The Creation of a Successful Entrepreneurial Venture: Analysis and Critique - Essay Example

?Entrepreneurship Part The Creation of a Successful Entrepreneurial Venture: Analysis and Critique The importance of entrepreneurship in modern day society cannot be overstated with Henry, Hill and Leitch (2003, pp. 7-8) arguing that it contributes significantly to total employment and household per capita incomes in the UK. This is a pattern which is replicated all around the world; a view also supported by Down (2010, p. 3). Entrepreneurship can be defined from several angles, but it revolves around a way of thinking and acting that is opportunity based, approaching complex situations holistically and with leadership balance (Stoke, Wilson and Mador 2010, p. 8; Marriot 2008, 46). The process of entrepreneurship has been detailed in the literature to a huge extent (Timmons and Spinelli 2004, 47). However, questions may arise as to the actual feasibility and relevance of scholarly entrepreneurship especially when considering the dynamics of true practice. It is thus imperative that a critical analysis of this process be undertaken. This study will critically appraise the entrepreneurship elements of idea generation, strategic objectives, market analysis and research, understanding competition, understanding of financial numbers and projections, competitive strategy and scenario analysis. Idea Generation This is the first step of the business planning process and can be defined as the production of business ideas for something new (Hitt 2002, p. 205). Idea generation integrates the creativity aspect of entrepreneurship and opportunity recognition and hence involves the generation of potentially useful ideas in terms of generating economic value. Some of the avenues employed in idea generation include detecting opportunity cues, probing the future and systematic searching, largely supported by the social network perspective which suggests that information for idea generation involves the entrepreneur’s interactions with people within their networks (Hitt 2002, p. 205). Upon analysis, it is discernible that detecting opportunities in ones environment is clearly a source of ideas for new business ventures. Probing the future is also another perspective of opportunity detection but this time based on visualising future trends. This step of entrepreneurship being mainly cognitive in nature as creativity and opportunity detection mostly relies on cognitive processes. However, the fact that some individuals generate more valuable ideas than other suggests that the right combination of experience and stored information is crucial. Thus, generation of ideas revolves around having the right raw materials in the cognitive systems as a result of our life experiences. A case example is the generation of the Toyota idea- where Kiichiro Toyoda started a vehicle wing from his father’s machine making business (Toyota-global.com 2011). It can be argued that the machine-making developed the cognitive basis for Toyoda’s innovative thinking to establish the car-making business. This cognitive basis analysis of idea generation also provides for the view that entrepreneurship can be learnt. Strategic Objectives According to Hitt (2002, p. 3), strategies are performance oriented processes geared towards the operations and projects to be undertaken when the business is rolled out. Strategic objectives, therefore, refer to the aims that the entrepreneur has in terms of achievement of his vision. According to Volkman and Tokarski (2010, pp. 126-127) strategic objectives cover all aspects the enterprise seeks to cover; financial, competition, sales, marketing, ecological, quality and ethical among others. They should also be attainable and coherent. It is appreciated that strategic objectives are necessary in guiding the operations of the enterprise ones established, besides observing that such objectives should be SMART (specific, measurable, achievable, realistic and have timelines). Although cognitive skills reign supreme in drafting strategic objectives, issues such as ethics, ecological and elements of CSR may stem from behavioural skills and thus this step in business planning encompasses both cognitive and behavioural skills. An example of this is Mark Constantine, the co-founder of Lush Cosmetics, which has been famed for ethical entrepreneurship - Mark claims to remain true to his values and shuns extreme corporate inclination which has influenced all his business ventures (Famous Entrepreneurs in UK 2010). Market Analysis and Research This refers to the systematic collection of data regarding the visualised product in terms of aspects like demand, supply, price and market size among others (Mohanty 2005, p. 30). Market research is essential in establishing the entrepreneur’s product positioning in the market, the expected market share, competition, expected incomes, impact of the product in the market among other considerations. Some of the avenues applied in industry analysis include Porter’s Five Forces analysis and PESTEL analysis. It is necessary that market analysis is undertaken in the business development process. It provides an opportunity to make reviews of the already established strategic objectives where necessary. Whereas this also a cognitive-based section of business planning, an observation can be made pertaining psychological skills- for instance, one