Entrepreneurship Management

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Quick-start Routes Entrepreneurship
Management Prof Bharat Nadkarni
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Entrepreneurship Management Quick-start routes

• Quick-start routes to establish an Enterprise
• Franchising
• Ancillarisation
• Acquisition

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Entrepreneurship Management Quick-start routes

• 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
• Product Franchising (e.g. McDonalds, Monginis,
  Barista )
• Process Franchising (NIIT, Aptech, Eurokid)
• Business Format Franchising (e.g. Mckinsey,
  Earnst Young)

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Entrepreneurship Management
McDonalds Im Loving It Mc 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

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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.

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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.

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Entrepreneurship Management Quick-start routes

• 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

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Entrepreneurship Management Quick-start routes

• Franchising
• Advantages to the Franchiser
• Market Reach
• Focus on manufacturing, quality control, product
  and service innovations
• Expansion programmes
• Better financial management

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Entrepreneurship Management Quick-start routes

• 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

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Entrepreneurship Management Quick-start routes

Ancillarisation
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Entrepreneurship Management Quick-start routes
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

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Entrepreneurship Management Quick-start routes

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
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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
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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
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Entrepreneurship Management Quick-start routes

Government Initiatives to promote
Ancillarisation Sharing successful company
experiences Training on ISO / QS
9000 Collaboration on Benchmarking Services Joint
Projects for Productivity Improvements Technology
Development Projects Trade Delegations Worldwide
/ Trade Fairs / Exhibitions Global Dissemination
of Information Linkages Building /
Networking Science Technology Parks Vendor
Development Programmes Sub-contract Exchanges
Cluster-development Programme Purchase Price
Preference Scheme
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Entrepreneurship Management Quick-start routes

ACQUISITION
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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.

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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.

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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.

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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

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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.

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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

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Entrepreneurship Management Quick-start routes

• Various reasons for acquiring ventures.
• Diversification Countercyclical
• Counterseasonal
• International operations
• Multiple strategic plans
• Gains in Market position
• Technological edge
• Financial strength
• Managerial talent

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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 Advertisemen
ts / Web Site Networking with business
associates and contacts

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Entrepreneurship Management Quick-start routes
IN BUYING A BUSINESS YOU MUST EVALUATE Management
Reasons for Selling Customers and
Prospects Markets Competition Products or
Services Offered Channels of Distribution, the
Sales Force, and Marketing Operations, Human
Resources and Information Technology Profit
Loss Statements, Cash Flows, Balance Sheets
and Forecasts Critical Risks and
Contingencies

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Entrepreneurship Management Quick-start routes
VALUATION APPROACH 1. ASSET VALUATION
METHOD Book Value Adjusted Book
Value Realization Value Replacement Value    2.
VALUATION BASED ON CASH FLOW    3. EARNINGS
VALUATION

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Entrepreneurship Management Quick-start routes
KEY ISSUES Locating the Seller Analyzing the
Seller Determining the Price Financial
Analysis Product Range Marketing
Systems Manufacturing Process Key
Personnels Overall Management Structure the
Deal Negotiating the Price, terms
conditions

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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)
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• Hostile takeovers
• Where 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.
• Arguments
• That professionalism gets replaced by money
  power, that
• takeovers do not create any real assets for the
  society and are
• detrimental to the national economy, the
  interests of the
• minority shareholders is not protected and
  avoidable stresses
• and strains are created in the companies taken
  over or

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• exposed to the threat of takeovers. Besides,
  takeovers reduce
• competition and thereby facilitate monopolistic
  or oligopolistic
• tendencies 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.

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Entrepreneurship Management

• MYTHS REGARDING ENTREPRENEURS
• Born not made
• Anyone can start a business
• Are gamblers
• Are own bosses
• Work longer and harder
• Only for rich
• Age is a barrier
• Motivated by quest for the money
• Seek power and control over others
• Anyone with good idea can raise capital
• Once with enough capital cannot fail
• If talented success must come in 1- 2 years

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• Thank you