Unit-3

Launching Entrepreneurial Ventures

Launching An Entrepreneurial Venture:

INTRODUCTION
Launching a new venture and becoming an entrepreneur is an exciting and challenging task.
Can you learn how to be an entrepreneur or are some people just born that way? Some have
argued that great entrepreneurs like Anita Roddick and Mohammed Yunis are simply born
with different qualities to the rest of us – and it is these qualities that explain their success as
entrepreneurs. But we know that a key human quality is the ability to change and develop
over time. This is good news for anyone who wants to become an entrepreneur because it will
require you to adapt and change with the enterprise you are founding as it develops and faces
challenges. Becoming an entrepreneur is a never-ending lesson as new challenges arise that
offer experiences inhow to do and not to do things.
Entrepreneurs learn mainly from experience, so the only real way to become an entrepreneur
is to get out there and do it. You can start from scratch and learn it all byyourself or you can
look at what others have already done and hope to profit from their experiences. The process
outlined here is taken from what we know about what others have done and the advice that
existing entrepreneurs offer to those that wish tofollow their path.
The first thing we learn from other entrepreneurs is that there are many steps to be taken to
start a new venture and attempts to make short cuts and avoid some of thesesteps can be
disastrous. You don‘t have to take these steps in the same order as we suggest below but you
will need to take them during the development of your enterprise.

What is Entrepreneurial Venture?

Entrepreneurship thrives in many different contexts. There are ‗social entrepreneurs ‘who
create value through successful exploitation of new ideas – leading to social inclusion,
regeneration or some other kind of social benefit. There are ‗creative
entrepreneurs ‘who identify, evaluate and then exploit artistic, aesthetic or design- based
opportunities.
Entrepreneurship is increasingly important in the environmental field. Entrepreneurship is
also very important for the continued development of new technology and associated product
and process innovations. Over the seven steps that make up this programme, we talk about
your particular enterprise or entrepreneurial venture as the focus for your thinking, learning,
and development. This will often referto your idea for a specific new business. However, the
term enterprise, as we have just seen, can be applied in a wider context. You might be looking
to work in a particular industry context, or aiming to launch a social enterprise. This step-by-
step approach isvalid in these contexts too.
This programme provides a wide range of advice and guidance to anyone interested ingetting
a new venture off the ground in whatever context. It aims to assist you in preparing to launch
an enterprise, with signposts to other help and support that is available.
LAUNCHING A NEW VENTURE:
STAGES AND STEPS OF THE ENTREPRENEURIAL VENTURE
The entrepreneurial process of launching a new venture can be divided into three keystages
of: Discovery; Evaluation; and Implementation. These can be further sub- divided into
seven steps as shown below
DISCOVERY
The first stage of Discovery is to identify opportunities that may form the basis of an
entrepreneurial venture. It requires creative thinking to identify issues that can benefit from
an entrepreneurial vision
This stage can be divided into two steps:
Step 1. Discovering your entrepreneurial potential - the first step is to knowmore
about your personal resources and attributes through some self- evaluation. – what
will you bring to the venture? What are your strengths and challenges? These will
affect the type of venture you choose.
Step 2. Identifying a problem and potential solution – a new venture has tosolve
a problem and meet a genuine need.
EVALUATION
By the end of first stage of Discovery, you should have selected an idea worthy of further
detailed investigation. The next stage evaluates if this all adds up to a feasible business in
two further steps:
Step 3. Evaluating the idea as a business opportunity– find out informationabout
the market need. Is the solution to this problem really wanted by enoughcustomers?
Investigate the feasibility of the proposed solution (technically, economically,
socially, legally).
Step 4. Investigating and gathering the resources – How will the
product/service get to market? How will it make money? What resources are
required?
EXPLOITATION
By the end of the second stage of Evaluation, you should have identified an opportunity that
has reasonable prospects of success, and analysed what is required to launch it. The next
stage is to make the final preparations and launch it into the market. It can be developed in
three further steps:
Step 5. Forming the enterprise to create value – set up a business entity and
protect any intellectual property. Get ready to launch the venture in a way that
minimizes risk and maximizes returns
Step 6. Implementing the entrepreneurial strategy – activate the marketing,
operating, and financial plans.
Step 7. Planning the future – look ahead and visualize where you want to go
OPPORTUNITY IDENTIFICATION
Finding a problem in the market that needs a solution in the form of a product or service.
Opportunity identification can come from a technology improvement that allows a company to
better serve its customer, or from a perceived discrepancy between what is currently available in
the market and what the customer wants. Opportunity identificationis the first stage in the
product innovation process.
SOURCES OF INNOVATIVE IDEAS:
Seven Sources of Innovation by Peter Drucker

The most effective way to compete in a changing environment is to churn out new products
and services rapidly according to the needs of the market. Innovation helps a company to
stay ahead of the pack and move into less crowded areas. No wonder all companies are
talking about innovation these days. Very often, innovation is misunderstood as invention.
Invention is creating new things. But innovation is all about taking new ideas to the market
place. History is full of examples of many companies that developed a new technology or
product but failed to take it to the market. For example, Xerox developed many of the
concepts associated with the modern day PC but failed to make a commercial proposition
out of them.

Seven Sources of Systematic Innovation

Peter Drucker refers to innovation as the effort to create purposeful focused change in an
enterprise’s economic or social potential. Innovation must begin with an analysis of
opportunities, in a systematic and organized way. The starting point in innovation is
identifying the scope for improvement with respect to customers, suppliers and internal
processes. Innovations must be market focused. Opportunities to innovate are provided by
new customer segments which are just emerging; customer segments that existing
competitors are neglecting or not serving well, new customer needs which are emerging and
new ways of producing and delivering products to customers.

1. Unexpected success or failure : Understanding the reasons for the unexpected

success or failure of a product generates opportunities to innovate. Take the case of
IBM, which wanted to sell accounting machines to banks, but discovered that it was
libraries that wanted to buy these machines. IBM’s Univac, designed for advanced
scientific work, became popular in business applications such as payroll. Unexpected
product failures can also give companies new ideas that may help them to come up with
something that the market likes.
 2. The incongruity between what actually happens and what was supposed to
happen : If things are not happening as they should, there is scope to innovate. For
example, in industries which are growing, but where the margins are falling, there is
tremendous potential for innovation. Similarly, when companies continue to work at
improving something to reduce costs but fail to do so, an innovator can look at other
options to cut costs. This is exactly how container ships emerged by focusing on the
ship’s turnaround time rather thanfuel efficiency.
3. The deficiencies in a process, that are taken for granted : If a process is inefficient
or suffers from a big gap, there is scope to innovate. Sometimes, a process that is
widely used may have certain deficiencies. An innovator, by thinking out of the box,
may come up with a new idea that removes this deficiency. Pilkington’s float glass
manufacturing process, for example, paved the way for the development of glass with
a smooth finish.
4. The changes in industry or market structure that catch everyone by surprise :
The emergence of new, fast-growing segments provides scope for innovation.
Innovators can serve the needs of these segments. The success of the small floppy
disk drive manufacturers had much to do with the emergence of new customer
segments who wanted smaller and lighter disk drives. According to Drucker, “New
opportunities rarely fit the way the industry has always approached the market,
defined it, or organized to serve it. Innovators therefore have a good chance of being
left alone for a long time.”
5. Demographic changes : Demographic changes result in new wants and new lifestyles
that call for new products. The Japanese pioneered robotics because they anticipated
the rising levels of education and the consequent shortage of blue-collared workers. In
recent years, the ageing of Japan and Europe has put pressure on governments to
control healthcare expenses. This has fuelled the rise of generic drugs. Demographic
changes provide innovation opportunities that are the most rewarding and the least
risky, as the trends are easier to predict.
6. Changes in perception : By changing the common perception of people, new needs
can be created. For example, capitalizing on people’s concern for health and fitness, a
booming industry has emerged for exercise and jogging equipment.
7. The changes brought about by new knowledge : New knowledge can be used to
develop innovative products. Innovations of this sort usually combine many sorts of
knowledge. The development of the computer, for example, was facilitated by a
combination of binary arithmetic, calculating machine, punch card, audion tube,
symbolic logic and programming. Such innovations are also risky, because there is
usually a gap between the emergence of new knowledge and its conversion into usable
technology and another gap before the product is launched in the market. Drucker has
mentioned, “Contrary to almost universal belief, new knowledge is not the most
reliable or most predictable source of successful innovations. For all the visibility,
glamour and importance of science-based innovation, it is actually the least
reliable and least predictable one.”

