As the number of small breweries in America and the American population's taste for varying beer styles continues to grow, foreign breweries have become more and more involved in American beer commerce. Of course, giants like Guinness and Heineken have been a mainstay here for decades, but lately more and more small breweries from Belgium, Germany and even Japan have been introduced and well received in the American brewing scene.
The same cannot be said for the flip-side of the coin. My travels in Europe have proven to me that only the Budweisers and Millers have made it to the other side of the Atlantic. Here, in the storied, historical beer cultures of Europe, they are typically not well received. Many of my European counterparts have become forever jaded against American beer due to the bland taste demonstrated by its macro-breweries.
If only those Europeans could taste the recent explosion of flavors of American craft brew! In the true entrepreneurial spirit, America has become a melting pot of domestic and international flavors, and shrewd, experimental brewers have combined and added to these styles, creating truly American adaptations of old recipes. Could there be a market in Europe or elsewhere for exciting, American craft brew?
First, a few problems. Take Germany for example. This country clearly loves it's beer--events like Oktoberfest center around the delicious beverage and very high percentages of the population drinks in large quantities. Clearly a market, right? Perhaps not. An American micro-brew would have to travel a long distance to be exported to Germany, and many preservatives would be added, reducing flavor and potentially harming taste, and thus, overall business. Second, building a satellite brewery in Germany or selling it in German bars would be tough--until recently Germany beer purity law, the "Reinheitsgebot," prohibited selling or producing any beer in the country that was not made with a very strict bill of ingredients. Even though this law has been since abolished, many proud Germans still adhere to this practice.
Any entrepreneur interested in international commerce would have to be very careful to weigh the pros, cons, and expenses of such a venture. Personally, I believe that it is only a matter of time before delicious America brews peak the interest of international beer drinkers and suppliers. The creativity of brewers here has exceeded anything on the international scale and the question is simply thus; who will be the first to capture the international market--and how will they do it?
Sunday, March 8, 2009
Just in Time Inventory Management; Pros and Cons
JIT, or "Just in Time" inventory management is not for everyone. Consumer sales fluctuate and most customers don't like waiting for their product to be assembled after they have purchased it. Without reading into this strange type of inventory system, it would seem that no one would want to have to deal with a manufacturer operating under this system. But the practice is gaining efficiency, and the idea is becoming more and more widespread.
If a manufacturing company produces products that are then purchased by another manufacturing company, then JIT may be the right fit. If demand is predictable, than you can regulate supply and implement a JIT system.
JIT was developed to reduce inventory. No one likes to have residual inventory laying around that no one wants to buy (take the Carland's example of Chrysler before Iaccoca). With increased automation, companies are learning how to sync production scheduling with demand to eliminate unwanted, un-purchased parts and assemblies. The downside to the JIT system is perhaps a longer wait time, but the upsides are less inventory and increased profit margin.
In order to implement a JIT system, a manufacturer needs dependable source or supply (the firms from which the raw parts come from) and punctual lead times (shipping, transportation of supply sources). A manufacturer will aslo need a detailed bill of materials to streamline production schedules and lead times. For large manufacturers, these interlacing schedules can be extremely difficult to handle and a computer program (expensive) will have to be implemented. Small businesses may consider shying away from JIT due to the inherent cost of the system.
Another downside of the system is the fragility of it all. What if a truck full of supplies encounters a winter storm? Will the entire production line be slowed down or even halted? Time and money will have to be set aside for contracting with multiple redundant suppliers so that the line is not stalled by faulty source of supply and delayed lead times.
With any efficient, automated system, the return on investment is normally pretty high and costs can be lowered in the long run. But it is a complicated business and a great deal of planning must go into the JIT system to ensure that your purchasers are kept happy and employees are kept busy.
If a manufacturing company produces products that are then purchased by another manufacturing company, then JIT may be the right fit. If demand is predictable, than you can regulate supply and implement a JIT system.
JIT was developed to reduce inventory. No one likes to have residual inventory laying around that no one wants to buy (take the Carland's example of Chrysler before Iaccoca). With increased automation, companies are learning how to sync production scheduling with demand to eliminate unwanted, un-purchased parts and assemblies. The downside to the JIT system is perhaps a longer wait time, but the upsides are less inventory and increased profit margin.
In order to implement a JIT system, a manufacturer needs dependable source or supply (the firms from which the raw parts come from) and punctual lead times (shipping, transportation of supply sources). A manufacturer will aslo need a detailed bill of materials to streamline production schedules and lead times. For large manufacturers, these interlacing schedules can be extremely difficult to handle and a computer program (expensive) will have to be implemented. Small businesses may consider shying away from JIT due to the inherent cost of the system.
Another downside of the system is the fragility of it all. What if a truck full of supplies encounters a winter storm? Will the entire production line be slowed down or even halted? Time and money will have to be set aside for contracting with multiple redundant suppliers so that the line is not stalled by faulty source of supply and delayed lead times.
