The Genetics of Entrepreneurial Performance - Research Paper Example

ENTREPRENEURSHIP Introduction A profit making company is started and run with one main objective of making profits and increasing the shareholders wealth (Hyneman, 2005, p.129). Profit making is a very attractive venture and everyone hopes to make profits when they start a profit-making business, and no one ever wished that their business would fail especially during the early stages of operations, especially because of the capital outlay which is involved. However, business still fail even without finishing one year in operation because of various reasons, and in fact study shows that more than 50% of businesses in third world countries fail within the first year of operations (Ireland, 2014, p.208). Below are a number of reasons why businesses may fail soon after inception. Analysis Before a business is started, proper planning should be done by the promoters of the business, who may also be the managers when the business has started operating. Prior planning is done using a business plan which looks into various aspects of the prospective business including the market, consumers, and the requirements of the business. A business plan should be prepared by a professional, and it should also show an extrapolated financial account of the business (Landstrom, 2007, p.57). Preparation of a business plan is essential because it gives the entrepreneur a feel of how the business will be. Most times when one is considering starting a business, the profit motive usually cloud a person’s judgment yet there could be telltale signs in the market which can show somebody that the business will actually not be prospective. Therefore, many businesses fail because the owners do not do a proper planning before they start operations, and some issues that would have been discovered during business planning get the entrepreneur as a surprise. Another factor that may lead a business to fail within the initial stages of its operations is competition and barriers to entry. In well-established markets like the pharmaceutical industries and the hospitality sector in some countries, there is a stiff competition in the market and those who are already developed create barriers to entry for the upcoming businesses. A market example with barriers to entry in the hotel and hospitality sector is a market where Starbucks has a branch. Starbucks has been known to make market entrants face a difficult challenge which end up failing the business because of the competition practices it practices. Since the company is well established, with minimal operational costs due to its collaboration with coffee farmers it can operate at very low costs making competitors not to cope. Coupled with its existing brand image and economies of scale due to the many branches it has, the company can operate at a loss at any of its branches and still bounce back when the market is good. A case in point was when Starbucks entered into the UK market after its purchase of Seattle Coffee Company, because it is thought that Starbucks operated at a loss willingly in bid to win over competitors and take the market lead. When an established company decides to operate at a loss in order to win over competitors, newly established businesses fail because they cannot afford to operate at a loss. Big companies can operate at losses because they have built vast reserves of capital which can be used to fuel the company operating at losses. Unethical competition processes and high barriers to entry count as another reason small businesses fail in the initial years of their operations (Scott, 2008, p.40). The third reason businesses fail in the initial stages of their operations is because of the misconceptions that the entrepreneurs have before starting a business (Lock, 2012, p. 99). These misconceptions are couples with unrealistic and a non-entrepreneur objectives which come with improper understanding of how business work. A point in mind is when a person decides to start a business so that he can spend more time with his family, or so that he can be his boss. Indeed those who work in offices and other employment places most of the times envy those who are self-employed because of the free time they allegedly have. However, it should be noted that this is a misconception because a business owner should be more committed to his business more than he was even committed when he was in employment. Most business succeed because of hard work and resilience by those who started the business. For a business to make profits and continue operating in the market, the owners have to see to it that it makes the profits that are used to run a business. This is though ensuring that the company makes enough revenue break even and leave some funds to pay the owners of capital through dividends, and this is an objective that cannot be achieved by spending more time with family. Therefore, before people venture into business they should understand the implications, and that they may have to sacrifice a couple of months even without pay before the business picks. The third reason business fails in the early stages of inception is due to obsolesces and failed technologies. When a business is starting up, it purchases assets that are to be used to generate revenue for the company, and the assets and inventory acquired is used to set up a business, and are used according to the business plan. However, in a fast changing technological era like this, there is constant change of technology, and the business may face a stiffer competition in the market forcing those companies who are already in the market to purchase assets of advanced technology. An example of this is a printing company which has a machine producing up to 80 copies by minute. If another business is started with a similar machine, and the initial company faces competition then purchases a machine producing 100 copies per minute, a new business’s machine will be obsolete. This is a competition gimmick is used by developed companies to tramp the developing businesses. Consumers will prefer a fast producing machine as compared to a slower one if the cost of printing is the same. This problem can be approached by a business doing proper market analysis to know the best machine in the market at that moment, and purchasing it if its capabilities agree. However, an impediment to this is when a business has a limited amount of capital and cannot the newest machine in the market. This can also be solved by concentrating on the quality of service delivery and not so much on the nature of assets that the company has. Some companies have been able to build brand image from good service delivery performing more than developing companies (Roth, 2014, p. 340). The fourth reason a company fails after its inception is because of poor management. Most people who start businesses are people previously employed, and who have no experience in business management. These people will dwell on the little knowledge they had when they were working, leading to poor management (Roberts, 2000, p. 194). Since these starters have no prior business management experience, they do not want to employ experts to work for them and thus end up messing up the whole thing. It is noted that business management does not cover only the buying and selling of goods and services, and there is more to be done to ensure that the interdependent components of the entity are working together towards the overall success of the business. The business is made up of various interdependent parts which ought to work together in harmony if the business is to succeed. When a business is starting the entrepreneur has a tendency of making mistakes along the way, and the best way to go about the mistakes is to learn from the mistakes and use them to build the entity. Proper management entails constant planning and implementation of the company activities, and