Unit 3

 Financing and Managing the new venture,

 Sources of capital, venture capital , angel investment,

 Record keeping, recruitment, motivating and leading teams,

financial controls. Marketing and sales controls.

 Ecommerce and Entrepreneurship, Internet advertising.

 New venture Expansion Strategies and Issues, Features and

evaluation of joint ventures, acquisitions, merges, franchising

Financing and Managing the new venture
 New ventures need financing.
 Without sufficient funding, many brilliant ideas have met
stumbling blocks and come to a sad end despite holding great
potential.
 this topic intends to shed some light on start-up costs, and
alternative funding sources available to finance new start-ups
Financing and Managing the new venture

• Estimating your start-up costs will help you answer this question.
• Start-up costs are costs incurred in setting up a new venture.
• It may vary depending on the industry and the type of business
Nine categories of Financing needed in new ventures
1. Security Deposits
 Lease deposits and utility deposits are common forms of security
deposits. If you are renting a building for your new venture, you will be
required to place a lease deposit with the landlord (usually amounting to
two months rent).
 On the contrary, if you purchase the building instead, at least 10 percent
of its price is required as a down payment for the purchase.
 In addition, utility service providers (electricity, water, telephone and so
forth) also require you to put up deposits before service is connected
2. Machinery and Equipment
 Depending on the type of business, the list of equipment required may
vary.
 Computers, cash registers, fax machines and manufacturing machineries
are some of the equipment a new company may need to invest in.
3. Office Space
 Regardless of whether a property is leased or purchased,
renovations may still be needed.
 You might need to build walls, add doors, build windows, add
cubicles, do paint jobs and so forth. In addition, you need to furnish
the office space with at least desks, chairs, cabinets, shelves and so
on.
 Obviously, all these do not come free. Estimates for renovation,
furnitures and fixtures can be obtained from the respective
contractors and retailers to help determine the associated costs.
4. Inventory
 Inventories can consist of raw materials required for production or
finished products that you will buy and resell to customers.
 Having inventory in hand is needed to assist businesses to keep up
with orders.
 Estimates of this cost can be obtained from the suppliers of these
items.
5. Licenses, Fees and Permits
 Starting a new establishment involves name registration, applying
for business licence, health permit and so forth.
 In India, new business registrations will cost from 6999 to 36000
depends on its capital investment.
 On the other hand, fees and permits varies according to the type of
business.
6. Professional Fees
 When starting off a new business, most entrepreneurs would seek
the services or advice of professionals. For example, legal help will
be roped in for advice on legal aspects of setting up a business.
 Consultants are hired to facilitate the setting up of their business
operations or to conduct market research to determine the viability
of their business idea.
 These expenses must also be taken into consideration.
7. Advertising Expenses
 People must be informed about a new start-up. This can be
achieved through proper advertising programme.
 Realistic cost estimates must be made based on the advertising
programme, the frequency, the screening timing, and the media
used.
8. Working Capital
 It usually takes some time before a business venture can establish a
reasonably good customer base.
 During this time, the income flow is not sufficient to cover the
operational cost such as paying wages.
 Therefore, working capital is needed to serve as a cash reserve to
pay for operational expenses until the income flow improves and is
able to cover business expenses. The working capital amount should
be able to cover at least 3 to 6 months of expenses.
9. Unanticipated Expenses
 It is not possible to predict the future accurately.
 Therefore, new start ups need to have a cash reservoir for
unanticipated expenses that may arise during business
operations.
 Experts suggest that it would be good to have an allocation of
approximately 10 to 30 percent of total cost for unplanned
expenses.
Sources of capital
Debt Financing
Debt financing is financing that must be paid back with interest. It is stated
as a liability in a company’s balance sheet.
1.Bank Loans
 The commercial banking system is always relied upon as a source of
credit for small businesses. Short-term loan such as commercial loans
and line of credit, and longer term loans such as instalment loans are but
some of the products available for business funding.
 When giving out loans, banks tend to rely upon provisions for instance,
whether there is a market for the business, the value of the
collateral, the credit record of the applicant, the ability of the business
to repay the loan, the knowledge and capability of the business owner or
manager, and of course the macro factors such as the general economic
situation of the country
2. Government Financing Programmes
 The government has a variety of financing programmes for
small businesses. The range of financial assistance rendered
aims to help SMEs improve their workforce, develop
products or technology, promote their product or services
and restructure their debts.
3. Finance Companies
 Commercial finance companies are an alternative source of
debt financing when loan applications of new ventures are
rejected by commercial banks. Finance companies are
primarily interested in financing high risk business ventures
and tend to charge higher interest rates as compared to
commercial banks.
4. Other Sources of Debt Financing
 There are several other options for debt financing which are not
very popular. However, they may also be considered in times of
need. For example, there are asset based lenders who are willing
