- BBA 1101 -INTRODUCTION TO BUSINESS

Summer 2014-15

Faculty: Shama Islam

Entrepreneurship, Franchising,& Small Businesses

Chapter # 3

LECTURE 3

EntrepreneurshipSome define the entrepreneur simply as one who starts his or her own new and small business.

EntrepreneurA person who takes the risks necessary toorganize and manage a business andreceives the financial profits andnonmonetary rewards.

IntrapreneurA person with entrepreneurial characteristicsemployed by a corporation and encouragedto be innovative and creative.

Growth-Oriented Entrepreneurs

Need for AchievementGrowth-oriented entrepreneurs have a high need for achievement: they need to succeed, to achieve, to accomplish challenging tasks. The strong desire for achievement leads to a desire for independence.

Low need to ConformGrowth-oriented entrepreneurs listen, but they are able to ignore other’s advice. They are able to handle generally accepted rules and standards. Taking the unpopular course of action, if they consider it best, is the way they do business.

High Energy LevelThe capacity for continued effort requires a high energy level. All the necessary work -planning, organizing, directing, creating strategy and finding funds can only be accomplished on a demanding schedule.

Growth-Oriented Entrepreneurs

DeterminationGrowth-oriented entrepreneurs are persistent (refusing to give up), doing business with determination for it to succeed. They work hard on the details and uncompromisingly attempt to find ways to become more profitable.

Risk Taking TendencyIt is said that, people with a high need for achievement tend to take risks. Growth-oriented entrepreneurs believe so strongly in their ability to achieve that they do not see possibility of failure. They thus accept risk and find it motivating.

Risks of EntrepreneurshipThe failure rate among new ventures is comparatively high.

Besides business risk, entrepreneurs face significant finance risk, if they typically invest most – if not all of their financial resources in the business.

They may take a career risk by leaving a secure job for a venture with a highly uncertain future.

They may also incur family and social risks because the demands of starting and running a young business leave little time for attention to family and friends.

Reasons for Business Failure People fail because they jump into a

business too quickly. They throw or get into a business enterprise very quickly , without doing their homework. They do not analyze their own strengths and weaknesses.

Businesses also fail due because they run out of money. If you cannot pay your bills and other expenses, you are out of business. Realistic planning for the money needed is critically important. Estimates of cash requirements are a top priority before starting the venture.

Failing to plan is an obvious mistake. A detailed business plan forces the entrepreneur to think ahead, to reflect, to decide on how to proceed.

FranchisingAn attractive business opportunity for many people is to obtain a franchise and become the owner of a restaurant, motel or other business.

FranchiseThe right to use a specific business name and sell its good or services in a specific city, region or country.

Franchising:A system for selective distribution of goods and services under a brand name through outlets owned by independent business owners.

Franchisee (Person):The independent owner of a franchise outlet who enters into an agreement with a franchisor.

Franchiser (Company):The licensing company in the franchise agreement.

Franchise: Examples

FranchisingThe Description of a Franchise system points out the crucial elements of a franchise business.

- A Contractual Agreement between a Franchisee and a Franchiser.

- A Branded Good or Service(eg. Car, Food, etc.)

- Operation, by a businessperson for the purpose of earning a profit.

- Monitoring by the Franchisor so that standard procedures and product or service are used.

Franchise: Advantages Guidance

Many franchisors try to overcome managerial deficiencies or inexperience by providing some sort of training to the individuals.

Financial AssistanceBy joining a franchise company, the individual investor may be able to secure financial assistance. Start up costs of any business are often high and the prospective investor usually has limited funds. Association with a well established franchisor-through its reputation and its financial controls- may enhance the investor’s credit rating with local banks.

Proven ProductThe franchisor can offer the franchisee a proven (established) product and method of operating the business. The product or service is known and accepted by the public.

Brand NameThe investor who signs a franchise agreement acquires the right to use a nationally or regionally promoted brand name. National promotion brings these features and characteristics to the attention of the potential customers.

Franchise: Disadvantages Costs

Franchisees must pay franchise fees. In return, the franchisor can provide training, guidance and other forms of support that would otherwise cost money. Thus the franchisee pays for the opportunity to share in these forms of support.

External ControlA person who signs a franchise agreement looses some independence. The franchisor, in order to operate all the franchise outlets as a business, must exercise some control over promotional activities, financial records, hiring, service procedures and managerial development. The franchisee is semi-independent. In a sole proprietorship, the owner is totally independent.

Weak Training ProgramsSome franchisors have developed excellent training programs. Even competitors admit that KFC, Pizza Hut, etc have outstanding training programs. But sometimes promoters promise sound training programs and never deliver. Training programs are brief and staffed by trainers who do not have instructional skills. The facilities are sometimes unsuitable for proper learning and development.