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ÿ Franchising
ÿ Joint venture
ÿ Acquisition
ÿ Merger

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ÿ —ntrepreneur does not have to incur all the risks
associated with creating a new business.
ÿ Product acceptance: has an accepted name, product, or
service.
ÿ Management expertise: managerial assistance provided
by the franchisor.
ÿ Capital requirements: up-front support can save
entrepreneur significant time and capital.
ÿ Knowledge of the market: offers experience in business
and market.
ÿ Operating and structural controls: help in standardization
and administrative controls.
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ÿ —xpansion risk
ÿ Allows venture to expand quickly using little capital.
ÿ Business can be expanded nationally and even
internationally.
ÿ Requires fewer employees than a non-franchised
business.

ÿ Cost advantages
ÿ Supplies can be purchased in large quantities to achieve
economies of scale.
ÿ Ability to commit larger sums of money to advertising.

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ÿ nability of the franchisor to provide services,
advertising, and location.
ÿ Franchisorƞs failing or being bought out by another
company.
ÿ Difficulty in finding quality franchisees.
ÿ Poor management.

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ÿ hree available types of franchises:
ÿ Dealership: act as retail stores for the manufacturer.
ÿ Franchise that offers a name, image, and method of
doing business.
ÿ Franchise that offers services.

ÿ Changes that helped evolve franchising opportunities:

ÿ Good health.
ÿ ime saving or convenience.
ÿ —nvironmental consciousness.
ÿ he second baby boom.
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ÿ Factors to be assessed before making final decision.

ÿ Unproven versus proven franchise.

ÿ Financial stability of franchise.
ÿ Potential market for the new franchise.
ÿ Profit potential for a new franchise.

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ÿ uu
ert table 16.2>>

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ÿ ypes:
ÿ ndustryƛuniversity agreements.
ÿ nternational joint ventures.

ÿ Factors in success:
ÿ Accurate assessment
ÿ Degree of symmetry
ÿ —xpectations of the results
ÿ Right timing.

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ÿ Advantages: ÿ Disadvantages:
ÿ —stablished business. ÿ Marginal success record.
ÿ Location. ÿ Overconfidence in ability.
ÿ —stablished marketing ÿ Key employee loss.
structure. ÿ Overvaluation.
ÿ Cost.
ÿ —xisting employees.
ÿ More opportunity to be
creative.

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ÿ Synergy
ÿ Should occur in both the business concept and the
financial performance.
ÿ Structuring the deal
ÿ nvolves the parties, the assets, the payment form, and
the timing of the payment.
ÿ wo most common means of acquisition:
ÿ —ntrepreneurƞs direct purchase.
ÿ Bootstrap purchase.
ÿ Locating acquisition candidates
ÿ involves significant time and effort.

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ÿ Key concern: legality of the purchase.
ÿ Motivation
ÿ Survival.
ÿ Protection.
ÿ Diversification.
ÿ Gain.
ÿ Leveraged Buyout
ÿ Reasonable price.
ÿ Debt capacity.
ÿ Appropriate financial package.

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ÿ uu
ert Figure 16.1>>

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ÿ Distribution task: negotiating how the benefits of the
relationship will be allocated between the parties.

ÿ ntegration task: exploring possible mutual benefits

from the relationship so that the Ơsize of the pieơ can
be increased.

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ÿ hat if an agreement is not reached?
ÿ Best alternative to a negotiated agreement.
ÿ Reservation price: price at which the entrepreneur is
indifferent about whether to accept the agreement or
choose the alternative.
ÿ ill does the other party do if agreement is not
reached?
ÿ Difficult to assess reservation price.
ÿ Bargaining zone: range of outcomes between the
entrepreneurƞs reservation price and the reservation
price of the other party

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ÿ Assessment 3: hat are the underlying issues of this
negotiation? How important is each issue to you?
ÿ Focus on achieving aspects most desirable for the
entrepreneur by trading off aspects of less importance.

ÿ hat are the underlying issues of this negotiation?

How important is each issue to the other party?
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ÿ Build trust and share information.
ÿ Ask lots of questions.
ÿ Make multiple offers simultaneously.
ÿ Use differences to create trade-offs that are a source of
mutually beneficial outcomes.

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