Business Venture Willams - Assignment Example

Business Table of Contents Introduction 4 Entrepreneur 5 Internal Environment 9 People and networks 10 Cash 13 External Environment 14 Competitors and customers 14 Business planning and analytical tools 17 Business plan 17 Analytical tools 18 Conclusion 19 Executive Summary Entrepreneurs are referred to those people, whose business actions give a new leader to an economy, when there is technological advancement and industrial growth (Gasparski, Ryan and Kwiatkowski, 2011). However, entrepreneur is defined as the person who has habitually innovated and developed recognized values by employing perceived opportunities. True entrepreneurs aim at innovating and creating ideas, which will develop into a successful plan. They use their talent in order to overcome all the obstacles that appear during the establishment of the new venture. The entrepreneurs have the ability to overcome the obstacles very easily as problems are defined as new opportunities (Thompson and Bolton, 2007) Berglund and Johansson (2007) had proposed that “there is some of mystification regarding the assumptions that can be attached to the concept of entrepreneurship” (Berglund and Johansson, 2007). There are many researches, which highlights the critical issues experienced by the entrepreneurs during the start-up of the business. Likewise, Black et al (2010) had reported that the personality of the entrepreneurs is different from the general people. The entrepreneurs have the capability to take risk for establishing a new venture. DeNoble, Jung and Ehrlich, (1999) had continuously tried to identify the specific skills that are required for being a successful entrepreneur. Nevertheless, the attempt had turned futile as entrepreneurs have separate capabilities, which help them to become successful in building up their innovative ideas (Berglund and Johansson, 2007). The entrepreneurs have the urge to start a new business venture, which needs both business and financial plans. The ventures fulfil the demand of the common mass and aims at serving them for their own benefit. The entrepreneurs have to take into account a number of factors before they plan for setting a business. This are related to internal and external factors that can affect the operation of the business or they can also harm the success of the same (DeNoble, Jung and Ehrlich, 1999). The entrepreneurs have to make huge investment in order to set up the new venture. Moreover, the new venture also requires work force and the assets, which are essential for the operation for the business. It is observed that most of the new venture lack financial resources during the course of the establishment that results in failure (Katila, 2005). The new business venture does not have credibility with the investors during its set up. The financial resources for the establishment are either obtained from the banks or the partners. The report aims at establishing the critical factors and issues that should be considered by the entrepreneurs while starting a new venture. Introduction Before starting a new venture, a number of assumptions are made; this are prepared at the conceptual stage of the business plan. The business plan plays an important role in the success of the new business (Sahay, 2009). The entrepreneur plans for a new venture after realizing the gap in market place; this gap is identified as an opportunity. Hence, the opportunity is exploited by establishing a new business plan, which aims at meeting the market gap (Timmons, 1985). It is worth mentioning that there is nothing abstract other than the ideas for creating the venture. Therefore, a new venture is physical and concrete. A business plan is prepared in order to transform the abstract into reality. Business is regarded as the blue print of the actions that are intended to take place for the success of the business (Sahay, 2009). In the business plan all the details of the internal and external environments is depicted along with the finance that is needed for the start-up (Gibbons and DeSimone, 2004). These environments have the ability to pose threat on the establishment of the business. Thus, it is significant for a new venture to analyze its internal and external environment. Moreover, the there are five main issues that are to be considered before creating a new business venture such as buyer, opportunity, the industry or market, financing and the market entry strategy (Sahay and Sharma, 2009). If the issues are not considered by the business it can be predicted that the business can experience failure (Gibbons and DeSimone, 2004). There are a number of issues that are involved with a new venture; however, few are discussed in the report with proper evidences. The writer aims at depicting the skills that are required by an entrepreneur in the report along with the important issues that are related with the internal and external environment. Business environment is classified into macro, micro and market environment (Fernando, 2011). These environments are critically examined in the report and the tools such as SWOT and PESTLE are employed in order to assess the issues that arise in a new venture. Entrepreneur Entrepreneur is the first person who needs a proper business plan for developing the business (Sahay and Sharma, 2009). Through the business plan the entrepreneur aims at highlighting his/her innovative ideas. The entrepreneur assumes the different options that are related to the establishment of the new venture as a result there is considerable amount of risk associated with business. Hence, entrepreneur is regarded as the opportunists and risk taker (Vermeulen and Curșeu, 2010). Joseph Schumpeter had defined entrepreneur as the innovator, who takes the risk of trying out new combination for initiating process of economic development by introducing new services, products, markets and source of raw materials (Mohanty, 2005). He/she seeks for an opportunity to enter into a market or a new market with a new or existing product so as to cater the needs of the population and meet the market gap. Here, opportunity is regarded as the set of circumstances that arises due to the need for a product or service. Hence, it is crucial for the entrepreneur to identify the need of the market and prepare the business plan accordingly (Mohanty, 2005). Moreover, it should be noted that they have their own reason to start the new venture. They are self-motivated and confident; this attitude gives them the courage to start the new business (Jørgensen and Malchow-Møller, 2008). Male and female entrepreneurs are observed to have different motives in establishing new business. Female entrepreneurs have the tendency to start up a new business for financial gain and run the family. It is observed that the women entrepreneurs have to balance the commitment of the family and business; hence, they are very energetic and can adopt the changes very fast (Carter, et al., 2006). However, the male entrepreneurs are goal oriented and give emphasis on earning finance from the business. They are highly qualified and wise to take any crucial decision without much effort. Both female and male entrepreneurs are confident regarding their decisions; hence it gives them the strength to encounter very odd and overcome it with great energy (Jørgensen and Malchow-Møller, 2008). Main characteristics of a successful entrepreneur are discussed henceforth. 1) Desire for achieving the goal: The entrepreneurs have the desire of achieving higher goals. They are guided by their inner feelings and this motivates them to achieve their specified goals. Establishing a business is their dream and thus succeeding in doing so is their achievement. Hence, they are motivated to achieve the goal by their inner instincts (Mohanty, 2005). 2) Risk bearing potential: The entrepreneurs actually take any decision under uncertainty as a result they have the attitude of bearing the risk associated with the business. However, they do not gamble with the outcome. They are wise enough to take calculated risk, which are exciting and reasonable to experience success (Mohanty, 2005). 3) Independent nature: The entrepreneurs start their business independently and do not depend on others. They prefer to rule and not serve; moreover they are responsible for the decisions taken during the course of their business (Mohanty, 2005). 4) Locus of control: The entrepreneurs have the belief that results of any event are beyond their control. They have the ability to control the consequences and take the effort to influence the socio-economic environment rather than leaving everything to the act of luck. They have the confidence that they can shape up their destiny (Cassia, Fattore and Paleari, 2006). 5) Flexibility: The entrepreneurs have the ability to measure the pros and cons of every decision and act accordingly. They can change their activities based on the consequences; thus they are flexible enough to change any decision or revise it at any moment to time. 6) Positive thinking: The entrepreneurs are positive in their decisions and actions. They dream of achieving their goals. The entrepreneurs always use their positive mind in taking any decision and thus negativity cannot stop them for deciding abruptly. 7) Leadership quality and creativity: The entrepreneurs are creative enough to develop something new, which is acceptable by the population. Moreover, they have the ability to create a new team and lead them. They have the capability to motivate the team members and ensure high performance from them. 8) Intrapersonal skills: The entrepreneurs are confident and comfortable when dealing with others. During course of business, they come across a number of individuals with different bent of mind. The entrepreneurs have the ability to deal with this individual and influence them for success of their business. McLarty and Dousios (2006) had described skills as the ideas that are related to competence, attributes, proficiency and the ability to something unique. The activities are closely associated with their expertise, knowledge and capability; hence it can be stated that the entrepreneurs should have the above mentioned traits so that they can become successful in the long run. However, Gilbert, McDougall and Audretsch (2006) had identified that prior work experience and qualification helps the entrepreneurs to grow in a market. The authors had focused on different abilities that are required by the entrepreneurs to establish a business successfully. According to Brush (2008), there are three main capabilities of