it is not enough that proper planning was done at the inception of the business. The management of the business should be in constant look out for new strategies that will lead the company to success. A company may start very badly, and the management looks for better strategies that will totally transform the performance of the business (Reynolds, 2007, p.169). Location is also another critical factor when considering the success of the entity. Location of the business determines the accessibility to the customers and other factors such as security, and this is why proper business planning should be undertaken so as to determine the best business location for the enterprise. A well-managed business in an improper location will struggle to make sales, and it can only do well with aggressive marketing and promotional strategies. Marketing and promotional strategy are strategies that the business must implement in order to reach out to consumers and prospective clients of the business (Ramoglou, 2013, p.445). The main form of promotion is advertisement through print as well as through electronic media. Advertisement will let prospective consumers know about the products as well as the positive attributes of the products leading to increase in consumers. With the advent of the internet and social media, new companies such as a company in question can make use of the internet as it is very cheap and efficient. A social media page may need little to run, yet it can reach a lot of people on real time. However, when considering using social media advertising, a business should be very wary because the competitors can attack the entity in disguised forms leading to poor business image. Capital adequacy is another factor that leads to business failure at their earlier stages. Capital is the amount of money that the promoters of the company contribute so as to start and run a business, and it can be sourced from personal savings or loans (Nicolaou, 2013, p. 480). Loan financing is expensive in terms of constant repayment, and may require substantial collateral that the company may not have at the time. However, when the business has established, loan financing is preferred because the interest paid for the loan is a tax-deductible item, while the dividends that are paid to shareholders are not. Capital adequacy is dependent on whether the business promoters made adequate estimates when they were planning to start a business. While planning, a certain percentage of the capital should be allocated to miscellaneous and other expenses which may arise in the business that had not been planned for. The owners of the business should also be ready to inject more money to the business when the money injected earlier proves to be inadequate (Locke, 2012, p.14). If the promoters feel that they have run out of money, and they cannot get financing from financial institutions, they can sell the shares of the business, but this move will depend on the legal nature of the business entity. Businesses can get loan financing from financial institutions and strategic partners better if they are companies rather than being sole proprietorships or partnerships. Thus, the business should have enough capital to stay in business even if the company does not make immediate profits. There are also other rare reasons which at times happen, like when the entrepreneur dies or is declared bankrupt. This is also dependent on the nature of the business in question because businesses in the form of sole proprietorships are attached to the owner, and the death or bankruptcy of the owner kills the business. It is to be noted that a sole proprietorship is a business that is not separate from the owner, and thus when the owner is faced with financial challenges, the business in question constitutes one of the assets which will be resorted to by the creditors of the person when they are declaring the person bankrupt. Therefore, it is prudent for a business to be a company that is a separate legal entity from its owners because should the owner have financial problems, or even be declared bankrupt, the business will not be liable for any unless it is proved that the formation of the company was a scam to defraud the creditors of the owner.. A company is a legal person, and the debts of the owner cannot be transferred to the company (Hill & Jones, 2010, p.32). Failure to set goals and objectives and measure those goals and objectives can also give the business a slow death, and the goals and objectives of the business should be set at the beginning of the businesses, and those objectives are measured and evaluated at specific intervals (Guillebaud, 1961, p.108). The main objectives which are set should be those objectives whose achievement spells the success of the entity. While an objective like giving employees good physical facilities for their exercises is good, this is not the major reason the business is in existence (Brewer, 1992, p.80). The goals should be tied to increased revenue, reduced costs, and reduced employee turnover, and these goals and objectives should be evaluated at regular intervals to ensure that they are being achieved. When these goals are reached, there is a tendency that the business will also be a success, and if they are not being achieved, the business owners should come up with an alternative strategic plan to ensure success (Gartner, 2001, p.30). Employees of a business entity also contribute to a larger extent to the success or otherwise of an entity, because the employees are the vehicles that the business uses to carry its business culture to the consumers. This is more critical on the service industry than on the commodity industry because the company can have adequate capital and employees but fail to have a good method to deliver the services to the consumers (Brown & Johnson, 2004, p.379). This will have an effect on brand image of the company as well as customer retention and referral which is the most effective method which companies use to gain consumers. Customer retention is the ability of the company to have customers coming over and again because they loved the services they received from the company. Customer referral is the ability of the consumers to bring their friends and relatives to purchase from the business because they liked the service delivery they received from the previous encounter with the business (Brown, 2012, p.24). Finally, other factors that may contribute to the failure of a business, which may seldom happen, include economic recessions, and this affects all the companies across the business divide (Anderson, 1987, p.900). There are also natural calamities such as earthquakes and floods and even civil unrest which make the operation of the business impossible. Conclusion From the above analysis, it is seen that when people are starting a business, they are aiming at making profits and expanding the business. However, due to factors unknown to them or through negligence they make the entity fail, and yet the failure of a business is a failure to the people who contributed the capital to run a business. From the discussion, it is noticed that a major reason businesses fail is because they lack proper planning at the inception of the business and throughout its progression. Business planning is a core element of the going concern of business, and it should progress throughout the life of a business as long as the business is in operation. References Anderson, A. B. (1987). Short-term projects and emergent careers: evidence from Hollywood. American Journal of Sociology, 92: 879-909. Brewer, A. (1992). Richard Cantillon: Pioneer of Economic Theory. London: Routledge. Brown, J. & Johnson, G. L. (2004). Workforce planning not a common practice, IPMA-HR study finds. Public Personnel Management, 33(4), 379. Brown. D. (2012). Principles and Practice of Human Resources. 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