Entrepreneurial Venture - Case Study Example

Sur 25 March A Historical and Critical Analysis of an Entrepreneurial Venture Entrepreneurship, says Jesús Huerta De Soto1, represents the natural capacity to discover or to create goals and means in order to grasp profit opportunities. Moreover, entrepreneurial freedom is humanity’s distinctive capacity. By engaging in business ventures people decide to explore their entrepreneurial freedom. After a business idea is born, a person has the liberty to start up a company, while acknowledging the risks involved and expecting a profitable turnout. Starting a business is an exciting venture; however, it involves certain steps and stages in development. Therefore, in my paper, I would like to make a historical and critical analysis of an entrepreneurial venture; I will further construct my case study based on Amazon.com and analyze how the company has started and how it has developed, including the stages of venturing that I have identified, as well as problems it has struggled with and the business model that it has used according to a specific time frame and economic context. The founder of Amazon.com, Jeff Bezos, had the vision of building a place where people can find and discover anything they want to buy online at the lowest price possible. Now, before going any further into analyzing the way Jeff Bezos materialized this idea, I would like to look at one of Professor William Sahlman2’s lectures at Stanford and single out the fact that he stated that entrepreneurship is “about a way of managing that is focused on opportunity pursuit, future orientation and relentless execution regardless of the resources one actually possesses” (Academic Earth). Translating these characteristics into our specific case, it is worth mentioning the fact that before founding Amazon.com Jeff Bezos graduated from Princeton University in computer science and electrical engineering and worked as senior vice president at the Wall Street investment bank D.E.Shaw, therefore he was a person with good critical thinking and strong analytical skills. This is why, when he came across an intriguing statistic about the Internet growing at the impressively fast rate of 2300 % ( Encyclopedia of Business, 2nd ed.), he identified it as a significant opportunity, which had to be properly explored. Even though he did not have very extensive knowledge about the Internet, he decided to take the risk, because, as a true entrepreneur, he managed to grasp profit opportunities. This way, Jeff Bezos entered the universe of e-commerce and started his entrepreneurial venture with no previous trading experience. However, he did understand that the Internet was the one place that had the necessary means to help him accomplish his vision, since on the Internet one is able to develop a business that would be able to compete with other bigger businesses, by reaching customers which prefer the convenience of buying online. Jeff Bezos decided to start the company in Seattle because he believed that here he would find most of the technical professionals he needed. This way, Amazon.com was founded in Seattle, in 1994 and the company went online in 1995. The beginnings of the business were very humble: operating from a garage, Amazon.com benefited from a total investment of 1 million dollars, money which came from Jeff Bezos’s personal funds, as well as loans from family and former co-workers. At that time, Amazon.com was selling only books online and the main strategy was to save money while honoring first orders from the customers: in order to cut operational costs, Bezos “built desks, bookcases, and other office furniture out of old doors and pieces of used lumber. To help supply electricity, he used power cables to bring electricity from the house to the garage. Once a customer placed an order, the staff would immediately request the title from one of their book suppliers. Everyone took turns packing books for shipment.” ( Encyclopedia of Business, 2nd ed.). The company struggled indeed with costs and expenses and it did not turn profit until year 2001, which is 6 years after it went online. Even though the beginnings of the world-wide Amazon phenomenon were very modest, the development of the business turned out to be very interesting, turning Amazon.com into the biggest online retailer. This amazing growth was based, however, on the main strategy adopted by the company and that is innovation - “Whatever you think about Amazon’s long-term prospects, there is no doubting the online retailer’s ability to innovate” (The Economist). Always developing new applications and functions for the website, as well as introducing new product categories and exploring global markets Amazon.com has managed to experience tremendous growth and become an inspiration, a platform for development for other businesses, but most importantly, a “destination site” where customers could finds everything they needed at the lowest prices possible. From the very beginning, Amazon.com set out to be the most customer-centric company in the world (Brad Shepp 12) and this represented a key-success factor for the business. “Start with the customer and work backwards” says