With any efficient, automated system, the return on investment is normally pretty high and costs can be lowered in the long run. But it is a complicated business and a great deal of planning must go into the JIT system to ensure that your purchasers are kept happy and employees are kept busy.
Types of Credit
Credit is always a risky business. Think about it--pay just a little bit, and you get the whole thing up front! Fortunately for business, most of us are honest, punctual people--and for those who are not, there are clearly consequences.
In business today, there are three types of credit which can be used in varying ways by varying types and sizes of businesses. For small businesses, an open account form of sales credit may be the best route for companies to take in the world of credit.
Open accounts are simple accounts based on individual purchases. Credit reviews are not necessary, though always recommended, and the terms of payment are largely customizable. In essence, the buyer will receive a discount for early payment (2% if paid within 10 days) and will be held to a final due date (30 days). These terms are typically worded like "2/10 net 30." Benefits of this credit form is the ease to which it can be monitored in a business, and its terms encourage customers to receive the discounts. Problems can occur if customers pay enough to receive discounts but do not pay the balance within the due date. Businesses must have a game plan to deal with latent customers and stand firm by it--whether punishment may be simply a stern warning or something more serious. Discounts can also be a serious drain on gross margins--and businesses must ensure that this potential loss of profit will become a problem in the future. However, if payment is received quicker thanks to the discounts, it very well may be worth it.
Whereas small businesses may be just fine with their open accounts, larger businesses may wish to increase sales by offering more extended forms of credit. Revolving accounts allow customers to pay percentages of the total sale or minimum payments (10% or $25.00, for example) for a period of time defined by the business (generally multiple months). This helps break up large sales, making it easier for customers to afford the item in question from paycheck to paycheck. Revolving accounts may work wonders for sales (especially if profit can be made from the interest on these accounts), but small businesses should shy away from the subsequent large investment of time and money in developing a formal credit policy and hiring a competent accounting/credit department. Contracts must be signed and enforced, interest must be charged for delinquents, and collections will have to be made one way or the other.
The last type of credit, the installment account, is generally used for large purchases and centers around the use of the signed contract. The contract (reviewed and approved by an attorney), spells our percentages for down payments, completion payments, security agreements (collateral), and even financing charges. These contracts can run from months to years, and contracts imply that court action can be taken should customers default on their contracts. Again, this credit form requires collection and credit departments and contracts should never be taken lightly--always use an attorney. Like revolving accounts, interest can make these accounts profitable given sufficient volume. Those who do not have the volume or sales large enough to warrant installment accounts should steer clear.
In business today, there are three types of credit which can be used in varying ways by varying types and sizes of businesses. For small businesses, an open account form of sales credit may be the best route for companies to take in the world of credit.
Open accounts are simple accounts based on individual purchases. Credit reviews are not necessary, though always recommended, and the terms of payment are largely customizable. In essence, the buyer will receive a discount for early payment (2% if paid within 10 days) and will be held to a final due date (30 days). These terms are typically worded like "2/10 net 30." Benefits of this credit form is the ease to which it can be monitored in a business, and its terms encourage customers to receive the discounts. Problems can occur if customers pay enough to receive discounts but do not pay the balance within the due date. Businesses must have a game plan to deal with latent customers and stand firm by it--whether punishment may be simply a stern warning or something more serious. Discounts can also be a serious drain on gross margins--and businesses must ensure that this potential loss of profit will become a problem in the future. However, if payment is received quicker thanks to the discounts, it very well may be worth it.
Whereas small businesses may be just fine with their open accounts, larger businesses may wish to increase sales by offering more extended forms of credit. Revolving accounts allow customers to pay percentages of the total sale or minimum payments (10% or $25.00, for example) for a period of time defined by the business (generally multiple months). This helps break up large sales, making it easier for customers to afford the item in question from paycheck to paycheck. Revolving accounts may work wonders for sales (especially if profit can be made from the interest on these accounts), but small businesses should shy away from the subsequent large investment of time and money in developing a formal credit policy and hiring a competent accounting/credit department. Contracts must be signed and enforced, interest must be charged for delinquents, and collections will have to be made one way or the other.
The last type of credit, the installment account, is generally used for large purchases and centers around the use of the signed contract. The contract (reviewed and approved by an attorney), spells our percentages for down payments, completion payments, security agreements (collateral), and even financing charges. These contracts can run from months to years, and contracts imply that court action can be taken should customers default on their contracts. Again, this credit form requires collection and credit departments and contracts should never be taken lightly--always use an attorney. Like revolving accounts, interest can make these accounts profitable given sufficient volume. Those who do not have the volume or sales large enough to warrant installment accounts should steer clear.
Tuesday, March 3, 2009
Fraud: A Bigger Problem than We Think?
If the Carlands' assertion that 40% of new venture failures may result from fraud is anywhere near correct, then we as entrepreneurs need to take a long, hard look at our business ethics, our internal controls, and our entire business plan before taking the plunge.
