Unit v Entrepeneurship

8/9/2019 Unit v Entrepeneurship

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JNTU ANANTAPUR IV-I MECHANICAL

UNIT-V NEW VENTURE EXPANSION STRATEGIES AND ISSUES

JOINT VENTURES

With the increase in business risks, h!er-c"#!etiti"n, an$ %ai&ures, '"int (entures ha(e

increase$)

A '"int (enture is a separate entity involving two or more partiipants as partners! T"ey

involve a wi#e range o$ partners% inling &niversities% '&sinesses% an# t"e p&'li setor!

*ist"rica& Pers!ecti(e

Joint vent&res are not new! In t"e U!(! )oint vent&res were $irst &se# $or large-sale pro)ets in

mining an# railroa#s in t"e *+,,s!T"e largest )oint vent&re in t"e *,,s was t"e $ormation o$

ARAMC. 'y $o&r oil ompanies to #evelop re oil reserves in t"e Mi##le East! /omesti

)oint vent&res are o$ten vertial arrangements ma#e 'etween ompetitors allowing eonomieso$ sale! T"e inrease in t"e n&m'er o$ )oint vent&res "as 'een signi$iantly t"ro&g"o&t t"e

*,s!

T!es "% J"int Ventures

T"e most ommon type is t"at 'etween two or more private-setor ompanies! (ome

)oint vent&res are $orme# to #o ooperative resear"! Anot"er type o$ )oint resear" $or

resear" #evelopment is t"e not-$or- pro$it resear" organi0ation! In#&stry-&niversity

agreements $or t"e p&rpose o$ #oing resear" are also inreasing! Two pro'lems "ave 1ept

t"is type vent&re $rom inreasing even $aster! A pro$it orporation wants to o'tain tangi'le

res&lts-s&" as a patent-$rom its resear" investment% an# &niversities want to s"are in t"e

ret&rns! T"e orporation &s&ally wants to retain all proprietary #ata w"ile &niversity

resear"ers want to ma1e t"e 1nowle#ge availa'le! Joint vent&res 'etween &niversities an#

orporations ta1e many $orms% #epen#ing on t"e parties involve# an# t"e s&')et o$ t"e

resear"! International )oint vent&res are inreasing rapi#ly #&e to t"eir relative a#vantages!

2ot" ompanies an s"are in t"e earnings an# growt"!

T"e )oint vent&re an "ave a low as" re3&irement! Also% t"e )oint vent&re provi#es

rea#y aess to new international mar1ets! (&" a vent&re a&ses less #rain on a ompany4s

managerial an# $inanial reso&res t"an w"olly owne# s&'si#iary! T"ere are #raw'a1s in

esta'lis"ing international )oint vent&res! T"e '&siness o')etives o$ t"e partners an 'e 3&ite

#i$$erent! C&lt&ral #i$$erenes an reate managerial #i$$i&lties! 5overnment poliies

sometimes an "ave a negative impat on t"e vent&re! T"e 'ene$its &s&ally o&tweig" t"e

#raw'a1s!

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+act"rs in J"int Venture Success

.ne ritial $ator $or s&ess is t"e a&rate assessment o$ t"e parties involve# an# "ow 'est

to manage t"e new entity! A seon# $ator involves t"e symmetry 'etween t"e partners!

Anot"er $ator is t"at t"e e6petations a'o&t t"e res&lts o$ t"e )oint vent&re m&st 'e

reasona'le! T"e $inal $ator is t"e timing! A '"int (enture sh"u&$ be c"nsi$ere$ as "ne "%

#an "!ti"ns %"r su!!&e#entin the res"urces "% the %ir#)

A.UISITIONS

An ac/uisiti"n is t"e p&r"ase o$ a ompany or a part o$ it in s&" a way t"at t"e a3&ire#

ompany is ompletely a'sor'e# an# no longer e6ists! A3&isitions an provi#e an e6ellent

way to grow a '&siness an# enter new mar1ets! A 1ey iss&e is agreeing on a prie! .$ten t"e

str&t&re o$ t"e #eal an 'e more important to t"e parties t"an t"e at&al prie! A prime

onern is to ens&re t"at t"e a3&isition $its into t"e overall #iretion o$ t"e strategi plan!

