quick-start routes entrepreneurship management prof bharat nadkarni

Quick-start Routes

Entrepreneurship Management

Prof Bharat Nadkarni

Entrepreneurship Management Quick-start routes

Quick-start routes to establish an Enterprise

• Franchising

• Ancillarisation

• Acquisition


1. Franchising

A management whereby the manufacturer or sole distributor

of 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 Franchising

a. Product Franchising (e.g. McDonald’s, Monginis, Barista )

b. Process Franchising (NIIT, Aptech, Eurokid)

c. Business Format Franchising (e.g. Mckinsey, Earnst & Young)


McDonald’s : I’m Loving’ It

Mc Donald’s 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, McDonald’s is the world’s largest chain of fast food restaurants. McDonald’s outlets primarily serve hamburgers, French fries, colas, and milkshakes. McDonald’s 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. McDonald’s has been open to the idea of trying out new business models


to suit the requirements of the local conditions. In India, McDonald’s 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.

McDonald’s provides training for its franchisees at the aptly named ‘Hamburger University’ in Illinois.


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.


1. Franchising

Advantages to the Franchisee

• The 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 service

• Managerial assistance and upfront support is often provided by the Franchiser.

• Knowledge and behavioural pattern of the market

• Maintaining quality control of products and services


1. Franchising

Advantages to the Franchiser

• Market Reach

• Focus on manufacturing, quality control, product and service innovations

• Expansion programmes

• Better financial management


1. Franchising

Disadvantages of Franchising

• Inability 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


Ancillarisation


Ancillarisation

Meaning

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


Areas of Ancillarisation

Industry Anc.range(%)

Automobile 50 to 90

Industrial machinery & machine tools 20 to 40

Chemical & Pharmaceuticals 15 to 30

Consumer durables 10 to 50


Advantages of Ancillarisation

Minimizes set up cost

Low level of Inventory

Economical Sourcing

Better Quality Standards

Complementary Role

Development of Entrepreneurial Skills


Disadvantages of Ancillarisation

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


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


ACQUISITION


1. 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.


ADVANTAGES OF AN ACQUISITION

• An existing business will have an operation in place and thus can avoid some of a new venture’s 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.


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.


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


FOUR STEPS OF ACQUISITIONING

1. 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.


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


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


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


VALUATION APPROACH

1. ASSET VALUATION METHOD

Book ValueAdjusted Book ValueRealization ValueReplacement Value 2. VALUATION BASED ON CASH FLOW 3. EARNINGS VALUATION


KEY ISSUES

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


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 company’s 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 company’s 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.

Thank you

quick-start routes entrepreneurship management prof bharat nadkarni

Documents

routes quick

mcdonalds outlets

routes franchisinga

routes franchisingadvantages

seeds of franchising

franchise outlets

carvel ice cream

father of modern franchising