FINDING GAPS IN THE MARKET PLACE

Here are some simple steps to find the gap in your market:

1. Monitor Trends in Your Area of Expertise

If you are a business, keep an eye on the industry space you are operating in. Are there any
particular trends that you can tap into? For example, if your industry is moving towards a
green focus, you might develop a recycling service that connects businesses with consumers
who want to recycle their old junk. If energy costs are increasing due to new regulations, it
 would be wise of you to investigate solar power as an alternative energy source.

2. Be in Touch with Your Customers

If your company sells products and services, keep in touch with your customers via email or
phone calls. It will help you figure out what they want and how to satisfy their various needs.

3. Look at Other Industries

If you are thinking of entering a new market, then it would be wise to look at the
characteristics that other industries have developed. It will help identify the gap in your
market so that you do not waste time trying to sell a product that people do not want or need.

4. Research Your Competition

Competition is an excellent strategy for finding the gap in your markets and improving sales
figures and market share. If one company has been able to gain popularity in your industry,
then it would be wise of you to research why this is happening. It will help you find out how
to improve your product to gain more market share.

5. Find Potential Buyers

If you are a business, you must find people who want what you have to sell and avoid selling
it to people who do not need it. It is also essential that you become familiar with potential
customers' buying habits in your industry to make them more aware of your product or
service. If potential buyers are looking for the same services and products which other
companies offer, then yours must have something unique which will make potential
customers return time and time.

6. Understand Your Customers

If you are selling a product, you must understand your customers so that they are comfortable
with your company and product. For example, if they have to pay a significant sum of money

upfront for your product, this will put them off. On the other hand, if you accidentally come
across an unreliable supplier who offers poor service and inferior products to what is being
sold by other companies, it will also put potential customers off.

7. Plan Your Market Entry

It is essential to plan your market entry if you are a business. It will help you develop a way
to ensure that your product is well received by the people who want it. You will be able to
identify any pitfalls that may occur and make changes to address any problems that may
arise. You should also develop a plan which will help you start making sales and gain market
share as you continue with your business plans.
TECHNIQUES FOR GENERATING IDEAS
Idea Generation in Entrepreneurship

Entrepreneurship is being able to create and run a business. In entrepreneurship, idea

generation is one of the main factors that lead to its success. The idea thought of hereshould
be able to solve a problem.

And along with being unique, the idea should also be easy to execute. For example, let’s
suppose you feel a lot of people have a problem understanding legal jargon and legal
proceedings.

So, in this case, your entrepreneurial idea could be setting up a platform that caters toall the
legal needs of people and helps them understand it easily.

Idea Generation Process

The process may be different for different organizations and different people. But there are
three main steps in the process. It starts with the identification of the questionor the problem
we need to solve.

After which we need to come up with ideas and probable solutions. Finally, in the third
stage, we select the most suitable idea and execute it. For example, let’s suppose you are
opening up a restaurant.
So firstly, you need to identify what question you need to answer. Let’s assume you
want to decide upon a name for the restaurant. Now you will use different techniques
(brainstorming, mind mapping, etc) to come up with ideas for names.

In the last step, you will choose the most appropriate name from the different names
you came up with within the second step.

Idea Generation Techniques

Now we will see the different idea generation techniques in detail.

 Mind Mapping

It is a technique of presenting information. Here we show the links between the

different elements or the pieces of information. The links or connection is usually shown with
the help of lines and arrows. It’s a visual way of presenting the
information.

For example, let’s suppose you want a name for your new application. You will start
by writing the main topic in the center of a paper, which here is the name for your new
application.

From the center point, you will have arrows pointing out. These arrows will point to
the main things to be kept in mind while thinking of a name like guidelines,
visualization, productivity, etc.

Now from every key aspect, there will be more arrows pointing out. These arrows will
describe the key aspect in detail. Like ‘guidelines’ will talk about the name being able
to express what the application does, following the naming scheme, etc.
  Reverse Thinking

As is very clear from the name itself this technique asks us to think oppositely. Instead
of working on the problem in front of us, we work on the exact opposite of it.

For example, let us assume you want to know ‘how to increase your followers on
social media platforms. According to this technique, you will instead think of ‘how
will I not increase my followers on social media platform’.

To this question, you will get answers like, by not posting regularly, or posting low-
quality content, etc. Now you just have to reverse your answers.

So, to increase followers on a social media platform you should post high-quality
content regularly. This idea generation technique works on the concept that it’s easier
to come up with negative suggestions.

 Brainstorming

This technique is quantitative meaning that you come up with a large number of ideas.
Here a group comes up with a different probable solution to the problem.
For example, if you along with some of your colleagues are trying to come up with a
tagline for your product. And each one of you gives your ideas, then that is called
brainstorming.

 SCAMPER

The word SCAMPER is an acronym.

S -Substitute

C – Combine

A – Adapt

M – Modify

P – Put to another use

E – Eliminate

R – Reverse
Bob Eberle developed this technique. Each part of the acronym helps us think and ask
questions, which results in generating ideas.

For example, if you are a clothes manufacturing company you can think of ‘substitute’
your current material with a sustainable, eco-friendly option. You could also ‘put it to
other uses’ by recycling the waste material.

 Synectic

George M. Prince and Willian J. J. Gordon developed this technique. In this

technique, we take apart a thing and then put it back together. This helps us get a better
understanding of how things work.

 Role-Playing

In this technique, the participants take up roles to play. These roles are different from
the ones they usually play. It adds an element of fun and helps get innovative ideas.

For example, you could take up the roles of customers and discuss your expectations
and what you want from products. This could lead you to stumble upon some good
ideas.
  Storyboarding

This technique refers to the process of making storyboards to generate ideas.

Storyboards use pictures, illustrations, and other information to better present the
ideas.

For example, suppose you are working on an idea for an advertisement. You can
portray the different scenes in the form of a storyboard. This helps you in better
visualization and you can make changes accordingly.

 Brainwriting

In this technique, a group of people writes their ideas on a piece of paper. After the
designated time for writing is over the paper is given to a different person.

Now this person reads the ideas on the paper they got and adds their ideas on the
paper. This continues until everyone has put their ideas on all the papers. And
following this, there is a discussion on each idea.
  Forced Relationship

This technique helps to come up with unique ideas. Here you take two unrelated
things and imagine putting them together to see what new thing you can come up
with.

For example, take a calculator and a pencil, these are unrelated to each other. Now try
putting them together. You might get some interesting ideas like a calculator with a
touch screen and a pencil to write on it and a lot more.

 Collaboration

This technique is self-explanatory. Here you collaborate with others to come up with ideas. If
you collaborate with a diverse group of people your ideas will be more
unique.

