A Portfolio in Entrepreneurship and Entrepreneurial Characteristics - Essay Example

?A Portfolio in Entrepreneurship and Entrepreneurial Characteristics Introduction A wise entrepreneur would not begin any business operations withouta credible business plan. A business plan is made in preparation for an entrepreneurial venture. Since doing business is a risky process, one has to be prepared in dealing with the difficulties. The presence of a business plan does not ensure success because it still depends on how the information found in the plan is utilised to run a business. Success in any entrepreneurial venture depends much on the entrepreneur’s exerted effort and dedication. Therefore, it is crucial to understand all the elements that are included in a business plan, before one decides to begin with its creation. This paper will discuss the essential elements of a business plan and the required characteristics for successful entrepreneurship. Lastly, a personal reflection will be presented in the essay. THE BUSINESS PLANNING PROCESS Essential Elements of a Business Plan Idea Generation The creation of a business plan will not be acted upon unless the business concept is created. Concepts are based on the ideas of the group members who are planning to put up a business. This process is called idea generation. Idea generation puts emphasis on creativity, and on the discovery of new ideas. Not all ideas are turned into a business concept; it has to be weighed based on its appeal and substance, and the best idea that is chosen is the one used for commercialisation. It is the method used to stimulate and pick up internal, as well as the external ideas (Gaule and Spinks, 2002, p.10). In idea generation, the obtained ideas are being converted into an instrument that helps organisations reach their objectives (Pride, Hughes and Kapoor, 2008, p.450). Since the process of creating a business plan takes a long time, it is crucial to choose the most appropriate idea to be used for commercialisation, to save time and effort. The success of an entrepreneurial venture depends on the accuracy of the business plan, and the accuracy and effectiveness of a business plan depend upon the ideas that were generated through the process of idea generation. Strategic Objectives Strategic objectives are extensive, long-term goals, which identify the basic nature and direction of an entrepreneurial venture. It serves as the basis for the decisions made by the members of the group or organisation that are planning a business. It takes into account the necessary information required in the making of a new product or business such as the product or service used as the main attraction, the primary target market, and the designated location (Crosson and Needles, 2011, p.6). When the members of an organisation have already chosen the strategy to be implemented for the proposed business, strategic objectives have to be designated. It will help them recognise the probable outcome of the strategy and identify the targeted results of the business plan. However, one must ensure that the objectives are definite and assessable, and this can be done through including the targeted dates, the values to be attained and the milestones that are aimed by the firm (Stutely, 2002, p.113). Market Analysis and Research Information with regard to the target market, competitors, and marketing trends are seen in the market analysis section of the business plan. The target market is the group of people to whom the organisation wishes to sell or offer its product or service. This group of people is classified and identified through the process of market segmentation. Market trends can be classified into two, and these are industry trends and target market trends. Market research involves the methods used to obtain relevant information that are useful in making accurate and preventing inappropriate business decisions. The giving of questionnaires, polls, and surveys are some of the techniques used in market research. Competition Business competition is fundamentally a contest of product or service salability. Competitors are rival organisations existing in the same market. Competition encourages firms to provide the adequate service needed by its customers for them to remain competitive and known (Pride, Hughes and Kapoor, 2008, p.20). It can be direct as in the rivalry between the two businesses selling the same product or service at the same sales channels, or indirect where two businesses offer the same product or service but at different sales channels (Pinson and Jinnett, 2006, p.22). All businesses encounter competition, but those who are new to this venture tend to undermine the presence of competitors and fail to examine the effect of competitors to their establishments. If one says that no competition or competitors are present in the market wherein the product or service will be sold, then that is tantamount to saying that the business plan created was not efficient. Claims of non-existing competition would significantly discourage investors. Investors will not waste their capital in business plans that did not undergo a thorough market research regarding its competitors (Abrams and Kleiner, 2003, p.103). Cash Flow Statement (Pro Forma Cash Flow Statement) The cash flow statement is a financial document that keeps a record of all cash transactions. The sources and the use of funds are being tracked and are being computed to arrive at a cash flow total. Cash flow totals measure the success and efficiency of any business (Covello and Hazelgren, 2006, p.146). The Pro Forma Cash Flow Statement is a projection of the business plan's equivalent in terms of dollar. It can be considered a budget, and it is used in making estimations and in the allocation of funds. The coming in and out of cash in business is comparable to the inflow and outflow of water in a reservoir. When more water goes inside, the water level rises. If the reserves or cash on hand of a firm rises, the money will flow into one or several liquid asset accounts (Tifanny and Peterson, 2005). Profit and Loss Forecast A projection of the estimated amount of sales that a business hopes to obtain for a period is called the profit and loss forecast. The costs incurred while in the process of obtaining sales and the profits equivalent to it are included in the forecast (Clarke, 2010, p.72). The estimated amount of sales and expenses, which is placed in