United States is very business friendly and safe and hence a great place to begin your business and build capital.  Sooner or later when you get big enough and gain enough market shares in the US, you can set your sight on the international market.  Look at Google and Yahoo and it attempts to be a global company.

All the things which make us a very successful country are the things that the international community needs in order to develop.  Not only exporting our goods but also our ideas of the free market, the rule of law and protection of individual and minority rights should be exported.

There are a host of developing countries that have an appetite for American goods and businesses.  BRIC countries of Brazil, Russia, India and China have been growing at high economic rate. Those are opportunities that should not be missed.  Doing the environmental scanning and market research one can be establish its products there.  Look at how mobile phones have taken over the world.

The difficulty of entering a foreign market is the corruption, entrenched interests and the poor safeguard for individual rights against the politically connected.  I would love to market my goods and services to India.  But, in order for a business to succeed there you need the political connection and pay off the right people.  You also worry if an entrenched interest would just take over your idea by force if my idea is shown to be profitable.  It is very questionable if the Indian government would protect my business rights.  Justice is rarely served in the world and that’s why United States is far ahead and will be for years to come.

Dell is the poster child for just in time inventory system as the customer goes to the website customizes its computer and the computer is made to order.  This allows Dell to keep its inventory low.  Have in JIT inventory system allows you to cater to the needs of the customer versus having to coax the customer to buy a model sitting in your shop.  The key benefits of JIT are low inventory and wastage, High quality production and higher customer responsiveness.

The disadvantage of JIT system is that you are very dependent on your suppliers.  You need a very good relationship with supplier’s in-order to pull this off.  Suppliers have to be reliable.  The supplier depends on the manufacturer, the manufacturer depends on the supplier and the customer depends on both. If a layoff or strike occurs one company may not produce as much product and this can affect the next company in the chain.   If there is a sudden rise in cost of raw materials then it would have been advantageous to have the final product sitting on your shelf or warehouse.

Overall JIT is the new tool in town.  Some of the companies that utilize it and have reduced costs are Toyota, McDonalds and Dell.  For a new entrepreneur it should be something they should think about in building an advantage over your competitors.

Environmental scan is usually a basic answer to some of these questions you ask yourself and your organization1.

How do you expect the demand for your type of product/service to change in the future? Why?
What are the trends that will affect demand? Consider demographic, economic, regulatory, and technological changes as well as global business trends that may affect demand?
What trends will affect the way you conduct your business?
How do economic conditions affect the demand for your type of product/service?
Competition
Who are your strongest competitors? For each one, describe their product/service, image, typical customer, pricing, marketing, and how they differentiate themselves. What do they do best? What is their weakness?
Market Segments
For each of your market segments, describe what a typical customer is like, using the following descriptors.
Demographic (relevant factors such as age, gender, educational level, ethnicity, income level)
Geographic (where they live)
Psychographic (lifestyle and attitudes)
Buying considerations (primary reasons customers purchase your product/service, such as benefits, price, convenience, service, and status)
What other market segments might be attractive for your business?

Reference:

1) Fastrac Growth Venture. Take charge of your business. Kauffman foundation of Kansas city. http://www.entrepreneurship.org/uploadedfiles/Documents/Environmental_Scanning_Worksheet.pdf

Starting from scratch presents some distinct disadvantages. They include the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow. You have to do that all without a track record or reputation to go on.

In most cases, buying an existing business is less risky than starting from scratch. When you buy a business, you take over an operation that’s already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the business. And you don’t have to reinvent the wheel–setting up new procedures, systems and policies–since a successful formula for running the business has already been put in place.

On the downside, buying a business is often more costly than starting from scratch. However, it’s easier to get financing to buy an existing business than to start a new one. Bankers and investors generally feel more comfortable dealing with a business that already has a proven track record. In addition, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable. Buying a business is not a sure winner. If you’re not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods.

There are two ways to buy a business they are either buying the business stock of the company or buying the assets off the company.

In a stock sale, the buyer purchases the outstanding stock issue by the selling corporation – or in the case of an LLC, the outstanding membership interests. If you buy the stock of the corporation, those liabilities become your liabilities. You can get a “hold harmless” agreement from the seller that indemnifies you against such undeclared liabilities. But it’s up to you to tell the creditors about this clause and to try and get the seller to honor the clause. That can cost valuable time and money as you may have to pursue the issue in court. Seller’s shareholders will pay taxes on the appreciation in their shares. Sellers will usually prefer stock sales due to the advantageous tax position as well as the assumption of liabilities (creating a clean break for the seller’s shareholders).

When buying a company’s assets, you can buy intangible assets, such as the name of the firm, customer lists, patents, trademarks and contracts. Importantly, you can opt to not buy certain assets that you don’t want. When purchasing the assets of a business, there is an implicit tax advantage to the buyer. That’s because they can “mark up” their newly acquired assets to fair market values and start depreciating them. This can reduce corporate taxes. On the downside, an asset acquisition can be very expensive. The asset-by-asset purchasing process is complicated and also opens the possibility that the seller may raise the price of desirable assets to off-set losses from undesirable ones. Typically the selling company will distribute the sale proceeds to its shareholders via a dividend. With the exception of a pass through entity, the selling company will pay taxes on the asset sale, and the shareholders will pay taxes on the dividend.

Most sellers of a business prefer selling stock because that form of business sale gives them tax-favored capital gains treatment. When possible, many business buyers prefer to purchase the assets of the business instead of purchasing the stock. This form of business sale minimizes the risks of contingent liabilities.

The direct monetary loss associated with fraud is the cost of the fraudulent activity itself, including the money taken, inventory stolen, or other asset loss due to the fraud.  The indirect costs include the legal representation for the company against the perpetrator in civil actions.

