opportunity to work with all the essential man- agerial functions including marketing, production, and finance, and to experience the interactions and interrelationships that businesses engage in – internally and externally – to succeed. You can apply many of the concepts you’ll read about in this book directly to the simulation. It starts with an idea . Every business requires three basic resources to function and compete: ideas, people and money. In the world of business, those resources are configured and reconfigured over and over again to satisfy the needs and wants of the market. Sometimes businesses are based on a brilliant idea that completely changes how we do something – such as the way smart phones revolutionized the way we find, manage, and communicate information. Sometimes businesses find a new way to make us want more of what we already have – like the fashion industry urging us to update our ward- robe every season. Some businesses continually improve on a basic product – whether that’s cars, light bulbs, fabricated steel or dishwasher detergent. Sometimes we’re being sold an emotion – by the entertainment industry, for example – or a service, like hair- cuts or gym memberships. Whatever the business, it begins with an idea. add some good management Individual brilliance, great ideas, even revolutionary technologies however, are only parts of the equation. The real art of business is to take the basic resources – ideas, people and money – and get them working together as a growing, functional operation. 2 | Intro to Business: A Primer Building a business requires the ability to understand and manage the network of inter- relationships that delivering your product or service to the market requires. And to do that, every single business relies on some standard elements and practices. For example: accounting to keep track of your money; marketing to entice customers to buy; and production to get your product or service into the customers’ hands. Put simply, businesses need effective management. The roots of the word manage come from the Latin words manus agere (to lead by hand) and mansionem agere (to run the house for the owner). The dictionary defines management as “the person or persons controlling and directing the affairs of a busi- ness or institution.” It is the people who have their hands on the controls of the orga- nization. In CapsimCore you will get your hands on some critical management tools and begin to build your skills using them. Those tools include accounting statements, forecasts, market data and more – all applied to the task of creating and managing a successful enterprise. The forms that businesses take might be limitless, but the essence of how to run a company remains universal. The company you will run in this course designs, builds, and sells electronic sensors, but our goal is not to learn about sensors, it’s to build the skills you need to effectively manage a business – any business organization at all. It starts with an idea…. Smart phones have stimulated many new business ideas. Jack Dorsey is responsible for a few, creating two start-ups offering products we didn’t know we needed or wanted until we had them. Twitter is one. Dorsey co-founded the social networking site in 2006. Twitter went public in 2013 but by 2016, while it had a market capitalization of around $12 billion, its stock had fallen 70% from its high soon after the IPO. With management instability and takeover rumors, Twitter struggles to turn its promise into profits. Square is another of Dorsey’s ideas. Square is a small credit card reader that plugs into a smart phone or tablet, replacing card-processing equipment and making it simple for any small merchant to accept credit cards. Square went public in late 2015 but its IPO was labeled ‘lackluster’ and it was valued at $2.9 billion – less than half its private valuation a year before. Profits continue to be elusive. Uber, another San Francisco start-up, launched the smart phone ride-on-demand app that streamlined personal transport. But it hasn’t been an easy ride. Traditional taxi unions, limo companies and city governments -- the “rent seekers” in the market -- have attempted to maintain the status quo through regulation and litigation. Unrest among Uber drivers protesting changes to their compensation has also plagued the company. However, Uber spread quickly to more than 60 countries and around 270 cities and, as it has raised around $14.1 billion revenue between2010 and 2019, it isn’t rushing to go public. But while Uber competitor SideCar has already come and gone, its major rival Lyft partnered with India’s Ola, China’s Didi Kuaidi and GrabTaxi in 2016, forming a ride share partnership now covering about half the world’s population. Twitter, Square, Uber, Lyft and others are great ideas that were turned into businesses but still require excellent, fleet-footed management to become fully established firms that make a profit. How many other businesses can you name that offered new products we didn’t know we needed until we saw them? Introduction | 3 . and develop mastery. The good news is that brilliant and successful business-people – whether Mukesh Am- bani, Bill Gates, Rupert Murdoch, or Mark Zuckerberg – were not born with a “business success” gene. Their success is not simply due to an inbuilt talent, and this means any one of us could be successful in business one day. The bad news is that like all successful business-people, we need to devote thousands and thousands of hours to our goal – trying and failing, learning from our mistakes, and trying again – because it turns out that while many of us have the right attributes to be successful in business, not all of us are willing to invest the time. To become expert in any field, we need to engage in what is called “deep practice”. Deep practice That’s not to say genetics is always irrelevant – if you want to be a world-class basket- ball player, it helps to be tall – but few occupations require specialized characteristics such as height. Most require a combination of skills that can be developed and honed through practice,