to provide loans to entrepreneurs with a condition that idle assets
such as inventory or accounts receivables to be pledged as
collaterals.
 Trade credit is another option with which entrepreneurs can
extend their credit in the form of delayed payment. Entrepreneurs
can also turn to insurance companies, stock brokerage
houses, or credit unions for loans.
Equity Financing
Equity financing is obtained through investment made by investors
in exchange for ownership. Unlike debt financing, it does not
have to be paid back with interest. Instead, investors receive
dividends based on the company’s performance. Equity capital is
also referred to as risk capital because the investors bear the risk
of losing their investment if the business fails
1.Personal savings
 Personal savings is a common form of equity financing and is
usually the first place entrepreneurs look for funding. In fact,
most investors and lenders would expect to see
entrepreneurs devote some of their own money to the
business before investing theirs.
2. Private Investors
Friends and family members are often more than willing to come
forward to provide financial assistance. However, it is important to
take note that failed business ventures may strain these relationships.
It is always better to settle the details up front, create a written
contract, and prepare a payment schedule that should go well with
both parties.
3. Angel investors
Angels are another form of private investors. These wealthy
individuals back up emerging entrepreneurial ventures with their
own money and harbour hopes of earning high profits when the
ventures become successful. The only challenge is finding them.
Here, networks of resourceful contacts play an important role.
3.Partners
Forming partnerships allow accumulation of additional resources.
Entrepreneurs who come together as partners will pledge to jointly
contribute to their venture in terms of funding, knowledge or
activities and share the risks and rewards of running a business.
There are active partners and sleeping partners. two types of
partners
(i) Active partners are dynamically involved in managing the
business and have unlimited liability, meaning that their
personal assets are subject to attachment and liquidation to pay
for the business debts.
(ii) Sleeping partners (also known as silent partners) contribute
capital for a business but relinquish any management
responsibility, and unlike active partners, sleeping partners
shares of losses are limited to the amount of their invested
capital.
4. Venture Capital Firms
Venture capital firms are companies that invest money in small
businesses operating in particular industries, in which they are
familiar with and have high growth and profit potentials.
Venture capital firms also look for business with competent
management and competitive edge. In return, they expect a
significant ownership interest in the business, which is typically 20 to
40 percent of a company.
5. Public Stock Sales
A company can also raise capital by selling shares of its stock to the
public. Stock sales can be public (stocks sold to everyone through the
stock market) or private (stocks sold to specific individuals). Going
public paves the path for large amount of capital. However, the
founder must be prepared to accept dilution of ownership and loss of
control.
Other Methods
Below are the other sources of funding.
(a) Factoring
In most cases, a company’s cash is trapped in the form of accounts
receivable-credit extended to customers for purchases made.
These are assets as the money will be received in the future.
Factoring involves the selling of account receivables at a lower price
than the face value of the account.
(b) Leasing
Purchasing assets such as equipment or machinery are expensive and
most new start-ups may not have the necessary funds to do so.
Therefore, new start-ups can resort to leasing these assets at the initial
stages to reduce the need for additional funding. In analogy, this is
similar to finding a house to live in. If you cannot afford to purchase a
house, you can rent one instead.
(c) Credit cards
Small businesses also rely on credit cards to finance their business. It
is becoming a popular alternative as credit card companies are
usually not concerned about how you spend your money, as long as
the bills are settled.
Angel Investors
An angel investor is an individual who provides capital for a business
start-up, in exchange for convertible debt or ownership equity. The
capital provided by Angel Investors may be a one-time investment, or it
may fund money during initial stage to support and carry the company
through its early stages.
Advantages of Angel Investors
1. Availability of Funding - Angel Investors bear high risks and
provide funding to new avenues. They invest their funds, unlike others.
One can get loans from angel investors when banks and other financial
institutions are not ready to offer a loan.
2. Flexibility - Banks and financial institutions are very strict about the
criteria that the companies have to meet to obtain a loan. But Angel
Investors are more flexible
3. Expertise and Contacts- Apart from providing funds, angel
investors also provides business expertise and contacts for a startup
firm.
4. Better Success Rate- The firms which got funding from angel
investors have higher survival rates, faster growth rates as compared
with others.
Disadvantages of Angel Investors
1. Investor Expectations - Angels take more risk while
investing money and they expect high returns on their
investments. They expect profits around ten times of their initial
investment.
2. Loss of Control - After the investment in a business, angel
investors almost become part-owners of a business. They have
some control over the business, and they have their influence
on the strategic decisions. So the entrepreneur will feel that
there is a loss of control over the business.
3. Limited Funds - After the initial investment in the
business, the angel investor will not fund again until the
company shows strong profitability.

