Quick-start Routes

Entrepreneurship Management

Entrepreneurship Management
Quick-start routes

Quick-start routes to establish an Enterprise

Franchising
Ancillarisation
Acquisition

Entrepreneurship Management
Quick-start routes
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. McDonalds, Monginis, Barista )
b. Process Franchising (NIIT, Aptech, Eurokid)
c. Business Format Franchising (e.g. Mckinsey, Earnst &
Young)

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

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.

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.

Entrepreneurship Management
Quick-start routes
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

Entrepreneurship Management
Quick-start routes
1. Franchising
Advantages to the Franchiser
Market Reach
Focus on manufacturing, quality control, product and
service innovations
Expansion programmes
Better financial management

Entrepreneurship Management
Quick-start routes
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

Entrepreneurship Management
Quick-start routes

Ancillarisation

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

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

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

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

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

Entrepreneurship Management
Quick-start routes

ACQUISITION

Entrepreneurship Management
Quick-start routes
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.

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.

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.

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

Entrepreneurship Management
Quick-start routes
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.

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

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
Advertisements / Web Site
Networking with business associates and contacts

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

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

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

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)

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

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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