Seven Reasons Why Buying a New Franchise Business Is a Disastrous Mistake

I have for a long time been fanatically supportive of purchasing franchises as a start-up business. For me, buying a franchise is the easiest and surest way of taking the big plunge into entrepreneurship. Sure, you leverage on someone else’s marketing and branding, but at least it saves you the trouble, the dollars, and puts your focus back on sales and operations. It makes the starting process a lot easier, safer, AND CHEAPER. Here is an article from Donald J. Trumps’ online University: Trump University, which begs to differ from my view point. I thought it should make for an interesting debate; I invite everyone’s thoughts on this.

Posted by Raghav Somani

Richard Parker: Jeff Elgin’s recent article in Entrepreneur, “Top 10 Reasons for Buying a Franchise,” takes my breath away. Sure, there is logic behind some of the reasons he spells out for buying a franchise – you’re also buying a recognized brand, he writes, plus receiving promises of training and advertising. But I have heard them all before and my experience tells me that buying a non-franchised business is a vastly wiser business decision every time. Further, reality dictates that not all franchisors come close to living up to the representations they make when “selling” you the concept.

In fact, I put together a list of my own – called “Seven Reasons Why Buying a New Franchise Is a Disastrous Mistake.” (Notice, I stipulated, a new franchise. In a moment, you will find out why.)
And here are my reasons:

1. The failure rate of franchises is greater than most people realize – far greater. If you ask the friendly franchise salespeople to document failure data, you will see their eyes glaze over.

2. Opening up a new franchise location is only slightly better than a start-up. You have absolutely no assurances that it will be successful. And when you are buying a franchise a lot of the decision about your location is not yours, but the franchise company’s.

3. Not everyone is suited to operate a franchise. Do you have entrepreneurial fire? Do you dislike being told what to do? Do you want freedom with your marketing plan? If so, owning a franchise is not for you.

Biotech Reigns At Wharton’s Business Plan Contest

Posted Raghav Somani

A decade ago, when the Wharton Business Plan Competition (BPC) began, the Internet dominated discussions about entrepreneurship. That, of course, was before the bubble burst and many dot-coms were revealed to be, in the words of New Yorker writer John Cassidy, little more than dot- cons.

These days, the Internet remains a critical enabler of commerce, but no one pretends that staking out a little real estate on the Web will ensure business success. Instead, student entrepreneurs who compete in the Wharton BPC have recently turned their attention to another promising arena: health care–specifically biotechnology, that combination of medicine, basic science and engineering that has unraveled the human genome and, if it lives up to its promise, could deliver a raft of new treatments for a variety of diseases.

Five of the eight finalists at this year’s Venture Finals–the culminating event in the year-long business-plan competition–offered up ideas for businesses that could help people live longer or less painful lives. They ranged from one as simple as creating better padding for the junctures between prostheses and amputees’ residual limbs to one as complex as using nanoparticles–infinitesimally small specks of matter–to better diagnose and treat cancer.

 Other health-related ideas included a gel that would replace damaged knee cartilage, a drug to prevent a common form of blindness, processes for embedding pipes with bacteria killers and a medical device to stop tumor growth. Rounding out this year’s finalists were software that would aid in patent applications and a process for tinting windows with a pulse of electricity.

The Wharton BPC, open to any team that includes a University of Pennsylvania student, lasts much of the academic year. In the fall, hundreds of teams present briefs of business ideas. By the late spring, that group is winnowed down to 25 semi-finalists, who prepare full-fledged business plans. The eight finalists are selected based on these plans.

At the Venture Finals on April 30, a panel of four judges evaluated the finalists, listening to a 10-minute presentation from each, before subjecting each to 10 minutes of interrogation. The judges, all investment professionals and Wharton alumni, came from Cardinal Partners, Weston Presidio, Schering-Plough (nyse: SGP – news - people ) and Felicis Ventures.

A Legal Alternative to Online Gambling

This is a business that is very similar to an idea proposed during the Ventures Business Plan Competition leading up to the Asian Students’ Ventures Forum. Do read this one for a crazy web based BPlan!

Posted by Raghav Somani

Here’s a business model for you: Give people money and let them place any bet they’d like. If they win, they get to keep the spoils; if they lose, give them more money to play with.

No, we’re not talking about the subprime mortgage business. We’re talking about a new–and perfectly legal–online gambling outfit called Centsports.com, founded by budding Webpreneur Victor Palmer in College Station, Texas.

Online gambling has always been illegal, even though people got away with it for years. In 2006, U.S. federal prosecutors started cracking down on payment processors, making things a little harder, even for off-shore virtual casino operators and their customers.

