1. Mississippi State University “The people’s university” -- Dr. Mark Keenum MGT 3323 Entrepreneurship Daniel T. Holt Assistant Professor of Management

2. Feasibility Analysis Includes… First phase (due 5 Mar—resubmissions returned today) Analysis of the Industry Analysis of competitors & how you’re different Analysis of the target market (requires first hand data from customers—we’ll talk about this today) Second phase (returned today) Financial feasibility Final phase (due 16 Apr) Revisions & improvements to first two phases And… Suppliers Distribution channels Location analysis Technology and service analysis

3. Extra Credit Opportunity Winner’s Circle Event (can earn up to 3 points toward final grade)—due at the Final Attend one of the several business plan competitions (Wed, 25 April) An assignment guide to be published by the end of next week Summarize the ventures that were pitched Assess feasibility of the ventures (opportunity viability; competitor analysis; target market demand; financial feasibility)

4. Planning Process

5. Intellectual Property Patents, trademarks, copyrights, or trade secrets secured relative to the products you are developing Intellectual property Any product of human intellect that is intangible but has value in the marketplace Trade secret Any formula, pattern, physical device, idea, process, or other information that provides the owners of the information with a competitive advantage in the marketplace

6. Patents Patents are expensive Range from $5,000 to $50,000 Require application within one year of the product being first… Offered for sale Put into public use Described in any printed publication (such as a concept statement) If not, or the right to file a patent application is forfeited

7. Ownership Structure Ownership structure Compensation Options Pool—An inventory of company stock which is set aside for future employees

8. Ownership Options Sole proprietorship Business owned by one individual (complete control) For tax and liability purposes, business and individual are one in the same Dissolves when proprietor ends the venture (or dies) General Partnership Business owned by two or more individuals— control & decisions based on agreement (if not specified, control distributed equally) For tax and liability purposes, it is treated as a proprietorship Unlimited liability for each partner Earnings are distributed based on the partnership agreement

9. Ownership Options Limited partnership (unlimited number of partners) Hybrid form of organization with general and limited partners (no voice in management & legally liable for capital contributions) General partners… Assume management responsibility Have unlimited liability Have at least a 1 % interest in profits and losses Liability of limited partners capped at their investment C Corporation (think of the of the common corporation; unlimited partners) The firm is treated as an individual (i.e., it can be fined, taxed, or sued) Control and decisions based on governance structure (i.e., board of directors)

10. Ownership Options S Corporation (up to 100 partners) Must be a domestic firm deriving at least 20% of its revenues from US sources Tax status is the same as a partnership Partners, however, have liability protections granted to corporate shareholders Control and decisions based on governance structure (i.e., board of directors) Limited liability corporation (unlimited numbers can be involved; known as members) Can have one or more owners, known as members Separate legal entity from its owners Members have limited personal liability Unlimited life unless dissolved

11. Advantages & Disadvantages AdvantagesDisadvantages Sole proprietorship Simple to organizeFull Liability of the owner One level of taxationCannot raise outside equity capital, thus limiting potential size of the business Partnership Can bring additional talent and personal capital Full liability of partners (in limited partnership liability limited to financial investment) One level of taxationCapital limited to the pockets of the partners Geographical dispersionUnless addressed through the partnership agreement, dissolves with the death or withdrawal of any partner

12. Advantages & Disadvantages AdvantagesDisadvantages C corporation Theoretically capable of attracting equity capital through share ownership Complex to set up and operate Preferred form of venture capitalistsIncome subject to double taxation Shareholders enjoy limited liability Able to deduct many benefit payments to employees S Corporation Like a proprietorship and partnership, subject to only one level of taxation Complex to set up and operate Shareholders enjoy limited liabilityLimited number of shareholders (up to 100) Geographical dispersionVenture capitalists cannot be share holders

13. Franchising Singer Sewing Machine – first franchise (mid-19 th century) Automobile (e.g. Ford), petroleum products (e.g. Shell), soft drinks (e.g. Coca Cola) Food and restaurants (e.g. McDonald’s, Starbucks)

14. Brief Outline What is franchising? Types of franchising Why franchise? Why is franchising important to SMEs? Considerations for franchisor/franchisee Pitfalls/Be careful Singapore Experience

15. What is franchising? “A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.” - Definition by International Franchise Association

16. What is franchising? Legal and commercial arrangement concerning the successful business of a franchisor Use of franchisor’s trade name, format, system and/or procedure under licence Means to raise capital and expand quickly Assistance to franchisee Marketing, management, advertising, store design, standards specifications Payment by franchisee by way of royalty, licensee fee or other means

17. What is franchising? Franchising is more than distributorship Extends to an entire operation or method of business Greater assistance, control and longer duration Distributor merely re-sells products to retailers or customers Main types of franchise: Product distribution franchise; Business format franchise; and Management franchise.

18. PRODUCT DISTRIBUTION FRANCHISES A product distribution franchise model is very much like a supplier-dealer relationship Typically, the franchisee merely sells the franchisor’s products. However, this type of franchise will also include some form of integration of the business activities

19. Examples of famous product distribution franchise:

20. Produces the syrup concentrate Sells the syrup concentrate FRANCHISEE Produces the final drink Retail Stores Restaurants & F&B Outlets Vending Machine Operators PRODUCT DISTRIBUTION FRANCHISES

21. BUSINESS FORMAT FRANCHISING In a business format franchise, the integration of the business is more complete The franchisee… Distributes the franchisor’s products and services under the franchisor’s trade mark Implements the franchisor’s format and procedure of conducting the business

22. Famous Examples

23. BUSINESS FORMAT FRANCHISING - outlet in Sale, Australia outlet in Marseille, France

24. MANAGEMENT FRANCHISE A form of service agreement. The franchisee provides the management expertise, format and/or procedure for conducting the business.

25. Famous Examples

26. Why is franchising important to SMEs? Leveraging on a recognised brand name Enhancing business image Ensuring consistent quality Attaining higher productivity/better motivated staff Access to good locations Economies of scale Reducing risks of failure

27. WHY FRANCHISE? Franchises offer important pre-opening support: site selection design and construction financing (in some cases) training grand-opening program

28. WHY FRANCHISE? Franchises offer ongoing support training national and regional advertising operating procedures and operational assistance supervision and management support increased spending power, access to bulk purchasing and economies of scale

29. Common considerations of franchisors Developing franchise concept Market research Familiarity with local laws and regulations Providing training and support to franchisees

30. Common considerations of franchisors Criteria for choosing franchisees Control over franchisees Supply of products/materials to franchisees Intellectual property rights issues, e.g. trade mark registration

31. Common considerations of franchisees Demand Profitability of franchise, and length of time required to recoup investment Track record of franchisor Support rendered to other franchisees Experience and profitability of other franchisees Existence of competition Capital required Demands of franchisor, e.g. income projections, deadline to open more franchise outlets

32. Franchisor–Franchisee relationship Regulated by contract which usually covers: Initial fee Royalty fee/Management fee (on-going fee) Advertising relationships (on-going fee) Capital required from franchisee (capital on-hand requirements) Involvement of Franchisee Territory/Area of operation Duration of license and renewal IPRs Termination

33. 33 Questions, Comments, or Criticisms?