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| In this chapter we explored alternate means by which an entrepreneur can grow his or her business. Franchising was discussed as a means of new entry that can reduce the risk of downside loss for the franchisee and also as a way that an entrepreneur can expand his or her business by having others pay for the use of the business formula. For the franchisee, the advantages of franchising are that he or she enters into a business with an accepted name, product, or service; has access to managerial assistance provided by the franchisor; receives up-front support that could save the entrepreneur significant time and possibly capital; has access to extensive information about the market; and has other operating and structural controls to assist in the effective management of the business. However, there are a number of potential disadvantages, which usually center on the inability of the franchisor to provide the services, advertising, and location that were promised.
For the franchisor, the primary advantage of franchising is that he or she can expand the business quickly, using little personal capital. But the franchisor also incurs certain risks in choosing this expansion alternative. In some cases, the franchisor may find it very difficult to locate quality franchisees. Poor management, in spite of all the training and controls, can still cause individual franchise failures and these can reflect negatively on the entire franchise system. As the number of franchises increases, the ability to maintain tight controls becomes more difficult. Entrepreneurs can also achieve growth through joint ventures. The effective use of joint ventures as a strategy for expansion requires the entrepreneur to carefully appraise the situation and the potential partner(s). First, the entrepreneur needs an accurate assessment of the other party in order to best manage the new entity in light of the ensuing relationship. Second, there needs to be symmetry between the two (or more) firms in terms of "chemistry" and the combination of their resources. Third, expectations of the results of the joint venture must be reasonable. Far too often, at least one of the partners feels that a joint venture will be the cure-all for other corporate problems. Expectations of a joint venture must be realistic. Finally, the timing must be right.Another way the entrepreneur can expand the venture is by acquiring an existing business. For an entrepreneur, there are many advantages to acquiring an existing business, such as gaining access to an established image and track record, familiar location, established distribution and resource channels, and knowledgeable and skilled employees. Besides, the cost of an acquisition can be cheaper than other mechanisms for growth. However, history suggests that acquisitions have only a marginal success record. Entrepreneurs seem to be overly confident about their ability to achieve envisioned synergies, integrate organizational cultures, and retain key employees. After balancing the pros and cons of the acquisition, the entrepreneur needs to determine a fair price for the business. Mergers and leveraged buyouts are other ways that entrepreneurs can grow their businesses. An essential skill for all these alternatives is the ability of the entrepreneur to negotiate. Good negotiation involves two tasks. The first task involves determining how the benefits of the relationship are going to be distributed between the parties. The second task is exploring the mutual benefits that can be gained from the relationship. To negotiate in a way that maximizes benefits requires the entrepreneur to use information about one's own preferences and those of the other party to create an outcome that is mutually beneficial. This requires an initial assessment of oneself and the other party and the use of strategies to elicit more information during the negotiation interactions to better inform those initial assessments. To these ends, this chapter offered four important assessments an entrepreneur should make and four strategies that could be used to achieve a successful negotiation. |