Palmer skirts this pesky problem by banking his customers. Three elements have to be present to violate most state gambling laws–namely “prize, chance and consideration,” says attorney Chuck Humphrey, a gaming-law specialist and author of the Gambling Law U.S. blog. Because Centsports.com doesn’t allow users to bet their own stash, no “consideration” is involved, and thus all is kosher. Quips Palmer: “Congress assumes if you’re dumb enough to give away money, then go for it.”

Here’s how the site works. Each user starts off with 10 cents in his or her account, provided by Centsports. (You need only register a name and password.) From there, they can bet on any event for which Las Vegas bookmakers set a line.

Once users accumulate $20 in winnings–the equivalent of doubling your money eight times, or striking gold on a 200-to-1 long shot–they can cash out a minimum of $10 and receive an actual check in the mail. (In terms of “consideration,” winnings on that initial 10-cent stake don’t constitute ownership until actually cashed out.) Losers risk nothing–except perhaps a touch of pride–and get immediately restaked with fresh dimes.

At the Bear’s Whim

Ventures’ very own Finance Secretary, Aditya Maru, had a lot to share about Doing Business in Russia leading up to his ‘Business Study Mission to Russia’ later this month. I found this article about Entrepreneurs and Business in Russia and the role of the Government, that will give everyone a heads up on the subject. Feel free to spam Maru on the topic. He’s more than happy to share his experience and knowledge.

Posted by Raghav Somani

Russia’s former president Vladimir Putin has spent the last few years expanding the state’s interest in industries ranging from diamonds to aviation. A new fund for the construction of much needed roads and bridges will be largely funded and overseen by the state. Rosoboronexport, the massive arms-trading entity owned by the government, bought the country’s largest titanium concern and has taken control of a carmaker that has a joint venture with General Motors.

In Russia, entrepreneurs don’t just compete with each other, they have to watch that the government isn’t lurking around the corner, planning to seize the fruits of their hard work. Many large natural-resources companies are partly owned by the government–or at the very least, are vulnerable to the government’s whims. But there is a separate sector, made up of fast-growing consumer products companies, telecoms, pharmaceuticals and others, that operates mostly without government interference.

The danger, though, is that this divided economy could result in stagnation. There is an ever-present fear that the government will arbitrarily choose another sector to sink its teeth into. As the newly minted president, Dmitry Medvedev, takes over from Putin, many in Russia are anxious about which way the economic and political winds are blowing.

This all has its roots not in the gangland crony capitalism of the 1990s, but in the latter years of communism. At the time of the Soviet Union’s collapse in 1991, there were no companies as we understand them, and there was no competition. In the late 1980s, Mikhail Gorbachev introduced glasnost and perestroika to loosen controls on society and commerce. This move resulted in well-connected people (such as those who had been active in communist groups or the Party) forming semi-private companies, many of which were simply auxiliaries of state-owned companies and were used to siphon profits into their owners’ pockets.

The Best Emerging Markets for Expat Entreprenuers

A very insightful article by Forbes opening your imagination about where you should be looking to do business beyond India and China.

Posted by Raghav Somani

You’re craving adventure and eye-popping growth?

Sure, there is plenty of action in India and China, where big boys like Microsoft (nasdaq: MSFT – news – people ), Citigroup (nyse: C – news – people ) and Intel (nasdaq: INTC – news – people ) have made deep inroads. But for entrepreneurs with vision, patience, an appetite for risk and command of a second language (or two), there are plenty of opportunities in even more exotic locales.

In Pictures: 20 Emerging Markets To Watch

Indeed, emerging economies–defined here as those not included in the 30 members of the Organization for Economic Cooperation and Development–now make up more than half of the world’s economic horsepower. By 2050, they will account for nearly 78% of total output, estimates a 2007 report by business services firm Grant Thornton.

“In general, you make money in countries [that] are currently not doing that well … but over the next five or 10 years, they’ll grow,” says Simeon Djankov, chief economist at the World Bank and co-author of the World Bank’s Doing Business series on business environments in emerging markets.

While the outsourcing trend has grabbed headlines in recent years, a small cadre of U.S. entrepreneurs is setting up shop abroad–mostly in the real estate, architecture, education, information technology and medical device fields, according to the U.S. & Foreign Commercial Service.