A$(antaes "% an Ac/uisiti"n

Esta'lis"e# '&siness!

T"e a3&ire# $irm "as an esta'lis"e# image an# tra1 reor#!

T"e entreprene&r wo&l# only nee# to ontin&e t"e e6isting strategy to 'e s&ess$&l!

Loation is alrea#y esta'lis"e#!

Esta'lis"e# mar1eting str&t&re!

An important $ator t"at a$$ets t"e val&e o$ a $irm is its e6isting mar1eting "annel

an# sales str&t&re!

7it" t"is str&t&re alrea#y in plae% t"e entreprene&r an onentrate on e6pan#ing to

new target mar1ets!

T"e total ost o$ a3&iring a '&siness o&l# 'e lower t"an trying to '&y a $ran"ise!

E6isting employees!

T"e employees o$ an e6isting '&siness an 'e important assets!

T"ey 1now t"e '&siness an# an "elp t"e '&siness ontin&e!

Employees alrea#y "ave esta'lis"e# relations"ips wit" &stomers% s&ppliers% an#

"annel mem'ers!

More opport&nity to 'e reative-More time an 'e spent assessing opport&nities to

e6pan# or strengt"en t"e '&siness!

DISADVANTAGES O+ AN A.UISITION

Marginal s&ess reor#

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Most vent&res $or sale "ave an errati% or even &npro$ita'le% reor#! It is important to

review t"e reor#s an# meet important onstit&ents to assess t"e $&t&re potential!

.veron$i#ene in a'ility-Even t"o&g" t"e entreprene&r 'rings new i#eas% t"e vent&re may

never 'e s&ess$&l $or reasons not possi'le to resolve9ey employee loss

.$ten w"en a '&siness "anges "an#s 1ey employees also leave! In a servie '&siness%

it is #i$$i&lt to separate t"e at&al servie $rom t"e person w"o per$orms it! Inentives

an sometimes 'e &se# to ass&re t"at 1ey employees will remain wit" t"e '&siness!

.verval&e#

I$ t"e entreprene&r "as to pay too m&" $or a '&siness% t"e ret&rn on investment will

not 'e aepta'le! T"e entreprene&r will nee# to esta'lis" a reasona'le pay'a1 to

)&sti$y t"e in-vestment

DETER0INING T*E PRIE +OR AN A.UISITION

(ome o$ t"e 1ey $ators &se# in #etermining prie $or an a3&isition are assets% owner4s

e3&ity% earnings% sto1 val&e% &stomer 'ase% personnel an# image! T"e prie pai# s"o&l#

provi#e t"e opport&nity to get a reasona'le pay'a1 an# goo# ret&rn on t"e investment!

Va&uati"n A!!r"aches

Ratios meas&ring pro$ita'ility% ativity% an# li3&i#ity an also 'e "elp$&l in eval&ation! Using

t"e asset val&ation met"o#% t"e entreprene&r val&es t"e &n#erlying wort" o$ t"e '&siness

'ase# on its assets!

a! T"e $ig&re o'taine# &sing 'oo1 val&e s"o&l# 'e only a starting point% as it re$lets t"e

ao&nting praties o$ t"e ompany!

'! In a#)&ste# 'oo1 val&e t"e state# 'oo1 val&e is a#)&ste# to re$let t"e at&al mar1et

val&e!

! Anot"er met"o# is to #etermine t"e amo&nt t"at o&l# 'e reali0e# i$ t"e assets were

sol# or li3&i#ate#!

#! T"e $inal met"o# is t"e replaement val&e-t"e &rrent ost o$ replaing t"e tangi'le

assets!

