1. START- UP STRATEGIES UNIT -8

2. Scratch Strategy This is a strategy to begin entrepreneurial venture from the scratch or zero level. This is a strategy to begin entrepreneurial venture from the scratch or zero level. Reasons for Scratch Strategy Reasons for Scratch Strategy Escaping to something new. Escaping to something new. Putting the deal together. Putting the deal together. Rolling over skills and contacts. Rolling over skills and contacts. Leveraging expertise. Leveraging expertise. Forming an aggressive service. Forming an aggressive service. Pursuing the unique idea. Pursuing the unique idea. Organising methodically. Organising methodically.

3. Scratch Strategy Advantages Advantages No negative reputation. No negative reputation. Deal with newly developed product or service. Deal with newly developed product or service. Scope to use all the choices regarding an ideal features of venture success. Scope to use all the choices regarding an ideal features of venture success. Freedom of operation. Freedom of operation. Avoid undesirable precedence. Avoid undesirable precedence. Creation of new loyal customers. Creation of new loyal customers. Avoid ill effects of prior owner’s errors. Avoid ill effects of prior owner’s errors.

4. Scratch Strategy Disadvantages Disadvantages Uproven product and operation. Uproven product and operation. No history to show. No history to show. Risk of inadequate or improper planning. Risk of inadequate or improper planning. Lack of knowledge of market reaction. Lack of knowledge of market reaction.

5. Buyout Strategy This is strategy to start an entrepreneurial venture by buying out an on-going venture. This is strategy to start an entrepreneurial venture by buying out an on-going venture. Advantages Advantages Reduction of uncertainties. Reduction of uncertainties. Proven location. Proven location. Established clientele. Established clientele. Built-in inventory and supply chain. Built-in inventory and supply chain. Known capabilities. Known capabilities.

6. Buyout Strategy Bargain price. Bargain price. Disadvantages Disadvantages Inherits ill will of the existing firm. Inherits ill will of the existing firm. Maladjusted merchandise. Maladjusted merchandise. Inheritance of problem employees. Inheritance of problem employees. Inheritance of undesirable clientele. Inheritance of undesirable clientele. Negative consequences of inappropriate precedences. Negative consequences of inappropriate precedences.

7. Buyout Strategy Built –in structure and layout of physical facilities may be a barrier for modernization. Built –in structure and layout of physical facilities may be a barrier for modernization. Too high purchase price may be a burden on future profits. Too high purchase price may be a burden on future profits. Negative attitudes of landlord. Negative attitudes of landlord. Claimed value may incorrect. Claimed value may incorrect.

8. Buyout Strategy Key Criteria of Buying Decision Key Criteria of Buying Decision Specific products or services. Specific products or services. Proved earnign performance. Proved earnign performance. Low capital intensity. Low capital intensity. Mundane product line. Mundane product line. Satisfactory market position. Satisfactory market position. Quality management team. Quality management team. Asset-based firm. Asset-based firm.

9. Buyout Strategy Strong balance sheet. Strong balance sheet. Excess and hidden assets. Excess and hidden assets. Resolvability Resolvability Size. Size. Location Location Seller’s Presence Seller’s Presence

10. How to Evaluate an Existing Business for Buying Review the profit trend from the last 5 years financial statements to check assets, liabilities, bank balance, cash balance taxes and other elements. Review the profit trend from the last 5 years financial statements to check assets, liabilities, bank balance, cash balance taxes and other elements. Review the trend of business from sales records. Review the trend of business from sales records. Review the motive of the owner behind selling the firm Review the motive of the owner behind selling the firm Selling Reasons Selling Reasons Personal Reasons Personal Reasons

11. How to Evaluate an Existing Business for Buying Management Succession Problems. Management Succession Problems. Incapability of One person management. Incapability of One person management. Relocation of business Relocation of business Ill Motives of the Owner Ill Motives of the Owner Fear of future financial trouble Fear of future financial trouble Complex technology to cope with. Complex technology to cope with. Possibility of product obsolescence. Possibility of product obsolescence. Declining trend will erode the wealth soon. Declining trend will erode the wealth soon.