Angel Investors in India

There are many angel investors in the country at present. A
few active angel investors are Ratan Tata, Sunil Kalra, Sharad
Sharma, Rajan Anandan, Krishnan Ganesh, Meena Ganesh,
Anupam Mittal
Venture capital
Venture capital is money provided by professionals who alongside
management invest in young, rapidly growing companies that have
the potential to develop into significant economic contributors.

Venture Capitalists generally:

 Finance new and rapidly growing companies

 Purchase equity securities

 Assist in the development of new products or services

 Add value to the company through active participation.

Advantages
 It injects long term equity finance which provides a solid capital
base for future growth.
 The venture capitalist is a business partner, sharing both the risks
and rewards. Venture capitalists are rewarded by business success
and the capital gain.
 The venture capitalist is able to provide practical advice and
assistance to the company based on past experience with other
companies which were in similar situations.
 The venture capitalist also has a network of contacts in many areas
that can add value to the company.
 The venture capitalist may be capable of providing additional
rounds of funding should it be required to finance growth.
  Venture capitalists are experienced in the process of preparing a
company for an initial public offering (IPO) of its shares onto the
stock exchanges or overseas stock exchange such as NASDAQ.
Venture capital funds in India- can be categorized into
following five groups
1. Those promoted by the Central Government controlled
development finance institutions. For example:
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Ltd (IVCF)
- SIDBI Venture Capital Ltd (SVCL)
2. Those promoted by State Government controlled development
finance institutions.
For example:
- Punjab Infotech Venture Fund
- Gujarat Venture Finance Ltd (GVFL)
- Kerala Venture Capital Fund Pvt Ltd.
3. Those promoted by public banks.
For example:
- CanbankVenture Capital Fund
- SBI Capital Market Ltd.

