Question Description
I’m working on a business writing question and need an explanation and answer to help me learn.
#1 Identify the three main pathways to entering business for a prospective entrepreneur.
#2 What is the new-new approach to starting a new venture? How does this approach differ from a new-old approach? #3 In addition to personal and financial issues, what other factors should the prospective owner be concerned with? Describe at least four.
#4 What “right questions” need to be answered when deciding whether to buy a business?
#5 In a franchising agreement, what is the franchisee often called on to do? What responsibility does the franchisor assume?
CHAPTER 7
Pathways to
Entrepreneurial
Ventures
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
1. To describe the major pathways and structures for
entrepreneurial ventures
2. To present the newness dimensions involved in
creating a “new venture”
3. To identify and discuss the elements involved in
acquiring an established venture
4. To outline 10 key questions to ask when buying an
ongoing venture
5. To examine the underlying issues involved in the
acquisition process
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives (continued)
6. To define a franchise and outline the benefits and
drawbacks of franchising
7. To present the franchise disclosure document (FDD)
as a key item in franchises
8. To describe the elements involved with incubators,
accelerators, and entrepreneurial ecosystems
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Pathways to New Ventures
for Entrepreneurs
• Methods for Getting a Business Started
• Creating a new venture
• Acquiring an existing venture
• Obtaining a franchise
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Creating New Ventures
• Approaches to Creating a New Venture
• New-New Approach
• People’s awareness of their daily lives for
developing new business ideas.
• Notice annoying everyday experiences or
problems of known products or services.
• New-Old Approach
• Individuals “piggy-backing” on someone else’s idea
by improving a product or service in an area in
which it is not currently available.
• Offer a product/service that is difficult to copy.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TABLE 7.1
Trends in Creating Business Opportunities
Emerging Opportunities
Green Products
Organic foods
Organic fibers/textiles
Alternative Energy
Solar
Biofuel
Fuel cells
Energy conservation
Health Care
Healthy food
School and govt.-sponsored
programs
Exercise
Yoga
Niche gyms
Children
Nonmedical
Pre-assisted living
Assisted living transition services
Niche Consumables
Wine
Chocolate
Burgers
Coffeehouses
Exotic salads
Home Automation and Media
Storage
Lighting control
Security systems
Energy management
Comfort management
Entertainment systems
Networked kitchen
appliances
Emerging Internet Opportunities
Mobile Advertising
Cell phones
PDAs
Concierge Services
Niche Social Networks
Seniors
Music fans
Groups of local users
Pet owners
Dating groups
Virtual Economies
“Online auctions”
Educational Tutoring
Human Resources Services
“Matchmaking”
“Virtual HR”
“Online Staffing”
Nanotechnology
Wireless Technology
Source: Adapted from Steve Cooper, Amanda C. Kooser, Kristin Ohlson, Karen E. Spaeder, Nichole L. Torres, and Sara Wilson, “2007 Hot List,” Entrepreneur (December 2006):
80–93; and “The World’s 50 Most Innovative Companies,” Fast Company (March, 2015).
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A Newness Framework for New Ventures
• Different Dimensions of Newness
• Incremental market disruption
or
• Radical market disruption
• Leveraged by
• Incremental technological advances
or
• Radical technological advances
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
FIGURE 7.1
Entrepreneurial Newness Framework
Source: Donald F. Kuratko, Greg Fisher, James M. Bloodgood, and Jeffrey S. Hornsby, “The Paradox of New Venture Legitimation within an Entrepreneurial Ecosystem,” Small
Business Economics, 49 vol. 1 (2017): 124.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Examining the Financial Picture
When Creating New Ventures
• Upside Gain and Downside Loss Expectations
• The profits the business can make and the losses it
can suffer.
• How much money will the enterprise take in if all goes well?
• How much will it gross if operations run as expected?
• How much will it lose if operations do not work out well?
• Risk versus Reward Analysis
• Points out the importance of getting an adequate
return on the amount of money risked.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TABLE 7.2
Checklist for Estimating Start-Up Expenses
(slide 1 of 2)
Cash Need to Start
the Business
What to Put in Column 2
Estimate based on
sales $__ per year
(see Column 3)
(These figures are estimates. The owner/
manager decides how many months to allow,
depending on the type of business.)