 The 5 W’s

Who, What, Where, When, and Why are the five W’s. Answering these five W’s helps us
achieve a very holistic view of the topic under discussion. And it is an
efficient way to come up with solutions and ideas.For example, suppose you want to create a
new product or a service. You can do so by asking questions like, who would
use the product, why would people buy it, what would it do, etc
  Listening

People prove to be a very good resource when you are trying to generate ideas. Even
those who aren’t your employees and customers can be very resourceful.

So, you must always go beyond your immediate circle and invest in listening.
Socializing with people in your immediate social circle and even those beyond it can
be very effective.

 Accidental Genius

This idea generation technique believes that writing can help you come up with good
ideas. Here writing is believed to be a trigger for ideas. This technique asks you to
write freely without any editing.

So, whatever problem you are facing just start writing the answer without being
concerned about the right or wrong aspect of it.
  Visualization

In this technique, we approach the problem visually. This is because visualization

makes things easy to understand. And as a result, we can come up with ideas and
solutions easily. For example, suppose you want a new setup for your production unit.

You can have pictures taken of the current setup and work on it. Looking at the
pictures will give you a better idea. You will be able to make changes to the setup so
that it increases productivity and saves on time.

 Removing Assumptions

There are a lot of assumptions about how things work. This technique requires us to
list all the assumptions and then start removing them one by one.

These assumptions work as stimuli for us to come up with new ideas. For example,
suppose you want to open a new school with innovative features. First list down all
the assumptions you have about a school,

 There should be physical classrooms

A fixed curriculum decided beforehand

 More emphasis on theoretical knowledge

Now remove each assumption one by now. Let’s remove the need for a physical
classroom. You could open a school that has online classes or has classes outdoors. In this
way doing away with an assumption will help you explore new ideas.

Idea Generation Tools

Technology has made our work easier and continues to do the same. We can make use of
tools and technologies to generate ideas as well. Today there are many such tools available to
us.

For example, there is Pinterest, Mindmeister, Freeplane, Idea

Generator, Stormboard, Mindomo. Where Mindmeister helps you to make mind maps,
Stormboard has features like whiteboards, sticky notes, and others that make brainstorming
very efficient.

So, we will highly recommend the use of these tools for efficient and effective idea
generation.

Sources of Idea Generation

Sources of idea generation are the people and places from where you get your ideas.
Several internal and external sources help to generate ideas. Employees and the research &
development department of the company are great internal sources.

Whereas, external sources are also very helpful. These are customers, suppliers,
competitors, distribution channels, government, educational institutions, and focus
groups.

Examples of Idea Generation

Ideas are present all around us. We see a lot of big and successful companies doingwell. They
all started with an idea. For example, Airbnb was started when two designers had spare space
and hosted travelers.
With Uber it was two entrepreneurs, trying to figure out how to reduce transportationcosts.

Importance of Idea Generation

Idea generation is a very important activity, without which we would have nothing to work
on. This activity also proves to be very beneficial for all the parties involved.

The organization gets a lot of innovative ideas to work upon, the employees get to be a part
of the bigger picture. There’s an increase in creativity and a lot of effective solutions are
generated.

Idea Generation Activities

There are a lot of activities that help stimulate idea generation. These different activities are
of two types, Internal and External activities. For internal activities, there are online and
offline platforms where you can have discussions.

We can also conduct timely sessions and workshops. These activities broaden our
knowledge and with this increased understanding we can think better. Participation in events,
doing courses, and conducting competitions are external activities.

These external activities are helpful because they expose us to a lot of different people and
different ideas. This, in turn, helps us come up with ideas of our own.

Idea Generation Workshops

Workshops consist of discussions and activities of any given topic like public speaking,
watercolor painting, etc. So, when we talk about idea generation workshops, they have
activities that help stimulate our idea of generating abilities.
These workshops help improve your skills to come up with good ideas. Many
companies conduct idea generation workshops for their clients. Some of these
companies are edge+, Lighthouse, and MTI^2.

Conclusion

Ideas are the building blocks for all innovation. They are what we work on, so the first
step of starting with anything new is finding that idea. We must make use of the
different tools and techniques available to us to come up with quality ideas.

ENTREPRENEURIAL IMAGINATION AND CREATIVITY

Imagination, also called the faculty of imagining, is the creative ability to form images,
ideas, and sensations in the mind without direct input from the senses, such as seeing or
hearing. Imagination helps make knowledge applicable in solving problems and is
fundamental to integrating experience and the learning process. A basic training for
imagination is listening to storytelling (narrative), in which the exactness of the chosen words
is the fundamental factor to "evoke worlds".
Creative entrepreneurship - is the practice of setting up a business – or setting yourself up
as self-employed - in one of the creative industries. The focus of the creative entrepreneur
differs from that of the typical business entrepreneur or, indeed, the social entrepreneur in
that s/he is concerned first and foremost with the creation and exploitation of creative or
intellectual capital. Essentially, creative entrepreneurs are investors in talent – their own or
other people’s.
The most renowned creative entrepreneurs have combined creative flair with
entrepreneurial ability to build multimillion-dollar business empires.
Since the mid-20th century, commentators have observed the move towards a knowledge
economy or information society where the old rules of manufacturing- based business no
longer apply, or at very least need to be reconsidered (Machlup 1962; Drucker, 1969;
Lyotard, 1984). But the creative sector, an intrinsic part of the knowledge economy, has
received relatively little attention.
In recent years, due to significant economic growth in the sector (prior to the 2008/9
downturn), there has been a surge of interest in the creative industries, and the issue of
creative entrepreneurship has been pushed to the fore. In parallel with (and no doubt partially
motivated by) general enthusiasm from policy makers and support agencies, creative
entrepreneurship has grown as an academic discipline, Creative
entrepreneurship courses are becoming widely available, and seem increasingly
popular with students.

Specific Skills
Creative entrepreneurs need to master specific skills: an understanding of intellectual
property is essential, combined with the ability to manage cash flow, key talent and the
creative process effectively.
Howkins (2001) lists 11 rules for successful creative entrepreneurs. These rules include:
invent yourself, priorities ideas over data, be nomadic, learn endlessly and, most
importantly, Howkins goes on to observe that, despite lack of recognition from economists
and politicians, and traditional lack of support from society (although this is changing),
creative entrepreneurs tend to be bright and to value their independence above all else. The
freedom to manage their own time and abilities compensates for the unpredictable nature of
their working environment, and irregularity of their income:
―These people instinctively think for themselves, instinctively network, and
instinctively keep several balls in the air at once. They are the shock troops not only for
new ideas about our culture but for new ideas about working in it.

COMPONENTS OF CREATIVITY
Creativity is sometimes broken up into divergent thinking and convergent thinking;though
I argue that essentially the same processes are involved in both.

Divergent thinking is measured using the Torrance test of creative thinking (TTCT). TTCT
consists of both verbal and figural parts. Divergent thinking is also measured by Guilford’s
Alternate uses task in which one has to come up with as many uses aspossible for common
household items (like brick).

These creativity test results are scored keeping in mind a number of different
creativity criteria. The most common (common to all of the above) criteria are:

1. Flexibility: This captures the ability to cross boundaries and make remote associations.
This is measured by a number of different categories of ideas generated.

2. Originality: These measures how statistically different or novel the ideas are
compared to a comparison group. This is measured as a number of novel ideas
generated.

3. Fluency: This captures the ability to come up with many diverse ideas quickly. This is
measured by the total number of ideas generated.

4. Elaboration: This measures the amount of detail associated with the idea.
Elaboration has more to do with focussing on each solution/idea and developing it
further.

Convergent thinking is measured by tests like remote associations test or insight

problems. These problems are solved when you apply one of the methods below:

1. Make a unique association between parts of the problem. This looks again similar to
flexibility or how fluid is your categorisation schema enabling you to think out of the box
and not be limited by typical categories or associations.