4. Those promoted by private sector companies.

For example:
- IL&FS Trust Company Ltd
- Infinity Venture India Fund

5. Those established as an overseas venture capital fund.

For example:
-Walden International Investment Group
- HSBC Private Equity management Mauritius Ltd
Record keeping
Record keeping is important in a business for it is the only way
to inform the entrepreneur how the business is doing. In order
to analyze the ‘health’ of your business you need data!
Therefore, a systematic process of gathering data and recording
it should be set up. The following documents should be kept:
 Production records;
 Operation records such as labour, farm inputs, tools and
equipment costs;
 Cash transactions.
Importance of Record Keeping
It is important to keep records for the following reasons:
 Future reference;
 Keeping track of business transactions;
 Filing of taxes;
 Compiling final accounts.
In order to fulfil the needs identified above you will
need different sets of records. An entrepreneur should maintain
records to meet his or her business requirements.
Types of Records
The following are examples of records that can be maintained:
 Credit records
 Debtors records
 Production records
 Cash book
 Purchases records
 Stock records
 Assets records
Recruitment
Recruitment is the process of searching for prospective
employees and stimulating and encouraging for the job.” –
(Flippo EB,1980)
“Recruitment is a process to discover the sources of
manpower to meet the requirements of the staffing schedule
and to employ effective measures for attracting that manpower
in adequate numbers to facilitate effective selection of an
efficient working force.” – (Yoder D, et al 1972)
Recruitment types:
 Planned: Arises from changes in organization an retirement policy.
 Unexpected: Arises during resignations, deaths, accidents and illness.
 Anticipated: Refers to those movements in personnel which an
organization can predict by studying trends in the internal and
external environments.
Features of Recruitment:
 It is a process rather than a single act or event. positive activity to
seek out eligible persons from which suitable ones are selected.
 To locate the sources of people required to meet job requirements.
 Ability to match jobs to suitable candidates.
 A two way process between recruiter and recruited.
 A complex job that involves lots of factors like image of the
company, nature of jobs offered, organizational policies, working
conditions etc.
Methods of Recruitment
Recruitment methods are the means by which and organization attempts
to establishes contact with potential candidates, provides them necessary
information and encourages them to apply for jobs.
1. Direct Methods:
Under this method scouting, manned exhibits and waiting lists are used.
Scouting-where an company representatives may be sent to educational
and training institutions.
Manned exhibits- Where representatives sent to seminars and
conventions where they can establish their mobile offices to go to desired
centers.
Waiting lists of candidates who have indicated their interest in jobs in
person through mail over phone.
2) Indirect method
Advertisements in newspapers and journals, radio, television
used to publicize vacancies. This helps to enable the candidates
to assess their suitability so that only those possessing the
requisite qualifications will apply.
3) Third party methods
Various agencies, public employment exchanges and private
consulting firms are used to recruit personnel. In addition
friends and relations of existing staff deputation can be used.
Motivating and leading teams
When you combine the energy, knowledge, and skills of a motivated group of
people, then you and your team can accomplish anything. There are 9
powerful ways to keep the members of your team motivated and giving their
very best on the job.
1. Foster collaboration within the team
39 percent of employees don't feel that their input is appreciated. Encourage
the members of your team to fully participate by inviting their input and
suggestions on how to do things better. Ask questions, listen to their answers,
and, whenever possible, implement their solutions.
2. Avoid useless meetings
Meetings can be an incredible waste of time--the average professional wastes
3.8 hours in unproductive meetings each and every week. Create an agenda
for your meetings and distribute it in advance. Invite only the people who
really need to attend, start the meeting on time, and then end it as quickly as
you possibly can.
3. Set clear goals
In one study, 63 percent of employees reported that they wasted time at
work because they weren't aware of what work was a priority, and what
wasn't. As a leader, it's your job to work with the members of your team
to set clear goals. And once you do that, make sure everyone knows
exactly what those goals are, what their relative priority is, and what the
team's role is in reaching them.
4. Don't micromanage
No one likes a boss who is constantly looking over her shoulder and
second-guessing her every decision. In fact, 38 percent of employees in
one survey reported that they would rather take on unpleasant activities