Of course, some countries are more hospitable to business than others. Ocean views don’t mean much if you can’t enforce a contract or fire incompetent employees. In India, for example, enforcing a simple commercial contract takes 56 procedures and nearly four years, notes the World Bank, while in Venezuela, workers who earn less than 1.5 times the minimum wage can’t be fired. Meanwhile, in Brazil, it takes an average of 152 days to start a business, compared with just five days in the U.S.

Another other huge hassle: corruption. Take Africa. On top of the devastation wrought by the HIV/AIDS epidemic, corruption devours $148 billion per year–25% of Africa’s gross domestic product–and increases the cost of goods by as much as 20%, estimates the African Union.

So where are the most promising locales? Eastern Europe’s Georgia was last year’s top reformer, according to the World Bank’s 2007 Doing Business report, which ranks countries based on regulatory reforms that enhance business activity. Georgia made strides in six of 10 categories, including the time it takes to start a business, dealing with licenses, employing workers, getting credit, cross-border trade and enforcing contracts.

Microfinance Fights Growing Pains

Ventures has been involved with a lot of Business Plans in the realm of Microfinance, including our very own BPlan represented at the Asian Students’ Ventures Forum. This a must read article for all members.

Posted by Raghav Somani

Nine years ago, Avarzed could not have gotten a small business loan anywhere in her province, even if she had possessed 10 times the value in collateral (which she didn’t).

She lives in the province of Dornogobi, part of the Gobi Desert in Mongolia, a land-locked country between China and Russia known for harsh winters, steppes and nomadic herders. In this country, 2.9 million people are spread out over a land the size of Western Europe, although more than a million of them live in the capital city of Ulaanbaatar.

Avarzed was a single mother with three children in school, barely making ends meet by operating a small kiosk selling food and sundries. Then she got her first loan; she used the $80 (U.S.) to buy more goods to sell in her kiosk. “I am grateful that someone trusted me, and I have always tried to repay my loans on time because of this,” she says.

Today, she is putting one child through university in Ulaanbaatar, lives in a three-room apartment and owns her own shop. She used her latest loan of $6,000 to expand her stock, buying stationary and beauty products. However, in the provincial capital where she lives, retail is not the only sector seeing growth: There are now six banks operating in this desert town of 19,000 people.

Forbes: Singapore’s 40 Richest

Posted by Raghav Somani

The city-state of Singapore has had a banner year. GDP was up 7.9% for 2006, the main stock index is up 19% year to date, and its 40 wealthiest citizens are worth a collective $32 billion, $4 billion more than last year. Fortunes centered on real estate, shipping and palm oil did particularly well. Ng Teng Fong takes the top spot based on the success of his hotel and mall holdings in Singapore and Hong Kong. Chua Thian Poh smartly bet on Sentosa Cove, which is emerging as the best address in Singapore. The richest of the list’s 12 new entrants is Zhong Shen Jian, who made his $2.5 billion fortune selling luxury residences in his native China. He is one of three newcomers to list companies on the Singapore stock exchange last year. The other two are Robert Chandran of marine fuel outfit Chemoil and Raymond Goh, whose Swiber Group provides offshore oil and gas services. Kuok Khoon Hong and Peter Lim make their debuts thanks to soaring palm oil demand. One of the list’s biggest gainers is Brian Chang, who operates one of Asia’s largest dry docks out of China. Banking tycoons didn’t do as well, recently hit by the global downturn in mortgages. Wee Chow Yaw’s United Overseas Bank (other-otc: UOVEY.PK – news - people ) dipped 10% since mid-July. A $100 million net worth was needed to make the list, up from $55 million last year. Dropoffs who failed to make the cut include Tang Wee Kit–who, with his brother, launched an unsuccessful $150 million bid to buy out retailer C.K. Tang’s minority shareholders–and Sudhir Gupta, who was forced to sell his stake in tiremaker Amtel-Vredestein for pennies on the dollar to his Russian partners. To better highlight individual wealth, we unraveled some extended family holdings. As a result Kwek Leng Beng’s net worth dropped by $2.5 billion, but he is now joined by his cousins Kwek Leng Kee and Kwek Leng Peck. We also delineate cases such as the Khoo family in which siblings share a fortune. Public fortunes were calculated using share prices and exchange rates as of Aug. 10. For privately held fortunes we estimated what they would be worth if public.

Apple unveils iPhone grand plan

posted by Raghav Somani

The iPhone’s break-through touch screen means that Apple’s mobile handset is a virtual blank slate, and the ability to write mobile software free from the usual constraints is likely to have software geeks salivating.

“You’ve got the ultimate in flexibility in user interface,” says Van Baker, an analyst at Gartner.