Anot"er way o$ eval&ating a $irm is to al&late t"e prospetive as" $low $rom t"e '&siness!

a! Positive as" $low is as" reeive# $rom t"e operation o$ t"e '&siness!

'! A negative as" $low% signi$ying t"e ompany is losing money% an "ave ta6

a#vantages!

! :inal as" $low val&e% t"e terminal val&e% is a so&re o$ as" w"en t"e entreprene&r

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sells t"e '&siness!

Earnings val&ation apitali0es earnings o$ a ompany 'y m&ltiplying earnings 'y t"e

appropriate $ator 7it" re$erene to t"e

vent&re synergy re$ers to t"e p"enomenon in w"i" two or more #isrete in$l&enes or

organi0ations ating toget"er reate an e$$et greater t"an t"at pre#ite# 'y 1nowing only t"e

separate e$$ets o$ t"e in#ivi#&al organi0ations!

An ac/uisiti"n sh"u&$ !"siti(e& i#!act the b"tt"# &ine)

La1 o$ synergy is a $re3&ent a&se o$ t"e a3&isition $ailing to meet goals! Eval&ation

s"o&l# onsi#er t"e &psi#e potential% #ownsi#e ris1s% an# v&lnera'ility to "anges in mar1ets

an# te"nology! (ome o$ t"e warning signs inle poor orporate omm&niations% poorly

prepare# $inanial statements% an# $ew new pro#&ts!

The e(a&uati"n !r"cess beins 2ith %inancia& ana&sis)

Past operating res&lts in#iate t"e potential $or $&t&re per$ormane! Areas o$

wea1ness% s&" as too m&" leverage% s"o&l# 'e are$&lly eval&ate#!

In c"nsi$erin a %ir#3s !r"$uct &ines stu$ the !ast, !resent, an$ %uture)

T"e li$e yle an# present mar1et s"are o$ ea" o$ t"e present pro#&ts s"o&l# 'eeval&ate#! Also onsi#er t"e ompati'ility o$ t"e $irm4s pro#&t lines! A met"o# $or eval&ating

t"e pro#&t line is t"e ( or li$e-yle &rve plotting sales an# margins $or ea" pro#&t over

time!

The %uture "% the %ir#3s !r"$ucts an$ #arket !"siti"n is a%%ecte$ b its research an$

$e(e&"!#ent)

In a##ition to t"e a'sol&te #ollar amo&nt o$ R?/ spen#ing% it is important to

#etermine w"et"er e6pen#it&res are #irete# 'y t"e $irm4s long-range plans! T"e o&tp&t an#

s&ess o$ new pro#&ts #evelope# s"o&l# 'e ompare# wit" t"e e6pen#it&res!

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The entre!reneur sh"u&$ e(a&uate the %ir#3s entire #arketin !r"ra# an$ ca!abi&ities)

Care s"o&l# 'e ta1en in eval&ating t"e esta'lis"e# #istri'&tion system% sales $ore% an#

man&$at&rer4s representatives! T"e entreprene&r an also gain insig"t 'y loo1 at t"e

ompany4s mar1eting resear" e$$orts!

The nature "% the #anu%acturin !r"cess is i#!"rtant in $eci$in 2hether t" ac/uire a

!articu&ar %ir#)

T"e entreprene&r s"o&l# rate t"e management an# 1ey personnel o$ t"e an#i#ate $irm!

S!eci%ic Va&uati"n 0eth"$

(tep * Compo&n# t"e &rrent reven&e level $orwar# to yiel# a reven&e level at time o$

li3&i#ity!

(tep 8 M&ltiply t"e $&t&re reven&e level times t"e e6pete# a$ter-ta6 pro$it margin to

pro#&e an e6pete# earnings level!

(tep ; M&ltiply t"e estimate# earnings level at time o$ li3&i#ity times t"e e6pete#

prieBearnings ratio to give a $&t&re mar1et val&ation!

(tep @ Cal&late t"e present val&e $ator!

