Generating business ideas Lesson aims: To identify the various ways in which new business ideas are generated To understand the advantages and disadvantages of franchises

Starter (3 minutes): How do people come up with business ideas? List as many ways as you can think of people finding/coming up with new products and/or services i.e. where do entrepreneurs get their ideas from?

Generating business ideas Business ideas can come from a number of areas and in many ways. We have seen that many ideas come from entrepreneurs and are developed to sell to a market or provide a service. Another way of starting a business is using another company’s name and products; franchising.

Sources of business ideas Identifying a market niche – This involves spotting a gap in the market that may not be being satisfied. Oliver Bridge, for example set up Bigger Feet Ltd for those with larger feet than shops usually cater for. Science/Research and Development – This could be an invention or an innovation from a laboratory or university or otherwise research to solve a problem or an idea that may sell well. The Dyson is a very good example of this.

Sources of business ideas Spotting trends and anticipating their impact – Looking at how tastes and fashions change and meeting the demand they have predicted. Innocent drinks spotted a trend for healthier food and drink. Copying ideas from other countries – Using what has been successful abroad and implementing it to market. Howard Schultz has used the Italian coffee shop culture in his Starbuck’s brand.

Mini activity (3 minutes): Choose one example of a franchise Explain how it works (especially the relationship between the brand company and the franchise owner)

Franchising A franchise agreement is a deal between a franchisee, who use the name, branding, promotion, products, etc. of the franchisor. The franchisee pays a set-up fee to the franchisor, and often royalties; a percentage of their profits. Thriving examples include McDonald’s, KFC, Subway, Prontaprint and Dyno- Rod.

Working lunch clip - Franchising

Advantages/Disadvantages of operating as a franchise Less risk for the franchisee, as they are using a known brand. They are able to gain all the benefits of the Marketing of the franchisor. The franchisor usually helps the franchisee with aspects of the business; they want their brand to be popular in all areas. Suppliers, etc. are often dealt with. The franchisee often has exclusive rights to use the brand name in a particular region. Higher cost than setting up on their own; initial fee and royalties. The reputation of the chain is dependent on that of the parent company; similarly, if that corporation becomes insolvent, the firm could be dissolved. There is often clauses and restrictions in the franchise agreement. Franchises must be approved by the franchisor, if the franchisee wanted to sell the business, this would have to be agreed. Other types of franchise include dealerships, who don’t necessarily trade under the franchisor’s brand name, and agency or licensing, using producing or selling for another firm. The franchisor can also benefit from regular income (royalties) and a lump sum, quick growth through having more outlets using their name.

Practice exercise, p.23, Q.1-5.