2. Take a novel approach (and not the typical approach) to problem-solving. To me, this
again looks similar to originality.

3. See the problem from a different perspective. To me, this looks like how quickly you
can adopt multiple perspectives – the speed with which you can take alternate
perspectives and is similar to fluency.

Creativity is also defined as coming up with something that is both novel and useful. At
which point I am reminded of a quote by Oscar Wilde: “We can forgive a man for making a
useful thing as long as he does not admire it. The only excuse for making a useless thing is
that one admires it intensely. All art is quite useless." I understand Wilde to mean that art
need not be useful or fulfil the criteria of utility, but is more measured by whether it fulfils
the criterion of aesthetics or beauty. As long as one considers art as an integral part of
creativity, I think we need to make room for beautyas part of defining what is creative:
creativity = utility + beauty + novelty.

Now, to me, novelty itself can be either because the thing in purview is really new or
original or it can be familiar yet enigmatic (like Monalisa’s smile) and thus be surprising, or
novel/ captivating in that sense.

Thus the modified equation looks like: creativity = surprise + originality + beauty +utility

Taken together I argue that these criteria/strategies/definitions that are used to measure and
define creativity and solve creative problems, also hint at the underlying factor structure of
creativity.

I propose that creativity is made of four factors:

The first factor is SURPRISE: whether one produces something that continues captivating
attention, even though it becomes familiar over time. This may result froma rare and remote
association of ideas or a recombination process that brings familiar things together in an
unfamiliar/unexpected way. This is the ability to think beyond conventional boundaries or
categories, loosen up the associations and make remote associations between and within
categories. This is also related to flexibility with which you can walk across categories and
disciplines. An example might be Mona Lisa by Da Vinci or putting a urinal in an art gallery.

1. The second factor is ORIGINALITY: whether one produces something that is

really unique and novel and unheard of before. This is creativity that is not just
combinatorial but perhaps associated with transforming and transcending. As pre-
Pribram novelty is a result of new rearrangements of old ideas. If the first factor isabout
combination, this may be thought of as permutation or reordering. This is related to
originality scores. An example might be cubism by Picasso where the face/familiar
objects are rearranged, sort of.

2. The third factor is BEAUTY: whether one produces something that is appealing and
aesthetically satisfying. Beauty lies in the eyes of the beholder and is related to subjective
preferences. Identifying beauty is a fast and frugal process and as per one conception, we
find something beautiful, if we can process it easily (that is why average faces are more
beautiful- ease of processing). This is related to fluency scoresor the ease with which you
can ideate. Expressionisms by Monet et al looks beautiful because it’s easy on eyes.
 3. The fourth factor is UTILITY: whether one produces something that is useful. As
evident from the alternate uses task the utility of something is ambiguous and context-
dependent and yet measured objectively and not subjectively. Creativity is the ability to
deal with this inherent ambiguity, be comfortable with it, and look at things from multiple
simultaneous perspectives to find useful contexts in which to use/ apply it.
This is the ability to see if the solution actually solves the problem. Also the ability to
elaborate an idea and add details to it, so as to make it useful/ relevant. Here, one can
focus on one stream of thought/ idea and take it to a logical conclusion, adding
details and making it complex. The Miniature art of India, that has elaborate details, isan
example of this form, and is useful in reconstructing history.

To put in simple words, creativity is generation of new, unexpected, likeable and

useful/complex ideas/ things, etc. Creativity happens if something ‘stands out’ fromthe
crowd.

To take an analogy, in many psychological tasks, a stimulus stands out, if it is ‘surprising,

novel, rare or complex’. Similarly, a creative product stands out if it is surprising, original,
aesthetic (rarity is linked to beauty in some accounts- the rarer it is, the more beautiful/ art-
valued it is) and useful (sufficiently complex/’designed’ to be useful).

I have also earlier alluded to the Blind Variation and Selective Retention (BVSR) theory
of creativity.

As per my latest thinking, factors 1 and 2, unexpected recombination (suppressibility), and

new permutations/ transformations/ mutations (originality) lead to blind variations that lead to
novel products/ ideas. These are then selected using the lens and criterion of Beauty and
Utility, the remaining two factors. Akin to sexual selection, factor 3, or beauty or subjective
aesthetic preferences drive the selection process in this case. Akin to natural selection, factor
4, or utility or objective adaption criterion drives selection by this means.

Together the 2 factors that create variation (recombination/ mutations) and the 2 factors that
select as per subjective and objective criteria (sexual-preferences (context-invariant) based/
natural- utility/fitness (context-sensitive) based) ensure that creative products are original and
surprising, as well as beautiful and useful.

THE NATURE OF CREATIVE PROCESS

Creative Process
The creative process is the framework of creativity and experimentation that results in
something new being created. This includes ebooks, songs, podcasts, art, painting, and
anything in between.

Steps in Creative Process

While some professional creatives might make it look easy, the creative process is not linear,
or predictable. It might take days, or weeks, or months, and you might have to go back and
forth and repeat steps to get the desired outcome.

The creative process may seem like an abstract concept, but it does have a structure.We
break it down into 5 steps here.

1. Preparation
The creative process begins with preparation: gathering information and materials,
identifying sources of inspiration, and acquiring knowledge about the project or problem
at hand. The key to this step is to fully immerse oneself in the material.
This is often an internal process (thinking deeply to generate and engage with ideas) as well
as an external one (going out into the world to gather the necessary data, resources,
materials, and expertise). This step usually involves a creative brief and includes things like
researching a brand, the target audience, or gathering inspiration from other sources.

If you’re a writer, you’re reading other works in the same area. If you’re a musician, you’re
listening to other pieces of music that inspire you. The same applies to the creative class of
graphic designers and digital artists.

2. Incubation
The next step is to soak the information gathered in step 1 in the mind. As ideas slowly flow,
the work deepens and new connections are formed. This is the step wherethe “magic”
happens for most creatives. During this, you take a step back from the problem and allow
your mind to wander to let it contemplate and work the problem through.
While the conscious mind wanders, the unconscious engages in taking diverse ideas and
influences and finding new ways to bring them together. You nurture the unconscious
thought process, for example, by staying open to the ideas that come to you while you are
watching a movie or going for a walk. You open your mind to all ideas – even the crazy
ones.

3. Illumination
This is the stage where the idea, which has been incubating, assumes a definite form. Also
known as the lightbulb moment – the “Aha!” moment. This is the feeling you getwhen you
have been struggling with your thoughts and can’t figure out what is missing. The idea will
appear suddenly and comes with a feeling of certainty. When this moment hits, a person
might rush to their sketchbook or keyboard to jot it down before it escapes them.

4. Evaluation
During this stage, you consider the validity of your idea and weigh it against
alternatives. This is the hard part, where you look at all the ideas before you and
narrow it down to which ones work and which ones don’t. This is also a time of
reflection when you look back at your initial concept or problem to see if your solution
aligns with your initial vision.

This is usually the phase when client feedback comes into the mix and you, your team, and the
client weigh different options and decide what works for the problem at hand. Business
professionals might do market research to test the viability of the idea.
 During this phase, you might go back to the drawing board or you might forge on,
confident in what you’ve come up with.

5. Implementation
This is the phase where the idea you’ve been preparing and incubating sees the light of the
day. Now the final product gets produced, where things like skill, experience, knowledge,
and hours of work come into play. This is the writer’s final draft, the artist’s finished piece,
the musician’s live performance. The satisfaction of a job welldone after this stage makes
all the hours of hard work worth it.