(tep /ivi#e t"e $&t&re ompany val&e 'y t"e present val&e $ator to give a present val&e!

(tep D /ivi#e t"e re3&ire# apital 'y t"e present ompany val&e to o'tain a minim&m

owners"ip $or t"e investment re3&ire#!

Structurin the Dea&

T"e #eal str&t&re involves t"e parties% t"e assets% t"e payment $orm% an# t"e timing o$ t"e

payment!

T"ere are two means o$ a3&isitions!

T"e entreprene&r may #iretly p&r"ase t"e $irm4s entire sto1 &sing $&n#s $rom an o&tsi#e

len#er!

Anot"er option is a 'ootstrap p&r"ase% a3&iring a small amo&nt o$ t"e $irm $or as" t"en

p&r"asing t"e remain#er 'y a long-term note!

4"catin Ac/uisiti"n an$i$ates

T"ere are pro$essional '&siness 'ro1ers% operating similarly to a real estate 'ro1er t"at

represents t"e seller! Ao&ntants% attorneys% 'an1ers% '&siness assoiates% an# ons&ltants

may 'e aware o$ goo# an#i#ates!

It is also possi'le to $in# opport&nities in t"e lassi$ie# setions o$ t"e newspaper or tra#e

maga0ine!

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Ana&sin an$i$ates

T"e entreprene&r s"o&l# gat"er as m&" in$ormation as possi'le% rea# it are$&lly% ons&lt

wit" a#visors% onsi#er t"e sit&ation% an# t"en ma1e a onstr&tive #eision! A pro$ile

ontaining a3&isition riteria an# prospet #ata an g&i#e initial sreening! .ne t"eprospet passes t"e initial "e1list% more rigoro&s analysis an eval&ate t"e a3&isition!

0ERGERS

A merger is a transation involving two or more ompanies in w"i" only one ompany

s&rvives! A3&isitions are so similar to mergers% t"at t"e terms are o$ten &se#

inter"angea'ly! A 1ey onern in any merger or a3&isition is t"e legality o$ t"e p&r"ase!

T"e /epartment o$ J&stie $re3&ently iss&es g&i#elines $or "ori0ontal% vertial% an#

onglomerate mergers! Merger motivations range $rom s&rvival to protetion to

#iversi$iation to growt"! A merger re3&ires so&n# planning 'y t"e entreprene&r! Merger

o')etives m&st 'e spelle# o&t wit" t"e res&lting gains $or t"e owners o$ 'ot" ompanies

#elineate#!

T"e entreprene&r m&st eval&ate t"e ot"er ompany4s management an# reso&res to

ens&re t"at t"e wea1nesses o$ one #o not ompo&n# t"ose o$ t"e ot"er! T"e entreprene&r

s"o&l# esta'lis" a limate o$ m&t&al tr&st! T"e same met"o#s $or val&ing t"e entreprene&r4s

ompany an 'e &se# to #etermine t"e val&e o$ a merger an#i#ate! T"e proess involves

loo1ing at t"e synergisti pro#&tBmar1et position% t"e new mar1et position% an# &n#erval&e#

$inanial strengt"! A ommon proe#&re is to estimate t"e present val&e o$ #iso&nte# as"

$lows an# t"e e6pete# a$ter-ta6 earnings attri'&ta'le to t"e merger!

+ranchisin

T"e primary tra#e assoiation $or $ran"isingiss&es% t"e International :ran"ise Assoiation%

#e$ines $ran"ising as a >ontin&ing relations"ip in w"i" t"e $ran"isor provi#es a liense#

privilege to #o '&siness% pl&s assistane in organi0ing% training% mer"an#ising% an#

management> in e6"ange $or $ees an# royalties $rom t"e $ran"isee! In ot"er wor#s%

$ran"ising is t"e proess o$ e6pan#ing a '&siness w"ere'y a ompany


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wit" strong potential $or s&ess! :ran"ising o$$ers people a "ane to own% manage% an#

#iret t"eir own '&siness wit"o&t "aving to ta1e all t"e assoiate# ris1s! T"is aspet "as

allowe# many people to open '&sinesses o$ t"eir own w"o mig"t never "ave #one so

ot"erwise!

