The Challenges for Business Start-ups - Essay Example

Running Head: Challenges for Business Startups Challenges for Business Startups [Institute’s In brief, it is an observation that new businesses often face great deal of challenges during their initial days. As the old saying goes that “People dont plan to fail, they fail to plan” (Moore & Ellis, pp. 610-611, 2002). Only those businesses survive which have the planning, resources, determination, and focus to cope up with those challenges. In this regard, the paper is an attempt to present a brief overview of these challenges in light of various examples, theories and other literature. The paper includes discussion and analysis on different aspects of the topic such as financial resources, entrepreneur’s time, competition from existing firms, human resource management, establishment of customer base and intellectual property rights. TABLE OF CONTENTS Abstract 2 TABLE OF CONTENTS 3 INTRODUCTION 4 DISCUSSION 4 Financial Resources 4 Entrepreneur’s time 5 Competition from big companies 6 Managing Human Resources 7 Establishing customer base 7 Lack of Managerial know how 9 Intellectual Property Rights 10 Keeping a track of changing market conditions 10 CONCLUSION 11 REFERENCES 12 INTRODUCTION Entrepreneurs, entrepreneurial ventures, and small businesses are a common sight everywhere in the world. Not only they remain a crucial driver of the economy but they also provide employment, foster innovation, improve the quality of life of people, and create an upward spiral of growth. Alone in United Kingdom, there are more than 4.8 million small business which employ less than five people. Furthermore, out of these 4.8 million businesses, 3.8 million are sole proprietors. According to a conservative estimate, almost 0.5 million people start their own business every year. Over 60 percent of the total workforce or almost 22.8 million people of the United Kingdom work with small and medium sized business. Surprisingly, 60 percent of the commercial innovations also come from these small businesses. However, there is another side of the picture, which tells that more than 80 percent of these small businesses fail within the first year of their operations (Scarborough, Wilson & Zimmerer, pp. 41-45, 2011). Therefore, the point here is that these new businesses often face great deal of challenges during their initial days. As the old saying goes that “People dont plan to fail, they fail to plan” (Moore & Ellis, pp. 610-611, 2002). Only those businesses survive which have the planning, resources, determination, and focus to cope up with those challenges. This paper is an attempt to present a brief overview of these challenges in light of various examples, theories and other literature. DISCUSSION Financial Resources As mentioned earlier that 80 percent of the businesses in United Kingdom have a chance of failing within the first year. However, important here to note is that the biggest reason why these businesses fail is due to the lack of financial resources, bankruptcies, or unexpected expenses (Scarborough, Wilson & Zimmerer, pp. 41-45, 2011). Therefore, this is one of the biggest challenges, which start up businesses face. Most entrepreneurs would use up all their financial resources in starting up a business. Entrepreneurs acquire capital from various sources, which include family, friends, bank loans, savings, venture capitalists, angel investors, equity, and others (Longenecker, pp. 214-216, 2008). The point here is that most of these entrepreneurs would start their business based on optimistic assumptions of consistent cash flows. The owners of these businesses usually owe thousands of dollars to the investors or debtors. Therefore, even the slightest decrease in the expected cash flows due to any external or internal reasons force them to the verge of bankruptcy (Deakins & Freel, pp. 352-356, 2009). Furthermore, most of the new business owners would usually undermine the importance of using strict and prudent measures for keeping check and balance on the cash flows. They would refrain from using tools such as balance sheets, income statements, cash flows, inventories, and others to record their financial resources (Moore, pp. 467-468, 2008). Most businesses get bankrupt because they fail to calculate their cash flows (Moore & Ellis, pp. 610-611, 2002). Entrepreneur’s time Experts on entrepreneurial ventures often refer new businesses as babies or newborn children. In order to give birth to a child, the mother has to go through a lot of pain and effort. However, the birth of the baby is not the end of the effort taking and painful time but it is just the start of another chapter, which would require even more effort and struggle to raise the baby (Longenecker, Petty, Palich & Moore, pp. 418-426, 2009). Therefore, the point here is that during the initial days of the business, it asks even more energy from the entrepreneur. Several researches have shown that most of the entrepreneurs would skip many meals, would be sleep deprived, and would find themselves in the middle of complaining families and complaining customer or employees (Allen & Meyer, pp. 285-286, 2005). Competition from big companies Without any doubts, all startup businesses, regardless of their industries, markets, locations and other factors, face the challenge of competing with big companies. Rivalry amongst the industry and possible retaliation from the big fishes of the ocean is a common but deadly phenomenon for start up businesses. Industries, in this regard, operate according to the principle of jungle and present the best depiction of how wild animals deal with new comers (Stokes & Wilson, pp. 413-420, 2006). Every once in a while, when a new lion enters into territory of another mature lion, and as soon as the lion gets the slightest hint about the entry of that newcomer, it would