Franchise Research

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					       CHAPTER 4

 Small Business, and
New Venture Creation
Learning Objectives

1. Define entrepreneurship, small business, and new
   venture creation
2. Explain the entrepreneurial process
3. Describe the role of small and new business in the
4. Describe alternatives for becoming a business owner
5. Describe forms of legal organization for a business
6. Identify reasons for the success or failure of small

 • process of identifying an opportunity in the
   marketplace and capitalizing on it

 • Entrepreneur
    • person who recognizes and seizes opportunities

 • Intrapreneur
    • creates something new in an existing organization
The Entrepreneurial Process

                   •   Generating ideas
                   •   Screening ideas
                   •   Developing the opportunity

                                                    New Venture
Identifying and Developing
the Opportunity

 • Entry Strategies
    • New product or service
    • Existing product or service
      with new twist
    • Franchise

 • Research and planning
                                    •Describe proposed venture
    • Business plan                 •Explain why an opportunity
                                    •Outline marketing plan
                                    •Operational & financial details
                                    •Managers’ skills and abilities
Accessing Resources
• Bootstrapping – doing more with less

• Financial Resources
   • Debt                •Financial institutions

                         •Personal savings
   • Equity              •Love money (friends, family)
                         •Private investors (angels)
                         •Venture capitalists

• Other resources
  • Team members with complementary skills
Small Business

• Small Business - An owner-managed business
  with less than 100 employees

• New Venture – recently formed commercial
  organization (within last 12 months)
Role of Small and
New Businesses

 • Source of job creation

 • Leaders in innovation and new technology
    • Service sector
    • High-knowledge industries
       • high-technology and biotechnology

 • > 800,000 women entrepreneurs and growing
Alternatives for Starting a
Small Business

   Start a business from scratch

   Buy an existing enterprise (e.g., family business)

   Buying a franchise
Benefits for the Franchiser

 • Attain rapid growth      • Development of a
                              motivated sales team
 • Share advertising cost
                            • Increased revenue
 • Increased investment
   money                    • No need to deal with
                              local business issues
 • More efficient             (managed by
   advertising delivery       franchise owners)
Benefits for the Franchisee

 • Access to               • Expert advice
   management              • Economies of scale in
   expertise                 buying supplies
                           • Financial assistance
 • No need to build a
                           • Help with getting
   business from scratch     external financing
 • Lower failure rates     • Be your own boss
 • Well-developed brand    • Keep most of the
 • Training provided
Forms of Business Organization
•   Sole Proprietorship
     • Owned and operated by one person
•   Partnership                                          Differ on:
     • Two or more individuals combine resources        • Ownership
•   Corporation                                         • Taxation
     • Separate legal entity, liable for own debts      • Liability
•   Cooperatives
     • Organized owned and controlled by users of its

Two basic types:
  • General partners
    • actively involved in management
    • have unlimited liability
    • must be at least one

  • Limited partners
    • not actively involved in management
    • liability limited to their investment
 Regardless of the size or industry corporations
 have the following rights and characteristics:

    • Legal status as a separate entity

    • Property rights and obligations

    • Indefinite lifespan

    • Stockholders

    • Board of Directors
Success and Failure

        Success:                 Failure:

• Hard work, drive and   • Poor management
  dedication               skills
• Market demand          • Neglect
• Managerial             • Weak control systems
  competence             • Insufficient capital
• Luck

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