Quick-start Routes

Entrepreneurship Management

Prof Bharat Nadkarni

Entrepreneurship Management Quick-start routes Quick-start routes to establish an EnterpriseFranchising

Ancillarisation

Acquisition

Entrepreneurship Management Quick-start routes Franchising

A management whereby the manufacturer or sole distributorof trade marked product or services gives the exclusive rights of local distribution to independent retailers for their payment and conformance to standardised operating procedures.Types of FranchisingProduct Franchising (e.g. McDonalds, Monginis, Barista )Process Franchising (NIIT, Aptech, Eurokid)Business Format Franchising (e.g. Mckinsey, Earnst & Young)

Entrepreneurship Management

McDonalds : Im Loving ItMc Donalds is a very good example of a business that became a runaway success after the original owners sold it to an enthusiastic, aspiring entrepreneur.Arguably, one of the most successful franchise operations, McDonalds is the worlds largest chain of fast food restaurants. McDonalds outlets primarily serve hamburgers, French fries, colas, and milkshakes. McDonalds has over 30,000 restaurants serving 52 million people in more than 100 countries.Some of its outlets are company-owned but over 70 per cent are owned and operated by franchisees. McDonalds has been open to the idea of trying out new business models

Entrepreneurship Management

to suit the requirements of the local conditions. In India, McDonalds operates through joint ventures with local partners.The chain was started by the McDonald brothers, Dick and Mac in 1940, but the chain really took off after Ray Croc purchased their equity and led the international expansion of the chain.McDonalds provides training for its franchisees at the aptly named Hamburger University in Illinois.

Entrepreneurship Management

Thomas Carvelas, also known as Tom Carvel, founded Carvel Ice Cream and is considered to be the father of modern franchising. He started selling Ice Cream in New York in 1934. He developed new refrigeration machine and his own formula for soft-serve ice cream. Soon after the second world war, he started franchising his business. It was hugely successful and today Carvel has 570 franchise outlets in USA and is available at over 8500 other stores.There are others who say that the seeds of franchising were laid by Issac Singer, who invited distributors to expand the availability of his sewing machines. A little later, John Pemberton successfully tried out a franchise-type distribution system in Coca-Cola and it was hugely successful.

Entrepreneurship Management Quick-start routes Franchising

Advantages to the FranchiseeThe entrepreneur does not have to incur all the risks that are often associated with starting a business from a scratch.Enters into a business that has an accepted name, product or serviceManagerial assistance and upfront support is often provided by the Franchiser.Knowledge and behavioural pattern of the market Maintaining quality control of products and services

Entrepreneurship Management Quick-start routes Franchising

Advantages to the FranchiserMarket ReachFocus on manufacturing, quality control, product and service innovationsExpansion programmesBetter financial management

Entrepreneurship Management Quick-start routes Franchising

Disadvantages of FranchisingInability of franchiser to provide service, advertising and location, data and actionable points from market research, meeting timelines Franchiser is bought out by another company.Territorial protection.Renewal of agreement/ advancement/ growth

Entrepreneurship Management Quick-start routes Ancillarisation

Entrepreneurship Management Quick-start routes

AncillarisationMeaning

Industrial undertaking having investment in fixed assets in plant & machinery not exceeding Rs. 2 crores and engaged in :

Manufacturing of parts, components, sub assemblies, tooling or intermediates and Rendering services and supplying not less than 50% of its production to one or more other industrial undertakings for production of other articles

Entrepreneurship Management Quick-start routes Areas of Ancillarisation

Industry Anc.range(%)

Automobile50 to 90

Industrial machinery & machine tools20 to 40

Chemical & Pharmaceuticals15 to 30

Consumer durables10 to 50

Entrepreneurship Management Quick-start routes Advantages of Ancillarisation

Minimizes set up cost

Low level of Inventory

Economical Sourcing

Better Quality Standards

Complementary Role

Development of Entrepreneurial Skills

Entrepreneurship Management Quick-start routes Disadvantages of Ancillarisation

Dependence on parent company Obsolescence Multiplicity of suppliers by parent company Securities like earnest money deposit Delay in receiving payments

Entrepreneurship Management Quick-start routes Government Initiatives to promote AncillarisationSharing successful company experiencesTraining on ISO / QS 9000Collaboration on Benchmarking ServicesJoint Projects for Productivity ImprovementsTechnology Development ProjectsTrade Delegations Worldwide / Trade Fairs / ExhibitionsGlobal Dissemination of InformationLinkages Building / NetworkingScience & Technology Parks Vendor Development Programmes Sub-contract Exchanges Cluster-development Programme Purchase & Price Preference Scheme

Entrepreneurship Management Quick-start routes

ACQUISITION

Entrepreneurship Management Quick-start routes Acquisition

An acquisition is the purchase of a business or a part of it so that the acquired business is completely absorbed and no longer exists as a business entity.Whether the acquisition will become the core of the business or represents a needed capability, such as a distribution outlet, sales force or production facility, the entrepreneur must ensure that it fits well in the overall direction and structure of the strategic plan of the present venture.Acquisition is a start up option as well as growth strategy.