than sit next to a micromanaging boss. Provide your people with clear
goals, and then let them figure out the best way to achieve them.
5. Pay your people what they are worth
When you set your employees' salaries, be sure that their pay is
consistent with what other companies in your industry and
geographic area are paying. Remember: 26 percent of engaged
employees say that they would leave their current job for just a 5
percent increase in pay. Don't lose great people because you're
underpaying them.
6. Provide them with a pleasant place to work
Everyone wants to work in an office environment that is clean
and stimulating, and that makes them feel good instead of bad.You
don't have to spend a lot of money to make an office a more pleasant
place to be.
7. Encourage happiness
Happy employees are enthusiastic and positive members of the team, and
their attitude is infectious. Keep an eye on whether or not your people are
happy with their work, their employer, and you. If they're not, you can
count on this unhappiness to spread.
8. Don't punish failure
We all make mistakes. It's part of being human. The key is to learn valuable
lessons from those mistakes so we don't make them again. When members
of your team make honest mistakes, don't punish them--instead, encourage
them to try again.
9. Offer opportunities for self-development
The members of your team will be more valuable to your organization, and
to themselves, when they have opportunities to learn new skills. Provide
your team with the training they need to advance in their careers and to
become knowledgeable about the latest technologies and industry news.
 Financial controls. Marketing and sales
controls
Financial, sales and marketing control techniques are used in companies to
evaluate their strategies and accordingly make the much needed alterations
to their sales goals.
To help the company grow consistently, team should get the right amount
of feedback and stay on track.
There financial, sales and marketing controlling techniques can be
implemented to grow the company.
1. Cost analysis
Business owners use cost analysis to analyse the cost of marketing
strategies and those that didn’t work. Based on that, the budget is
forecasted.
A cost analysis should have the current costs, total costs of
marketing, inventory costs, a breakdown of the return on investments
and distribution costs. After that a comparison is made between the
previous and current costs.
2. Performance levels
The performance levels of the sales team should be monitored from
time to time. Also ensure that you revise the expected performance
levels, and ensure that the sales team is informed about this well in
advance.
3. Database control
Keep a track of who has access to your database and who doesn’t.
Also make sure whether it is confidential or not. All the data should
be protected and company controlled. Personal information
shouldn’t be shared unless and until it is through the company.
4. Social media
Business accounts for social media should be owned by the company.
The email addresses, passwords, and written policies should be taken
care of as well
5. Efficiency control
Efficiency control is basically improving the efficiency of various
marketing elements like sales force, promotion, and distribution. It
majorly deals with profits earned.
6. Sales contracts
Several disputes tend to arise with sales team members. To avoid
glitches, ensure that the contracts and agreements are cross checked
well in advance with your attorney. It is better to keep things clear
rather than entering a conflict at a later stage.
7. Competitor analysis
To retain customers and welcome new ones, business owners need to
know how their services are compared to the competitors at a
regional, national, and probably international level. Knowing this,
various market segments can be looked into. It also helps in avoiding
similar mistakes made by others in a similar industry
8 Feedback
Both qualitative and quantitative feedback will give insights into
customers’ needs. Customer feedback is a marketing control used to
evaluate customers' opinions of existing products or services. An
organisation can conduct surveys and use focus groups to engage in a
feedback exercise.
9 Lead quality
Strong leads lead to strong sales. Lead generation activities should be
taken up for the right marketing methods. Finally the conversion
potential of leads can be checked.
These methods are sure to help your team and company grow and
improve simultaneously.
Ecommerce
Ecommerce, also known as electronic commerce or internet
commerce. It refers to the buying and selling of goods or services
using the internet, and the transfer of money and data to execute
these transactions.
Types of Ecommerce Models
There are four main types of ecommerce models that can describe
almost every transaction that takes place between consumers and
businesses.
1. Business to Consumer (B2C):
When a business sells a good or service to an individual consumer
(e.g.You buy a pair of shoes from an online retailer).
2. Business to Business (B2B):
When a business sells a good or service to another business
(e.g. A business sells software-as-a-service for other businesses
to use)