The Innovation and Entrepreneurship

The Innovation and Entrepreneurship Group (I&E Group) is the largest of four research groups
at Imperial College Business School and is globally leading in its field. It is an interdisciplinary
team of academics, led by Professor David Gann, linking Imperial College Business School with
the faculties of Engineering, Natural Sciences and Medicine within Imperial College London, as
well with numerous external academic institutions and industrial leaders.

At the heart of the Group is the Innovation Studies Centre (ISC) funded for ten years by the
Engineering and Physical Sciences Research Council (EPSRC), to conduct research on the
innovation process, from knowledge creation to commercialization. The ISC was established in
2003 and encompasses the core research themes of the Group - Open and Distributed
Innovation,Business Model Innovation, Systems, Services and Design, and Diffusion of
Innovation. The Centre collaborates with internationally leading academic institutions in the UK
and overseas and works with world class firms such as GSK, IBM, Arup, Laing O'Rourke, CSC
and BP, disseminating its findings widely.

The I&E Group has two additional research themes, Strategic Entrepreneurship and Inclusive
Innovation, not funded by the central EPSRC grant. As well as the core research projects, the
Group has also attracted funding to establish a number of related Centres to carry out research
into association innovation and entrepreneurship subjects. Finally the Group runs an extensive
events and conference programme to disseminate the work of the Group to the widest possible
audience.

Types of innovation:

Pen and Distributed Innovation

Led by Professor Ammon Salter. The purpose of this theme is to develop new knowledge and
inform practice about open and distributed innovation. Developing and commercializing an
innovation requires the coordination and integration of knowledge from many different sources
and networks. Increasingly, innovators rely on external knowledge to complement and enrich
their own expertise.

Business Model Innovation

Led by Dr Markus Perkmann, the research explores various questions regarding such business
model innovation. What enables organizations to devise new business models and what are the
sources, and consequences, of business model innovation? Current work focuses specifically on
the low-carbon energy sector, which provides an ideal setting to investigate the ways
organizations‘ experiment with new ways of deploying energy technologies, as well as
generating and consuming energy.
Systems, Services and Design

Led by Dr Andrew Davies, this Theme examines the design, integration and operation of
complex systems, particularly in the infrastructure industries (e.g. energy, water, roads and
urban environments). Increasingly, organizations‘ are providing systems and services as 'smart'
integrated solutions to improve long-term operational performance and sustainability of
outcomes

Diffusion of Innovation:

Led by Professor Erkko Autio, Diffusion of Innovation conducts research on innovation and
technology commercialization strategies in platform and ecosystem contexts. The Theme also
undertakes research on determinants of new venture growth in technology-intensive business
sectors Strategic Entrepreneurship Led by Professor Bart Clarysse The content of this theme is
in development.

Inclusive Innovation:

Led by Professor Gerry George. The content of this theme is in development.

 INNOVATIVE METHODS

Embrace Failure
Innovation requires taking a certain level of risk. With risk, though, often comes failure, and companies
need to prepare for—and be tolerant of—that reality. Breakthroughs don’t occur when companies play it
safe.

“Unfortunately, most companies are focused on incremental innovations and approaches,” Marion says.
“Organizations that are ambidextrous and can pursue incremental and radical innovations are somewhat
rare.”

Dedicate the Right Resources

Innovation requires a range of resources, from dedicated time and funding to additional office space and
support staff depending on the scope of the project. Some companies establish innovation teams, or a
group of cross-functional employees focused on developing new products, services, or processes for the
organization.

The success of those teams are often based on whether they’re allotted the proper resources, including
the time it takes to brainstorm and build on new ideas. One of Google’s most famous management
philosophies is “20 percent time”; employees are encouraged to spend 20 percent of their time working
on projects they think would most benefit the company. The initiative has reportedly led to some of
Google’s most successful products, including Gmail and AdSense.

Expose Employees to Open Innovation

Another area Liberty Mutual is focused on is investing in early-stage companies with innovative
hardware, software, or business models that are reshaping the insurance industry.

Investing in startups is one way to encourage “open innovation,” a coined termed by Henry Chesbrough,
a professor at UC Berkeley’s Haas School of Business. Through the process of open innovation,
companies, universities, individuals, or agencies will collaborate to create a product or service. Each
partner shares the risks and rewards that come from that collaboration and gains access to internal and
external ideas.

Consider Offering Incentives

Offering incentives, such as GE’s cash prizes or Google’s bonus system, can help spur innovation.
Another option Marion suggests is offering employees some sort of equity if the product takes off. For
smaller companies with more limited resources, incentives could include offering employees a week off
to recharge, treating the team to lunch, or throwing an office party.

Train Employees in Design Thinking

Another approach companies can take to inspire innovation is utilizing design thinking.
“I think design thinking is an important skill all employees should be trained in,” Marion says.

Design thinking is a customer-centric approach to brainstorming new ideas and solving problems—and
is a key component to lean innovation. The process, popularized by global design firm IDEO, is focused
on observing end users in their natural environment to better understand customers’ needs and uncover
unique insights that could lead to new business opportunities.

PRINCIPLES OF INNOVATION

1. Look Forwards, Not Backwards

An entrepreneur must be willing to pivot when necessary to overcome any obstacle. Just because something was
successful in the past, doesn’t mean it will be in the future.

2. Failure is Learning

Most people grow up being taught that finding the correct answer is the definition of success, which creates the belief
that failure should be avoided at all costs. Innovators, however, develop a unique relationship to failure, viewing it
not as a setback but rather as a necessity for growth.

3. Set Ambitious Goals

You rarely achieve something significant by accident. You have to be trying to get there in the first place. But most
people are focused on protecting against the downside, and setting goals they are confident they will achieve.

Innovators focus on maximizing the outcome, even if it means not achieving the ultimate goal.

4. Watch What They Do, Not What They Say

When it comes to innovation, most companies start by asking their customers what they want. It sounds logical, but

it’s not. What you really need to do is observe how your customers act, find their pain points, and then test different
strategies until you find the best one.

5. Passion Really Matters

Innovation is hard and being smart is often not enough. When faced with innumerable obstacles, you need a passion

for what you are doing in order to keep going.

 6. Leverage Those Around You

When it comes to great innovators, we often think of individual people: Thomas Edison, Steve Jobs, and Elon Musk

come to mind. But if you read their stories, you know that they didn’t do it by themselves — far from it. Their
success came from their ability to leverage the talented people around them.

7. Stop Talking, Start Doing

In my experience, everyone loves the ideation part of innovation. In fact, many people assume that is the most
important step. But it’s not, because a great innovation is usually the result of a series of experiments, where each
step guides and informs the next step. Too many entrepreneurs waste valuable time trying to analyze exactly how
something will go instead of finding out for themselves.

8. Define Your Own Success

Most people want to be successful, but never take the time to figure out what that really means. Instead they rely on

society and other people’s definition of success — which is usually backwards looking and limits what is really

possible.

9. Ownership Drives Outcomes

How often have you been in a meeting to discuss something that didn’t go as planned, and the first thing the person

in charge does is explain how it’s not their fault. Someone else didn’t do their job or things happened outside their
control. While this mindset might be comforting, it gets in the way to building great products.

10. You Create the Future

Innovation is a powerful force to create the future that we want, and not just replicate the situation we currently have.

So when it comes to new technology, like Artificial Intelligence or AI, you have to be careful. If you rely on old data
and thinking, you simply replicate the past, instead of shaping a better future.

Methods to initiate Ventures

Methods to initiate ventures:

One needs both vision and pragmatism to launch a successful venture.