:ran"ising plays a signi$iant role in t"e U!(! eonomy! :ran"ise sales ao&nte# $or a'o&t

over , o$ all retail sales in t"e Unite# (tates in t"e late *,s an# U!(! $ran"ises

generate# ro&g"ly F* trillion in sales o$ goo#s an# servies ann&ally in t"e Unite# (tates

#&ring t"is perio#% aor#ing to t"e International :ran"ise Assoiation


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T"ere are $o&r ma)or types o$ $ran"ises '&siness $ormat $ran"ises% pro#&t$ran"ises% man&$at&ring $ran"ises% an# '&siness opport&nity vent&res% aor#ing to t"eFranchise .pport&nities Han#'oo1! Via '&siness $ormat $ran"ises% t"e most ommon type% aompany e6pan#s 'y s&pplying in#epen#ent '&siness owners wit" an esta'lis"e# '&siness%inling its name an# tra#emar1! T"e $ran"isor ompany generally assists t"e in#epen#ent

owners onsi#era'ly in la&n"ing an# r&nning t"eir '&sinesses! In ret&rn% t"e '&siness ownerspay $ees an# royalties! T"e $ran"isee also o$ten '&ys s&pplies $rom t"e $ran"isor! :ast $oo#resta&rants are goo# e6amples o$ t"is type o$ $ran"ise!

7it" pro#&t $ran"ises% man&$at&res ontrol "ow retail stores #istri'&te t"eirpro#&ts! T"ro&g" t"is 1in# o$ agreement% man&$at&rers allow retailers to #istri'&te t"eirpro#&ts an# to &se t"eir names an# tra#emar1s! To o'tain t"ese rig"ts% store owners m&st pay$ees or '&y a minim&m amo&nt o$ pro#&ts! Tire stores% $or e6ample% operate &n#er t"is 1in#o$ $ran"ise agreement!

T"ro&g" man&$at&ring $ran"ises% a $ran"isor grants a man&$at&rer t"e rig"t to

pro#&e an# sell goo#s &sing its name an# tra#emar1! T"is type o$ $ran"ise is ommonamong $oo# an# 'everage ompanies! :or e6ample% so$t #rin1 'ottlers o$ten o'tain $ran"iserig"ts $rom so$t #rin1 ompanies to pro#&e% 'ottle% an# #istri'&te so$t #rin1s! T"e ma)or so$t#rin1 ompanies also sell t"e s&pplies to t"e regional man&$at&ring $ran"ises!

:inally% '&siness opport&nity vent&res involve an in#epen#ent '&siness owner '&yingan# #istri'&ting t"e pro#&ts $rom one ompany! T"e ompany s&pplies t"e '&siness ownerwit" lients or ao&nts an# t"ere$ore t"e '&siness owner pays t"e ompany a $ee in ret&rn!2&siness owners o'tain ven#ing ma"ine ro&tes an# #istri'&tors"ips% $or e6ample% t"ro&g"t"is type o$ $ran"ise arrangement!

ADVANTAGES O+ +RAN*ISING

:ran"ising o$$ers a n&m'er o$ a#vantages not only to $ran"isors '&t also to $ran"iseesGw"i" "elps e6plain w"y $ran"ising "as 'een so s&ess$&l! :ran"isors 'ene$it $rom t"eseagreements 'ea&se t"ey allow ompanies to e6pan# m&" more 3&i1ly t"an t"ey o&l#ot"erwise! A la1 o$ $&n#s an# wor1ers an a&se a ompany to grow slowly! However%t"ro&g" $ran"ising a ompany invests very little apital or la'o&r% 'ea&se t"e $ran"isees&pplies 'ot"!

