New Business Start-Ups - Essay Example

ENTREPRENEURSHIP ASSINGMENT Introduction There are several factors and conditions that have influenced the ability and ease with which new businesses can be set up. One important factor has to do with the nature of market structure practiced among most industries, which now focuses on the perfect market structure (Frank, Mugler & Roessl, 1991). Meanwhile, Gilmore, Carson & Grant (2001) stressed that in a perfect market structure freedom to entry for new firms is virtually unrestricted, encouraging new business start-ups by the day. This notwithstanding, it is important to note that the ability and urge to start a new business is not as difficult and important as sustaining the business through the full lifespan of the business lifecycle (Nowak, 1996). This essay therefore uses Zaarly as a case study of a startup business to understand from the perspective of Scott and Bruce (1987) and other scholars, what makes or unmake businesses in the first five years after they have been set up. Case study Nature of business Set up in February 2011, Zaarly is a private company founded by Eric Koester, Bo Fishback and Ian Hunter. The company is in the online retail industry with some unique dynamism that focuses on the creation of platform for users or anyone to hire a minion or sell whatever they have to sell to neighbours. Proximity is a central business idea for the founders, making Zaarly a proximity-based, real-time, and buyer-powered market platform (Steiner, 2011). Through the use of online platform, anyone can find people around them who offer services they are looking for, or products they are seeking to buy. In effect, Zaarly is a local marketplace that operates from an electronic basis. Objectives for next five years As serial entrepreneurs, each of the founders of Zaarly already has several start-ups that they personally manage. Zaarly has however been confirmed to be something different as it was set up with the objective of becoming the turning point in the online retail marketplace business (Swartz, 2011). Because of this objective, the three founders seem to have given Zaarly a lot more attention and focus, given the existing competition in the industry. Into the next five years, the company has been tagged to be a common household name for all who want to find the closest place around them where they can have their services and products provided. Capital requirements Shontell (2011) reports a seed capital of $1 million was raised for the official opening of Zaarly. This start-up capital however received a major investment boost when the company received Series A financing that amounted to $14.1 million. The main financiers of the Series A fundraising were Kleiner Perkins Caufield & Byers and Sands Capital Ventures. Today, Zaarly’s working capital is estimated at $35 million, most of which has been raised from market experiment projects which have been undertaken in the form of global marketplace conferences including the South by Southwest Interactive (SXSWi) Conference in Austin, Texas (Steiner, 2011). Private investors have also been contributing to the company’s working capital since 2011 (Swartz, 2011). Vision and mission Zaarly has a vision of serving responsibly through the provision of real-time and buyer centred market platform that puts the needs of the customer first. With this vision, the company sees itself as a people focused company that fails to prioritise corporate gains ahead of social gains. Zaarly also has a mission of bringing fragmented and disintegrated services and products together on a common platform where the public can easily access them. With this mission, Zaarly seeks to lessen the search that prospective buyers would have to go through to get what they want. With this ease, the company becomes the automatic preference of the customer. Time plan Business transition Biannual 1 2 3 4 5 6 7 8 9 10 Id Task name Predecessor Duration 1 Official launch 4months 2 Management structure and team recruitment 1 4months 3 Customer education campaigns 1,2 7 months 4 Market publicity campaigns 2 12 months 5 Introduce new products (diversification) 2,3 12 months 6 Undertake expansion through merger 5 12 months 7 Open first international market 5,6 18 months 8 Expansion through acquisition 6 10 months 9 Initial public offer 7,8 8 months Discussion and Analysis This section of the essay seeks to base on theories of small and medium scale enterprises to create a conceptual framework that discusses and analyses different types of entrepreneurial crisis points for Zaarly as a start-up business. Emphasis of the section is laid on the Scott and Bruce (1987) small firm growth model by reviewing how the model seeks to elaborate on potential crisis points that may be suffered by Zaarly through the identified stages of growth for small firms. Whiles doing this, other models and theories are also compared to the selected model to identify the real state of growth for Zaarly into the next five years. Growth stages and resources needed by Zaarly In the