may predict market shares for youth products by understanding their psychology despite the industry forces in action. Understanding the Competition One of the aspects the entrepreneur establishes from the just discussed market analysis and research is the level of competition in the market. Competition is the efforts undertaken by players in the market in a bid to achieve greater or desired market shares (Gibson 2007, p. 38). From Porter’s analysis, it is seen to involve both directly competing products and substitute products. For instance, establishment of a business in the airline industry would be subject from other airlines (similar products) and substitute means of transport such as road and rail. Competition has the potential to directly impact market share and thus in extension the sales and financial results visualised by the entrepreneur. It is vital for the entrepreneur to understand the competition the business is going to experience due to a number of reasons. Mainly, all the plans made by the entrepreneur so far are internal and have not been subjected to considerations of market dynamics. The entrepreneur needs to understand the various competitive edges possessed by other players in the industry, how replicable they are and how they influence the present market shares. Business planning fails to mention the legal aspect about competition. For instance, innovation markets (those based on research and development) are usually characterized by competition law, which in Europe is the European Competition Law (Glader 2006, pp. 57-58). This shows that this aspect is not only cognitive, psychological (altruism) but also involves legal considerations. Understanding of Financial Numbers and Projections Financial projections are the indicators of the enterprises financial conditions and performance within a given time and include calculations of solvency and profitability, break-even analysis, return on investments and cash flow forecasts (Kaplan and Warren 2009, pp. 231-232). This is directly linked to one of the strategic objectives of the enterprise; financial, which plays a central role in all other objectives such as sales, marketing and CSR among others. Understanding financial projections is crucial since financial management also determines the daily running of the business besides ensuring that realistic goals are set. Upon reflection, understanding financial figures and projections in the business plan- albeit shunned by many entrepreneurs- is indispensable to the entrepreneur. Although not included among the characteristics of an entrepreneur in the exact financial terms per se, the traits of goal-oriented leadership, objectivity and realistic planning ability (Henry, Hill and Leitch 2003, p. 35) all point to the need for understanding financial projections. Besides, these projections also determine the overall management of an enterprise which means it would be unwise to launch the business without grasping them. Competitive Strategy Competitive strategy refers to the way in which a firm, and in this case an enterprise, competes in the market, involving positioning of the product and defence of this position against competitors (Walker 2003, p. 9). The previously discussed market analysis first helps determine the competitiveness of key competitors (analysis of the competitive environment) after which the entrepreneur then establishes their own strategy. This can be based on generating a competitive advantage (analysis of internal capabilities) and devising ways on how to protect this due to market dynamics. It is crucial for an entrepreneur to detail this in the business planning process since it determines their product positioning and movement in the market. Although also cognitive, entrepreneurs can utilise other skills to establish competitive strategy. For instance, competitive advantage can be established through the enterprise being environment conscious, which may stem from the entrepreneurs own environmental consciousness. Scenario Analysis According to Simon et al (2005, p. 1) scenario analysis an avenue used to help understand possible future developments in complex systems, using explicit if-then propositions that determine the consequences of several driving assumptions. It is noteworthy that the entrepreneur undertakes scenario analysis in planning. This appreciates that the market is a dynamic institution and monolithic assumptions may turn out wrong. It would help the entrepreneur stay ready for a range of eventualities, and this can be best done during the business planning process. Summary The business planning process as provided in literature is mainly cognitive. However, analysis reveals that elements of behavioural and psychological skills are seen to come in certain aspects of the business planning procedure. The aspects covered in theory of entrepreneurship planning are in agreement with business planning upon analysis. This can be seen in the aspects of idea generation, strategic objectives, market analysis and research, understanding competition, understanding financial numbers and projections, competitive strategy and scenario analysis. Part 2: Entrepreneurial Characteristics according to Literature and Personal Entrepreneurial Skill Set The best approach for the appraisal of one’s entrepreneurial skill set is through establishing how they measure up to what is provided in the literature. In my