When I first glanced over the chapter on fraud, I compared it to the brewing business. I suppose that drinking a little straight off the tap can be construed as fraud, but what other problems could there be? I trust my business partner--we'll figure it out, right?
As I read on, I came to realize that the possibility for fraud may impact a small brewery much more often then the companies involved in the fraud cases seen on the news, like Enron, etc. What struck me and my business plan was the most common fraud case; an accounting clerk who handles everything related to finances. Neither I or my business partner understand accounting--someone would have to be hired, and the chance of the two of us simply trusting that person with finances would be great. In my opinion, what was just outlined here makes up the biggest reasons that fraud impacts the small business over the larger company by exponential amounts; too much trust, too little control.
Fraud can occur anywhere by anyone, and it is (unfortunately) very important to constantly monitor the jobs of your employees (and yourself) to make sure that the work environment does not begin to induce an environment of fraud. Entrepreneurs need to wear all the hats--ensuring that no one individual has all the keys to a potential fraud without having to collude with others. In a society where even the honest employee can fall down the "slippery slope of fraud," simply trusting others with important finances, solitary work shifts, purchasing decisions and others is naive and potentially damaging.
Technology is making tracking finances and theft easier by the day. Robust inventory/purchasing/sales systems can be purchased inexpensively and will transform a "fudgy" business environment into one of exact numbers and easily tracked processes. Besides helping a business function more efficiently, these are easy ways for owners to manage their employees' day to day habits. Controlling computer access through passwords and heirarchical levels not only secures the network, but establishes a perception in employees that their fraud may be tracked, cutting down on the possibility of ever committing fraud.
Perhaps most importantly, new hires and existing employees must know that the business owners do their jobs with integrity and care about the success of the company, not simply tax write-offs and beach houses on the company dime. A good ethical environment has a trickly down effect and will establish good morals throughout the company.
If businesses work hard to keep internal controls in place, to be wary of who they trust and how much power to give employees, and promote a healthy, ethical workplace, fraud will virtually disappear. Even in the beer business, where to taps are forever tempting, good habits will foster good businesses, and good businesses will create more success for all involved.
When I first glanced over the chapter on fraud, I compared it to the brewing business. I suppose that drinking a little straight off the tap can be construed as fraud, but what other problems could there be? I trust my business partner--we'll figure it out, right?
As I read on, I came to realize that the possibility for fraud may impact a small brewery much more often then the companies involved in the fraud cases seen on the news, like Enron, etc. What struck me and my business plan was the most common fraud case; an accounting clerk who handles everything related to finances. Neither I or my business partner understand accounting--someone would have to be hired, and the chance of the two of us simply trusting that person with finances would be great. In my opinion, what was just outlined here makes up the biggest reasons that fraud impacts the small business over the larger company by exponential amounts; too much trust, too little control.
Fraud can occur anywhere by anyone, and it is (unfortunately) very important to constantly monitor the jobs of your employees (and yourself) to make sure that the work environment does not begin to induce an environment of fraud. Entrepreneurs need to wear all the hats--ensuring that no one individual has all the keys to a potential fraud without having to collude with others. In a society where even the honest employee can fall down the "slippery slope of fraud," simply trusting others with important finances, solitary work shifts, purchasing decisions and others is naive and potentially damaging.
Technology is making tracking finances and theft easier by the day. Robust inventory/purchasing/sales systems can be purchased inexpensively and will transform a "fudgy" business environment into one of exact numbers and easily tracked processes. Besides helping a business function more efficiently, these are easy ways for owners to manage their employees' day to day habits. Controlling computer access through passwords and heirarchical levels not only secures the network, but establishes a perception in employees that their fraud may be tracked, cutting down on the possibility of ever committing fraud.
Perhaps most importantly, new hires and existing employees must know that the business owners do their jobs with integrity and care about the success of the company, not simply tax write-offs and beach houses on the company dime. A good ethical environment has a trickly down effect and will establish good morals throughout the company.
If businesses work hard to keep internal controls in place, to be wary of who they trust and how much power to give employees, and promote a healthy, ethical workplace, fraud will virtually disappear. Even in the beer business, where to taps are forever tempting, good habits will foster good businesses, and good businesses will create more success for all involved.
Sunday, February 22, 2009
"Environmental Scanning;" A Thing of the Past?
In their series of textbooks on entrepreneurial ventures, Jim and Joanne Carland refer to "environmental scanning" as a strategy by which entrepreneurs can visualize the competitive environment around them and therefore make a decision or build a strategy to better start or maintain a successful business venture. In chapter four of "Entrepreneurial Growth," the Carlands interestingly refute the "old strategic principles of environmental scanning," asserting that "entrepreneurs don't engage in the traditional environmental scanning...the pot is boiling too fast."