an entrepreneur such as bootstrapping, visioning and social skills. The vision refers to the future, which takes into consideration elements such as time. The vision is value driven and also evokes the mental image of the entrepreneur. Bootstrapping refers to the conservation of financial resources and cash in order to start a new venture. Lastly, social skills refer to the ability of the entrepreneurs to interact with other and influence them to join the venture or even help them to fulfil the goal (Brush, 2008). Markman and Baron (2003) had stated that the scope for success of entrepreneurship is totally dependent on the personal characteristics of the entrepreneurs. These characteristics interact with the market forces in a very complex manner and ascertain success of the organisation. It is worth mentioning that there is rise in number of old entrepreneurs, also known as grey entrepreneurs, the recent years. The gaining population above 50s are eager to start new business rather than sitting back at home (Kautonen, 2008). These grey entrepreneurs have the potential to add to the economy as they have expertise, knowledge and experience of life. They are ready to take the benefit of occupying the fast growing business market place (Kautonen, 2008). Internal Environment Arthur M Weimer had stated that business environment includes the climate, which take into account the social, economic, political or institutional factors that can affect the business both positively and negatively. In starting a new venture, the entrepreneurs should examine the internal environment so as to assure that the business does not experience in future regarding cash and human resources. The internal environment refers to internal factors that can be controlled by the business. In starting a new business, resources such as people, cash and equipments are necessary (Steiner and Solem, 1988); without these three resources it is impossible for an entrepreneur to start a business. They need cash for the fundamental establishment of the business such as setting up an infrastructure, hiring people for forming a team and purchasing asset for the business. Nevertheless, it is observed that the entrepreneurs often find it difficult to acquire cash for the assets and starting the business. The small organisations do not have sufficient capital reserve; hence, it is very crucial for the business to have an adequate asset base (Lorrain and Raymond, 1991). The banks use a definite framework known as CAMPARI in order to check the financial condition of a new venture. CAMPARI stands for Character, Ability, Margin, Purpose, Amount, Repayment and Insurance. The framework helps the banks to understand the creditability of the business, whether it has the ability to pay the interest and capital borrowed in future. Hence, the banks need to assess the credibility of the business before it lends the money. The main difficulty experienced by the entrepreneurs as the banks seeks for the track records of achievements before it provides the cash. This tracks records and performance of the business are unavailable to the entrepreneurs. Hence, the lenders or the banks find it difficult to evaluate whether the entrepreneur can return back the money after a particular period of time. Moreover, the problem is encountered by the investors who have the interest to invest in the venture; this is also known as venture capital (Zott and Quy Nguyen, 2007). The CAMPARI framework has provided an opportunity to the entrepreneurs to understand how the bank examines their credibility. Hence, the entrepreneurs have the scope to improve their performance so that the lenders do not get the chance to reject their loan applications (Graham, 2000). The government should also the small ventures by providing them easy financing source so that they can establish the business and repay the amount within a specified period of time. Steiner and Solem (1988) had stated that the mutual understanding between the banks and new ventures can eliminate the financial gaps that the latter encounters during the foundation of the business. People and networks A new venture needs people and a network through which it can establish the business successfully. Hence, social capital is an essential part of every venture. The social environment incorporates the people who are ready to communicate and trust each other for ensuring participation in the new venture (Haber and Reichel, 2007). It is observed that new venture is set up in a group; this indicates that a number of financer is good for the business. The entrepreneurs get the scope to increase its credibility and contact with the external world and most importantly, it supports the business with proper decisions. According to Gilbert, McDougall and Audretsc (2006) a number of entrepreneurs staring a single venture are better equipped for the purpose due to availability wide range of resources from the networks or contacts. The resources can be finance, raw materials, equipments, assets and even information. This resource helps the new venture to prepare a strong base for its start-up (Jørgensen and Malchow-Møller, 2008). The entrepreneurs seek for experts and experienced employees so that they have knowledge regarding the operation of the business. An experienced employee