3. Consumer to Consumer (C2C):

When a consumer sells a good or service to another consumer
(e.g.You sell your old furniture on eBay to another consumer).

4. Consumer to Business (C2B):

When a consumer sells their own products or services to a
business or organization (e.g. An influencer offers exposure to
their online audience in exchange for a fee, or a photographer
licenses their photo for a business to use).
Examples of Ecommerce
Ecommerce can take on a variety of forms involving different
transactional relationships between businesses and consumers, as well as
different objects being exchanged as part of these transactions.
1. Retail:
The sale of a product by a business directly to a customer without any
intermediary.
2. Wholesale:
The sale of products in bulk, often to a retailer that then sells them
directly to consumers.
3. Drop shipping:
The sale of a product, which is manufactured and shipped to the
consumer by a third party.
4. Crowd funding:
The collection of money from consumers in advance of a product being
available in order to raise the startup capital necessary to bring it to
market.
5. Subscription:
The automatic recurring purchase of a product or service on a
regular basis until the subscriber chooses to cancel.
6. Physical products:
Any physical good that requires inventory to be refilled and orders to
be physically shipped to customers as sales are made.
7. Digital products:
Downloadable digital goods, templates, and courses, or media that
must be purchased for consumption or licensed for use.
8. Services:
A skill or set of skills provided in exchange for compensation. The
service provider’s time can be purchased for a fee.
Internet Advertising
Online advertising, also called online marketing or Internet advertising or
web advertising, is a form of marketing and advertising which uses the
Internet to deliver promotional marketing messages to consumers.
Advantages of internet advertising
1. Global reach
Advertising online allows to go far beyond geography.You can find customers
all over the world. All you need is well coordinated and 24/7 work of you
support team.
2. Targeting
With the help of this advertising mechanism, you can create tailored offers,
relevant to every client. It implies dividing the users into segments according
to geographic, demographic, psychographic and other criteria. Thus, you'll
increase your marketing campaign performance due to high user
engagement.
3. High brand awareness
Online presence is crucial for any brand as it contributes a lot to its
popularity. Companies greatly benefit from the buzz around their
name. When users come across the same brand more than once through
different platforms, they unconsciously consider it to be a trustworthy
one.
4. Easily measurable
Internet advertising is easy to measure if compared to traditional. For
any type of online advertising, you can find lots of special analytics tools
that enable tracking campaign performance in real time. It helps
marketers discover the most effective techniques and correct mistakes
in their strategy.
These advantages are common for all internet marketing types. Each of
them has its list of benefits and reasons to implement. Everything
depends on the industry.
Types of internet advertising
Banner advertising
The most famous online advertising form ever. Banners of different
sizes, formats, and design are placed on thematic websites for a price.
Their aim is to attract the attention of potential clients. Being
interested in the offer, users click the banner and are taken to the
website.
Search engine optimization
Its goal is to manipulate search engine results to get high rankings.
Attempting to be on the top, marketers neglect the quality of the
content simply trying to cover all the algorithms. And they get
penalties. So, it's important to create valuable and useful content for a
user.
Social media marketing
It means promoting a brand in social networks. The effectiveness of
this internet advertising type depends on your target audience. Its
great benefit lies in the fact that you can use segmentation and create
tailored offers in socials as well.
Mobile advertising
It shouldn't be an afterthought as everything is going mobile. More
users all over the world check their inboxes on the go, that's why
creating and optimizing content for it is an A-list task. To cope with
it, make sure your ad is adapted for the smallest screen resolutions
and the loading speed is high. Don't forget about eye-grabbing
banners with bright CTA buttons.
Email marketing
Email marketing remains the most profitable tool of internet
advertising as every $1 spent brings $40 ROI. It helps businesses to
generate leads, nurture prospects, increase both customer retention
and brand awareness, raise client loyalty.
Features and evaluation of joint
ventures
 Joint Venture can be described as a business arrangement, wherein
two or more independent firms come together to form a legally
independent undertaking, for a stipulated period, to fulfil a
specific purpose such as accomplishing a task, activity or project.
In other words, it is a temporary partnership, established
for a definite purpose, which may or may not uses a specific
firm name.
 For example, Maruti Ltd. of India and Suzuki Ltd. of Japan
come together to set up Maruti Suzuki India Ltd.
 The firms joining hands in a joint venture are called Co-venturers,
which can be a private company, government company or foreign
company. The co-venturers come to a contractual agreement for
carrying out an economic activity, which has shared ownership
and control. They contribute capital, pooling the financial,
physical, intellectual and managerial resources, participating in the
operations and sharing the risks and returns in the predetermined
ratio.
Salient Features of Joint Venture
1. Agreement: Two or more firms come to an agreement,
to undertake a business, for a definite purpose and are bound by it.
2. Joint Control: There exist a joint control of the co-venturers over
business assets, operations, administration and even the venture.
3. Pooling of resources and expertise: Firms pool their
resources like capital, manpower, technical know-how, and expertise,
which helps in large-scale production.
4. Sharing of profit and loss: The co-venturers agree to share the
profits and losses of the business in an agreed ratio. The computation
of the profit and loss is usually done at the end of the venture,
however, when it continues for the long duration, the profit and loss
is calculated annually.
5. Access to advanced technology: By entering into joint