put everything aside and with all its power and strength, it would try to ensure that it regains its territory (Moore, pp. 467-468, 2008). The same is the case with industries. Whenever, well established players in the market see a potential threat in any new business, they leave everything and with all their human, financial, technological, physical, and other resources, they try to do whatever it takes to eliminate the threat (Scarborough, Wilson & Zimmerer, pp. 41-45, 2011). The biggest challenge here for the start up businesses is not the fight or the rivalry with the competitors but the advantages, which the well-established companies enjoy in the market. They are more likely to have huge financial resources at their disposal, which means that they could even manage to survive at break-even point (Deakins & Freel, pp. 352-356, 2009). Consider the case of Coke and Pepsi. Pepsi entered into the market almost 15 years latter than Coke. However, in order to teach a lesson to each other, Coke and Pepsi have even operated at losses in many countries. Furthermore, big companies already have access to suppliers and distribution channels and with the help of their old partnerships; they can even block the supply of new business or make it problematic to reach the customers with desired distribution channels (Longenecker, Petty, Palich & Moore, pp. 418-426, 2009). Managing Human Resources Most business startups, which take place, have single founder, who had dreamt of establishing his or her own business someday. However, the founder or entrepreneur soon realizes that the dream will not come true in the absence of support from other people (Stokes & Wilson, pp. 413-420, 2006). Nevertheless, in the absence of formal and expert human resource officers, recruitment, selection, job analysis, orientation, training, development, reward, compensation and other aspects of human resource management emerge as a problematic issue for many various start up businesses (Moore & Ellis, pp. 610-611, 2002). Furthermore, it is the issue of retaining the employees, which emerges as the biggest issue for small companies. A recent survey also revealed that almost 61 percent of the new business owners believe that retaining and attracting quality work force is the biggest challenge, which they are facing (Longenecker, pp. 214-216, 2008). Businesses at their startup phase usually do not offer various benefits or rewards to their employees. On the other hand, large companies are more likely to offer benefits and rewards such as bonuses, insurances, cars, homes, pools, memberships, games, and others to retain and attract new talent (Deakins & Freel, pp. 352-356, 2009). Establishing customer base When people say that it takes time for a new business to pick up, they say the same because of the fact that it takes time for the target market to know about the new business. All start-up businesses dedicate all their energy and resources towards building a customer base. Their chief objective of the company remains to ensure that its target market gets to know about their presence, offerings, and uniqueness through advertising, word of mouth, billboards, posters, or any other means (Pinson & Jinnett, pp. 125-128, 2006). One of the most important reasons why older businesses are more likely to survive is because they develop a cult following, create a base of loyal and satisfied customers who are ready to come to the company, repeatedly (Moore & Ellis, pp. 610-611, 2002). Over the period, with repeated purchases, observation of the business owner, product quality, and service quality, customers develop a trust and relationship with the company and its owner. Even if the new business is offering better product with superior quality and even with competitive price, this does not guarantee the success of the company (Longenecker, Petty, Palich & Moore, pp. 418-426, 2009). Through promotional offers, advertising and other forms of marketing, the company would have to make efforts towards decreasing the feeling of strangeness and alienation for the company in the hearts and minds of the customers. Consider the example of Nirma in this regard and the approach with which Nirma Washing Powder in India established these relationships and customer base (Allen & Meyer, pp. 285-286, 2005). It was in 1969 when the son of small farmer in India, Karasanbhai Patel finally attempted to fulfill his dream of making a detergent by mixing soda ash and a few other intermediaries. Patel used his experience of working in the government laboratory as a science graduate and soon his neighbors saw that Patel was able to set up a small detergent-making unit in the backyard of his home (Pinson & Jinnett, pp. 125-128, 2006). Patel made these detergents alone, without any help with his bare hands, packed it in polythene bags and used to sell it to door to door on his own bicycle. Today, Nirma employs more than 15000 people and earns revenue of more than 24 billion rupees (Scarborough, Wilson & Zimmerer, pp. 41-45, 2011). The key to this business here was the fact that Patel purposefully went through the stressful process of going to doorsteps of all the people in locality to sell that detergent. This allowed Patel to establish such links and relationships with the buyers that they were ready to reject all other detergents despite of their heavy advertisements and other benefits (Stokes & Wilson, pp. 413-420, 2006). Lack of Managerial know how Amongst many other challenges, lack of managerial know how and expertise is amongst one of the most common reasons of business failures and thus remains the biggest challenge for business start-ups. Important here to note is that the marketplace is not as it was five or four decades ago (Pinson & Jinnett, pp. 125-128, 2006). With the passage of time, it is becoming more volatile, ruthless, brutal, and instable. May be a few