Entrepreneurship Management Quick-start routes ADVANTAGES OF AN ACQUISITION

An existing business will have an operation in place and thus can avoid some of a new ventures risks and challenges An entrepreneur typically starts with some profits and positive cash flow Market speculation and uncertainity in sales projections are reduced because the business already has a track record.Condition of the plant and equipment (assets), if any, is known.Bankers and lenders and new outside investors feel more comfortable while lending or investing in an established business.

Entrepreneurship Management Quick-start routes ADVANTAGES OF AN ACQUISITION

The previous owner brings valuable experience to the enterprise. Fixed assets can be purchased for less in a buyout. Existing business may have a developed market structure of suppliers, wholesalers, retailers etc. Employees of the existing business can be an important asset. The entrepreneur can spent more time in assessing new opportunities to expand or strengthen the business.

Entrepreneurship Management Quick-start routes DISADVANTAGES OF AN ACQUISITION

The existing business may have marginal success record or even failure The business if acquired at an inflated purchase price reflecting unwarranted goodwill or a faulty business model One may end up inheriting some one else problem. The existing products are in the decline phase of the life cycle. Employees may have difficult time to adjust with the new management

Entrepreneurship Management Quick-start routes FOUR STEPS OF ACQUISITIONING

Planning your approach and targeting the type of business you wish to acquire

2. Finding available business to purchase

3. Using an appropriate methodology to evaluate the deal

4. Negotiating the terms and purchase price for the business.

Entrepreneurship Management Quick-start routes Why Ventures are up for sale? Technological obsolescence Loss/difficulty of raw materials Market loss to superior products Lowest cost position of a competitor Product innovations by others

Entrepreneurship Management Quick-start routes Various reasons for acquiring ventures. DiversificationCountercyclical

CounterseasonalInternational operationsMultiple strategic plans

Gains inMarket positionTechnological edgeFinancial strengthManagerial talent

Entrepreneurship Management Quick-start routes WHERE TO LOOK FOR A BUSINESS TO BUY

Financial institutions

Professionals like accountants, lawyers and consultants

Venture capitalists / Investment bankers

Brokerage houses

Advertisements / Web Site

Networking with business associates and contacts

Entrepreneurship Management Quick-start routes IN BUYING A BUSINESS YOU MUST EVALUATEManagementReasons for SellingCustomers and ProspectsMarketsCompetitionProducts or Services OfferedChannels of Distribution, the Sales Force, and MarketingOperations, Human Resources and Information TechnologyProfit & Loss Statements, Cash Flows, Balance Sheets andForecastsCritical Risks and Contingencies

Entrepreneurship Management Quick-start routes VALUATION APPROACH

1. ASSET VALUATION METHOD

Book ValueAdjusted Book ValueRealization ValueReplacement Value2. VALUATION BASED ON CASH FLOW3. EARNINGS VALUATION

Entrepreneurship Management Quick-start routes KEY ISSUES

Locating the SellerAnalyzing the SellerDetermining the PriceFinancial AnalysisProduct RangeMarketing SystemsManufacturing ProcessKey PersonnelsOverall ManagementStructure the DealNegotiating the Price, terms & conditions

Entrepreneurship Management Quick-start routes Hostile Takeovers

1. A low stock evaluation Vs performance.

2. A low debt/equity ratio allowing the entrepreneur to use the assets of the company to fund the takeover.

3. A high percentage of institutional investors holding the companys stock.( vote in favour of takeover)

Hostile takeoversWhere a takeover is resisted, or expected to be opposed, by the existing management or professionals, follow a different route. Here, the shares are picked up from open markets and controlling interests obtained. With the tacit help of other majority shareholders (usually one or more of the financial institutions) , a bid is made to enter companys board and to acquire control. Resistance is offered by the existing management by refusing to register the transfer of shares, or to forestall the moves by deals through court orders and injunctions. It is believed that political support matters a lot in the measure of success achieved in a bid to takeover a firm. ArgumentsThat professionalism gets replaced by money power, that takeovers do not create any real assets for the society and aredetrimental to the national economy, the interests of the minority shareholders is not protected and avoidable stressesand strains are created in the companies taken over or

exposed to the threat of takeovers. Besides, takeovers reducecompetition and thereby facilitate monopolistic or oligopolistictendencies among firms, increase of price and job losses for employees. Also, there could be difficulties in the cultural integration of the merging firms and while dealing with the hidden liabilities of the target firms.

Entrepreneurship Management MYTHS REGARDING ENTREPRENEURS

Born not madeAnyone can start a businessAre gamblersAre own bossesWork longer and harderOnly for richAge is a barrierMotivated by quest for the moneySeek power and control over othersAnyone with good idea can raise capitalOnce with enough capital cannot failIf talented success must come in 1- 2 years

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