Column 1
Column 2
Column 3
$
$
3 times Column 1
Monthly
Expenses
Item
Salary of owner/manager
Other salaries and wages
3 times Column 1
Rent
3 times Column 1
Advertising
3 times Column 1
Delivery expense
3 times Column 1
Supplies
3 times Column 1
Telephone and telegraph
3 times Column 1
Other utilities
3 times Column 1
Insurance
6 times Column 1
Taxes, Social Security
4 times Column 1
Interest
3 times Column 1
Maintenance
3 times Column 1
Legal and other professional
assistance
3 times Column 1
Miscellaneous
3 times Column 1
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TABLE 7.2
Checklist for Estimating Start-Up Expenses
(slide 2 of 2)
Start-Up Costs
Item
Estimate
To Arrive at Estimate
Fixtures and equipment
$
Determine what is typical for this kind of business; talk to suppliers.
Decorating and remodeling
Talk to a contractor.
Installation of fixtures, equipment
Talk to suppliers.
Starting inventory
Talk to suppliers.
Deposits with pubic utilities
Talk to utility companies.
Legal and other professional fees
Talk to lawyer, accountant, or other professional.
Licenses and permits
Contact appropriate city offices.
Advertising and promotion
Decide what will be used; talk to media.
Accounts receivable
Estimate how much will be tied up in receivables by credit customers
and for how long.
Cash
Allow for unexpected expenses and losses, special purchases, and
other expenditures.
Other Expenses
List them and estimate costs.
TOTAL CASH NEEDED TO START
$______
Add all estimated amounts.
Source: U.S. Small Business Administration, “Management Aids,” MA. 2.025 (Washington, D.C.: U.S. Government Printing Office).
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Acquiring an Established
Entrepreneurial Venture
• Acquiring an Established Entrepreneurial Venture
• Personal preferences
• Examination of opportunities
Sources include:
• Business brokers
• Newspaper ads
• Trade sources
• Professional sources
• Online sources
• Advantages of acquiring an ongoing venture
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Advantages of Acquiring an
Ongoing Venture
• Less fear about successful future operation
• Existing business has customers, control costs, profit
• Reduced time and effort
• Already has inventory, equipment, personnel, facilities
• Already has suppliers, bankers, accountants, lawyers
• A good price
• Owner may want to sell quickly
• Owner will, however, know the fair market value
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Evaluation of the Selected Venture
• The Business Environment
• Profits, Sales, and Operating Ratios
• The Business Assets
• Inventory
• Furniture, equipment, fixtures
• Accounts receivable
• Trademarks, patents, copyrights, business name
• Goodwill
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Key Questions to Ask
• Why is the business being sold?
• What is the current physical condition of the business?
• What is the condition of the inventory?
• What is the state of the company’s other assets?
• How many of the employees will remain?
• What type of competition does the business face?
• What does the firm’s financial picture look like?
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Negotiating the Deal
• Factors Affecting Negotiations
• Information
• Company performance, competition, market, etc.
• Gather info from numerous sources; not just seller.
• Time
• Having more time than the other party can be beneficial.
• Pressure from others
• Partners, negotiators, etc.
• Alternatives
• Parties with no alternatives have an interest in concluding
negotiations quickly.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Considerations When Buying a Business
• Request that the seller retain a minority interest in the
business or establish the final purchase price dependent
on the performance of the business over a three-to-fiveyear span.
• Buyers should be wary of any promises made without
written corroboration.
• Spending time with the seller’s books, reconstructing
financial statements to determine how much cash is
actually available, is an absolute.
• Interview the owner, vendors, competitors, customers,
and employees.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Franchising: The Hybrid
• Franchising
• Any arrangement in which the owner of a trademark,
trade name, or copyright has licensed others to use it
in selling goods or services.
• Franchisee
• A purchaser of a franchise.
• Franchisor
• The seller of the franchise.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
How Franchising Works (slide 1 of 2)
• Franchisee Obligations:
1. Make a financial investment in the operation.
2. Obtain and maintain a standardized inventory and/or
equipment package usually purchased from the
franchisor.
3. Maintain a specified quality of performance.
4. Follow a franchise fee as well as a percentage of the
gross revenues.