1. Define your reason: According to Guy Kawasaki “The best reason to start an organization is to make meaning
– to create a product or service that makes the world a better place.” The world could be defined as your
neighborhood, town, or city, basically to be successful identify a need or demand and attempt to fill it or eliminate it
from people’s lives.
2. Succinctly articulate your vision: In as few words as possible define your organization’s goal, three words is
better than five words. This mantra or motto should be immediately understandable to: employees, customers,
suppliers, and supporters.
 3. Begin: As the opening quotation implies, once you begin, you may be surprised how much you can accomplish
or who aids you in achieving your goal. Create a prototype or samples, find your first customer, do something to
demonstrate your commitment and the possibilities that lie ahead.
4. Make Money a Priority: In order to achieve your vision it must be profitable or at least self sustaining.
Determine a business model that will allow your revenues to exceed your costs.
5. List what comes next: This short list should contain the organization’s milestones, assumptions that are built
into your business model and the tasks you need to accomplish to create your organization.
6. Research: Arguably this should have begun before defining your raison d’etre, however if you haven’t already,
make sure you have solid primary and secondary research showing that a need or gap exists and your product or
service fills it. Also show that demand is such that your venture will be profitable or self-sustaining. Do not forget
to research competitors and potential competitors as well as government regulations.
7. Write A Business Plan: The more money you need to raise, the better your business plan needs to be. The three
most important things to articulate are: the quality of your team, the organization’s competitive advantage, and the
attractiveness of the market you plan on entering. Write no more than twenty five pages including an excellent
executive summary of no more than two pages, preferably one, perform financials are also a must. Consult legal
and accounting professionals as necessary. A ten slide (or less) presentation is optional but recommended.
8. Register Your Business: Determine the correct legal structure and officially register your venture. See the
Resources section for details.
9. Obtain Financing: Your Performa financials will have identified the amount of money needed to launch as well
as initial operating capital. Your vision, mantra, research, and business plan will aid you in obtaining the necessary
funds.
10. Location, Permits, and Launch: Some ventures are reliant on finding an excellent location or obtaining key
permits and operating licenses. Do not underestimate the time, energy, and difficulties involved. Once over these
hurdles you can commence marketing efforts and open the doors.

Legal challenges in Entrepreneurship ventures:

legal concepts consist of

a) Inception of the Venture

b) The Ongoing Venture
c) Growth and Continuity of the Venture

a) The Inception of an entrepreneurial venture is comprised of

1) Laws governing intellectual property: patents, copyrights, trademarks
2) Forms of business organization: sole proprietorship, partnership, corporation, franchise
3) Tax considerations
4) Capital formation
5) Liability questions

b) The Ongoing Venture is comprised of

1) Personnel law: hiring and firing policies, equal employment opportunity, collective bargaining
2) Contract law: legal contracts, sales contracts, leases

c) Growth and Continuity of the Venture is comprised of

1) Tax considerations: federal, state and local, payroll, incentives
2) Governmental regulations: property, administrative agencies, consumer law
3) Continuity of ownership rights: property laws and ownership, wills, trusts and ownership, bankruptcy

The process of creativity

Creative Process

The creative process is the framework of creativity and experimentation that results in something new being
created. This includes ebooks, songs, podcasts, art, painting, and anything in between.
Steps in Creative Process
The creative process may seem like an abstract concept, but it does have a structure. We break it down into 5 steps
here.
1. Preparation
The creative process begins with preparation: gathering information and materials, identifying sources of
inspiration, and acquiring knowledge about the project or problem at hand. The key to this step is to fully immerse
oneself in the material.
This is often an internal process (thinking deeply to generate and engage with ideas) as well as an external one
(going out into the world to gather the necessary data, resources, materials, and expertise). This step usually
involves a creative brief and includes things like researching a brand, the target audience, or gathering inspiration
from other sources.
If you’re a writer, you’re reading other works in the same area. If you’re a musician, you’re listening to other pieces
of music that inspire you. The same applies to the creative class of graphic designers and digital artists.
2. Incubation
The next step is to soak the information gathered in step 1 in the mind. As ideas slowly flow, the work deepens and
new connections are formed. This is the step where the “magic” happens for most creatives. During this, you take a
step back from the problem and allow your mind to wander to let it contemplate and work the problem through.
While some professional creatives might make it look easy, the creative process is not linear, or predictable. It
might take days, or weeks, or months, and you might have to go back and forth and repeat steps to get the desired
outcome.
3. Illumination
This is the stage where the idea, which has been incubating, assumes a definite form. Also known as the lightbulb
moment – the “Aha!” moment. This is the feeling you get when you have been struggling with your thoughts and
can’t figure out what is missing. The idea will appear suddenly and comes with a feeling of certainty. When this
moment hits, a person might rush to their sketchbook or keyboard to jot it down before it escapes them.
4. Evaluation
During this stage, you consider the validity of your idea and weigh it against alternatives. This is the hard part,
where you look at all the ideas before you and narrow it down to which ones work and which ones don’t. This is
also a time of reflection when you look back at your initial concept or problem to see if your solution aligns with
your initial vision.
This is usually the phase when client feedback comes into the mix and you, your team, and the client weigh
different options and decide what works for the problem at hand. Business professionals might do market research
to test the viability of the idea.
During this phase, you might go back to the drawing board or you might forge on, confident in what you’ve come
up with.
5. Implementation
This is the phase where the idea you’ve been preparing and incubating sees the light of the day. Now the final
product gets produced, where things like skill, experience, knowledge, and hours of work come into play. This is
the writer’s final draft, the artist’s finished piece, the musician’s live performance. The satisfaction of a job well
done after this stage makes all the hours of hard work worth it.

Pathways to entrepreneurial ventures

Objectives
1. To describe the major pathways that may lead to entrepreneurial ventures.
2. To examine bootstrapping and minipreneurship as fast lanes to gaining entrepreneurial
experience.
3. To identify and discuss what is involved in acquiring an established venture that already has
some entrepreneurial momentum
4. To outline key questions to ask when buying an ongoing venture that is already generating
value
5. To define a franchise and outline its structure
6. To examine the benefits and drawbacks of franchising
7. To look at the route social entrepreneurs take to creating new ventures

Six common business creation pathways

1. Bootstrapping
2. Minipreneurship
3. A new business start-up
4. Acquiring an existing venture
5. Buying a franchise
6. Establishing a social venture
7. Taking over the family business
8. Starting a business for your employer

Pathway 1: Bootstrapping

• “Highly creative acquisition”

• Using other people’s resources
• Relies on: – Networks, trust & – cooperation – wise use of existing resources.
• No debt / don’t give away equity
• Look for ‘low hanging fruit’
• Use a copycat idea
• Find quick, break-even, cash- generating products
• Keep growth in check
• Focus on cash for healthy, immediate returns
• Avoid loss-making strategies

Pathway 2: Business assistance funding

• Access to funds to support start-ups and development of small businesses

• Often from government
• Not just about funding, also: – business information – training programs, workshops and seminars – business
referrals and networks – mentoring support “Business Development Assistance in the Asia- Pacific”

Pathway 3: Minipreneurship
• Do you create rather than consumer goods or services?
• eBay for product placement and marketing
• PayPal for accepting secure payments.
• Niche is the new mass.
• Consumerism is now about standing out rather than conforming to trends.

Pathway 4: Classic start-up

• Entrepreneurs launch a business when they can: – drive less innovative products out of the market – advance the
product frontier – lower prices – satisfy untapped demand or – broaden market penetration.
• Two ways to do this: – create a unique product or service – adapt or extend something that is currently on the
market

Pathway 5: buying a franchise

• Combining independence with the larger umbrella of a corporation.
• 1/3 of all retail sales generated by franchises.
• The franchisee is generally legally independent, but economically dependent. Jim's Group, started in Perth in
1982, is now the world's largest home franchise business.

