From time to time in these posts, I will be presenting links to cases of successful new business start-ups and the resources to help you as an entrepreneur to focus your thinking and assist you to turn your dream into a reality.
Solar energy has been around for years now. But getting a solar business started and making money has been another issue.
Recently the Commonwealth Club sponsored as talk by Dr. Richard Swanson entitled Solar Cells at the Cusp.
Wednesday, November 25, 2009
Monday, November 2, 2009
Do your due deligence before you buy into a franchise
Franchising is an attractive option for many who feel the desire to become independent entrepreneurial business owners. If you are interested in franchises, you can check out Franchising at Allbusiness.com
But before you do, read the following.
It is important that you do your due diligence before you invest.
Due diligence, according to Investorwords.com is
Franchising is a business model that can be very profitable for the entrepreneur who comes up with a unique, innovative, and compelling "value proposition" A value proposition is a clear statement of the tangible results that a customer can expect to receive from using your products or services. An effective value proposition is as specific as you can make it.
The value in a franchise is the business model that is created and implemented to bring the value proposition to life.
A business model is not the product or the value statement itself. The business model is how you turn your proposition into reality. The business model is really what goes into your business plan.
The business plan covers:
1. The definition of the need for your product/service in the marketplace and the size/location of the market for your solution to the need;
2. The organizational structure you will create to produce, manage and deliver your solution to the target market, including the legal, managerial, financial,production, and distribution systems;
3. The financial implications of the above are outlined and projected in the financial plan. This includes the start-up expenses, the revenue projects, operating costs, and the cash flow needs to sustain the organization and bring it to a break-even point.
Many "would be entrepreneurs" are overly optimistic about revenue and over estimate these. At the same time they are equally over optimistic about their expenses and grossly underestimate these. This is where most failures happens. Under-capitalization and faulty market research lead the neonate entrepreneur down an unmarked trail to bankruptcy.
A franchise is a business model that has been tested, or at least should have been tested, before it is offered to the public. It takes the value proposition and turns it into a business that is sustainable, at least at the initial stage of implementation. It is no different from a successful start-up in this regard.
Where a franchise differs is in the next step, scaling the business up.
A traditional business start-up will expand to the response it receives from the market -- customers. Expansion is generally driven by consumer demand for the product or service and financed through internal funds (profits) or debt based on realistic projections of sales and secured by company assets.
A franchise differs in scaling up their operations. A franchise is a license to use the founder's intellectual property -- a trademark or Brand name, and business processes in return for a licensing fee, royalty payments and a contract. The contract guarantees the franchisee a license to use the Brand and grants the exclusive rights to represent the Brand in a defined territory using the franchiser's intellectual property in the contractual defined manner.
For the franchiser, this is a quick way to capture new markets by using other people's money -- the investor/franchisee's investment --to scale-up the brand in the market place. For the franchisee, it is a way to get into the market quickly with an "established" value proposition and business model.
But there are no "quick" fixes without risk. There is risk in buying into a franchise.
There is the risk to franchiser that his franchisees will fail as business owners, default on their royalty payments, tarnish the brand name by poor management or bad customer relations, etc.
The risks to the franchisee is that franchiser will not follow through with the training and supervision promised to help establish the franchise locally; the franchiser becomes over-extended and fails to provide the logistical support guaranteed in the contact; the franchisee's contractual obligations prevent him/her from adapting to the changes in the local competitive environment. These are just some of the problems that can arise.
Take the time to do the due diligence before you invest in a franchise. Even SBA backing of your loan application is no guarantee you will succeed.
If you do decide to invest, stay on top of the business, monitor your franchiser businesses, and do your due diligence. The value of your business investment is intimately tied to the success of the franchiser and the Brand name.
No brand is exempted from failure.
Even Mcdonald's can fail
But before you do, read the following.
It is important that you do your due diligence before you invest.
Due diligence, according to Investorwords.com is
The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.
Franchising is a business model that can be very profitable for the entrepreneur who comes up with a unique, innovative, and compelling "value proposition" A value proposition is a clear statement of the tangible results that a customer can expect to receive from using your products or services. An effective value proposition is as specific as you can make it.
The value in a franchise is the business model that is created and implemented to bring the value proposition to life.
A business model is not the product or the value statement itself. The business model is how you turn your proposition into reality. The business model is really what goes into your business plan.
The business plan covers:
1. The definition of the need for your product/service in the marketplace and the size/location of the market for your solution to the need;
2. The organizational structure you will create to produce, manage and deliver your solution to the target market, including the legal, managerial, financial,production, and distribution systems;
3. The financial implications of the above are outlined and projected in the financial plan. This includes the start-up expenses, the revenue projects, operating costs, and the cash flow needs to sustain the organization and bring it to a break-even point.
Many "would be entrepreneurs" are overly optimistic about revenue and over estimate these. At the same time they are equally over optimistic about their expenses and grossly underestimate these. This is where most failures happens. Under-capitalization and faulty market research lead the neonate entrepreneur down an unmarked trail to bankruptcy.
A franchise is a business model that has been tested, or at least should have been tested, before it is offered to the public. It takes the value proposition and turns it into a business that is sustainable, at least at the initial stage of implementation. It is no different from a successful start-up in this regard.
Where a franchise differs is in the next step, scaling the business up.
A traditional business start-up will expand to the response it receives from the market -- customers. Expansion is generally driven by consumer demand for the product or service and financed through internal funds (profits) or debt based on realistic projections of sales and secured by company assets.
A franchise differs in scaling up their operations. A franchise is a license to use the founder's intellectual property -- a trademark or Brand name, and business processes in return for a licensing fee, royalty payments and a contract. The contract guarantees the franchisee a license to use the Brand and grants the exclusive rights to represent the Brand in a defined territory using the franchiser's intellectual property in the contractual defined manner.
For the franchiser, this is a quick way to capture new markets by using other people's money -- the investor/franchisee's investment --to scale-up the brand in the market place. For the franchisee, it is a way to get into the market quickly with an "established" value proposition and business model.
But there are no "quick" fixes without risk. There is risk in buying into a franchise.
There is the risk to franchiser that his franchisees will fail as business owners, default on their royalty payments, tarnish the brand name by poor management or bad customer relations, etc.
The risks to the franchisee is that franchiser will not follow through with the training and supervision promised to help establish the franchise locally; the franchiser becomes over-extended and fails to provide the logistical support guaranteed in the contact; the franchisee's contractual obligations prevent him/her from adapting to the changes in the local competitive environment. These are just some of the problems that can arise.
Take the time to do the due diligence before you invest in a franchise. Even SBA backing of your loan application is no guarantee you will succeed.
If you do decide to invest, stay on top of the business, monitor your franchiser businesses, and do your due diligence. The value of your business investment is intimately tied to the success of the franchiser and the Brand name.
No brand is exempted from failure.
Even Mcdonald's can fail
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