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.
Sunday, February 22, 2009
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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