the break even analysis, is being turned into a formal monthly projection of the business's profit. It is a spreadsheet of the anticipated month-by-month expenses and revenues of a business (Stim and Guerin, 2009, p.66). The inclusion of the profit and loss forecast is essential in creating a business plan, since projections are made that will enable the proprietor or owner to prepare for any problem that may occur during the starting phase of the business. Balance Sheet Projections The amount of asset that a business owns and the amount of liabilities that a business owes are being reflected in the balance sheet. In the balance sheet, assets and liabilities are placed in two separate columns. These columns should have equal amounts in order for it to become accurate (Stim and Guerin, 2009, p.63); if the two columns did not match then there must be something wrong with the computation or with the entries included. Projections can also be made with the balance sheets, and these may be used as benchmarks on the comparison of the actual and the estimated results of business operation. Sales also have an impact on the balance sheet. Accounts receivable or the inventory increases are being shown in the balance sheet, as well as increases in cash. Balance sheets aid business operators in identifying the connection of some assets and liabilities and on why they differ according to sales. It takes into account the cash, receivables, inventories, amounts payable, and tax liabilities. Competitive Strategy The methods that firms use to gain an advantage over its rivals are based on the competitive strategy formulated. A well planned competitive strategy according to Forgang (2001, p.18), "yields a seller's value proposition" that is not the same from that of the competitors. Competitive advantage is attained by means of combining variables in the value proposition. Big companies resort to strategic planning and development for them to remain competitive. Competitive, strategic analysis leads to the establishment of a scheme that will allow businesses to prepare for any threats, business opportunities, changes in assets, skills, and core competencies (McGuigan, Moyer and Harris, 2008, p.374). Scenario Analysis Although some critics argue that the future is unpredictable, in business it is vital to consider about the possibilities, or the anticipation of the things that might occur in the future. Scenario analysis can be done in a systematised manner that focuses on the discovery of current trends, and future developments. Scenario analysis does not intend to foresee the future, but it only hopes to develop thinking and communicating process that will help businesses to plan for its future. It can be qualitative or quantitative, or both, depending on the need of the business. The analysis includes a combination of factors such as the economy, technology, demography, and politics that indeed affect the future of a business. Unlike other strategy or techniques, the effectiveness of a scenario analysis is not based on the outcome, but in the process. It is an influential tool in the management of knowledge, which allows the collaboration of ideas and insights about the business environment (Grant, 2005, p.319). REQUIRED CHARACTERISTICS FOR SUCCESSFUL ENTREPRENEURSHIP Passion coupled with the right attitude leads to performance efficiency and business success. If one desires to pursue an entrepreneurial venture, he or she must possess the necessary entrepreneurial characteristics required by such undertaking. Many people claim that they are entrepreneurs, but only a few are able to prove that they deserve to be called as one. Not all entrepreneurs are successful in the business field because they lack something, not in terms of capital or funds, but with the way they behave as entrepreneurs. In business literature, the variation that lies between the characteristics of an ordinary entrepreneur and with that of a successful entrepreneur is not often explained in a clear manner. Some people argue that the entrepreneurs' personal characteristics play a vital role in their decisions, but are known to contribute less to their progress. Personal Characteristics Some personal characteristics are being associated with entrepreneurship (Lee, 2009, p.24), and these are given as follows: Proactiveness Proactiveness is already a fundamental concept in entrepreneurship literature (Penrose, 1995; Schumpeter, 1989 cited in Jones, 2009, p.155). Entrepreneurship proactiveness means having the initiative to foresee and pursue new opportunities. It also refers to one's engagement in new market opportunities (Lumpkin and Dess, cited in Jones, 2009, p.155). In effect, a firm or an entrepreneur is considered proactive when they are able to introduce new products, new technologies, and new management techniques, rather than constantly reacting to changes. Thus, more emphasis is placed on the discovery of new opportunities in order to outwit the competitors. Proactive firms or entrepreneurs lead and aim for new opportunities. This does not mean that they are too aggressive in handling the pressure of competition; instead, it only implies that they are able to handle the demands of the market in a competitive manner (Jones, 2009, p.155). Self-Efficacy Bandura (1978 cited in Galbraith and Stiles, 2006, p.385) has given a definition of self-efficacy and has described it as a judgement of the individual's capability to perform a behavior pattern "or the personal assessment of the capability to accomplish a certain level of performance." Hence the individual’s behavior, the environment, and the intellectual capability are interconnected and are able to influence a person's motivation. People who possess a strong, self efficacy put all their efforts to complete any tasks or challenges, while the weaker ones tend not to exert effort and sometimes end up quitting. Entrepreneurial self-efficacy deals with the belief in oneself, willingness, and the perseverance to survive the anxiety brought by the new start-up process of business (Galbraith and Stiles, 2006, p.385). Need for Achievement Entrepreneurs often have a high need for achievement, which is common in most of them. People who hunger for achievement are dedicated to finding new and better ways of work that will challenge their capabilities and at the end will provide them a sense of satisfaction. They are satisfied when the challenges completed by them