The University of North Carolina's James Morrison seems to suggest that the term is a bit more mulit-dimensional: "We all do informal environmental scanning. However, continuous scanning is required if decision makers are to understand, anticipate, and respond to the threats and opportunities posed by changes in the external environment."
Why the sudden departure from a time-tested entrepreneurial strategy? Let me offer an argument.
Traditional environment scanning for starting a brewery (for example) may work like this: I would travel around town keeping track of all the various alcohol distribution points in the area (bars, restaurants, grocery stores, etc.) and then find as much information on how all of these businesses interact with local competitors (other local breweries, beverage companies, macro-breweries, etc.) Then I would make an informed, forward thinking strategic decision based on my findings.
The internet has changed everything. Because the Internet is more or less a town of its own, complete with malls, shops, plently of people and plently of products but with ever-changing rules, tastes, dimensions and competitors, I cannot simply scan this "mega-town" every once in a while--like a traditional entrepreneur would scan a physical land area. As Mr. Morrison suggests, "continuous scanning" of both the physical and "e" worlds are a must for survival in the modern business environment.
But I would go one step further and argue that even continuous scanning is impossible for any entrepreneur looking to start and grow a venture. Where would one find the time to continuously scan the Internet for potential threats, competitors and room for new ideas? Instead, as the Carlands suggest, it may be better to use the Internet less for environmental scanning and more as a jump-off point for knowledge. Even in today's world--knowledge is still power, and the more an entrepreneur is able to obtain, the better.
Entrepeneurs need to use the Internet as a tool to learn everything their is to learn about their trade--methods, business practices, general information. In a way, more learning stimulates more ideas and better strategies, and thus takes the place of traditional scanning in a more complicated world.
Modern scanning practices can still be very valuable--if not for entrepreneurs then for management teams in established businesses. Things like search engine optimization, social/business networking memberships, establishing e-commerce divisions and internet advertising can all be construed as strategies resulting from continuous scanning of the Internet's new and ever-changing business infrastructure.
The University of North Carolina's James Morrison seems to suggest that the term is a bit more mulit-dimensional: "We all do informal environmental scanning. However, continuous scanning is required if decision makers are to understand, anticipate, and respond to the threats and opportunities posed by changes in the external environment."
Why the sudden departure from a time-tested entrepreneurial strategy? Let me offer an argument.
Traditional environment scanning for starting a brewery (for example) may work like this: I would travel around town keeping track of all the various alcohol distribution points in the area (bars, restaurants, grocery stores, etc.) and then find as much information on how all of these businesses interact with local competitors (other local breweries, beverage companies, macro-breweries, etc.) Then I would make an informed, forward thinking strategic decision based on my findings.
The internet has changed everything. Because the Internet is more or less a town of its own, complete with malls, shops, plently of people and plently of products but with ever-changing rules, tastes, dimensions and competitors, I cannot simply scan this "mega-town" every once in a while--like a traditional entrepreneur would scan a physical land area. As Mr. Morrison suggests, "continuous scanning" of both the physical and "e" worlds are a must for survival in the modern business environment.
But I would go one step further and argue that even continuous scanning is impossible for any entrepreneur looking to start and grow a venture. Where would one find the time to continuously scan the Internet for potential threats, competitors and room for new ideas? Instead, as the Carlands suggest, it may be better to use the Internet less for environmental scanning and more as a jump-off point for knowledge. Even in today's world--knowledge is still power, and the more an entrepreneur is able to obtain, the better.
Entrepeneurs need to use the Internet as a tool to learn everything their is to learn about their trade--methods, business practices, general information. In a way, more learning stimulates more ideas and better strategies, and thus takes the place of traditional scanning in a more complicated world.
Modern scanning practices can still be very valuable--if not for entrepreneurs then for management teams in established businesses. Things like search engine optimization, social/business networking memberships, establishing e-commerce divisions and internet advertising can all be construed as strategies resulting from continuous scanning of the Internet's new and ever-changing business infrastructure.
Wednesday, February 11, 2009
"Goodwill" Hunting.
What is this goodwill and where can I get me some of it?
In the previous blog I talked a bit about the issue of goodwill and the hidden advantages (or disadvantages) that go along with it. In general, goodwill is a competitive advantage which cannot simply be quoted in the bill of sale the way office furniture (for example) can be. Goodwill varies from sale to sale, from industry to industry, but I would like to assert that in most cases there is nothing tangible about goodwill and that it is only transferable through one medium: employees.
Some may purchase a business for it's name. But names and logos change over time and a name may lose it's competitive advantage through market changes or if the reputation behind the name diminishes. The same applies to a customer base. Customers are fickle and many times not all that loyal. Again, this competitive advantage may not last long--especially if loyal customers hear of a change of ownership and operation.