Scott and Bruce model, there are five major stages that are identified for small firms as they seek to go through early transition and lifecycle. In a number of ways, these stages affect and apply to Zaarly as a start-up firm. The first stage is identified as the inception stage, where the company is known to be born. Founded in 2011, Zaarly can be said to have gone through this stage very successfully. The second stage is the survival stage, where Nowak (1996) supported the opinion of Scott and Bruce by indicating that this is the stage that the company has to focus on resources that has to do with money, administrative systems, management and property. With reference to the Gantt chart, it would be noted that the second stage was part of Zaarly’s early years when it was still raising capital and constructing its management structure and team. As it is now, Zaarly is just about to transit out of the growth stage which is the third stage. This is because the company has already utilised expertise as resources and is now seeking to focus on leadership and personal to move to the fourth stage, which is the expansion stage (Frank, Mugler & Roessl, 1991). Once the expansion stage is succeeded with, Zaarly will require more management systems and working capital as resources to survive (Scott and Bruce, 1987). The effect of crisis point for Zaarly In the model of Scott and Bruce (1987), it is emphasised that several start-up firms fail within the first five years because they encounter series of crisis points, most of which come with each of the five stages that have been enumerated above. There is however a central weakness with the Scott and Bruce model as it fails to clearly state the type and nature of crisis point that the companies are likely to face. As noted by Churchill and Lewis (1983) however, this could be a blessing in disguise as it forces Zaarly to take precaution from the fact that crisis points may be experienced with any stage that the company finds itself. Indeed should there have been specific sales levels or expansion scope for the company where the Scott and Bruce model labelled or associated with crisis point, then entrepreneurs could have the luxury of relaxing with precautionary investment and management until such points are reached. Until now, Zaarly which is at the latter stages of growth would still have two hurdles to jump. These are expansion and maturity. But if the caution that crisis point may come at any point, it is important that corporate search mechanisms are put in place to identify any potential pitfalls for growth. But as the Scott and Bruce model leaves the crisis points as open ended and non-specific, there are other theorist and academic studies that associate specific crisis points with early stages of growth. Carson and Hill et al (1995) are such studies which have argued that small firm marketing has always been a major crisis point for start-up firms, given the vast difference between marketing in small firms as compared to what is known in standard marketing books. In effect, standard marketing is seen as a crisis point that can hinder the potential growth of Zaarly from its growth stage to an expansion stage. This is because Carson and Hill et al (1995) noted that there is so much structured, sequential and disciplined approach to standard marketing that is not compatible with entrepreneurial state of start-up businesses. As cautioned by Hill (2001), it is totally wrong to see small firms such as Zaarly as little big businesses. This is because doing so will make entrepreneurs overzealous and ambitious to implement standard marketing approaches which would only end up as non-profitable investment (Gilmore, Carson & Grant, 2001). In effect, it is important that whiles Zaarly is opening itself up to embrace any potential crisis point, it will be particularly careful with the marketing approach selected, noting the need to be dynamic with marketing rather than formal and dogmatised. Implication of Scott and Bruce Model and crisis points for Zaarly Despite the fact that the Scott and Bruce model is not specific in terms of being a predictive model, it gives entrepreneurs several implications for the running of their start-up firms. Three of such implications are discussed. The first implication for Zaarly is for the company to emphasise on specificity. O’Dwyer, Gilmore and Carson (2009) noted a situation about most start-up firms where there is lack of specificity in trading and setting capital targets. Coupled with over ambition and wrong forecasting, most of these small firms are forced to over trade, exposing them to insolvency. This is because whenever there is over trading, the small firm overly expose its available capital to investors. Meanwhile, such investors may come in at the early stages with the prime aim of making profits and thus basing on the shareholder primacy theory to direct the management of the firm to their benefit and interest (O’Donnell, 2011). Another issue with specificity has to do with lack of sufficient working capital, which