the company’s Senior Vice President of International Retail Diego Piacentini. This key goal did not suffer any alterations, no matter how much the business had to adapt and I believe that this is very important for any entrepreneurial venture: keeping the original vision in mind while dealing with change. I have identified 3 main venturing stages that I have named accordingly and which I will further analyze. The first stage was called expansion, because during this stage Amazon.com aimed the expansion of the number of books listed in stock on the company’s website. The company tried to make the online shopping experience as easy and as pleasant as possible for the customers, offering them a wide range of book titles to choose from. This, I believe, is one of the major advantages that the company had, as opposed to regular bookstores: Amazon.com has the capacity to offer millions of titles online which the customer can order without any stress, while a regular bookstore can hold only around 350 000 books. At the same time, Amazon.com ships the books directly to your office/house, saving you the trouble of going to an actual shop. During this same first stage, the company expands to the United Kingdom and Germany, which resulted in a dramatic increase in sales. The second stage, called enhancement, represents the company’s initiative to do more than simply sell books on the internet and therefore to implement some new options on the web site that allowed customers to write their own reviews about the books, as well as rate them. These innovations significantly enhanced the customer experience, demonstrating to the costumers that the company truly cares about their opinion and about their needs: “Amazon’s egalitarian approach to book reviews - namely, that anyone can say what they like about anything, and award it up to five stars - looks, on the face of it, a brilliant idea. Each book has its own page on Amazon’s site, and whenever a reader submits a new review, it appears automatically” (The Economist). As a third stage in the venture, Amazon.com aimed for diversification. While following its strive for innovation, Amazon opened, by 1999, new stores within the existing shopping site such as music, games, DVD/videos, video games, software as well as electronics, toys and games. In order to increase revenues, Jeff Bezos, due to his remarkable entrepreneurial spirit, had the idea to engage other companies to sell their products online on the company’s, with Amazon’s help, while splitting the sale generated income. Also in terms of diversification, I would like to specifically emphasize the fact that Amazon.com has took the lead into selling e-books as well - which could have been a threat to the business, since they represent the substitute for the paper-based books - and has created the instrument for reading e-books as well, the Kindle reader. In terms of the main problems encountered while developing the business, I have identified three major ones; the company has mainly struggled with costs, profitability and growing competition. First of all, speaking of costs, we look into the operational costs, because Amazon.com intends to ship 95% of products on the day that the order was posted (Case Study: A Strategic Analysis of Amazon.com in 1997); however this implies high costs with warehousing and transportation, as well as a certain struggle with the throughput. On the other hand, by acquiring a large number of books directly from publishers the company offers a large selection of title to customers and receives very good discounts from suppliers, which is definitely a plus, as discussed before. This is why the company had to struggle with operational costs over the years and by the looks of it, it is still a problem for the future. Second of all, as I have mentioned in a paragraph before, Amazon.com has struggled with profitability; even for the initial business plan the company wasn’t planning on turning a profit until after four or five years, which actually turned out to be six years, since Amazon.com turned its first profit in 2001. This slow growth also generated conflicts with the stakeholders, who were expecting the company to return profit sooner. Third of all, the area of e-commerce is a very competitive business, because it is appealing for its convenience and practicability; therefore, it is only normal for Amazon.com to suffer from the direct attack of the competition: eBay, Home Depot, Reel.com and others. However, they have not managed the shatter the foundation that Amazon.com has built its business upon: customer care and innovation. After all, even though during its development the company has struggled with the problems stated above, “there are key factors such as a strong brand, providing customers with outstanding value and a superior shopping experience, massive sales volume and realizing economies of scale which contribute a lot to the success of this company” (Case Study: A Strategic Analysis of Amazon.com in 1997). Speaking of key success factors, it is crucial that this paper analyzes the ones that have helped Amazon.com storm ahead on the market. “Maintaining and improving operational efficiencies