The Carlands start to hit on what I'm getting at when they speak of a "distinctive competency" as a definition of goodwill. Let's pretend that I wanted to buy the assets of a micro-brewery in Asheville. Though I may gain the name and the customer base, that customer base will turn on me in a second if the quality of the beer falters. How do I assure that doesn't happen? Yes, I could keep the systems in tact and take great notes of the recipes, but if everything could be automated, why would every brewery need a master brewer?
Like a great chef--employees like a brewer ensure that the intagible qualities of the product meet his (and the public's) standards. Without this "distinctive competency" the entire brand would fail.
In other words, goodwill is transferable only through the people that make the business run: commitement to customer service, support, excellence, integrity--is there a dollar amount for this? This is why I support the going concern method of business purchasing for breweries. Though this may be a risky and troublesome method as far as liens and judgements are concerned, it is important to preserve as much of a successful operation (including its employees) as possible. Before embarking on a journey of entrepreneurial growth through purchasing a business --it's important not to rock the boat first!
In the previous blog I talked a bit about the issue of goodwill and the hidden advantages (or disadvantages) that go along with it. In general, goodwill is a competitive advantage which cannot simply be quoted in the bill of sale the way office furniture (for example) can be. Goodwill varies from sale to sale, from industry to industry, but I would like to assert that in most cases there is nothing tangible about goodwill and that it is only transferable through one medium: employees.
Some may purchase a business for it's name. But names and logos change over time and a name may lose it's competitive advantage through market changes or if the reputation behind the name diminishes. The same applies to a customer base. Customers are fickle and many times not all that loyal. Again, this competitive advantage may not last long--especially if loyal customers hear of a change of ownership and operation.
The Carlands start to hit on what I'm getting at when they speak of a "distinctive competency" as a definition of goodwill. Let's pretend that I wanted to buy the assets of a micro-brewery in Asheville. Though I may gain the name and the customer base, that customer base will turn on me in a second if the quality of the beer falters. How do I assure that doesn't happen? Yes, I could keep the systems in tact and take great notes of the recipes, but if everything could be automated, why would every brewery need a master brewer?
Like a great chef--employees like a brewer ensure that the intagible qualities of the product meet his (and the public's) standards. Without this "distinctive competency" the entire brand would fail.
In other words, goodwill is transferable only through the people that make the business run: commitement to customer service, support, excellence, integrity--is there a dollar amount for this? This is why I support the going concern method of business purchasing for breweries. Though this may be a risky and troublesome method as far as liens and judgements are concerned, it is important to preserve as much of a successful operation (including its employees) as possible. Before embarking on a journey of entrepreneurial growth through purchasing a business --it's important not to rock the boat first!
Buying a Business or Starting One??
Trust me loyal readers, I do plan on talking a little about brewing in this "brewing4business" blog. Up until now, I've had a hard time relating things I've been thinking and talking about (franchising, etc.) to the micro-brewing industry here in North Carolina.
Most micro-breweries in North Carolina are independently owned and operated. None are franchised, though there are some restaurants with very small brewing systems in them that have been franchised small-scale throughout the Southeast. Interestingly enough, Ham's Restaurant contains a brewery at its Greenville, NC location but nowhere else. Also interesting, the Greenville Ham's beer is the best on the Eastern side of the state. Next time you're in Greenville...
All of that said, it's a fun (but not practical) thought experiment to consider what it would be like if I had the money to purchase one of these breweries.
Advantages to buying: First, this purchase would forgo the start-up phase (a very risky and failure-prone time). Second, this brewery would be known and hopefully well-established in the market area. If (as a natural entrepreneur) I was able to seize a well-known brand and combine that with a new business idea that the original owners could not or did not want to see, I could grow the business and everything would be peachy. Third, this brewery may have some tangible goodwill that a little digging could discover and turn to my advantage. More on that in another blog.
After some thought, the disadvantages to buying a brewery become disconcertingly apparent, confirming my suspicions as to why I don't see much buying of breweries in North Carolina. First, these things are incredibly expensive to purchase. Only the super-wealthy could ever afford one, even with financing. After that hurdle, there is the investigation into liens and hidden troubles that a brewery could have involved itself in. Whereas starting a new business is risky, the risk is redoubled upon purchasing an existing business. Who knows where debts and loans could pop-up?
Of course, there is more than one way to buy a business. Buying a business's assets will allay some of the risk over hidden liabilities and out-standing liens, judgments, and the like. If you cannot acquire certain assets piecemeal, a going concern purchase (where a business remains virtually the same but acquires new ownership), will help purchase a business more economically though this does not allay the risk of those hidden legal/financial/personnel troubles. I don't think either of these methods is preferable one to another. It all depends on the comfort level of the buyer and seller, the amount of planning that the buyer is willing to do, and the industry in concern (I think that a micro-brewery's method of choice is through the going concern--more on that to come as well).
This underscores the vital need for planning when purchasing any business. People may overlook it, but writing a business plan IS JUST AS IMPORTANT in a business purchase as it is in starting a new venture. The irony here is this: If you've got to do just as much planning to purchase a business then to start one--why not just be a "real" entrepreneur and start one from scratch?