Pathway 6: social venturing

• For the entrepreneur driven by a desire to find solutions to social injustice or environmental problems.
• Double challenge: – A strategy for accomplishing lasting social change – A viable profit-making business model
• Apply business skills to solve real- world challenges and capture opportunities in new market niches. Global social
venture competition.

CREATING NEW VENTURE DEVELOPMENT

1.Create your vision

Envision how large a company you intend to build, and what your venture will have achieved three
to five years down the road. A retail store owner’s vision might be to build a mini-chain of ten
stores within that time.

2. Define market need

Estimate the size of your market, or the population of potential customers. Define the benefits of
your products or services to customers. Make sure you are bringing products and services to the
market that customers will have a strong desire to purchase because the benefits are so significant
relative to what competitors can provide.

3.Formulate a business model

Describe the various revenue streams your company will have and structural factors about your
company that will lead to profitability. A manufacturing company could have additional revenue
streams from the service and repair of products. Structural factors include low overhead, and a lower
than average cost of goods sold.
 4. Analyze your competition
Gather information about what they are doing well, or the core of their competitive advantage, and
what their weaknesses might be.

5. Develop a strategic marketing plan

Describe the marketing methods you will use to make customers aware of your company, and the
sales tactics you will use to encourage them to purchase from you.

6. Create a personnel plan

Determine the human resources needed to accomplish the company’s objectives. Identify the skills
and experience you need your team, as a group, to have in order to effectively run the company.

7. Prepare a financial plan

The financial plan, or forecast, is prepared using spreadsheet software. Conduct a month-by-month
projection of revenues and expenses.

Franchising

Franchising is the practice of the right to use a firm's business model and brand for a prescribed period of
time. The word "franchise" is of Anglo-French derivation—from franc, meaning free—and is used both
as a noun and as a (transitive) verb. For the franchisor, the franchise is an alternative to building "chain
stores" to distribute goods that avoids the investments and liability of a chain. The franchisor's success
depends on the success of the franchisees. The franchisee is said to have a greater incentive than a direct
employee because they have a direct stake in the business.

Thirty-three countries—including the United States and Australia—have laws that explicitly regulate
franchising, with the majority of all other countries having laws which have a direct or indirect impact on
franchising. Franchising is also used as a foreign market entry mode.

Advantages to the franchisor:

Cost-effective growth The most obvious benefit of franchising to a prospective franchisor is the ability
to expand a business by utilizing the manpower and capital of others. The inherent risks usually
associated with expansion are thereby reduced. The franchisor is able to exploit and market its business
more effectively by increasing the number of its outlets far more rapidly than could otherwise be the
case.

The franchisees contribute the bulk of the necessary capital requirement through their investment in the
start-up costs, the payment of initial and ongoing franchise fees, and their own working capital. They also
carry the ongoing expenses, such as the staff salaries of the branches, as part of their own business
removing what can often be a significant overhead in corporate expansion.

Commitment
 A franchisee is the manager and owner of his own business and, therefore, brings a far more personal
commitment and motivation to the job than a mere employee without the same self interest. As the owner
of a business a franchisee should be eager to make it succeed, putting in the hours to ensure that
customers and profits are maintained and maximized.

There will be none of the nine to five mentalities that is often associated with employees. In theory, a
franchisee will go that extra mile, particularly where he has only himself to rely upon and can see at first
hand the effect his actions has on his gross takings.

Reduced involvement

Once a franchisor is satisfied it has found suitable franchisees to develop and expand its business it then
has more freedom to concentrate on other areas whether it is the improvement of the franchise concept or
potential growth areas of its existing business.

Regular periodic checks are required to ensure that the network consists of dedicated personnel who are
working hard to safeguard their investment, but this is not as time consuming as managing company
owned outlets.

Co-operative advertising

Franchising grants the franchisor the ability to increase brand awareness by co-operative advertising.
Very often franchisees are required to contribute a percentage of their gross sales (usually between two to
five per cent) towards an advertising fund.

This offers a formidable capital resource for a franchisor keen to raise the public‘s perception of its
business. The power of advertising should not be underestimated and plays a key role in ensuring the
future success of the franchised business.

Collective bargaining

For product-based franchises, the development of a network can provide a powerful bargaining tool with
suppliers allowing franchisors, or occasionally franchisee associations, to negotiate extremely favourable
rates. This in turn reinforces franchisees‘ loyalties with the realisation that such bulk purchasing power
may not be possible elsewhere.

It is vital, therefore, that in order to reduce its risk and realise the full potential of franchising that a
franchisor selects its franchisees very carefully, ensuring that the following qualities are present.

 Sufficient financial resources

 Commitment to motivation
 Enthusiasm and willingness to accept the responsibilities ofself-employment
 Willingness to adhere to the established format in running the business.

Disadvantages to the franchisor:

Loss of ownership

The most obvious downside to franchising is that a franchisor has to share ownership of the concept or
product which it has formulated and developed. With the wrong partner this can have a negative impact
on both realizable profits and reputation.

Notwithstanding overheads, company-owned outlets can still be more profitable to a franchisor than
franchised outlets where the franchisor‘s return is limited. This is particularly the case where the
franchisor‘s main source of revenue is a continuing franchise fee which is expressed as a percentage of
the franchisee‘s gross turnover.
These fees tend to range from between 10 and 15 per cent. The nature of the relationship between the
franchisor and franchisee means that both parties need to see a profit, however as a rule of thumb, 90 per
cent of such profit should go back to the franchisee. Less than this would cause problems with the
franchisee‘s commitment and motivation.

Exclusivity

In many franchises, a franchisee will be granted an exclusive area within which to run the business. This
will usually prevent the franchisor from competing in the franchisee‘s territory unless it specifically
reserves this right.

Problems arise where the exclusive area is not exploited to its full potential by the franchisee. There are
ways of addressing this by setting performance criteria, but these need to be realistic and must be
enforced.

Management and personnel skills

Not everyone is cut out to be a franchisor. It requires patience, team work and management skills in order
to persuade franchisees to follow directions and to ensure uniformity within the system. Considerable
financial and manpower resources will need to be committed towards managing a franchised network.

The resources required are different from those needed to manage employees. Franchisees are the owners
of their own business and therefore must be treated in a different manner. Franchisors need to develop
skills of motivating and persuading independent businessmen into following instructions and this is not
always easy.

Whilst a franchise agreement should grant the franchisor the right to terminate the franchise where a
franchisee fails to follow instructions, this should be seen as a last resort. It will often involve significant
costs and result in a perceived failure of the franchise. This can have a demoralizing effect on the rest of
the network and affect the sale of future franchises.

Business-format franchising requires a substantial amount of training and support on an ongoing basis
from the franchisor who ultimately shares responsibility for the future of its franchisees. Each franchisee
represents an investment of both time and money and it is important to get it right. If a franchisor wishes
to monitor the performance of its network satisfactorily it will need to develop effective accounting and
monitoring systems, particularly where the franchisor‘s income is derived from continuing franchise fees
calculated as a percentage of gross takings.

In these circumstances a franchisor must be able to calculate the amount that is due accurately and ensure
that its franchisees supply all relevant information on time. Various methods have been adopted to deal
with this problem, but the accuracy of the franchisees‘ accountability ultimately relies on a relationship
of trust and there is always a risk that a franchisee may act in a dishonest manner.
Loss of flexibility

Franchised outlets can be slower to react to changes in the market and it can take longer to introduce a
new range of products or services within a franchised network than in a chain of company-owned stores.
It is important that franchisors maintain a balance between company- owned stores and franchised outlets
as it is easier for a franchisor to introduce a change where it is based upon its own experience.