venture firms get access to various techniques of production,
marketing and doing business, which decreases the overall cost and
also improves quality.
6. Dissolution: Once the term or purpose of the joint venture is
complete, the agreement comes to an end, and the accounts of the
coventurers, are settled, as and when it is dissolved.
Objectives of Joint Venture
 To enter foreign market and even new or emerging market.
 To reduce the risk factor for heavy investment.
 To make optimum utilisation of resources.
 To gain economies of scale.
 To achieve synergy.
 Joint ventures are primarily formed for construction of dams
and roads, film production, buying and selling of goods etc
New Venture Expansion – Strategies
and Issues
A firm for example goes in for following type of growth
strategy:
 Expansion
 Forward Integration
 Backward Integration
 Merger
 Acquisition
 Amalgamation
Expansion:
Expanding the scale of business in terms of increasing it by 10% or
doubling it etc. It is also called as increasing operation of the
business. This is undertaken only when there is unexploited demand
for the same product the company is producing or the market is
likely to grow or some innovative usage for the same product has
been found.
Integration:
Integration stands for associating or starting a complementary
business in addition to existing business. This could be done in the
form of backward and forward Integration. This is undertaken when
the firm has an additional resource that could be ploughed back in
the business
 Backward Integration: When a firm takes up the business towards
the raw material processing, it is called backward integration. For
example a shoe manufacturing firm going in for leather processing as
well.
 Forward Integration: When a firm takes up a step further towards
the consumer in the complimentary business it is called forward
integration. For example a garment manufacturing firm going in for
chain of retail outlets.
Amalgamation: When two firms join in to form a new entity altogether
separate from their existing entity. Amalgamation is undertaken to combine
the strength of the two firms.
Acquisition:
When one firm buys out the another firm, the process is called
acquisition. Recently, Compaq the computer hardware firm is bought
over by Hewlett Packard ltd., computer peripheral firm. In this case, the
buying firm adds the competencies of the firm bought to its business
operation.
Merger:
Merger is on the similar lines as amalgamation though it is not
same. In case of amalgamation, both the firms lose their identity
while in case of merger one firm merges into another. Generally, the
smaller or the merging firm loses its identity.
Points to be noted
 Each growth strategy has it own negative and positive
aspects. Therefore, entrepreneurs need to plan and select the
most appropriate one for their enterprise. This need not be an
impulsive decision or a decision based on the
“demonstrationeffect” i.e. imitating other enterprises.
 It is also need to be seen whether the business environment
supports the ambition of the entrepreneur. For example for
acquisition, there needs to be a firm available at the purchasable
price.
 Market forecast is a very important factor in planning out the
growth strategy. In a shrinking market, growth strategy could be a
defeating exercise. Hence, in planning out growth strategy
entrepreneurs should seek to meet some advantages or profit
margins.
 Last but not the least, growth should be integrated to the original
line of business. A growth that is unplanned and tangential to
original line of business is like tumor that is not good for the
health of the enterprise
Franchising
Franchising is simply a method for expanding a business and
distributing goods and services through a licensing
relationship. In franchising, franchisors (a person or company
that grants the license to a third party for the conducting of a
business under their marks) not only specify the products and
services that will be offered by the franchisees (a person or
company who is granted the license to do business under the
trademark and trade name by the franchisor), but also provide
them with an operating system, brand and support.
 Business Format Franchising
In a business format franchise relationship the franchisor provides to
the franchisee not just its trade name, products and services, but an
entire system for operating the business. The franchisee generally
receives site selection and development support, operating manuals,
training, brand standards, quality control, a marketing strategy and
business advisory support from the franchisor
 Traditional or Product Distribution
In a traditional franchise, the focus is not on the system of doing
business, but mainly on the products manufactured or supplied by
the franchisor to the franchisee. In most, but not in all situations, the
manufactured products generally need pre- and post-sale service as
found in the automobile industry.
Advantages and Disadvantages of Franchising
Advantages to Franchisors
 Firstly, franchising is a great way to expand a business without incurring
additional costs on expansion. This is because all expenses of selling are
borne by the franchise.
 This further also helps in building a brand name, increasing goodwill
and reaching more customers.
Disadvantages for Franchisors
 The most basic disadvantage is that the franchise does not possess direct
control over the sale of its products. As a result, its own goodwill can
suffer if the franchisor does not maintain quality standards.
 Furthermore, the franchisee may even leak the franchisor’s secrets to
rivals. Franchising also involves ongoing costs of providing maintenance,
assistance, and training on the franchisor.
Advantages to Franchisees
 A franchise can use franchising to start a business on a pre-
established brand name of the franchisor. As a result, the
franchise can predict his success and reduce risks of failure.
 Furthermore, the franchise also does not need to spend
money on training and assistance because the franchisor
provides this.
 Another advantage is that sometimes a franchisee may get
exclusive rights to sell the franchisor’s products within an
area.
 Franchisees will get to know business techniques and trade
secrets of brands.
Disadvantages for Franchisees
 First of all, no franchise has complete control over his
business. He always has to adhere to policies and conditions
of the franchisor.
 Another disadvantage is that he always has to pay
some royalty to the franchisor on a routine basis. In some
cases, he may even have to share his profits with the
franchisor.