15-1

15-2

ChapterChapter1515

Accessing Resources For Accessing Resources For Growth From External Growth From External

SourcesSources

15-3

External PartiesExternal Parties For Business GrowthFor Business Growth

FranchisingFranchising

Joint VenturesJoint Ventures

AcquisitionAcquisition

MergerMerger

15-4

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

15-5

Franchise SystemFranchise SystemFranchise Franchise

AgreementAgreement

FranchisorFranchisor

FranchiseeFranchisee

15-6

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

15-7

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

15-8

Franchise Capital RequirementsFranchise Capital Requirements

$Franchise/Royalty FeeFranchise/Royalty Fee

$Construction CostsConstruction Costs

$Equipment PurchaseEquipment Purchase

15-9

Franchisor ProvidesFranchisor ProvidesFacility LayoutFacility Layout

Control Stock & Control Stock & InventoryInventory

Buying PowerBuying Power

Advertising/Sales Advertising/Sales Promotion- Local & Promotion- Local & NationalNational

15-10

Franchise TypesFranchise Types

1)1) DealershipDealership

2)2) Name & Image Name & Image & Method& Method

3)3) Services Services

15-11

Franchising OpportunitiesFranchising Opportunities

HealthHealthTime Saving & Time Saving & ConvenienceConvenience

Environmental Environmental ConsciousnessConsciousness

Second Baby Second Baby BoomBoom

15-12

Franchising RisksFranchising RisksUnproven vs. Proven Unproven vs. Proven FranchiseFranchise

Financial Stability Of Financial Stability Of FranchiseFranchise

Potential MarketPotential MarketProfit PotentialProfit Potential

15-13

Franchise ContractFranchise ContractFranchisor, IncFranchisor, Inc..

FranchiseeFranchisee

Branded Branded Product/ServicProduct/Servic

eePerformancPerformanc

ee

MonitoringMonitoring$$$$$$$$$$

15-14

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.

15-15

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

15-16

Joint VenturesJoint VenturesTypesTypes

Industry-UniversityIndustry-University InternationalInternational

SuccessSuccess Assessment & Assessment &

ManagementManagement SymmetrySymmetry Realistic ExpectationsRealistic Expectations TimingTiming

15-17

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

15-18

Acquisition ProcessAcquisition ProcessValuation- Valuation- SynergySynergy

Deal StructureDeal Structure

Locating Locating Candidates- Candidates- BrokerBroker

15-19

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

15-20

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?

15-21

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