oct 14 ecd lecture 6 starting the business(1)
TRANSCRIPT
ENTERPRISE CREATION & DEVELOPMENT
Lecture 6:
Starting the BusinessMr Nicholas Tan Tian Leng
Oct 14 ECD / ttl / Lecture 6
Lecture objectives• Pathways to new ventures for entrepreneurs
• Business structures
• Harvest strategies
Oct 14 ECD / ttl / Lecture 6
Recommended reading• Donald F. Kuratko ENTREPRENEURSHIP – THEORY,
PROCESS AND PRACTICE, 9th Edition, CENGAGE, Chp 8
Oct 14 ECD / ttl / Lecture 6
Pathways to new ventures for entrepreneurs
Oct 14 ECD / ttl / Lecture 6
(1) Bootstrapping
(2) Creating new ventures
(3) Acquiring existing
ventures
(4) Buying a franchise
(5) Establishing a social venture
(6) Taking over a family business
(1) Bootstrapping• Some say bootstrapping means starting a new business
without financing.
• Look for the ‘low-hanging fruit’. Use a copycat idea. Find quick, break-even, cash-generating products.
Oct 14 ECD / ttl / Lecture 6
Bootstrapping• A means of starting a new venture through highly creative
acquisition and use of resources.
• Relies greatly on networks, trust, cooperation and wise use of existing resources.
• Having a healthy cash flow is critical to survival.
Oct 14 ECD / ttl / Lecture 6
Some ways to bootstrap a business• Buy on consignment
• Buy used equipment instead of
new
• Hire staff for shorter periods instead of
employing permanently
• Deliberately delay payment to suppliers
• Obtain loans from relatives and friends
• Work from home
Oct 14 ECD / ttl / Lecture 6
At the end of the month, I’ll
pay you for the goods that
were sold.
I misplaced your invoice...can you
mail it to me again?
(2) Creating new ventures
• New-new approach
o New products or services frequently enter the market • Eg smart phones, MP3 players, plasma TVs & GPS
o All these products are introduced as a result of R&D efforts by major corporations. However, unique ideas are not produced by only large companies.
Oct 14 ECD / ttl / Lecture 6
Creating new ventures
• New-new approach
o One way to discover new products is to make a list of annoying experiences or hazards encountered with various products or services.
o These are PITA products or ‘pain in the arse’ products
o Eg Facebook was founded by
Mark Zuckerberg, a Harvard University
student who was frustrated by a
lack of networking facilities
on campus
Oct 14 ECD / ttl / Lecture 6
Creating new ventures• New-new approach
o Eg ironing gloves for ironing sleeves & collars more easily
Oct 14 ECD / ttl / Lecture 6
Ironing glove
Creating new ventures• New-old approach
o Most small ventures do not start with a totally unique idea.
o Instead, an individual piggybacks on someone else’s idea by either improving aproduct or offering a service which is not currently available.
o Eg setting up restaurants, clothing stores in suburban areas that do not have an abundance of these stores.
o Risky because competitors can move in easily.
Oct 14 ECD / ttl / Lecture 6
(3) Acquiring existing ventures
Advantages
• 1) Since the business is already in operation, its successful future operation is likely
• 2) Time & effort associated with starting a new business are eliminated
• 3) Possible to buy an ongoing business at a bargain price
Oct 14 ECD / ttl / Lecture 6
Acquiring existing ventures
1) Less fear about successful future operation
• Existing business has demonstrated ability to attract customers, control costs & make a profit
• Also, many of the problems faced by a newly formed firm faces are side stepped.
Eg where should the company be located? How should it advertise?
Oct 14 ECD / ttl / Lecture 6
Acquiring existing ventures
2) Reduced time & effort
• An existing business already has assembled the inventory, equipment, personnel & facilities necessary to run it
• In many cases, this has taken the owners a long time to do
• In addition, owners have established relations with suppliers etc
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Acquiring existing ventures
3) A good price
• Owner may want to sell quickly because of a retirement decision, illness or to raise money for emergency purposes
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What to ask when buying a business venture?
• Why is the business being sold?
• What is the current physical condition of the business?
• What is the condition of the inventory and 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?
Oct 14 ECD / ttl / Lecture 6
(4) 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.
• Eg 7-11, Subway, McDonald’s
Oct 14 ECD / ttl / Lecture 6
Advantages of franchising
• Provided by the franchisorTraining & guidance
• Franchisor’s name is a drawing card Eg McDonald’s
Brand-name appeal
• Franchisor has already proven that the operation can be successful
A proven track record
• Franchisor may help the franchisee to secure financial assistance
Financial assistance
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Disadvantages of franchising
• The more successful the franchise, the greater the fee
Franchise fees
• Franchisor exercises control over the operation
Franchisor control
• Franchisor may overpromise & under deliver
Unfulfilled promises
• No specific franchising legislation in Singapore
Franchise law
Oct 14 ECD / ttl / Lecture 6
(5) Social venturing• Aka social enterprise
• Business-like organizations structured as a social-purpose business
• Double challenge of finding a strategy to accomplish social change & making profits
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(6) Family Business• Entrepreneurs can inherit from family members
• A powerful economic force (with right mix of entrepreneurial spirit & family cohesion) and rewarding way of life
• Can generate profit & at the same time, provide employment for children
• A substantial accomplishment for entrepreneur
• Eg Lee Kum Kee, Eu Yan Sang, Seng Choon Farm
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Business structures• In Singapore, you can choose to register any of the following:
o A sole-proprietorship
o A partnership
o A company
o A limited liability partnership (LLP)
o A limited partnership (LP)
IMPORTANT:
o http://www.enterpriseone.gov.sg/Business%20Stages/Start/Choosing%20A%20Business%20Structure.aspx
Oct 14 ECD / ttl / Lecture 6
Harvest Strategies• Component of the business plan where an entrepreneur
describes a method by which investors can realise a tangible return on their investment
“Build a great company but do not forget to harvest”
Keep harvest options open & think of harvesting as a vehicle for reducing risk & creating future
entrepreneurial choices & options.
Oct 14 ECD / ttl / Lecture 6
Sell business to another investor
Shares of the company are offered for sale in a public stock exchange
Withdrawal of owner’s investment in the form of cash, instead of reinvesting the firm’s cash to grow the business
Ways to harvest a business
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“Capital Cow”
Employees own a share of the company they work for
Outright Sale
Public Offering
Employee Stock Ownership Plan