A ompany also an ens&re it "as ompetent an# "ig"ly motivate# ownerBmanagers at ea"

o&tlet t"ro&g" $ran"ising! (ine t"e owners are largely responsi'le $or t"e s&ess o$ t"eiro&tlets% t"ey will p&t a strong% onstant e$$ort to ma1e s&re t"eir '&sinesses r&n smoot"ly an#

prosper! In a##ition% ompanies are a'le to provi#e $ran"ising rig"ts to only 3&ali$ie# people!Moreover% $ran"isors an raise money wit"o&t selling s"ares o$ t"eir ompanies t"ro&g"$ran"ising!

Li1ewise% $ran"isees reap a variety o$ 'ene$its $rom $ran"ising! As note# previo&sly% t"e$ran"isee $aes m&" less ris1 t"ro&g" $ran"ising a ompany% t"an t"ro&g" starting a

'&siness $rom srat"% aor#ing to many sties! T"e lower ris1 is relate# to ot"era#vantages o$ $ran"ising t"at stem $rom 'eing a$$iliate# wit" a proven ompany! T"e$ran"isor generally "as "a# some e6periene in t"e $iel# o$ '&siness an# "as national or

regional name reognition! :ran"isors also provi#e $ran"isees wit" a proven an# e$$iientmet"o# o$ operation t"ro&g" t"eir years in t"e '&siness% wit" management assistane an#

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training% an# wit" mar1eting assistane an# a#vantages! :ran"isors &s&ally on#&t nationalor regional mar1eting ampaigns #evelope# 'y pro$essional a#vertising agenies an# t"eyan "elp $ran"isees r&n loal a# ampaigns% t"o&g" $ran"isees generally m&st ontri'&te *- o$ t"eir gross pro$it to a#vertising $&n#s! All o$ t"ese aspets o$ $ran"ise agreements ansigni$iantly inrease t"e "anes o$ an o&tlet4s s&ess!

T*E DISADVANTAGES O+ +RAN*ISING

OSTS O+ +RAN*ISING)

In ret&rn $or t"e 'ene$its $ran"isees reeive% t"ey m&st pay $ees an# royalties to t"e$ran"isors! T"e $ran"ise $ee may range anyw"ere $rom F%,,, to over F* million an# "enean 'e a ma)or e6pen#it&re! 2esi#es t"e $ran"ise $ee% $ran"isees o$ten m&st pay royalties

perio#ially #&ring t"e li$e o$ t"e $ran"ise agreement! Royalty payments are eit"er aperentage o$ an o&tlet4s gross inomeG&s&ally &n#er *, perent o$ an o&tlet4s gross inomeGor a $i6e# $ee!

:ran"ise osts vary to some e6tent 'ea&se o$ osts assoiate# wit" #i$$erent 1in#s o$'&sinesses an# wit" #i$$erent loations! :or e6ample% a person w"o wis"es to open a$ran"ise# employment servie operation% s&" as Talent :ore% 'ase# in Atlanta% 5eorgia%an get away wit" as little as a F%,, $ee% pl&s one year4s starting apital investment o$F,%,,, to F**,%,,,! .n t"e ot"er "an#% start-&p osts $or a ompany li1e J!.!2!(!% 'ase# inClearwater% :lori#a% an 'e as little as F@%,,,% inling a F;,%,,, $ran"ise $ee!

T"e osts o$ t"ese '&sinesses pale in omparison to $oo# $ran"ises! :or e6ample% a Popeye4s:amo&s :rie# C"i1en an# 2is&its% In! o&tlet will ost t"e $ran"isee a minim&m o$F8,,%,,,Gwit" no $inaning assistane availa'le! A $ran"ise at Per1ins Resta&rants%.perating Co!% L!P! osts 'etween F%,,, an# F*%,,%,,,! An in#ivi#&al4s initial as"investment wo&l# 'e a'o&t F*,%,,,! Initial osts s&" as t"ese an present serio&s o'stalesto some people trying to p&r"ase a $ran"ise!