5. Engage in a continuing business relationship.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
How Franchising Works (slide 2 of 2)
• Franchisor Provides:
1. The company name
2. Identifying symbols, logos, designs, and facilities
3. Professional management training for each
independent unit’s staff
4. Sale of merchandise necessary for the unit’s
operation, equipment to run the operation, and the
food or materials needed for the final product
5. Financial assistance, if needed
6. Continuing aid and guidance to ensure that
everything is done in accordance with the contract
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Franchising
• Advantages
• Training and guidance
• Brand-name appeal
• A proven track record
• Financial assistance
• Disadvantages
• Franchise fees
• Franchisor control
• Unfulfilled promises
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TABLE 7.3
Some of the Most Recognized Franchises
• Burger King
• Dairy Queen
• Days Inn
• Denny’s
• Dunkin’ Donuts
• H&R Block (Tax Preparation)
• McDonald’s
• Meineke Car Care Centers
• Papa John’s Pizza
• 7-Eleven
• Snap-on Tools
• Sports Clips (Hair Salons)
• Subway
• UPS Store (Mail Boxes Etc.)
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TABLE 7.4
The Cost of Franchising
1.
The basic franchising fee
2.
Insurance
3.
Opening product inventory
4.
Remodeling and leasehold improvements
5.
Utility charges
6.
Payroll
7.
Debt service
8.
Bookkeeping and accounting fees
9.
Legal and professional fees
10. State and local licenses, permits, and certificates
Source: Donald F. Kuratko, “Achieving the American Dream as a Franchise,” Small Business Network 3 (July 1987): 2 (updated by author April 2012) .
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Franchise Law
• Franchise Rule governs franchise requirements.
• Franchise Disclosure Document (FDD)
• Divided into 23 categories that provide different
segments of information for prospective franchisees.
• Developed to provide guidance in complying with the
Franchise Disclosure Rule that requires franchisors to
make full presale disclosure about their franchises.
• Prospective franchisee must receive FDD before
signing a contract.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Evaluating Franchising Opportunities
• The Franchise Opportunity Decision
• Learning of Franchising Opportunities
• Sources: newspapers, trade publications, Internet,
franchisors.
• Investigating the Franchisor
• Deal with a legitimate franchisor.
• Franchisor should also investigate prospective investors.
• Seeking Professional Help
• Consult an attorney with the contract.
• Consult a banker to review the prospectus.
• Consult an accountant to project income statements.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 7.2
The Decision to Purchase a Franchise: Process Model
Source: Patrick J. Kaufmann, “Franchising and the Choice of Self Employment,” Journal of Business Venturing 14, no. 4 (1999): 348.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TABLE 7.5
World Wide Web Franchise Sites
Information on Franchising
Website
American Bar Association Forum on Franchising
www.americanbar.org/groups/franchising.html
U.S. Small Business Administration
www.sba.gov
Entrepreneur Magazine
www.entrepreneur.com/franchises
Minority Business Entrepreneur Magazine
www.mbemag.com
Franchise Times
www.franchisetimes.com
Franchise Update
www.franchising.com
National Restaurant Association
www.restaurant.org/tools
Source Book Publications
www.franchisordatabase.com
Federal Trade Commission
Franchise.com
www.franchise.com
World Franchising
www.worldfranchising.com
Franchise Solutions
www.franchisesolutions.com
Franchise Opportunities
www.franchiseopportunities.com
Franchise Know How
www.franchiseknowhow.com
The Franchise Magazine
www.thefranchisemagazine.net
Franchise Mall
www.thefranchisemall.com
U.S. Franchise News
www.franchising.com/news
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Incubators, Accelerators, and
Entrepreneurial Ecosystems
• Business Incubators
• Provide services such as management training and
office space.
• Business Accelerators
• Offer support services and funding opportunities.
• Entrepreneurs offer equity in their company.
• Entrepreneurial Ecosystems
• Ecosystem: an agglomeration of interconnected
individuals, entities, and regulatory bodies in an area.
• Entrepreneurial Ecosystem: social and economic
environment affecting local entrepreneurship.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Key Terms
•
•
•
•
•
•
•
•
•
•
business accelerator
business broker
business incubator
company’s profitability
entrepreneurial
ecosystem
franchise
Franchise Disclosure
Document (FDD)
franchisee
franchise fee
franchisor
•
•
•
•
•
•
•
•
•
•
franchisor control
goodwill
legal restraint of trade
new-new approach
new-old approach
non-compete agreement
profit trend
risk versus reward
unscrupulous practices
upside gain and
downside loss
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purchase answer to see full
attachment