can easily understand what is required and not required for the success of the venture; hence their experience is valuable for the new venture (Cassia, Fattore and Paleari, 2006). The main advantage of hiring an expert is that the venture gets the scope of avoiding any costly mistake, which can take place if a fresher is hired. Therefore, the cost and decision making time of the venture is reduced by employing experienced. These employees have the capability to contribute towards the success of the venture along with the entrepreneurs. However, it is worth mentioning that hiring this type of experienced people is not at all cheap (Gilbert, McDougall and Audretsch, 2006). Market consultants, accountants and engineers have to be paid quite a good amount of salary, which is quite expensive for a start-up business. In order to avoid expensive hiring, it can concentrate on obtaining professional services through issues of equity shares for the services and also through deferred payments (Sahay, 2009; Bhave, 1994). Amidst the discussion it can be identified that there is shortage of skilled labour in the medium to small sized firms. The new ventures may encounter sudden uncertainty such as late hours work, no vacations and late payment of salaries. This is the main issue for the venture to attract skilled employees (Reijonen, 2008). This problem can be solved by hiring an efficient team, which consists of professionals who are experienced in their own field. It can be noted that recruiting an appropriate team does not only helps in searching for the right resources but also increase the competitive advantage. The entrepreneurs should be very particular regarding hiring of the appropriate professionals for the start-up; as they cannot take the risk of appointing low skilled professionals who are unable to provide the desired services. It not only increases the cost of the venture but also creates confusion within the management. Thus, the entrepreneurs give emphasis on the appropriate skills of the new candidates those who are interviewed (Cassia, Fattore and Paleari, 2006). If the entrepreneurs acquire the right employees, then it is not difficult for them to ride the growth in business after few years of operation. Hence, talented and skilled human resources are essential for a new venture as the success is dependent on them (Shook, Priem and McGee, 2003). After the team members are hired, the next step of the venture is to treat them equally and offer the same financial incentives. This amount is ascertained according to the capitalization of the organization. The incentives are also based on the performance of the employees and the managers. The employees are also offered to invest in the stock option of the organization, which are related with their employment agreement. This initiatives are taken by the management in order encourage the employees to give their full effort in work and help the venture t become successful in future. The recruitment process and the salary of the candidates add up to the expense of the organization; hence it is evident that small companies may experience difficulty with respect to financial resources. A new venture thus needs a good investment for building up an efficient team; without which it is difficult to start up the business. Hence, it is evident that success of selecting the right employees on their compatibility in the venture. Moreover, entrepreneurs may employ a network rather than employing a number of workers as it is more cost effective and information are also gathered efficiently (Liao and Welsch, 2005). Cash Apart from the human resources, the internal environment also includes the source of finance or cash required for the operation of business. The cash flow ensures the amount of money that has been received and spent for the establishment of the business. The cash received by the venture indicates its earning through sales and other source of income. These earnings are collected in order to meet the expenses and cost of the business. The costs and expenses are expected to be lower than the income and this situation leads to generation of profit (Cardon and Stevens, 2004). Profit is essential for a new venture as the business has to invest the amount for further development of the business. It is observed that the new venture takes time to earn a considerable amount of revenue, which can provide profit. This is because the products or service of the new venture have to get accepted in the target market. With the increased in customers base the sales will increase that will simultaneously improve the profit value. All this depend on the ability of the venture to make a prominent place in the market. If the venture does not get adequate response from the market, then the sales value is negative along with income. This is a great challenge for the organization (Chesbrough, 2000). If the venture have the capability to attract the attention of the population and the demand increases beyond expectation then the sales experiences high growth. Despite the growth in sales the venture may encounter problem in generating profit. The sole reason behind this incapability is the increase in cost, which does not allow the venture to collect any profit. The cash flow should be managed efficiently in order