decades back, managing a business without the knowhow of managerial tips and tricks would have been possible because there were more chances that the person how has made a mistake would get a second chance (Stokes & Wilson, pp. 413-420, 2006). However, this concept of second chance is quickly fading and no longer exists. Today, there is a thin line of one wrong decision, which differentiates between running and closed businesses. Therefore, today, it has become important for new business owners to have ample know how of managerial concepts either through formal education or through on field experience (Deakins & Freel, pp. 352-356, 2009). Concepts such as financial management, new product development, growth strategies, relationship marketing, promotion, integrated marketing communications, business research, competitive analysis, macroenvironmental analysis, e-business, employee motivation, customer satisfaction and customer delight and others are some of the crucial concepts which business owners must know. Intellectual Property Rights Many of the business start-ups have their roots in a unique product idea, innovation, or creativity in the process of product making. The entrepreneur hopes to earn thousands by selling the product and even growing into a large company with that unique idea or concept. However, many entrepreneurs avoid intellectual property rights or fail to make proper use of the same (Longenecker, pp. 214-216, 2008). For example, many big companies keep a close eye on innovations and creativity of small and new businesses and with the brains of their expert employees; they make small changes to the product and bring them in the market. These changes are large enough to avoid any legal charges but they are small at the same time so that they do not take away the essence of that product or offering. Furthermore, business startups which fail to patent their ideas or products on time are left with nothing (Moore & Ellis, pp. 610-611, 2002). Keeping a track of changing market conditions As mentioned earlier as well, over the past few years, the market place has become an extremely violate and instable place for the businesses. Due to globalization, speed of transportation and communication, informed buyers and many other factors, changes in the market have become a regular and recurring phenomenon (Longenecker, pp. 214-216, 2008). Businesses, which fail to embrace change, have become a part of history. Consider the example of Woolworths, British high street retail music chain, which had a history of more than 100 years before it was shut down in 2009 because it failed to plan and then later failed to cope up with the ongoing recession, resulting in the loss of more than 27000 direct jobs (Deakins & Freel, pp. 352-356, 2009). Another example could be Swissair, an airline company that has the title of “the flying bank”. As a growth strategy, the company started buying shares in other airlines; however, it failed to understand that these companies were mostly making losses and were not a good investment. The company started facing crucial cash flow problems and the 9/11 attacks determined its final destination. The company filled for bankruptcy failing to manage the problems of post 9/11 era (Allen & Meyer, pp. 285-286, 2005). There are many other such examples but the point here is that it has become imperative for both big and small business to keep a track of market changes. Changing customer tastes, demand trends, customer perceptions, e-business, supplier relations, technological advancements, recessions, inflations, law and order situation and many other sources pose a serious challenge for new businesses (Scarborough, Wilson & Zimmerer, pp. 41-45, 2011). CONCLUSION Therefore, towards the end, it is understandable to conclude that new businesses or business startups face many challenges in the complex marketplace of today. These challenges are both impactful and unavoidable (Moore, pp. 467-468, 2008). Therefore, no business can survive in the market without having a proper strategy to tackle with all these challenges. As mentioned in the beginning of the paper, “People dont plan to fail, they fail to plan”. Planning and preparing for the future is the key here. Business startups that take place with a strategic direction in their mind are more likely to survive the ongoing shocks of the market place rather than the ones, which just jump for the sake of it (Longenecker, Petty, Palich & Moore, pp. 418-426, 2009). Business startups without proper planning are similar to a ship with rudder, which is moving in circles without any direction and like an autumn leaf on the tree, which can be flown away with just a single blow of a light breeze. REFERENCES Allen, Kathleen R. & Meyer, Earl C. 2005. Entrepreneurship and Small Business Management. California: McGraw-Hill. Deakins, David, & Freel, Mark S. 2009. Entrepreneurship and small firms. California: McGraw-Hill Higher Education. Ibrahim, A. Bakr., & Ellis, Willard H. 2002. Entrepreneurship and Small Business Management: Text, Readings, and Cases. New York: Kendall/Hunt Publishing. Longenecker, Justin G. 2008. Small Business Management: Launching and Managing New Ventures. London: Cengage Learning. Longenecker, Justin G., Petty, J. William., Palich, Leslie E., & Moore, Carlos W. 2009. Small business management: launching and growing entrepreneurial ventures. London: Cengage Learning. Moore, Carlos W. 2008. Managing Small Business. London: Cengage Learning. Pinson, Linda, & Jinnett, Jerry. 2006. Steps to Small Business Start-Up. Copenhagen: Kaplan Publishing. Scarborough, Norman M., Wilson, Douglas L., & Zimmerer, Thomas. 2011 Essentials of entrepreneurship and small business management. New York: Prentice Hall. Stokes, David, & Wilson, Nicholas. 2006 Small business management and entrepreneurship. London: Cengage Learning. Read More