arises when the entrepreneurs underestimate the possible performance of the company at the initial stages. Meanwhile when the company fails to meet demand due to insufficient working capital, it may not be taken serious and may drive its customers to competitors (Parrott, Azam & Holliman, 2010). The second implication for Zaarly is the need to have a contingency plan for the operationalization of the company. Day and Reynolds (2011) explained the use of contingency plans as being very necessary when small firms are not very certain about what to expect in terms of risk. Meanwhile from the Scott and Bruce model, nothing specific is started about what the crisis points are or the time they can be expected. This means that when Zaarly has a contingency plan, it will help in bracing the company up against sudden and unforeseeable crisis that may arise at any stage of growth. Writing about contingency plans, Acs and Audretsch (1990) explained that these are special plans or preparations made for an outcome that is different from what is expected or part of an original plan. Relating this to crisis points, it can be said that as Zaarly has its own plans as reflected in its mission and objectives, it is important to have alternative plans that will be put to work when the expected plans fall. The use of contingency plan will thus come as a crisis absorber which makes it difficult for Zaarly to feel the real impact of the shocks that unspecific crisis may create (O’Donnell, 2011). The last implication for Zaarly is for the company to improve on its strategic monitoring systems. Most start-up firms have been criticised for refusing to have policy checks and monitors that measure the impact and overall success rate of new policies introduced and aimed at growth (Birley & Westhead, 1990). Due to the absence of such strategic monitoring systems, crisis happen to the start-up firms as sudden events that no one ever sees coming. Meanwhile, when crisis befalls the start-up firm in a sudden manner, its impacts are likely to be greater than when predictions of looming crisis are known. The reason for this is that with monitoring systems in place, and by detecting where possible crisis may come from, it is possible to direct one’s contingency plans towards such problem spots (Bolton, 1971). As Zaarly seeks to go into the expansion stage, it is expected that all policies that are being put in place such as merger and acquisition will be monitored very closely to measure how well the fallout of their investment relates with what is originally planned by the firm. Where any deviations are detected it will be advised that there will be early withdrawal from any such policies. Conclusion The discussion and analysis helps to draw important conclusions on Zaarly as a start-up company and overall crisis associated with transition through the growth stages. The study has also helped in knowing the different ways in which Zaarly can position itself in a way that will be possible to control crisis points even though from the perspective of Scott and Bruce (1987), the crisis points are not specific. In conclusion, it will be reiterated that there are warning systems that Zaarly can used to predict the possible development of crisis. But for the warning systems to be effective, it is important that the implications that have been discussed be utilised. Again, it will be important not to neglect those other studies which gave specific examples of crisis to include the use of standard marketing in start-up firms. Through the use of forecasting and tracking signal systems, it should be able to monitor if the company’s marketing and other policies are working within the means for which they were set to function. References Acs, Z.J. & Audretsch, D.B. eds 1990, The Economics of Small Firms: A European Challenge, Kluwer Academic Publishing, Dordrecht, The Netherlands. Birley, S. & Westhead, P. 1990, ‘Growth and performance contrasts between “types” of small firms’, Strategic Management Journal, vol. 11, no. 7, pp. 535-557. Bolton, J.E. 1971, Report of the Committee of Inquiry on Small Firms, Her Majesty’s Stationery Office, London, England. Carson, D., Cromie, S., McGowan, P. & Hill, J. (1995). Marketing and Entrepreneurship in SMEs: An Innovative Approach. London: Prentice Hall. Churchill, N.C. & Lewis, V.L. 1983, ‘The five stages of small business growth’, Harvard Business Review, vol. 61, no. 3, pp. 30-50. Frank, H., Mugler, J. & Roessl, D. 1991, ‘Growth determinants in new ventures – a comparison of Vienna and Chicago entrepreneurs’, in L.G. Davies & A.A. Gibb eds Recent Research in Entrepreneurship, Avebury, Aldershot, England, pp. 230-257. Gilmore, A., Carson, D. & Grant, K. (2001). SME marketing in practice. Marketing Intelligence & Planning, 19 (1), 6-11. Hill, J. (2001a). A multidimensional study of the key determinants of effective SME marketing activity: Part 1. International Journal of Entrepreneurial Behaviour & Research, 7 (5), 171-204. Nowak, J. (1996). Marketing strategies for Central and Eastern Europe. Journal of Euro –Marketing, 5 (2), 101-125. O’Donnell, A. (2011). Small firm marketing: synthesising and supporting received wisdom. Journal of Small Business and Enterprise Development, 18 (4), 781-805. O’Dwyer, M., Gilmore, A. & Carson, D. (2009). Innovative marketing in SMEs. European Journal of Marketing, 43 (1/2), 46-61. Parrott, G., Azam R. M. & Holliman, D. (2010). An analysis of marketing programmes adopted by regional small and medium-sized enterprises. Journal of Small Business and Enterprise Development, 17 (2), 184-203. Scott, B.R., and R. Bruce (1987), Five stages of growth in small business, Long Range Planning, vol. 20 (3), pp. 45-52 Steiner, I. (2011-05-17). "Zaarly Launches Mobile-Enhanced Classifieds Platform". EcommerceBytes.com. Steiner Associates. Swartz, J. (2011-05-17). "Zaarly helps you buy and sell locally, right now". USA Today. Tysons Corner, Virginia, United States ASSIGNMENT 2 Introduction In today’s competitive business environment, no single business can see itself as an island and operate in vacuum and expect to succeed. This is because who an entrepreneur and business managers know in the course of doing business, especially at the early stages is very important in stimulating growth (Turok, 2011). Because of this, the need to build personal contact networks (PCN) remains an important business process for all start-ups. Vargas (2014) explained personal contact networking (PCN) or small business networking (SBN) as the creation of connections and building of enduring and mutually beneficial relationships within the start-up stages of businesses. In the context of Zaarly, SBN can therefore be defined as any personal connections that the owners and managers of the company develops at the introduction stage of its business lifecycle that aims to promote long-lasting and mutual benefits for the company and the network contacts or partners. But as PCNs are created, it is important that they will be maintained and sustained for as long as they remain necessary for business growth. It is not surprising therefore that there are several studies that point to the relationship between the successful construction and maintenance of PCN and the overall survival and growth of small start-up firms such as Zaarly (Scott and Bruce, 1987). Developing personal network strategy Creating a PCN or SBN is not something that takes place as an event but a process. What this implies is that networking is something that requires a well calculated strategy that helps in its construction and maintenance (McMahon, Holmes, Hutchinson & Forsaith, 1993). Writing on the strategies used in developing PCN, Hosmer, Cooper and Vesper (1977) noted that the first stage or factor to consider in the development process is the need to choose basis of ties. What this implies is that it is important for the enterpreenuer or managers of Zaarly to clearly identify what they want to achieve from a given personal contact before going into a network with the said personal contact. In entrepreneurship theory, Torbert (1974) emphasised that if you do not know where you are going, you better not take a step. By implication, PCN or SBN must not be started when a clear basis of what needs to be achieved has not been well defined. Given the nature of business of Zaarly, the consideration for choosing the basis of ties would best be defined if it is based on the need to reaching out to as many internet users as possible. This is because the sales platform offered by the company takes place online and through the internet. Building a network on the basis of coming into contact with as many users of the internet, particularly new media and social media sites would thus be very advantageous for the company. The second step to consider under the strategy for developing personal networks has been noted to be the need to select the type of network to use (Johns, Dunlop & Sheehan, 2009). On the surface, what this implies is that SBNs come in many different types, a reason for which care must be taken to select a type of network that rightly serves the needs of the start-up business. Katz and Kahn (1978) emphasised that there are several types of networks that be may developed or selected. Some of these include work network, social network, knowledge networks, global action networks, supply networks, and leadership networks. In the context of Zaarly, it is strongly recommended for the company to focus on a type of network that champions the rationale of building a network, which is to get into contact with as many online users as possible. With this said, a multi-PCN which comprises more than one type of network will be recommended. More specially, using social networks, global action networks, and work network will be recommended to be combined into a common multi-PCN. Social networks that are focused on the use of new media are closely linked to online sales websites (Merz, Weber & Laetz, 2014). This is the reason a social network will be important for the company. McMahon et al. (1993) also stressed that a global action network helps in expanding