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Oct 14 ecd lecture 6 starting the business(1)

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This document summarizes lecture 6 on starting a business. It discusses pathways to new ventures such as bootstrapping, creating new ventures, acquiring existing ventures, franchising, social venturing, and taking over a family business. It also covers business structures in Singapore and harvest strategies for realizing returns on investment such as selling the business, public offerings, or employee stock ownership.

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ENTERPRISE CREATION & DEVELOPMENT Lecture 6: Starting the Business Mr Nicholas Tan Tian Leng (nicholas@np.edu.sg) 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
Oct 14 ECD / ttl / Lecture 6
(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, Ill 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 elses idea by either improving a product 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 Oct 14 ECD / ttl / Lecture 6
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 Oct 14 ECD / ttl / Lecture 6
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 firms 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, McDonalds Oct 14 ECD / ttl / Lecture 6
Advantages of franchising Provided by the franchisorTraining & guidance Franchisors name is a drawing card Eg McDonalds 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 Oct 14 ECD / ttl / Lecture 6
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 Oct 14 ECD / ttl / Lecture 6
(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 Oct 14 ECD / ttl / Lecture 6
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/St art/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 owners investment in the form of cash, instead of reinvesting the firms cash to grow the business Ways to harvest a business Oct 14 ECD / ttl / Lecture 6 Capital Cow Employees own a share of the company they work for Outright Sale Public Offering Employee Stock Ownership Plan
Ways to harvest a business Oct 14 ECD / ttl / Lecture 6 Employees own a share of the company they work for Shares of the company are offered for sale in a public stock exchange

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Oct 14 ecd lecture 6 starting the business(1)

  • 1. ENTERPRISE CREATION & DEVELOPMENT Lecture 6: Starting the Business Mr Nicholas Tan Tian Leng (nicholas@np.edu.sg) Oct 14 ECD / ttl / Lecture 6
  • 2. Lecture objectives Pathways to new ventures for entrepreneurs Business structures Harvest strategies Oct 14 ECD / ttl / Lecture 6
  • 3. Recommended reading Donald F. Kuratko ENTREPRENEURSHIP THEORY, PROCESS AND PRACTICE, 9th Edition, CENGAGE, Chp 8 Oct 14 ECD / ttl / Lecture 6
  • 4. 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
  • 5. Oct 14 ECD / ttl / Lecture 6
  • 6. (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
  • 7. 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
  • 8. 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, Ill pay you for the goods that were sold. I misplaced your invoice...can you mail it to me again?
  • 9. (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
  • 10. 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
  • 11. Creating new ventures New-new approach o Eg ironing gloves for ironing sleeves & collars more easily Oct 14 ECD / ttl / Lecture 6 Ironing glove
  • 12. 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 elses idea by either improving a product 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
  • 13. (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
  • 14. 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
  • 15. 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 Oct 14 ECD / ttl / Lecture 6
  • 16. 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 Oct 14 ECD / ttl / Lecture 6
  • 17. 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 firms financial picture look like? Oct 14 ECD / ttl / Lecture 6
  • 18. (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, McDonalds Oct 14 ECD / ttl / Lecture 6
  • 19. Advantages of franchising Provided by the franchisorTraining & guidance Franchisors name is a drawing card Eg McDonalds 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 Oct 14 ECD / ttl / Lecture 6
  • 20. 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
  • 21. (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 Oct 14 ECD / ttl / Lecture 6
  • 22. (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 Oct 14 ECD / ttl / Lecture 6
  • 23. 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/St art/Choosing%20A%20Business%20Structure.aspx Oct 14 ECD / ttl / Lecture 6
  • 24. 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
  • 25. Sell business to another investor Shares of the company are offered for sale in a public stock exchange Withdrawal of owners investment in the form of cash, instead of reinvesting the firms cash to grow the business Ways to harvest a business Oct 14 ECD / ttl / Lecture 6 Capital Cow Employees own a share of the company they work for Outright Sale Public Offering Employee Stock Ownership Plan
  • 26. Ways to harvest a business Oct 14 ECD / ttl / Lecture 6 Employees own a share of the company they work for Shares of the company are offered for sale in a public stock exchange