were done through their own efforts. Feedback given in reference to the results of the challenges that they have completed is essential for them to have a self-assessment. Individuals whose passion for entrepreneurship is being influenced by a high need for achievement also have high chances of growth and survival in the corporate world. Successful entrepreneurs have a high need for achievement. Based on the results of the studies conducted by some psychologists on achievement motivation, there is truly a connection between the need for achievement and entrepreneurial ventures (Merhish, 2007, p.167). Locus of Control Locus of control refers to how an individual sees "him or herself as being within or beyond personal control and understanding" (Nieuwenhuizen, 2008, p.7). There is what people call the internal locus of control and the external locus of control. People with an internal locus of control perceive that the events in their lives are beyond their control, and their destiny is the outcome of their own action, so they are able to shape their own destiny. On the other hand, people with the external locus of control believe that an event or happening although is still the outcome of their actions, does not depend much on their own actions but is more dependent on the outside factors. External individuals explain events as the outcome of outside factors that they could not influence like luck or fate, or they may interpret events as under the influence of others who have the power to do so. Moreover, these individuals may also see events as results of unpredictable factors due to complexities present in the external environment. Evidences stated in the empirical, psychological literature have inferred that entrepreneurs are internal individuals. Risk-taking Propensity Risk-taking is a classical concept in entrepreneurship that has gained the attention of many researchers ever since. There have been arguments that tackle the connectivity of risk-taking propensity and entrepreneurial undertakings (Wiklund, Dimov, Katz and Shepherd, 2006, p.35). Huge risks are involved in business; thus, individuals who are open to encountering these risks are likely to survive the complexities of business. Risk taking propensity is being associated with achievement motivation. According the study of McClelland (1961 cited in Henry, Hill and Leitch, 2003, p.38), risk-taking propensity relies on a person's achievement motive. People who long for achievement deal with risks on a moderate degree, while those who do not aim for high achievements prefer taking more risks (McCarthy, 2000 cited in Henry, Hill and Leitch, 2003, p.38). Tolerance of Ambiguity "Ambiguity refers to uncertain situations" (Chow, Wei and Lee, 1994, p.37). As stated by Budner (1979 cited in Chow, Wei and Lee, 1994), intolerance of ambiguity deals with how one perceives ambiguous situations as something that is threatening while tolerance of ambiguity is the manner of perceiving a situation as something that is desirable. Techniques applied in decision making are usually based on the state of an individual's tolerance to ambiguity. It is justifiable to consider entrepreneurs as individuals who have greater tolerance of ambiguity for the reason that they are often exposed to risks, unlike other professions that are not often exposed to it. Since they are known to have an internal locus of control, entrepreneurs are anticipated to possess high tolerance of ambiguity, and because they consider themselves as controllers, they would likely perceive the minimal occurrence of less favorable outcomes (Chow, Wei and Lee, 1994, p.37). Self Confidence People who have self-confidence exhibit trust among themselves, and they feel that all challenges can be solved by making use of their own strengths. They tend to feel that problems are easily solved for these things are already a part of each and every person's lives. Research has implied that successful entrepreneurs possess self-confidence. These people are known to handle problems well and do not treat these problems as obstacles; instead, they see it as an opportunity to exercise their capabilities, thus resulting to an appropriate solution (Merhish, 2007, p.168). For entrepreneurs, possessing self-confidence is of utmost importance because, without this characteristic, it is impossible to seek for more opportunities. Without confidence, growth will be hindered by doubt and will only lead to stagnation. Therefore, entrepreneurs have to develop this characteristic; otherwise, any entrepreneurial venture entered upon will have low chances of growth and development. Reflection: Entrepreneurial Characteristics These days succeeding in any entrepreneurial venture are extremely difficult due mainly to globalisation, and pressure in the society, which is actually happening all around the globe. If a person wants to succeed as an entrepreneur, there must be the willingness or the desire to pursue a dream in spite of the complexities and consequences that are attached to it. Personally speaking, the characteristics mentioned can be possessed by anyone, as long as there is willingness. These characteristics can be developed over time, if one is eager to transform oneself into a more responsible individual. Individuals who dream of becoming big will work hard to develop these entrepreneurial characteristics, but for those who do not, it seem unlikely. Proactiveness drives one to seek for new opportunities; self-efficacy allows one to understand and believe in his/her own capabilities; people who hunger for achievement will do whatever it takes to achieve their aims; locus of control keeps one in control of any major decisions. Moreover, entrepreneurs who are risk-takers have the courage to face the consequences of their decisions, meaning they perceive even uncertain situations as opportunities. Lastly entrepreneurs are confident; they believe in their own strengths and treat their weaknesses as a motivation for their improvement. All in all, these characteristics, which may or may not be intrinsic to all individuals, define a true entrepreneur. In one’s own view, all characteristics must be present or if not developed if there is a desire to grow and succeed in any entrepreneurial venture. References Abrams, R. and Kleiner, E., 2003. The successful business plan: secrets and strategies. 4th ed. Palo Alto, CA: The Planning Shop. 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