Most micro-breweries in North Carolina are independently owned and operated. None are franchised, though there are some restaurants with very small brewing systems in them that have been franchised small-scale throughout the Southeast. Interestingly enough, Ham's Restaurant contains a brewery at its Greenville, NC location but nowhere else. Also interesting, the Greenville Ham's beer is the best on the Eastern side of the state. Next time you're in Greenville...
All of that said, it's a fun (but not practical) thought experiment to consider what it would be like if I had the money to purchase one of these breweries.
Advantages to buying: First, this purchase would forgo the start-up phase (a very risky and failure-prone time). Second, this brewery would be known and hopefully well-established in the market area. If (as a natural entrepreneur) I was able to seize a well-known brand and combine that with a new business idea that the original owners could not or did not want to see, I could grow the business and everything would be peachy. Third, this brewery may have some tangible goodwill that a little digging could discover and turn to my advantage. More on that in another blog.
After some thought, the disadvantages to buying a brewery become disconcertingly apparent, confirming my suspicions as to why I don't see much buying of breweries in North Carolina. First, these things are incredibly expensive to purchase. Only the super-wealthy could ever afford one, even with financing. After that hurdle, there is the investigation into liens and hidden troubles that a brewery could have involved itself in. Whereas starting a new business is risky, the risk is redoubled upon purchasing an existing business. Who knows where debts and loans could pop-up?
Of course, there is more than one way to buy a business. Buying a business's assets will allay some of the risk over hidden liabilities and out-standing liens, judgments, and the like. If you cannot acquire certain assets piecemeal, a going concern purchase (where a business remains virtually the same but acquires new ownership), will help purchase a business more economically though this does not allay the risk of those hidden legal/financial/personnel troubles. I don't think either of these methods is preferable one to another. It all depends on the comfort level of the buyer and seller, the amount of planning that the buyer is willing to do, and the industry in concern (I think that a micro-brewery's method of choice is through the going concern--more on that to come as well).
This underscores the vital need for planning when purchasing any business. People may overlook it, but writing a business plan IS JUST AS IMPORTANT in a business purchase as it is in starting a new venture. The irony here is this: If you've got to do just as much planning to purchase a business then to start one--why not just be a "real" entrepreneur and start one from scratch?
Monday, February 9, 2009
More on Franchising
Franchisors provide varying levels of support and monitoring to their franchisees. In some cases, all franchisee may receive is the name and subsequent recognition that goes with that. In other cases, franchisees are given (and are in many cases required to use) an entire infrastructure of management practices, instruction manuals, marketing materials, and other types of support.
An entrepreneur needs to examine these varying degrees of support carefully. An entrepreneur interested in simply owning a business may prefer to remain on a tight corporate leash--following corporate policy to the letter and maintaining a well-oiled company machine.
On the other other hand, an entrepreneur with a more risky disposition may enjoy the independence that comes with truly owning his or her own business (with the small caveat of having to pay some royalties and use a given name) and the freedom that a loose franchise would provide. Entrepreneurs of this type could try their own hand at branching out, growing (and LEARNING) about running an independent business through these means.
So why would an entrepreneur of the latter sort prefer a franchise to test their business savvy instead of just opening an independent business?
It all goes back to levels of entrepreneurial comfort. Franchises have historically lower failure rates and franchise entrepreneurs (as risky as the may prefer to be in a franchise environment) may still prefer not to risk the failure that is overwhelmingly prevalent in the independent world. Failure rates are lower due in part to experienced and proven marketing/operational approaches by successful and well-known national chains. Mostly, these lower rates are really due to intense screening processes by companies looking open franchises that will have capable management.
Interesting. So what happens if you survive a screening process and a national company deems you capable of owning and operating one of their businesses? Does that make you capable of owning and operating a business of your very own?
Food for thought.
An entrepreneur needs to examine these varying degrees of support carefully. An entrepreneur interested in simply owning a business may prefer to remain on a tight corporate leash--following corporate policy to the letter and maintaining a well-oiled company machine.
On the other other hand, an entrepreneur with a more risky disposition may enjoy the independence that comes with truly owning his or her own business (with the small caveat of having to pay some royalties and use a given name) and the freedom that a loose franchise would provide. Entrepreneurs of this type could try their own hand at branching out, growing (and LEARNING) about running an independent business through these means.
So why would an entrepreneur of the latter sort prefer a franchise to test their business savvy instead of just opening an independent business?
It all goes back to levels of entrepreneurial comfort. Franchises have historically lower failure rates and franchise entrepreneurs (as risky as the may prefer to be in a franchise environment) may still prefer not to risk the failure that is overwhelmingly prevalent in the independent world. Failure rates are lower due in part to experienced and proven marketing/operational approaches by successful and well-known national chains. Mostly, these lower rates are really due to intense screening processes by companies looking open franchises that will have capable management.
