Quick-start Routes Entrepreneurship Management Prof Bharat Nadkarni

1. Quick-start Routes Entrepreneurship Management Prof Bharat Nadkarni

2. Quick-start routes to establish an Enterprise • Franchising • Ancillarisation • Acquisition Entrepreneurship Management Quick-start routes

3. 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. McDonald’s, Monginis, Barista ) • Process Franchising (NIIT, Aptech, Eurokid) • Business Format Franchising (e.g. Mckinsey, Earnst & Young) Entrepreneurship Management Quick-start routes

4. McDonald’s : I’m Loving’ It Mc Donald’s 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, McDonald’s is the world’s largest chain of fast food restaurants. McDonald’s outlets primarily serve hamburgers, French fries, colas, and milkshakes. McDonald’s 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. McDonald’s has been open to the idea of trying out new business models Entrepreneurship Management

5. to suit the requirements of the local conditions. In India, McDonald’s 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. McDonald’s provides training for its franchisees at the aptly named ‘Hamburger University’ in Illinois. Entrepreneurship Management

6. 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

7. 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

8. 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

9. 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

10. Entrepreneurship Management Quick-start routes Ancillarisation

11. 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

12. 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

13. 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

14. 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

15. 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

16. Entrepreneurship Management Quick-start routes ACQUISITION

17. 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

18. ADVANTAGES OF AN ACQUISITION • An existing business will have an operation in place and thus can avoid some of a new venture’s 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

19. 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

20. 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

21. 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. Entrepreneurship Management Quick-start routes

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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 company’s stock.( vote in favour of takeover) Entrepreneurship Management Quick-start routes

28. 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 company’s 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

29. 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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