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.
Showing posts with label innovation. Show all posts
Showing posts with label innovation. Show all posts
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
Wednesday, May 13, 2009
How do you spot a fake venture capitalist on the Internet?
Recently someone asked me, "How do you spot a fake venture capitalist?
Apparently, she was concerned by the recent financial scandals and what she could do to avoid being taken. Margaret has a business idea which she has turned into a business plan (BP). She explained, "I have been shopping it around to ALL the VCs on the internet."
She had met a number of Venture Capitalists (VC), or persons she thought were VCs on the internet. They were from the USA, Europe AND Latin America.
She told me, "The US VC's seemed real and had money; but the others ... Well, they seemed fake."
I asked her what she meant by that. She said that the Europeans and Latin Americans (she is Hispanic), she had spoken to seem to be just interested in getting her BP and then trying to sell it to a bank or someone else for a fee.
Others were "Consultants who wanted to charge her a fee just to look at the BP. None of them had any real money to invest."
She asked, "How can I tell? I seem to be waste my time and I'm afraid I going to make a mistake. What can I do?"
I told her the following:
"My experience with the start-ups and start-up funding is that the VC often come in much later than the Business Plan (BP) stage. They are looking for a going concern that has proof of concept, intellectual property protection, a basic corporate structure and systems in place, and some key human capital in place. VC will do a deal for a piece of the action and an active role in the future development of the business. VCs will be there for the 'long term (3 to 5 years)'. They will also own 50% - 80% of the business."
"There are deal makers who may claim or allow you to think that they are authentic VCs. But these are middle men who will shop around your business plan to investors (Angels, and others) for a fee. Their fee is based on successfully matching you with an investor.This is what you will be buying from them."
"Deal makers can be useful in opening doors, but you should not expect more from them than they can deliver. Deal makers invest their special knowledge of the small investor network. Deal makers are not there for the long term."
"Yes, there are the Consultants who are there to earn a fee for their advice. Consultants invest their intellectual and experiential capital in your business plan. They can be a valuable resource to help you identify the strengths and weaknesses in your Business Plan and your marketing strategy for the plan. Again don't expect them to get the funding for you. It is your BP, not theirs."
I then asked her:
"Do you want to spend days, months, or years searching for just the right investor? If so, that is your choice. But if you want to take your dream and turn it into reality, you are going to need help."
"That help comes in many forms and to succeed as a business you will have to learn what help you need, where to look for it, and how to use it to your advantage."
"You have been focusing too much on your idea and not on the job of selling your idea. VCs are only one part ofa complex investor market made up of many different parts."
"What you need to learn is management. Management is the most difficult lesson an innovator like you, hoping to become an entrepreneur, can learn."
Lesson:
Once you decide to turn your idea into a business, you must change your orientation from innovator (the creator of the idea) to manager(the one who guides and nurture the idea through the development process).
Apparently, she was concerned by the recent financial scandals and what she could do to avoid being taken. Margaret has a business idea which she has turned into a business plan (BP). She explained, "I have been shopping it around to ALL the VCs on the internet."
She had met a number of Venture Capitalists (VC), or persons she thought were VCs on the internet. They were from the USA, Europe AND Latin America.
She told me, "The US VC's seemed real and had money; but the others ... Well, they seemed fake."
I asked her what she meant by that. She said that the Europeans and Latin Americans (she is Hispanic), she had spoken to seem to be just interested in getting her BP and then trying to sell it to a bank or someone else for a fee.
Others were "Consultants who wanted to charge her a fee just to look at the BP. None of them had any real money to invest."
She asked, "How can I tell? I seem to be waste my time and I'm afraid I going to make a mistake. What can I do?"
I told her the following:
"My experience with the start-ups and start-up funding is that the VC often come in much later than the Business Plan (BP) stage. They are looking for a going concern that has proof of concept, intellectual property protection, a basic corporate structure and systems in place, and some key human capital in place. VC will do a deal for a piece of the action and an active role in the future development of the business. VCs will be there for the 'long term (3 to 5 years)'. They will also own 50% - 80% of the business."
"There are deal makers who may claim or allow you to think that they are authentic VCs. But these are middle men who will shop around your business plan to investors (Angels, and others) for a fee. Their fee is based on successfully matching you with an investor.This is what you will be buying from them."
"Deal makers can be useful in opening doors, but you should not expect more from them than they can deliver. Deal makers invest their special knowledge of the small investor network. Deal makers are not there for the long term."
"Yes, there are the Consultants who are there to earn a fee for their advice. Consultants invest their intellectual and experiential capital in your business plan. They can be a valuable resource to help you identify the strengths and weaknesses in your Business Plan and your marketing strategy for the plan. Again don't expect them to get the funding for you. It is your BP, not theirs."
I then asked her:
"Do you want to spend days, months, or years searching for just the right investor? If so, that is your choice. But if you want to take your dream and turn it into reality, you are going to need help."
"That help comes in many forms and to succeed as a business you will have to learn what help you need, where to look for it, and how to use it to your advantage."
"You have been focusing too much on your idea and not on the job of selling your idea. VCs are only one part ofa complex investor market made up of many different parts."
"What you need to learn is management. Management is the most difficult lesson an innovator like you, hoping to become an entrepreneur, can learn."
Lesson:
Once you decide to turn your idea into a business, you must change your orientation from innovator (the creator of the idea) to manager(the one who guides and nurture the idea through the development process).
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