Chapter 5 Becoming the Owner of a Small Business University of Bahrain College of Business Administration MGT 239: Small Business MGT239 1

How to go into business for yourself? 1.Identify a needed market 2.Studying the market for the product 3.Decide on the type of the business (new one, existing one or a franchise) 4.Make strategic plan (mission, strategy) 5.Make operational plan (standard, budget, production policies) 6.Make financial plan 7.Develop plans into detailed plans 8.Implement (this chapter covers steps 1-3, remaining steps are covered in Ch. 5) MGT239 2

First Step: Finding your nich by Identify a need for a product Undestaing the industry and see something that others do not see Start by finding market niche Niche marketing: the process of finding a small-but profitable demand for something and producung a cutom-made for that market. MGT239 3

How to decide on a product Advice from large businesses News papers and magazines Look to the past Hobbies Social conversations The search for ideas requires innovative and original thinking, extensive reading, contact with people. See Small Business Administration web site MGT239 4

SCORE (Service Corps of Retired Executive) Is a group of retired but active managers from all walks of life who help people develop their business ideas. MGT239 5

Choosing a business to enter Start by listing all ideas Evaluate each idea based on your own objectives (i.e. reward, flexibility) Eliminate ideas that will not provide you the anticipated rewards Discuss the remaining ideas with friends, family, experts … you can also get help and advice from the following sources Ministry of Industry Ministry of Labor Friends Most importantly, do not let someone get you into something you don ’ t like After discussing the need for given product with other people select the idea that is bets for you. To be more objective, use Fig 4.3 as your checklist. MGT239 6

Second Step: Studying the market for the product Methods of obtain information about the market (Marketing search) Market research: the process of gathering, recording and analyzing information related to a product. MGT239 7

Three things you need to do to study your market: 1.Estimate the size of the market (government documents or your own research). Things to research include: how large is the industry; where is the market; how large it is; income distribution; is the industry growing, declining, being stable, what is the success rate of competing businesses. 2.Estimate competition: Is the market large enough for another firm, how would I compete (price, product) 3.Estimate your share in the market: Determine the geographic boundaries. How much of your product will be purchased. What part of the market you will attract, MGT239 8

Third Step: Deciding whether to start a new business, buy an existing one or buy a franchise This is your next task after finishing your feasibility study. Start a new business will give the freedom to (obtain new inventories, fresh employees, define the nature of the business, select the facilities, fresh inventory). Reasons for not starting a new business: Problem finding the right business Problem with assembling resources (location, building, equipment) Avoid production problem Lack of established market Problem in establishing basic management system, higher risk MGT239 9

To buy an existing business: Buying an existing business can mean different things: acquiring total ownership, certain part of the business. MGT239 10

Reasons for buying an existing business: Personnel, facilities, product, location, and relationship revenues) are all there for you. Reason for not buying existing business: Facilities may be old, employees may not be right for you, account receivable may be un collectable, bad location, poor relation with financial institutions, inventories may be obsolete or bad quality). MGT239 11

You need to answer some important questions before buying Why business offered for sale? What is the intention of the present owner? Is the environment changing? Are facilities O.K? What is the financial condition of the firm? Do you have eth necessary managerial ability? MGT239 12

To buy a franchise: Reasons for buying a franchise.. What are they? Reasons for not buying a franchise... High fee, royalty …. Etc What is franchising? A franchise: is an agreement whereby an independent business is given exclusive rights to sell specific good or service. Franchising: is the process of granting a franchise MGT239 13

Types of franchising: Product and trade mark franchising: grants the franchisee to sell a widely recognized product or brand (cars, soft drinks..) Business format franchise: grants a franchisee the right to market the product and trademark and to use a complete operating system (hotels, motels, restaurants) MGT239 14

Who is the franchiser (he is the original owner)? Franchisee (the one who is buying the franchise)? MGT239 15

Causes of rapid growth in franchising: Already identified customers, management support, and low failure rate much lower. Nonetheless, event the most well known brands may not necessarily guarantee success. How to tell whether a franchise is good for you? You need to protect yourself. This section tells you how. Figure 4.6 provides some questions to be answered. MGT239 16

See what the franchise can do for you. Discuss with your lawyer the followings: Prospectus of Disclosure Statement: Provides background and financial information about the franchiser and the franchise offering. A franchise fee: paid once Royalty fee: paid continuously usually as percentage of annual gross revenue. MGT239 17

Obtain professional advice. Know your legal and ethics rights MGT239 18

The future of franchising: Growing particularly in the following areas: Restaurant (fast-food) motels, hotels, automotive parts technology Packaging and shipping (some franchises or small businesses owners do not have time for this). Today, there is growing emphasis in an area called Synergy: Synergy: is the concept that two or more people, working together in a coordinated way, can accomplish more that the sum of their independent efforts. This result in what is called combination franchising, multiform at franchising, dual branding or complementary branding: it is a corporation between big name franchises, whereby they team up together to produce their products under same roof. Another trend is the ownership of a large number of franchise outlets. Franchisers find it easier to deal with one giant owners who is willing to purchase more than one outlet. (i.e. Toys r us). MGT239 19

End of Chapter 5 MGT239 20