12. How to Evaluate an Existing Business for Buying Check the value of the fixed assets. Check the value of the fixed assets. Value the firm with – Value the firm with – Asset –based valuation method Asset –based valuation method Market –based valuation method Market –based valuation method –Earning –based valuation ( Value =Normalized earnings /Capitalization rate -Cash-flow based valuation (Discounting of future cash inflows and to equate those with present cash outflows

13. How to Evaluate an Existing Business for Buying Check the nature of lease Check the nature of lease Review the nature of competition. Review the nature of competition. Review the consequences of taking over present employees. Review the consequences of taking over present employees. Review the prospects for increasing profits. Review the prospects for increasing profits. Review the attitudes of present customers and neighbourhood toward the business. Review the attitudes of present customers and neighbourhood toward the business. Review the reputation of the firm among business people in the area. Review the reputation of the firm among business people in the area.

14. How to Evaluate an Existing Business for Buying Review the effects of nationality, religion, and political factors of the entrepreneur on the business. Review the effects of nationality, religion, and political factors of the entrepreneur on the business. Check the future communality development. Check the future communality development. Review the attitudes of suppliers toward the present owner/seller. Review the attitudes of suppliers toward the present owner/seller. Review the legal commitments. Review the legal commitments. Check the price of product/products. Check the price of product/products.

15. Buyout Strategy: Closing the Deal What assets are to be sold What assets are to be sold What assets are to be retained by seller What assets are to be retained by seller How will account receivable be handled How will account receivable be handled What is the purchase price What is the purchase price How will the purchase price be paid How will the purchase price be paid

16. Buyout Strategy: Closing the Deal How will inventory adjustment be made How will inventory adjustment be made What about other adjustments What about other adjustments What about the seller’s liabilities What about the seller’s liabilities What other warranties should the seller make to the buyer What other warranties should the seller make to the buyer What are the rights of the seller to compete What are the rights of the seller to compete What if there is causality to the business prior to the closing What if there is causality to the business prior to the closing

17. Buyout Strategy: Closing the Deal What restrictions should be imposed on the seller in operating the business prior to closing What restrictions should be imposed on the seller in operating the business prior to closing What conditions should attach to the agreement – lease, financing, license traders, transfer of contract rights What conditions should attach to the agreement – lease, financing, license traders, transfer of contract rights What happens to the books and records of the business on closing What happens to the books and records of the business on closing How should disputes under the agreement be resolved How should disputes under the agreement be resolved When should the closing be ? When should the closing be ?

18. Franchising Strategy Franchising is an increasingly popular start-up strategy for the entrepreneurs throughout the world. Franchising is an increasingly popular start-up strategy for the entrepreneurs throughout the world. The globalization has made it more attractive business options for the entrepreneurs of the world especially those of the developing countries of the world.. The globalization has made it more attractive business options for the entrepreneurs of the world especially those of the developing countries of the world.. It provides a unique type of business opportunity for the new venturists with a ready product and market. It provides a unique type of business opportunity for the new venturists with a ready product and market.

19. Definition of Franchising The word Franchising is derived from the French word Franchir. The word Franchising is derived from the French word Franchir. Franchir means to free. Originally it meant 'to free from slavery'. Now the term is defined in many ways. Franchir means to free. Originally it meant 'to free from slavery'. Now the term is defined in many ways. Franchisor Franchisee Franchise

20. Definition of Franchising Franchising is a marketing system revolving around a two-party legal agreement whereby one party ( the franchisee) is granted the privilege to conduct business as an individual owner but is required to operate according to methods and terms specified by the other party ( the franchisor).-Longenecher, Moore and Petty (1999: 49) Franchising is a marketing system revolving around a two-party legal agreement whereby one party ( the franchisee) is granted the privilege to conduct business as an individual owner but is required to operate according to methods and terms specified by the other party ( the franchisor).-Longenecher, Moore and Petty (1999: 49)