+UNDING T*E +RAN*ISE)

T"ere are several so&res o$ $inanial 'a1ing $or potential $ran"isees! (ine $ran"isors #onot always o$$er $inanial assistane% people rely primarily on t"eir own $&n#s% $amilys&pport% an# t"e tra#itional so&res s&" as $inanial instit&tions% 'an1s% an# private investors!T"e more money a $ran"ise osts% t"e "ar#er it is $or potential operators to raise t"eneessary $&n#s! However% t"e sear" #oes "ig"lig"t anot"er positive aspet o$ $ran"ising it

involves a a#re o$ speialists


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loal M/onal#4s% 2&rger 9ing% or MAAC.a&to 'o#y s"op! (o% many $ran"ise o&tletowners are relegate# to anonymityGw"i" an 'e a #raw'a1!

:ran"isees are o$ten s&')ete# to tig"t s&pervision 'y t"e $ran"isor! T"ey annot pi1 o&tt"eir own '&siness name% '&y pro#&ts an# servies $rom w"om t"ey "oose% or selet t"e

loation at w"i" t"ey will #o '&siness! In a##ition% $ran"isees &s&ally m&st $ollow$ran"isor g&i#elines losely an# not #eviate $rom t"eir approa" to #oing '&siness! (ome$ran"isors ontrol t"eir o&tlets so tig"tly t"ey even tell '&siness operators w"en to emptyt"eir tras" ans% "ow to #ress t"eir employees% w"ere to #ispose o$ $oo#% w"at olor to paintt"eir $enes% et! As a res&lt% some $ran"isees are largely #epen#ent on t"eir $ran"isors!Moreover% $ran"isees &s&ally annot implement "anges wit"o&t $ran"isor approval!Hene% i$ a o$$ee "o&se $ran"ise t"at sells only 'everages an# pastries noties &stomer#eman# $or san#wi"es% it annot o$$er t"em wit"o&t t"e onsent o$ t"e $ran"isor!

Anot"er pro'lem wit" $ran"ising is t"at $ran"isees may $all vitim to t"e ompany4spro'lems! 7"ile a parti&lar '&siness owner may 'e #oing well% t"e "ain itsel$ may

eno&nter $inanial pro'lems #&e to mismanagement% a $ailing eonomy% or any ot"er reasonw"i" impats operations! T"is an res&lt in inrease# $ees or royalties or a swit" ins&ppliers w"i" an lea# to re#&e# 3&ality o$ goo#s an# servies! In e6treme ases% t"e$ran"isor an go o&t o$ '&siness ompletely! :ran"isees also enter into *,-* yearagreements wit" $ran"isors an# in most ases an get o&t o$ t"e agreement only 'y sellingt"e '&siness!

A $inal pro'lem $or potential $ran"isees is "ow to selet t"e rig"t ompany wit" w"i" toa$$iliate! As t"e n&m'er o$ $ran"isors inreases% t"e met"o# o$ "oosing w"i" $ran"ise isrig"t $or a parti&lar in#ivi#&al 'eomes more omple6! .'vio&sly% i$ t"e wo&l#-'e$ran"isee "as ertain s1ills or interests% t"ese are li1ely to g&i#e t"is "oie! Even i$ a

potential $ran"isee 1nows w"i" type o$ '&siness to enter% t"e seletion o$ a $ran"isor maypose a "allenge!

T"e person w"o wants to open a $ast-$oo# $ran"ise "as to #ei#e w"at type o$ $oo# it willserve pi00a% "am'&rgers% yog&rt% $&ll meals% et! .t"er matters to onsi#er inle $eesre3&ire#% royalties% governmental reg&lations% an# w"et"er t"e parti&lar '&siness is part o$ agrowing in#&stry! (&" "oies are losely tie# in to p&'li poliy an# governmentalreg&lation to#ay!

ENTREPENEUR(HIP *,
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