case, I will first briefly discuss the theoretical approaches used to understand entrepreneurial minds, and then discuss the attributes, behaviours and skills associated with entrepreneurs while reflecting on how I compare. This will then be followed by a discussion of the extent to which I understand the importance of entrepreneurial attributes and the extent to which I believe my skill sets have improved. Approaches to Understanding Entrepreneurial Mindsets There are a number of approaches used to understand entrepreneur motivation and their ways of thinking. One of this is cognitive approaches, which involve analysis of the decision making process used by entrepreneurs. Aspects of this approach include determining how individuals perceive and interpret the world around them, cognitive bias and social and cultural environments (Butler 2004, p. 141). These aspects affect the individuals’ values including self-efficacy and how the entrepreneurs react to challenges. The Trait Theory is another approach that can be used. It explains how individual innate qualities affect actions in different situations. In this approach, the entrepreneur is seen to possess a strong sense of self confidence, is hard working and focussed (Stokes and Wilson 2010, 44). Social psychological and sociological approaches, on the other hand, explain how social structures affect individuals’ behaviour, in this case in relation to entrepreneurship (Henry, Hill and Leitch 2003, p. 69). Entrepreneurial Attributes and Self Appraisal The entrepreneurial attributes to be discussed in this section are based on the traits approach to understanding entrepreneurs. Stokes and Wilson (2010, p. 44) ponder the question of whether there is an archetype on which judgments on individual aptitude to entrepreneurship can be based. The two authors appreciate that the nascent (founding) entrepreneur has a crucial influence on an enterprise particularly in its early days; such importance is what results in several attributes being associated with entrepreneurs since the enterprise would otherwise fail. Carter (2007, p. 41) discusses the Big 5 Personality Model of entrepreneurship traits arguing that it is easily the most investigated paradigm in contemporary entrepreneurship besides stating that it is the most consensual structure of traits to ever emerge despite criticism from several angles. I will explore entrepreneurial traits based on the Big Five Personality model alongside which I will gauge my entrepreneurial skills set. The first element of the Big Five Personality approach is the need for achievement, which serves as the main driving force behind the pursuit of entrepreneurship. The desire to achieve goals in individuals is linked with the ability to identify and act on opportunities available in one’s environment. Manifestation of the need for achievement as an entrepreneurial trait can be observed through a number attributes. These include confidence of success, desire for independence, energy in pursuit of goals and lastly measurement of success by wealth. Upon reflection, I realise I have a strong desire for personal independence and can perform well even without supervision. My drive for goals is particularly strong, with my focus and commitment being unwavering whenever I undertake tasks. I, however, value satisfaction and achievement outside the financial measurement of success. From this reflection, I believe I share the need for achievement that characterises entrepreneurs (Stokes and Wilson 2010, p. 44). The second aspect is the need for autonomy, which is identified in entrepreneurs as the strong desire for independence and need for freedom to chart own future. It is argued that entrepreneurs in many cases have to establish concepts that are non-traditional and would initially receive negative reviews thus self-direction is a key difference between entrepreneurs and the conformist others. I have a strong will for autonomy as I realise that even as a team player I have to contribute ideas for I value independent thinking. I take time to reflect on what I want before making decisions. Hence, I believe my need for independence is not in question thus I compare well with entrepreneurs (Henry, Hill and Leitch 2003, p. 71). Locus of control is the other attribute that differentiates entrepreneurs from the rest of the population. Entrepreneurs believe that can control their own destinies and influence the world around them (internal locus of control) while non-entrepreneurs believe that their lives are subject to chance and fate (external locus of control). I believe I have a strong commitment to self-determination which translates to bearing an internal locus of control as evidenced by several decisions including choice of field of education (Stokes and Wilson 2010, p. 45). The next entrepreneurial trait is the propensity for risk-taking. The internal locus of control, sufficient drive and belief in self and independence result in entrepreneurs having a risk of propensity which is absent among non-entrepreneurs. However, extreme risk taking is not considered as entrepreneurship since it may stem from deep insecurity rather than confidence in oneself. Although there is a lack of general consensus, the more accepted view is that entrepreneurship involves calculated risk-taking. Personally, I view myself as a moderate risk taker and thus consider myself bearing the right level of