21. Definition of Franchise A franchise is a continuing relationship between the franchisor and the franchisee in which the sum total of the franchisor's knowledge, image, success, manufacturing and marketing tetchiness are supplied to the franchisee for a consideration". - International Franchise Association A franchise is a continuing relationship between the franchisor and the franchisee in which the sum total of the franchisor's knowledge, image, success, manufacturing and marketing tetchiness are supplied to the franchisee for a consideration". - International Franchise Association A franchise is an agreement between seller and buyer that permits the buyer (franchisee) to sell the product or service of the seller (franchisor). - Siropolis, 1998 A franchise is an agreement between seller and buyer that permits the buyer (franchisee) to sell the product or service of the seller (franchisor). - Siropolis, 1998

22. Advantages of Franchising Quick and easy start. Quick and easy start. Marketing research and site selection. Marketing research and site selection. Training proved to owners and site selection. Training proved to owners and site selection. Training proved to owners and staff. Training proved to owners and staff. Proven method. Proven method. Large scale advertising. Large scale advertising. Less risk. Less risk.

23. Advantages Financial assistance. Financial assistance. Higher potential income. Higher potential income. New product development. New product development. Proven trade mark and logo. Proven trade mark and logo.

24. Disadvantages of Franchising Rigid system and no room for deviation. Rigid system and no room for deviation. High cost of entry for successful operations. High cost of entry for successful operations. Profits are shared with franchisor. Profits are shared with franchisor. Franchisor may not keep up with market trend. Franchisor may not keep up with market trend. Lack of independence. Lack of independence. Continuing obligation. Continuing obligation. Lack of individual separate entity. Lack of individual separate entity.

25. Types of Franchising Business format franchising – It gets entire marketing system and an ongoing process of assistance and guidance. Such as fast food outlets, hotels etc. Business format franchising – It gets entire marketing system and an ongoing process of assistance and guidance. Such as fast food outlets, hotels etc. Product and trade name franchising- It uses trade name and manufacturing rights of the product. Product and trade name franchising- It uses trade name and manufacturing rights of the product. Product distribution franchising. Product distribution franchising. Area franchising. Area franchising. Piggyback franchising. Piggyback franchising.

26. How to select right franchise 1. Self analysis. 2. Choose a product. 3. Search for likely franchise candidates. 4. Review checklist questions. 5. Get disclose statements like financial statements, franchise fees and other initial payments, celebrities involved, list of names and addresses of other franchisee, sample agreement, initial expenses etc.

27. How to select right franchise 6. Hire a lawyer 7. Negotiate the franchise contract. 8. Evaluate franchisor’s training program. 9. Estimate the cost of franchising. 10. Pick out the best franchise.

28. Ten most common legal problems 1. Sharing advertising costs. 1. Sharing advertising costs. 2. Inspection or evaluation by franchisor. 2. Inspection or evaluation by franchisor. 3. Minimum performance requirements. 3. Minimum performance requirements. 4. Royalty payments. 4. Royalty payments. 5. Fees for support services. 5. Fees for support services. 6. Territorial limits. 6. Territorial limits.

29. Ten most common legal problems 7. Penalties for violation of contract. 7. Penalties for violation of contract. 8. Restrictions on products or prices. 8. Restrictions on products or prices. 9. Employee conduct or training 9. Employee conduct or training requirements. requirements. 10. Limits on competitive businesses. 10. Limits on competitive businesses.

30. Franchising Frauds The Rented Rolls Royce Syndrome. The Rented Rolls Royce Syndrome. The Hustle. The Hustle. The Cash-only Transaction. The Cash-only Transaction. The Boast. The Boast. The Big-money Claim. The Big-money Claim. The Couch Potato’s Dream. The Couch Potato’s Dream. Location, Location, Location. Location, Location, Location. The Disclosure Dance The Disclosure Dance The Registration Ruse. The Registration Ruse. The Thinly Capitalized Franchisor. The Thinly Capitalized Franchisor.