Interesting. So what happens if you survive a screening process and a national company deems you capable of owning and operating one of their businesses? Does that make you capable of owning and operating a business of your very own?
Food for thought.
Own a Franchise or Manage a Company Store...Any Preference?
The previous post asks a hidden question that I'd like to answer here. What is the difference between a franchisee and a company owned store within a franchise chain? The entrepreneurial spirit tends to lend itself more to the franchisee, because the national chain give a varying degree of freedom to the "owner" (as opposed to "manager") of the store. Take Wendy's for example. A franchisee store may allow it's owner to operate on a smaller staff so long as consistency doesn't suffer, increasing the bottom line and allowing more profits to go directly into the owner's pocket. Franchises can also grow and in many cases one owner can own multiple stores--allowing for even greater profits.
The downside to a franchise operation versus a company owned store is risk. Ownership demands more money, more time, and the ever-present risk of failure. It is critical that the national chain allows the owner of the franchise store the ability to adapt to local market conditions. If this is not possible, perhaps management of a company owned store is the right way to go. It could also be that an entrepreneur lacking a risk-taking bent would be very happy in the safer (though less profitable) world of company-owned store management.
The downside to a franchise operation versus a company owned store is risk. Ownership demands more money, more time, and the ever-present risk of failure. It is critical that the national chain allows the owner of the franchise store the ability to adapt to local market conditions. If this is not possible, perhaps management of a company owned store is the right way to go. It could also be that an entrepreneur lacking a risk-taking bent would be very happy in the safer (though less profitable) world of company-owned store management.
Thoughts on Franchises
I was driving down the main retail strip in my town the other day and temporary marvelled at the number of chain stores (many of which are franchises) that, despite the comings and goings of independent small businesses up and down the street, have hung around for years (if not decades).
My girlfriend's parents remembered back 30 years ago to the time that they were glad to be within walking distance of the Wendy's. Since then--the whole city has changed and grown around that Wendy's, and even though it's a giant national chain, it's funny the way how Wendy's has really become kind of a community anchor for this town and it's ever-changing business environment.
I can't tell you if that Wendy's is a true franchise or not (Wendy's both owns and franchises)--but assuming it is, the story above illustrates a few things to me. First, franchises seem to be relatively stable, although the Carland's sensibly raise questions about this common conception. Second, franchises still may be a great way to own (or at least manage) a business and many entrepreneurs may find this a suitable alternative to the world of independent, oftentimes untested business ideas.
My girlfriend's parents remembered back 30 years ago to the time that they were glad to be within walking distance of the Wendy's. Since then--the whole city has changed and grown around that Wendy's, and even though it's a giant national chain, it's funny the way how Wendy's has really become kind of a community anchor for this town and it's ever-changing business environment.
I can't tell you if that Wendy's is a true franchise or not (Wendy's both owns and franchises)--but assuming it is, the story above illustrates a few things to me. First, franchises seem to be relatively stable, although the Carland's sensibly raise questions about this common conception. Second, franchises still may be a great way to own (or at least manage) a business and many entrepreneurs may find this a suitable alternative to the world of independent, oftentimes untested business ideas.
Wednesday, February 4, 2009
An Honest Appraisal.
Welcome to the Brewing4Business Blog! I'm Will, and I'll be your gracious host for the next weeks, months and (possibly) years. I normally don't write blogs and am not very familiar with the practice, though I am eager to learn. Blogs can be so impersonal--so I'm going to begin post 1 with a personal reflection on one of my main pillars of content, entrepreneurship.
Jo Ann and Jim Carland's Catching the American Dream series reminds budding entrepreneurs like myself to establish an "honest appraisal of one's abilities." As I see it, this is the most fundamental requirements of starting a business--objectivism. An entrepreneur must be able to "see what is yet to be;" to position themselves at the crossroads of invention and market forces and turn public "wants" into public "needs." An entrepreneur must be able to self-analyze, set goals, balance idealism with realism and self-motivate in structureless environments fraught with risk. Add the current perilous economic situation to the mix, and the possibility of success becomes even hazier. Most importantly, an entrepreneur needs to be able to accept a failing road and make decisions from logical reasoning rather than emotional impulses like pride, greed, etc...
In short, objectivism is hard, nigh impossible to achieve, but an attempt at this level of consciousness is critical for success. If a mouse were to suddenly achieve the level of consciousness required to realize that he was in fact a mouse--what changes could he make in his life and what goals could he achieve? By the same token, if an entrepreneur could make an honest and objective appraisal of his psychology, upbringing and current business plan, many more doors would open up and success (or a painless and educational failure) would be a little easier to achieve.
So what's my honest self-appraisal? I want to start a business. Why? Because I like the idea of working for myself. What else? Let's dig a little deeper.
Some studies have shown that entrepreneurs are driven by a deep need for acheivement. I can see that. As a musician, the need to create a physical demonstration of my work (a CD, a live performance, etc.) is a compelling force. As a homebrewer with aspirations of starting a brewery, the achievement of a delicious beer is a tremendously rewarding thing.