According to Robert Cardell¹ Donald Cressey (well known criminologist) created the Fraud Triangle in which each leg of the triangle represents a different component of what causes a white collar criminal to commit the crime. The three sides of the triangle are 1) Rationalization; 2) Perceived Opportunities; and 3) Social Pressures facing the individual.  The last leg, Perceived Opportunities, can be managed by the organization quite effectively.

There are five methods of fraud detection: external audits, internal audits, fraud training, hotlines, and surprise audits.  According to Robert Cardell in the March 2007 edition of the Nebraska Lawyer magazine the three most effective method of fraud prevention is the hotline, surprise edition and fraud education.

The hotline is generally the least expensive option of fraud detection.  An anonymous reporting system could include an anonymous email account, a drop-box outside the office door, a mail slot in the office door, a fillable form on the intra-office website or a number of other methods which employers could use to encourage the anonymous reporting of fraud.

Surprise audits can be of great use to a smaller company.  Such an audit could be limited in scope and thus be very cost effective. An audit could be limited to a time period, certain type of inventory, a susceptible account, or any other limiting factor. Surprise audits can be particularly beneficial if there is a suspected fraud regarding a single division or individual within the company.

The third way in which companies can prevent fraud is through employee education on the topic of fraud, fraud awareness, or ethics. If company management is not able to review every transaction, which most cannot, then the next best thing is having other employees who are vigilant to fraud and fraud symptoms.  Employers can provide employees with fraud awareness or ethics training in many ways. Employees could be allowed to watch a video of corporate rules regarding accounting for expenses, attend a presentation from management or accounting on proper documentation procedures, monthly emails from management on firm policies and procedures, or reminders on message boards in the employee lunchroom. The overall costs for implementing such steps are small as well when compared to the costs of fraud.

According to Robert Cardell each of the three steps of establishing a hotline, surprise audits and employee education can decrease an employees perceived opportunities.  Thus a small business can manage at-least one of the component of the fraud triangle.

Reference:

Here is the link to the ACFE report: www.acfe.com/documents/2006-rttn.pdf.

1) Cardell, Robert.  The  three steps to a fraud prevention in the workplace.  The Nebraska Lawyer March 2007 pages 16-19.

Other Links:

http://phoenix.gov/safebiz/sbfraudexcerpt.pdf

So in a frachisee-frachisor agreement another individual has to buy the right to run the store under the name of the corporation for a limited time and pay certain fees and gets to keep the profits after paying a percentage to the profits to the corporation.  The big corporation gets to sell somebody the right to run their store or own their brand name for a certain time, gets a certain percentage of the profits and charges management fees and other fees to the franchisor.

The advantage to the big corporation that it gets start up capital from the franchisor, motivated management, and reduced risk by shifting some of the liabilities over to the franchisor and gets a chance to grow at the expense of the franchisor.  The advantage to the franchisor (or a nascent entrepreneur) is that it gets a proven business model, low chances of failure (return on investment), established customer base, free marketing and advertising, and free training of staff.

In my opinion the key in a franchisee-franchisor agreement is the time limit of the contract and ownership of land/building.  If the big corporation is shrewd they can really tighten the noose on the franchisor if they are very profitable.  The renewed contract signed for another limited period of time will almost always have increased charges which will take a bigger chunk out of the profits of the owner.  If the owner has the lease they can increase the rent.  Thus the big corporation can force out an owner if they really want by increasing their fees and rent.  The owner who owns the land and the building has the real bargaining power because they can always they can always threaten to sell the building and the land.  Also if your contract has a longer time period then you basically delay the renegotiation to higher fees.

The failure rate for franchisees is lower than for independent businesses is because it is operating a already successful business model.  It has the benefit of getting the help and the experience of a successful corporation.  The owner is motivated to make a profit so they drive their employees to work hard.  The location that has the best chances to be profitable is picked because the big corporation has the expertise and market research capabilities to do that.

I do not know why anyone would prefer to be a manager of a company owned store? Most likely because they do not have the capital and are risk averse individuals.  They may also like the steady paycheck, chance to move up the company ladder and the ability to walk away with ease via transfer.  As a company manager you don’t get to realize the profits from all your hardwork because you just get a steady paycheck.

Motivation is definitely important to starting your own business.  You need to be actively engaged, always thinking and getting ready to take the next steps.   I am always thinking about new business strategies and new ideas, but most of the time it just stays there in my head.  I do not take the next step to take that idea into fruition.  What I need to do is to actually write down my business ideas and then list the steps that it would need to take it to fruition.  Writing out the steps in detail and establishing specific timelines and goals would be important.  I need to start getting into a habit of doing that process of writing down my ideas and the specific goals with timelines that would lead that idea into fruition.

Balancing family and time management is the next difficult obstacle to establish your business.  I have a lovely wife and one year old daughter and it is difficult to find time for anything.  You need to find that right balance between pursuing your entrepreneurial goals versus creating time for your family life.  In the end it is all about the family and one should not try to forget that.  The business you are in is to provide a better life for your family.  So the key for me is to constantly assess once a month whether I am spending enough time with my family.  Maybe I need to do a self assessment and ask my wife and assess both her verbal and non-verbal cues.  Getting involved in business strategy but estranging your family is definitely not the way to go.

Capital to start a business is another obstacle to moving forward in your business goals.  How much risk do you want to take?  Is it worth it?  Am I going to come out on top, break even or take a loss?  That usually puts me in a conundrum.  I need a find a way to a do risk analysis to see how if the business venture I am thinking about would not lose me too much money.  Precisely. why I am in this masters program is to learn those techniques and get that knowledge.  Knowledge is power and more I gain puts me in a better position to make those risk assessment decisions.

thankyou,

manoj