to track changes in the cash balance. The orders are filled up even before the payments of the products or services are made. This indicates that short term financing is very crucial for the business as it is required for paying the suppliers of the raw materials (Chandler and Jansen, 1992). External Environment The external environment takes into account competitors and customers. The new venture should study the target market very carefully as there can be competitors, which can impact its business to a great extent. If the competitors are strong, the venture will strategize their operation accordingly (Ostgaard and Birley, 1996). The target customer is also assessed in order to understand their taste and preferences. The effect of both the factors is elaborated henceforth. Competitors and customers A new venture may experience challenges in the defined market from few external factors, which can even affect its sales and income. The competitors challenge its existence as a result the venture has to devise strategies so that it can overcome the challenge. The competitors, products, services and customers should be identified by the new venture so as to devise its strategies for positioning its services in the market. Hence, it is significant for the venture to analyze the external environment so that it can succeed in the future (McLarty and Dousios, 2006). There is an efficient tool for analyzing the industry; it is known as Five Forces Model. The model was developed by Michael Potter for assessing the current condition of the industry (Porter, 2008). This tool is significant as it identifies all the potential challenges and opportunities in an industry. Hence, a new venture should always examine the industry in which it is going to enter. There are many unseen forces, which have the ability to impact the business to a great extent. If the framework is executed properly, then the entrepreneurs get the opportunity to understand the competitors and the industry. The model also signifies whether the entrepreneur should enter the industry and whether there are attractive niches (Goldberg, Cohen, and Fiegenbaum, 2003). Competition is important for a new venture as it affects the success or failure of the business. Hence, it is important for the new ventures to study its competitors before entering a market; it is vital for the running of the business. The ventures that examine the market and operate accordingly are more likely to experience growth in future. With the help of Porters five force model, the ventures can identify the bargaining power of customers and suppliers in the market. These are significant for a venture as it has to examine whether suppliers have the bargaining power to manipulate the supply of raw materials. The purchasers or buyers have the power to bargain in the market when the competitors are strong enough to lower the prices of the products or services. The threat from rivals is also scanned so as to keep informed regarding the challenges that it can experience during the course of business. The ventures also need to overcome the barriers and build their own competitive advantage, which will assist to grow in future amidst competition. The entrepreneurs should build their firms in such a manner that its management can adapt the changes that are taking place in the turbulent environment rather than resisting it. The management hierarchy is flexible enough to accommodate the changes and train the employees to do the same. Thus, adapting the changes is essential for building up its competitive advantage. According to Sahay and Sharma (2009), the entrepreneurs observe the market in such a manner that it can relate it to their business. The authors have identified that they often fails to estimate the skills and resources that are required for the successful operation of the business. New firms in a creative industry focus on the customers and products rather than concentrating in the competitors. Here, the entrepreneurs are so confident regarding their ability that they overlook the existence of strong competitors (Steiner and Solem, 1988). According to Lee and Wong (2003) the marketing strategies adopted by the new ventures are different from the large firms. The primary reason is that the new firms do not have adequate cash and time invests in marketing of the products and the brand. Moreover, a start- up business often cannot hire appropriate human resource, whose skill will develop a new direction for the venture (Ostgaard and Birley, 1996). Sahay and Sharma (2009) had signified that the marketing strategies are devised based on valid and reliable market research. This market research is characterized by collection of data that are related to the taste and preference of the target market. The research is executed in order to satisfy the customer needs and give effort to win their loyalty (Goldberg, Cohen, and Fiegenbaum, 2003). Understanding the external environment is very difficult and this is a major issue pertaining to the establishment of a new business. Apart from the competitors, the ventures should also take into account the behaviour of the buyers. The customers must be aware of the products and services that are offered by the new venture (Chandler and Jansen, 1992). Hence, the new business should try to