the brand of start-ups internationally. What is more, a work network is needed to equip the company with labour ideas that are focused on corporate growth and development (Johns, Dunlop & Sheehan, 2009). The last part of the strategy is for the company to put structures in place to nurture the network into maturity. Hosmer, Cooper and Vesper (1977) noted that it is only when the entrepreneur or managers of the start-up company can do well to sustain the network that the full potentials in the network can be realised. This is so as most SBNs take long to begin yielding the needed merits that they carry. The absence of sustainability structures would thus lead to a collapse of the network at a very early stage and this may be very disadvantageous for the new firm. There are a number of ways that Zaarly can maintain its personal networks for growth. Particularly, the company must commit resources, particularly human resources towards the activities of the network. It is only when there are personnel specially assigned to report on the networks and take all necessary actions about the networks that the sufficient commitment can be seen from the contact members about the start-up (Kazanjian, 2008). Again, it is important that Zaarly makes the act of network dealings a part of its core organisational culture. Once networking is made part of the organisational culture, employees and other stakeholders of the company will be forced to direct all their actions and dealings towards the philosophies and principles of the network that has been created. Advantages of developing and maintaining PCN to start-ups Once SBNs are constructed and maintained at the early stage of start-ups, there are several advantages that can be derived, particularly in terms of guaranteeing growth for the first five years of existence. One of the major advantages of developing and maintaining PCN as noted by Hill and Pell (2003) was the fact that it helps in the creation of a master mind, which is principle that allows entrepreneurs to secure a wide range of synergies, cumulative wisdom and intelligence about the wider market on which they operate. The development of master mind as an advantage of developing and maintaining PCN is based on the entrepreneurial principle which teaches that business knowledge and wisdom resides not in the mind of a single person (Kazanjian & Drazin, 2009). Rather, the knowledge, intelligence and wisdom needed to succeed in any area of business are well distributed in the minds and based on the experiences of several people. It is only through networking that such people can be identified and part of their master mind adopted. Another advantage of developing and maintaining PCN to start-up firms as noted by Dennis (2011) was the fact that it helps in developing key competences to survival and small firm growth. This advantage is based on the entrepreneurial principle that business growth and survival is a learning procedure, which happens as a continuous process. What this means is that start-up entrepreneurs must actually brace themselves with business growth as part of their learning. When such learning is done effectively, it becomes part of their competence and so given any business situation or scenario, they will be able to easily fit into it and be assured of growth (Merz, Weber & Laetz (2014). It was against this backdrop that Turok (2011) stressed that growing of a business must be part of what an entrepreneur does on a constant basis. Meanwhile, the opportunity to grow a business on a constant basis will not be created if there are no networks based on which the entrepreneur learns from other people, particularly successful models. Another advantage that comes with the development and maintenance of PCN to start-ups is that it enhances opportunities for direct expansion and growth. In a study by Torbert (1974), it was noted that most start-ups land on their first major contracts and growth opportunities from within their networks. This comes when entities within their SBN give them direct contracts based on what they are engaged in, or their entities recommend them to other people. What this means is that whom you know is very applicable for start-up businesses, especially in the first five years of their development. Based on the business lifecycle model, how early a start-up is able to come out of the introduction stage into the growth stage, and then from the growth stage into the maturity stage determines how early the company can be amassing profitability. But as expected, such transition can hardly happen in the first five years if a start-up would want to approach growth all alone. When networks used however, they present new career opportunities including contracts that guarantee growth. Impact of non-financial resources to the growth of start-ups Writing on start-up firm assets that guarantee growth and expansion at the early stages of business operations, Merz, Weber and Laetz (2014) stressed that there are both tangible and intangible assets that may be used by the companies to