I can also understand the logic of the "Locus of Control" theory, whereby enterpreneurs posess a high level of belief in their own abilities to alter their situations and destinies. I may be weak here; I love working with others and enjoying the support of other, more talented individuals. I believe that an external locus of control does not necessarily imply a defeatest attitude ("I can't control my own destiny") but rather an admittance that a reliance on friends, co-workers and family is important in life--and perhaps in business, though I doubt the Carlands would agree.
If the last two paragraphs talked about individual pshychology of the entrepreneur, the next couple dig down into outside factors which may or may not have an influence on an entrepreneur's aptitude for success. First, does parental influence have anything to do with my entrepreneurial cravings? Absolutely. As a 25 year old whose life under the parental wing is far from forgotten--I see this correlation clearly and directly. My dad started his own business. I now work for my dad, but would rather start my own business than follow in his footsteps. Some may say this is foolish--passing up guaranteed wealth for a life of great risk--all I can say is (with a shrug); "like father like son!"
Finally, I see education as a life-long benefit toward continuing on that entrepreneurial path. More so now than ever, a lack of education (be it formal or informal education) will be devastating to the aspiring entrepreneur. Even worse than a lack of education--the inability to motivate one's self to seek education, or worse still, believing that one knows it all and not realizing or admitting how much one does not really know!
Objective thinking goes well beyond the broad strokes that I've just outlined. Entrepreneurs need to honestly self-appraise multiple times daily about every business decision made, from company philosophy to purchasing to marketing to sales to hiring and so on. Don't rely on emotion, make smart decision, plan your work, and work your plan with your head up and your eyes on the prize.
Jo Ann and Jim Carland's Catching the American Dream series reminds budding entrepreneurs like myself to establish an "honest appraisal of one's abilities." As I see it, this is the most fundamental requirements of starting a business--objectivism. An entrepreneur must be able to "see what is yet to be;" to position themselves at the crossroads of invention and market forces and turn public "wants" into public "needs." An entrepreneur must be able to self-analyze, set goals, balance idealism with realism and self-motivate in structureless environments fraught with risk. Add the current perilous economic situation to the mix, and the possibility of success becomes even hazier. Most importantly, an entrepreneur needs to be able to accept a failing road and make decisions from logical reasoning rather than emotional impulses like pride, greed, etc...
In short, objectivism is hard, nigh impossible to achieve, but an attempt at this level of consciousness is critical for success. If a mouse were to suddenly achieve the level of consciousness required to realize that he was in fact a mouse--what changes could he make in his life and what goals could he achieve? By the same token, if an entrepreneur could make an honest and objective appraisal of his psychology, upbringing and current business plan, many more doors would open up and success (or a painless and educational failure) would be a little easier to achieve.
So what's my honest self-appraisal? I want to start a business. Why? Because I like the idea of working for myself. What else? Let's dig a little deeper.
Some studies have shown that entrepreneurs are driven by a deep need for acheivement. I can see that. As a musician, the need to create a physical demonstration of my work (a CD, a live performance, etc.) is a compelling force. As a homebrewer with aspirations of starting a brewery, the achievement of a delicious beer is a tremendously rewarding thing.
I can also understand the logic of the "Locus of Control" theory, whereby enterpreneurs posess a high level of belief in their own abilities to alter their situations and destinies. I may be weak here; I love working with others and enjoying the support of other, more talented individuals. I believe that an external locus of control does not necessarily imply a defeatest attitude ("I can't control my own destiny") but rather an admittance that a reliance on friends, co-workers and family is important in life--and perhaps in business, though I doubt the Carlands would agree.
If the last two paragraphs talked about individual pshychology of the entrepreneur, the next couple dig down into outside factors which may or may not have an influence on an entrepreneur's aptitude for success. First, does parental influence have anything to do with my entrepreneurial cravings? Absolutely. As a 25 year old whose life under the parental wing is far from forgotten--I see this correlation clearly and directly. My dad started his own business. I now work for my dad, but would rather start my own business than follow in his footsteps. Some may say this is foolish--passing up guaranteed wealth for a life of great risk--all I can say is (with a shrug); "like father like son!"
Finally, I see education as a life-long benefit toward continuing on that entrepreneurial path. More so now than ever, a lack of education (be it formal or informal education) will be devastating to the aspiring entrepreneur. Even worse than a lack of education--the inability to motivate one's self to seek education, or worse still, believing that one knows it all and not realizing or admitting how much one does not really know!
Objective thinking goes well beyond the broad strokes that I've just outlined. Entrepreneurs need to honestly self-appraise multiple times daily about every business decision made, from company philosophy to purchasing to marketing to sales to hiring and so on. Don't rely on emotion, make smart decision, plan your work, and work your plan with your head up and your eyes on the prize.
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