convince the customers before they make any purchase decision. Researchers have identified that educational background of the entrepreneurs also helps in solving the problems of customers (Gibbons and DeSimone, 2004). Extensive knowledge regarding consumer behaviour is essential for starting a new venture; as their behaviour varies customer wise, which is quite challenging for it to market the product or services (Chandler and Jansen, 1992). The entrepreneurs should be competent enough to formulate strategies for marketing the products or services and also meet the customer demands. Business planning and analytical tools Business plan A business plan not only includes the details of the new venture but also gives emphasis on its financial and marketing part. The details of the company include whether it will be a partnership or sole proprietorship firm. If it is a partnership firm the name and qualification of the partners are depicted along with their share in the business. The details further include the place of setting the business, products or services that will be sold in the business (Gasparski, Ryan and Kwiatkowski, 2011). Apart from the details of the firm, it also provides information pertaining to external environment in which the firm will operate. However, it is evident that the financial requirement of the business is also a major issue for the business. Hence, a budget is prepared in the business plan, which provides an estimated amount for the operation of the business. The budget highlights cash inflow and outflow, which is very crucial for business. This estimation gives it an idea regarding its income and expenditure (Kautonen, 2008). Jørgensen and Malchow-Møller (2008) had stated that business plans helps in evaluating whether business is feasible and it will result in earning profit. Feasibility test is essential for the venture as it assesses value of the business and also provides an opportunity to the entrepreneurs for giving a second thought to the decision. The feasibility analysis takes into account demand for product/service in the industry, efficient management structure, resource sufficiency, the financial condition of businesses and cash needed for the start-up. Analytical tools It is very important to examine the external environment with respect to industry and market; hence, the entrepreneurs should identify the threats and opportunities that exist in the market or industry. The external environment can be examined with the help of PESTLE analysis. Political: The new venture can get affected by the political condition of a country. The political scenario includes the political party ruling, government bureaucracy and regulation. The regulations are challenging for venture as it can restrict the entry of new firms (Liao and Welsch, 2005). Economic: It is a vital factor as it elaborates the financial health of a country with respect to growth. The inflation rate can affect the purchasing power of the consumers that can result in decrease in sales of the new venture. The exchange and interest rates of a country also affects a new venture as it affects trade and commerce (Liao and Welsch, 2005). Social: The lifestyle and social status of the individual varies country-wise. Hence, it is crucial for the new venture to analyse the demographic feature of the target market (Liao and Welsch, 2005). Technological: Technological advancement has the ability to affect the new venture to a great extent; as it becomes very costly for them to change the expensive technology after a short period of time (Liao and Welsch, 2005). Legal: The legal procedures should be considered by the new venture so that it does not experience any legal problem in the course of business (Liao and Welsch, 2005). Environmental: The pollution tax and subsidiaries pertaining to alternative energy should be considered by the venture (Liao and Welsch, 2005). Apart from PESTLE analysis, SWOT analysis also gives a wider view into the external and internal environment of the venture. The SWOT analysis is carried out to understand whether the venture has enough strength to utilise the opportunities that are present in the market. However, it also highlights the weakness of the venture and the threats that are unavoidable. Conclusion There are many issues that are to be taken into consideration before starting anew venture. The report has tried to depict some of those issues in brief due to word constraint. Hence, it is evident apart from preparing a brilliant business plan the entrepreneurs should have the capability to operate the business confidently and ensure that the business is able to earn revenue. Thus, it can be stated that for starting anew venture the skills and competency of the entrepreneur is vital and absence of certain attributes can lead to failure of the initiation. Apart from that a business plan details all the activities that are crucial for the business as it may affect the business greatly. The external environment includes existence of competitor sand customers, which needs to be studied by the entrepreneur before starting the business. Therefore, planning for the set-up is very important as it can eradicate a lot of issues in the initial phase of structuring the business. 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