risk-taking propensity that entrepreneurs have (Carter 2007, p. 41). The last personality trait is entrepreneurial self-efficacy which involves an individual’s belief that they have the potential to perform and accomplish certain tasks or activities, in this case involving risk-taking. Innovation and management in entrepreneurship is largely dependent on self efficacy since the entrepreneur is involved in mostly non-traditional grounds. I have belief in my abilities and confidence that I can fulfill tasks and activities within required timeframes, which means I have the relevant attribute of self efficacy possessed by entrepreneurs (Stokes and Wilson 2010, p. 45). Entrepreneurial Skills and Self Appraisal Stokes and Wilson (2010, pp. 55-51) discuss another approach to evaluating an entrepreneur aside from the trait theory approach. The Model approach is based on a number of skills and behaviours that entrepreneurs share. I will analyse these skills and behaviours vis-a-vis personal and entrepreneurial skills. One of the skills observed among entrepreneurs is effectuation/effectual decision-making, in which explains how entrepreneurs act in the face of uncertainty and when clear goals are difficult to establish. It is essential in the inception of a business since it starts with available resources and lets a new enterprise to be gradually shaped (Stokes and Wilson 2010, pp. 238). Upon reflection, I realise I do not possess the skills of effectuation, with the encouraging aspect being that they can be learned. Opportunity discovery and exploitation (related to creativity and innovation) are another set of behaviours possessed by entrepreneurs, especially being at the centre of the concept of entrepreneurship itself. This involves entrepreneurial alertness to opportunities and the ability to create new ventures exploiting these opportunities. I realise that I have the ability to spot opportunities while, however, lacking skills to exploit such opportunities. Resource acquisition and co-ordination is an ability that separates entrepreneurs from non-entrepreneurs and explains the reasons behind the failure to exploit opportunities. Entrepreneurs have the resource-leveraging skills through which resource constraints are managed (Stokes and Wilson 2010, pp. 53). I lack such resource-leveraging skills and will need to learn and practice them if at all I am to make headways into entrepreneurship. Entrepreneurs also maintain a strong network of individuals or organisations through which mutual support, collaboration and assistance is undertaken enabling start-up and management of enterprises and overcoming of internal resource constraints (Hitt 2002, 205). The cognitive basis of entrepreneurship is developed by such networks with elements such as competitive behaviours being gained. I have considerable networks with business people from whom my interest and inspiration towards entrepreneurship stems. I, however, do realise that I will need to develop stronger networks if I am to establish myself as a successful entrepreneur. A number of technical skills including in terms of the products or services, intellectual property issues, market/industry knowledge, marketing, finance, human relations among others are also characteristic of entrepreneurs and aid in the successful management of enterprises (Stokes and Wilson 2010, pp. 52). In terms of these, I submit to having only general knowledge at best, and will seek to master them. Conclusion and Impact of Seminars Entrepreneurs have a number of attributes, skills and behaviours that ensure they are successful, including the need for achievement, locus of control, self-efficacy, need for autonomy, risk-taking propensity, effectuation, opportunity discovery, resource leveraging, networking and several technical skills. Upon reflection, I understand the need and importance of these characteristics for successful entrepreneurship. While I bear considerable levels of the characteristics in some aspects, I am deficient in others and would need to make an effort to develop them since the cognitive basis of business-building allows for this. The seminars on entrepreneurship have significantly enlightened me on the concepts involved, defining aspects that were previously unclear and providing enormously demystifying entrepreneurship. Thus, I believe my current skill set has been substantially enhanced, besides gaining a clear focus of the things I will need to do in the future. References Baron, RA & Shane, SA 2008, Entrepreneurship: A process perspective, Thomson Learning. Butler, JE 2004, Opportunity identification and entrepreneurial behavior, Information Age Publishing. Carter, NM 2007, Female entrepreneurship: Implications for education, training and policy, Routledge, Park Square. Down, S 2010, Enterprise, entrepreneurship and small business, SAGE, London. Famous Entrepreneurs in UK 2010, Mark Constantine, Growing Business, viewed 30 November 2011, . Gibson, DA 2007, The E Factor: Increase your career, business or social enterprise prospects, Enterprise HQ, UK. Glader, M 2006, Innovation markets and competition analysis: EU competition law and US antitrust law, Edward Elgar Publishing, Great Britain. Hitt, MA 2002, Strategic entrepreneurship: Creating a new mindset, Blackwell Publishing, UK. 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Modern competitive strategy, McGraw-Hill International. Read More