guarantee growth. The use of SBN is a type of non-tangle asset, as assets are not things that can be seen and touched physically. Yet, they offer tremendous opportunities that are directly related to the growth of the company. This means that when start-up firms are engaging in asset management, it is important they look at non-financial resources such as SBN. Already, it has been stressed that one determinant of start-ups to benefit from their networks in the first five years of operation is for the businesses to focus on the sustainability of the networks. Meanwhile, Vargas (2014) noted that asset management is an important modality of nurturing what assets for the new businesses. As networks have been identified as an example of non-tangible asset, it is expected that their management can be a major way of nurturing them to ensure the much talked about sustainability. Also writing on tangible assets, Chaston (2013) noted that there both financial tangible assets and non-financial tangible assets. Shaw (2013) however lamented that most start-up firms overly concentrate their asset management attention on financial resources, leaving out on the maximisation of non-financial tangible assets or resources such as equipment and transport. Also writing on non-financial resources, Kazanjian and Drazin (2009) indicated that most forms of non-financial resources such as transport and equipment are actually useful potentials for generating financial resources. What this implies is that in the management of tangible assets, it will be important that start-up businesses will not only focus on financial resources but also put in many strategies that aim at developing their non-financial resources. As a way of effectively managing nonfinancial resources, Kazanjian (2008) admonished start-ups to focus on the development of skills and competences of their workforce. Once the workforce is well positioned to manage resources, the firms can be assured of effective management. Again, using the right networks can ensure that asset management supports are offered to the firm for the management of its non-financial resources. Conclusion The essay has helped in outlining the importance of personal contact networks to Zaarly as a business, especially when it comes to sustainable growth for the first five years of doing business. It has been noted that such forms of personal networks that are built by individual entities of the company including its owners and managers, and those that are built at the company level are all helpful in setting a master mind which determines the philosophies of business engagement as defined by the overall dictates of the global business climate. But before Zaarly can begin benefiting from the merits or advantages of business networks, it is important that the company rightly understands that theories and principles that apply when starting a network. This is because having a wrong network could be as non-beneficial as not having one at all. Up to this point, it can be concluded that before Zaarly can adequately benefit from networks, the company ought to allocate much time into researching into all that it would want to achieve from the network. After identifying what the company wants to achieve, the right type of network that meets the aspirations and business model being operated by the company must be used. What is more, it is important that the company stays as committed to the network as it would stay to the delivery of its personal business responsibilities. Once these are done, the first five years of the firm’s existence will become successful and grow as quickly as expected. References Chaston, I., Badger, B., Mangles, T. and Sadler-Smith, E. 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(2009). ‘An empirical test of stage of growth progression model’, Management Science, vol. 35, no. 12, pp. 1489-1503. Kazanjian, R.K. (2008). ‘Relation of dominant problems to stages of growth in technology-based new ventures’, Academy of Management Journal, vol. 31, no. 2, pp. 257-279. McMahon, R.G.P., Holmes, S., Hutchinson, P.J. & Forsaith, D.M. 1993, Small Enterprise Financial Management: Theory and Practice, Harcourt Brace, Sydney, New South Wales. Merz, G.R., Weber, P.B. & Laetz, V.B. (2014). ‘Linking small business management with entrepreneurial growth’, Journal of Small Business Management, vol. 32, no. 4, pp. 48-60. Scott, B.R., and R. Bruce (1987), Five stages of growth in small business, Long Range Planning, vol. 20 no. 3) pp. 45-52 Shaw R. (2013). ‘Growth and the small firm – an alternative view’, Journal of Management Studies, vol. 13, no. 2, pp. 95-110. Torbert, W.R. 1974, ‘Pre-bureaucratic and post-bureaucratic stages of organization development’, Interpersonal Development, vol. 5, no. 1, pp. 1-25. Turok, I. (2011). ‘Which small firms grow?’, in L.G. Davies & A.A. Gibb eds Recent Research in Entrepreneurship, Avebury, Aldershot, England, pp. 29-44. Vargas, G. (2014). ‘Growth crisis in small industries and small firms’, Revue Française de Gestion, no. 44, pp. 13-22. Read More