“That, combined with a big, high resolution screen, makes it an intriguing platform in the mobile space.” John Doerr, a partner at Kleiner Perkins Caufield & Byers, a Silicon Valley venture capital firm, underscored the excitement around the iPhone’s potential to emerge as a powerful new software platform on Thursday.

Taking the stage at Apple’s headquarters immediately after Mr Jobs’s presentation, Mr Doerr announced a new $100m venture capital fund dedicated to backing companies that are building software for use on the iPhone. Mr Doerr said Apple’s software plans could lead the iPhone to emerge as the “third great platform” for software makers after the personal computer and the worldwide web.

“In your pocket, you have something that’s broadband and connected all the time. It knows who you are and where you are. That’s a big deal. It’s bigger than the personal computer,” he told the cheering crowd.

Retail King of the Subcontinent

The Story of Ernst and Young’s Entrepreneur of the year.

Posted by Raghav Somani

Pantaloon’s Kishore Biyani has become India’s largest retailer, and has recently been names the Ernst and Young’s Entrepreneur of the year.

In India’s chaotic markets, Kishore Biyani is the unchallenged king of retail. He has the knack of catching rivals off-guard and striking where it hurts most.

And now that he’s set himself the task of retaining control of the largest retail space in the country, he won’t let anyone – suppliers or international promoters included – catch him slacking.

The latest to face the wrath of the 43-year-old is South African hypermarket Shoprite, which opened shop in Mumbai last month through a franchise agreement with local company Nirmal Lifestyle.

The hypermarket began retailing products from big boys Nestle, Unilever and Procter & Gamble at consumer discounts of 20-30 per cent, lower than even Biyani’s purchase prices in his Big Bazaar and Food Bazaar stores.

Instead of chewing his nails, Biyani turned confrontationist, asking why the multinationals were offering Shoprite better prices, even withdrawing Nestle products from his stores when the company did not respond.

Two days later the Nestle products were back, but not before the company had clarified its stance. Says Biyani, “Shoprite is involved in predatory pricing. There are rules against this in every part of the world.”

But as a result of his tough stance, the three MNCs have asked Shoprite to roll back the offers or face withdrawal of supplies, he says.

Linking to Rural India

Posted by Raghav Somani

Written by Simon Robinson

It’s one of the perennial problems of marketing in India: How do you reach the 700 million people living in rural areas who, though poor, would still add up to a big chunk of change if they only knew about your products? That’s something Satyan Mishra, 33, has spent a lot of time thinking about. Mishra is the founder and CEO of Drishtee, a six-year-old company dedicated to making services and goods found in cities available to country folk.

In Drishtee’s early years, the company focused on connecting government departments to villages. Using small kiosks outfitted with a computer hooked up to an intranet, it allowed rural dwellers to apply for a driver’s license or request a copy of a birth certificate online. The company charged a small fee–25 rupees, or 55¢, to apply for a driver’s license, say–but the applicant saved 10 times that amount by reducing the number of visits to a government office in an often distant regional center. The system worked well at first. “But we discovered that there was a lot of pent-up demand and that after some time that demand went right down,” says Mishra.

So Drishtee has been expanding demand by selling insurance policies, subscriptions to websites that match would-be grooms with prospective brides, classified advertising, an online health-advice service and even passport photos printed as you wait. The company has 1,019 kiosks in nine states and is aiming to open an additional 3,000 in the next two years. Each kiosk is run by an entrepreneur from the village, typically a man in his mid-20s. The cost of a kiosk package–computer, digital camera, Internet connection over a cell-phone line, and printer–is $1,500, which is paid back over a few years. Each entrepreneur also pays a fixed monthly fee of $11. For that, there is help if anything goes wrong with the hardware, special rural-focused online packages that Drishtee develops (like the matchmaking service) and regular visits from insurance-company reps. Drishtee and each village entrepreneur get a small cut for every new policy sold. Drishtee is also looking at cell-phone kiosks–essentially cell phones that will offer about half the services currently provided by a fixed kiosk.

The company is one of a few that have shown bigger firms that there is a market outside the cities. Indian banks and retailers are developing innovative systems to reach the provincials. The Indian government likes Drishtee’s delivery model and is looking at creating its own version with at least 100,000 centers across the country. Mishra, who has advised the government on how to set up such a system, says competition will be welcome. He believes Drishtee is perfectly placed to specialize in supply-chain management for companies hoping to reach the same market. “It’s all about empowerment and giving people the tools to uplift themselves so they can compete with the outside world,” says Mishra. “And we think there’s a profitable market in that.”