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GE-EM: ENTREPRENEURIAL MIND

CHAPTER 6: Enterprise Entry Strategy

Various approaches (Business Strategies) in getting into business:


1. STARTING BUSINESS FROM SCRATCH
This is the most common means of entry into business, where the idea is initiated and developed
by the entrepreneur himself.
A. The advantages of this strategy are as follows:

• Meet personal goals


• Policies and procedures are formulated according to personal desire.
• Flexibility in products, services, equipment, location, size, etc.
• Personnel are chosen and trained by himself.
• Lawsuits or legal claims are less likely as there is no previous owner
B. The disadvantages of this strategy are as follows:

• Extensive time and energy are required to study the business idea.
• Difficult to attract customers to a new product, service or company.
• Uncertain market demand
• It will take a while to reach profitability from the time investment is made.
• Hidden costs of getting started
• Existing entrepreneurs can undercut prices to prevent new business entry.
• New businesses may not have the credit record required to obtain financing from banks
and other formal sources.

2. TAKING OVER FAMILY BUSINESS


The new entrepreneur may belong to a family of entrepreneurs and thus may have a ready
business to inherit and take over.
A. The advantages of this strategy are as follows:

• There is existing business knowhow especially if the entrepreneur has been involved in
the family business in some capacity.
• Business guidance from the family is available.
• Market has been established.
• Little or no capital is needed unless the entrepreneur plans for expansion or improvement.
• There is existing knowledge about the competition.
• It is easy to obtain additional financing if needed due to the company’s track record.
B. The disadvantages of this strategy are as follows:

• Parents or other family members may not be completely relinquishing control of the
business, thus giving the new owner only partial autonomy.
• It might be difficult to introduce changes in an already established business.
• The new owner may have to make do with existing facilities.
• The entrepreneur may need to compromise or sacrifice his own goals to accommodate
those of the family.
3. BUYING AN EXISTING BUSINESS
For entrepreneurs who do not have a family business to take over but do not want to build one
from scratch, an option is to buy an existing enterprise. For some, it is less risky than building a
business from zero.
A. The advantages of this strategy are as follows:

• Existing market demand


• Available experienced personnel
• Sources of raw materials are already established
• Equipment and facilities are available and their capabilities are known
• There is easy access to financing, provided the business had established a good track
record
• Return on investments has been realized.
• An established business usually has bargaining power with suppliers and customers.
B. The disadvantages of this strategy are as follows:

• The new entrepreneur may have to adjust his own business goals to those of the firm to
be purchased.
• Policies and procedures which he might find questionable may be difficult to change.
• There may be need to improve in inefficient layout and replace or remodel deteriorated
equipment.
• The new owner may have to deal with likely ill will from previous dealings and transactions.
• Old customers may shift patronage to another company when they find out management
has changed.

4. OBTAINING A FRANCHISE
A franchise is a form of business organization in which a firm with an established product or
service and tested business model allows another business to offer to the market its product or
service for a fee.
A. The advantages of this strategy are as follows:

• The franchisee is able to go into business even without previous experience.


• Product or service is already known in the market.
• Management systems are already in place.
• There is continuing training and guidance from the franchisor as well as advertising and
promotion support.
• Facilities and equipment have been proven to be efficient.
• There is easy access to financial assistance as well as locating sites.
• Probability of success is higher than when building a business from scratch.

B. The disadvantages of this strategy are as follows:

• Relatively higher capital investment is needed, including franchise fees and other services.
• Operating decisions must conform to established systems giving the franchisee limited
autonomy.
• The franchisee’s personal management system may not be compatible with the
established system
• Extensive records-keeping is required.
• There is danger that the franchisor may not deliver on promises in terms of guidance and
assistance.
5. RUNNING A BUSINESS FROM HOME
Many entrepreneurs have successfully operated businesses from home, thus avoiding costs and
risks associated with building a new store or factory.
Operating from home has been influenced greatly by the affordability of essential technologies
such as computers, software programs, cellular phones, and the internet. This has led to the
proliferation of home-based businesses with minimal capital. Activities which may be run from the
home include multimedia services, desktop publishing, data encoding and editing, tutorial service,
events organizing, business plan consulting, language translation service and food catering and
delivery.
A. The advantages of this strategy are as follows:

• Capital requirements are relatively low.


• It allows the entrepreneur to devote more attention to family.
• Risks are lower because there is less capital invested,
• It allows flexibility and freedom in time and administrative control.
• Individual earning potential may turn out to be greater due to time flexibility.
• It is less stressful and expensive in terms of travel and transportation.

B. The disadvantages of this strategy are as follows:

• The location of the home from where the business will be operated may not be strategic.
• Family demands may conflict with the time and attention devoted to management and
control.

-End of Chapter 6-