This does not, however, mean that improvements suggested by franchisees should not be acted upon and
introduced within the network. Franchisees have a valuable contribution to make in ensuring that a
franchised product or service responds to the requirements of consumer expectations.

Confidentiality

By involving third parties in its business a franchisor will inevitably have to divulge its confidential
information and know-how concerning its business and systems.
Although a prospective franchisee is usually obliged to sign a confidentiality agreement and the franchise
agreement contains restrictions on his ability to make use of this information for his own purposes, these
provisions are often difficult to monitor and expensive to enforce.

Advantages to the franchisee

Reduced risk
The greatest benefit to a franchisee is the reduction in his risk of business failure. As an ethical
franchisor should have proven the business concept in the marketplace prior to franchising by way of a
pilot or other trading experience, most of the obvious problems should have been solved and, therefore,
the risks to a franchisee minimised.

It is statistically proven that far fewer franchisees fail within the first three years compared to over 90 per
cent of other new business start-ups.

Economies of scale

Franchising enables a small businessman to compete effectively in the marketplace and take advantage of
economies of scale. A franchised network can buy products on more favorable rates than an individual
small businessman. This can offer a significant advantage over smaller independent competitors.

In addition, the products, equipment, system, and services which should have been market tested will
already have a degree of consumer acceptance.

Skilled management

The franchisee has access to quality training and assistance to establish his business from day one
thereby avoiding many of the pitfalls and mistakes of the independent businessman setting up from
scratch.

The ongoing support and advice from the franchisor provides a valuable resource for franchisees often
allowing them, for example, to do much better in a recession than other businesses.

Advertising

A franchisee is often required to pay a contribution towards a central advertising fund administered by
the franchisor. The pooling of the resources of other franchisees and any contribution from the franchisor
allows a franchisee access to extensive advertising whether in his own territory or nationwide. This
increases the brand awareness and usually the profitability of his business.

Financing

A franchisee can take advantage of the name and reputation which has been built up by the franchisor.
This can reduce the lead time in making a business successful which in turn reduces the franchisee‘s
working capital requirements.

Finance is usually more readily available to franchisees than to those setting up in business on their own
account. Most franchisors will have negotiated with one of the major lenders in the franchising industry
certain rates upon which a franchisee can obtain finance and a ratio of loan to capital. In some of the
more substantial franchised networks these rates can be extremely favorable.

As a result, a franchisee is often required to invest less of his capital because of the financiers
willingness to assist as a result of the proven success of the franchised concept. Franchising also has the
added benefit of being eligible for the government‘s Enterprise Finance Guarantee scheme.
Exclusivity
In many cases, franchisees are given exclusive territorial rights which effectively give them a monopoly
over the area allocated in respect of doing business under the trade name.
Disadvantages to the franchisee

Control Franchisees in essence perceive themselves as independent businessmen and owners of their
own business. They are, however, subject to control and regulation by the franchisor in the form of the
franchise agreement and operations manual which they will not necessarily welcome.

The more successful a franchisee, the more likely he is to find a franchisor‘s instructions and controls
frustrating. A franchisee could argue that were he to set up in business independently he would not be
subject to the same type of restrictions. Whilst on the face of it this seems true, in practice independent
small business owners are often restricted in other ways through commercial considerations.

Powerful customers and suppliers, strong local competition, and financial constraints all impose less
obvious, but equally important, restraints.

Reputation

The franchisees‘ reliance upon the power of the franchisor‘s trade name can prove to be a major
disadvantage where the franchisor through mismanagement or neglect allows the brand to be called into
disrepute.

Any failure of the franchisor has a knock-on effect to its franchised network and whilst franchisees share
in the benefits and success of the franchisor they also share in its failures. This is equally the case where
some franchisees perform in a manner that calls the reputation of the franchised network into question.

There is also a risk that a franchisor will sell to a third party with a different vision which has an adverse
impact on the franchisor‘s reputation. The franchise agreement usually states that a franchisee has no say
in whether a franchisor sells out to a third party and it is a commercial risk that a franchisee takes from
the outset.

This is particularly harsh as a franchisee will usually have made his decision based on the expectation of
the strength and support of the franchisor and a change in ownership may erode this completely.

Products

Not only will a franchisee have to pay royalties, but also in some cases a mark-up on goods and services
received from the franchisor or his nominated supplier. Often a franchisee is tied exclusively to the
supplier of the product and is restricted from selling any similar or other products.

In such cases, the franchisee is required to stock a specific range of products and to introduce new or
additional products at the request of the franchisor, whether or not those subsequently sell as well. A
franchisee‘s desire to expand can often be frustrated by the narrow mindedness of the franchisor.

Right to sell

One of the most important considerations for a franchisee is the value that can be realized from the resale
of the business in the future. Invariably, the franchisee will not have the unfettered right to sell his
franchise business to a third party.

Such a sale will be subject to the franchisor‘s consent and usually subject to certain pre- conditions
being fulfilled. This consent can never be taken for granted, but it should not be unreasonably withheld.

In addition, a franchisor may impose a transfer fee on such sale and an introducer‘s fee where it has
introduced the prospective purchaser. These can be significant and need to be factored into the realizable
value of the business.

Dependence

In certain cases, a franchisee can become over dependent upon the franchisor‘s support to the extent that
he cannot make an independent decision. In such cases the franchisee has in practice become a disguised
employee and the business stagnates.

Other disadvantages to a franchisee relate mainly to the type of franchise agreement which he is being
offered. In many cases, the expectations of success are linked to minimum performance criteria which
can be set unrealistically high so that the franchisee consistently fails.

This not only demotivates the franchisee, but also impacts on its right to renew the agreement at the end
of the first term, or to sell it to a third party.

A franchisee is often not granted the specific right to terminate the agreement, whereas a franchisor
invariably has a long list of circumstances under which it may end the relationship. This one-sided
approach can put a franchisee into constant fear of termination which again has a negative impact on the
business.

Advantages to the consumer:

In theory, a consumer should benefit greatly from a franchised business because he will be dealing with
an owner and not merely an employee. The service should, therefore, be personalised, effective and result
in greater customer satisfaction.

As the purpose of a franchised network is to establish uniformity of image amongst all its franchisees, a
consumer should be able to expect the same standard of goods or services indifferent parts of the country
from members of the same network and be able to rely on after- sales services and promises.

In many franchised networks a franchisee will honour the commitments and obligations to a customer of
another franchisee should he be required to service such customers, and if not the franchisor itself may
step in to preserve the reputation of the brand. A consumer dealing with a small independent business
would not have the same comfort where the business goes into liquidation.

Disadvantages to the consumer:

A highly successful franchise can reduce or even eliminate the competition and choice for the consumer.
This is particularly the case where a franchisee has an exclusive territory. Where a customer is
dissatisfied with the service or product obtained from that particular franchise there will be no alternative
outlet to go to. This can be a problem where the customer has a personal complaint against the
franchisee.

Summing up Franchisor advantages

 Cost effective growth

 Commitment
 Reduced involvement
 Co-operative advertising
 Collective bargaining

Franchisor disadvantages:
 Loss of ownership
 Exclusivity
 Management and personnel skills
 Loss of flexibility
 Confidentiality Franchisee advantages
 Reduced risk
 Economies of scale
 Skilled management
 Enhanced advertising
 Better financing
 Exclusivity Franchisee disadvantages
 Control
 Reliance on reputation
 Restrictions on products
 Restricted right to sell
 Dependence

There is no doubt; however, that a well structured and managed franchised operation can benefit all
concerned. It offers opportunities for small businesses to compete with the big players and even on the
international stage.

The continued growth of franchising is testament to the success and benefits that it can bring to
franchisors, franchisees and consumers alike.