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ChapterChapter1515
Accessing Resources For Accessing Resources For Growth From External Growth From External
SourcesSources
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External PartiesExternal Parties For Business GrowthFor Business Growth
FranchisingFranchising
Joint VenturesJoint Ventures
AcquisitionAcquisition
MergerMerger
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CompanyCompany SinceSince TypeType # Stores# StoresCurvesCurves 19951995 Women’s Only Women’s Only
FitnessFitness3,7783,778
SubwaySubway 19741974 Submarine Submarine SandwichSandwich
14,80014,800
7-Eleven7-Eleven 19641964 24-Hr. 24-Hr. ConvenienceConvenience
3,7613,761
Taco BellTaco Bell 19641964 Mexican Fast Mexican Fast FoodFood
5,4175,417
Jani-KingJani-King 19741974 Commercial Commercial CleaningCleaning
7,8437,843
Fastest Growing Fastest Growing Franchises Franchises (2003)(2003)
Source: Entrepreneur, 2003
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Franchise SystemFranchise SystemFranchise Franchise
AgreementAgreement
FranchisorFranchisor
FranchiseeFranchisee
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FranchisingFranchising & Franchisee& Franchisee
AdvantagesAdvantagesReduced RiskReduced RiskProduct AcceptanceProduct AcceptanceMgmt. ExpertiseMgmt. ExpertiseBuying PowerBuying PowerMarket KnowledgeMarket KnowledgeFinancial AdviceFinancial AdviceControlsControls
DisadvantageDisadvantageoHigh Start-up CostsHigh Start-up CostsoFranchisor Unable To Franchisor Unable To
PerformPerformoFranchisor Failure Or Franchisor Failure Or
SaleSale
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FranchisingFranchising & Franchisor& Franchisor
AdvantagesAdvantagesQuick Expansion & Quick Expansion &
Little CapitalLittle CapitalLarge Operation Yet Large Operation Yet
Few HQ EmployeesFew HQ EmployeesEconomies Of ScaleEconomies Of ScaleLarge Advertising Large Advertising
BudgetBudget
DisadvantagesDisadvantagesoDifficult To Find Difficult To Find
Quality FranchiseesQuality FranchiseesoSingle Franchisee Single Franchisee
Failure Reflects On Failure Reflects On Entire SystemEntire SystemoExpansion Creates Expansion Creates
Loss Of ControlLoss Of Control
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Franchise Capital RequirementsFranchise Capital Requirements
$Franchise/Royalty FeeFranchise/Royalty Fee
$Construction CostsConstruction Costs
$Equipment PurchaseEquipment Purchase
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Franchisor ProvidesFranchisor ProvidesFacility LayoutFacility Layout
Control Stock & Control Stock & InventoryInventory
Buying PowerBuying Power
Advertising/Sales Advertising/Sales Promotion- Local & Promotion- Local & NationalNational
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Franchise TypesFranchise Types
1)1) DealershipDealership
2)2) Name & Image Name & Image & Method& Method
3)3) Services Services
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Franchising OpportunitiesFranchising Opportunities
HealthHealthTime Saving & Time Saving & ConvenienceConvenience
Environmental Environmental ConsciousnessConsciousness
Second Baby Second Baby BoomBoom
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Franchising RisksFranchising RisksUnproven vs. Proven Unproven vs. Proven FranchiseFranchise
Financial Stability Of Financial Stability Of FranchiseFranchise
Potential MarketPotential MarketProfit PotentialProfit Potential
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Franchise ContractFranchise ContractFranchisor, IncFranchisor, Inc..
FranchiseeFranchisee
Branded Branded Product/ServicProduct/Servic
eePerformancPerformanc
ee
MonitoringMonitoring$$$$$$$$$$
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FranchisorFranchisorAssigns TerritoryAssigns Territory
Provides Financial Provides Financial Aid/AdviceAid/Advice
Offers Offers Merchandise/ Merchandise/ Supplies at Supplies at Competitive PriceCompetitive Price
Provides Provides Training/SupportTraining/Support
Business Business Expansion Expansion Using O.P.M.Using O.P.M.
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FranchiseeFranchiseePays Up-Front CostsPays Up-Front CostsMakes Monthly Payment to Makes Monthly Payment to
FranchisorFranchisorRuns Business by Franchisor’s Runs Business by Franchisor’s
Rules/ProceduresRules/ProceduresBuys Materials from Franchisor/ Buys Materials from Franchisor/
Approved SupplierApproved Supplier
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Joint VenturesJoint VenturesTypesTypes
Industry-UniversityIndustry-University InternationalInternational
SuccessSuccess Assessment & Assessment &
ManagementManagement SymmetrySymmetry Realistic ExpectationsRealistic Expectations TimingTiming
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AcquisitionsAcquisitions
AdvantagesAdvantagesEstablished BusinessEstablished BusinessLocationLocationEstablished Established
Marketing StructureMarketing StructureCostCostExisting EmployeesExisting EmployeesOpportunity For Opportunity For
CreativityCreativity
DisadvantagesDisadvantagesoMarginal Success Marginal Success
RecordRecordoOverconfidenceOverconfidenceoKey Employee LossKey Employee LossoOver ValuedOver Valued
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Acquisition ProcessAcquisition ProcessValuation- Valuation- SynergySynergy
Deal StructureDeal Structure
Locating Locating Candidates- Candidates- BrokerBroker
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MergerMergerA.A. MotivationMotivation
1.1. SurvivalSurvival2.2. ProtectionProtection3.3. DiversificationDiversification4.4. GainGain
B.B. Leveraged Leveraged BuyoutBuyout
1.1. Reasonable PriceReasonable Price2.2. Debt CapacityDebt Capacity3.3. Appropriate Appropriate
Financial PackageFinancial Package
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Resource NegotiationResource Negotiation
TasksTasks DistributionDistribution IntegrationIntegration
Reservation Price- Bargaining Reservation Price- Bargaining ZoneZone
AssessmentsAssessments No Agreement- Buyer & Seller?No Agreement- Buyer & Seller? Issues- Importance?Issues- Importance?
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Negotiation StrategiesNegotiation Strategies1)1) Build Trust/Share InformationBuild Trust/Share Information
2)2) Ask QuestionsAsk Questions
3)3) Multiple OffersMultiple Offers
4)4) Mutually Beneficial Trade-OffsMutually Beneficial Trade-Offs