is the key to sustainable competitive advantage of Amazon.com” (Harvey). After all, it is all about the company’s possibility to offer shopping convenience in terms of product search, selection and checkout, so that the customer would be able to make a good shopping decision and be satisfied with it, as well as in terms of low prices and the trust that the customers has developed in the company. Therefore, one of the most important key-success factors I believe that it is represented by the company’s costumer centered policy. Amazon.com has developed all the technology that it operates with on its own in order to best meet customer needs; at the same time, they are always trying to avoid marketing hypes on their site and therefore try to be as truthful as possible with the customers. By focusing their attention on the customers, Amazon.com is obviously trying to achieve value-added differentiation. Besides the fact that the site allows you to post reviews, rate and preview books, it also retains your search options and your recent links in order to configure your preferences and offer instant personalization for the clients. Referring to this kind of customer-oriented technology, Jeff Bezos believes that "Personalization is like retreating to the time when you have small-town merchants who got to know you, and they could help get the right products. The right products can improve your life, and the wrong products detract from it. Before the era of mass merchandizing, it used to be that most things were personalized. The purpose of customization is you get the economies of mass merchandising and the individuality of 100-years-ago merchandising." (Case Study: A Strategic Analysis of Amazon.com in 1997). Therefore, Amazon.com focuses on giving each customer a unique, personalized purchasing experience and this way I believe it managed to become leader on the market. At the same time, Amazon.com has also invested a lot in advertising, gradually promoting the brand and helping it grow stronger and more popular among customers. Amazon.com turned out to be an ambitious company from the very beginning and this way, it decided to conquer other markets as well. It is very important to mention though that it did not follow the traditional business thinking in the process. Usually, when a company is trying to enter a foreign market, it is supposed to adapt the business according to the cultural norms for the country. When a company expands into foreign territories, common thinking dictates the company must learn to do business according to cultural norms. However, this was not the case for Amazon.com, because the company strongly believes that the only things that need to adapt to a foreign country are the mechanisms and the logistics of the business, but it is key that the company’s core values and its focus on customer satisfaction remain intact all around the world (Harvey). At the same time, all Amazon.com employees are encouraged to forget about the “best practice” principle and to focus on the fact that every action is equally right as long as it is not proven otherwise with valid data. Based on these success factors, Amazon.com has build a new business model which aims to offer a valuable experience for customers by harmoniously combining the following aspects: “shopping convenience, ease of purchase, speed, decision-enabling information, a wide selection, discounted pricing and reliability of order fulfillment” (Case Study: A Strategic Analysis of Amazon.com in 1997). This combination of useful information, pleasant service and good logistics creates value for the customers and gives the company a competitive advantage on the market. As a conclusion, I would like to say that Amazon.com is a very interesting, engaging and dynamic company founded by a remarkable entrepreneur, who was able to identify the opportunity, form a team of people to work with and always look ahead into the future with an innovative touch. I would also like to state that one of the things that I admire most about the company is its eagerness to take risks that are outside of their core business. For example, for the past years, a large amount of the company’s IT resources previously remained unused and represented a cost for the company, obviously raising an important issue. However, Amazon’s innovative thinking managed to transform this issue into an opportunity when the company started to offer Amazon Web Services (AWS), “a cloud computing service that allows companies to replace their web servers” (Harvey). Therefore, the company found a great use for the servers that were once unused, by making them generate rental revenue. Another remarkable example of taking a risk outside of the company’s comfort zone was the release of the Kindle reader, which was a very strategic move as well. Thus, I can strongly conclude that Amazon.com is a solid company, which manages to maintain its leadership position on the market by increased customer focus and through its risk-taking, yet innovative attitude, which helps the company grow and reach now levels of development. Works Cited Encyclopedia of Business, 2nd ed. "Amazon.com." 2011. Reference for Business. 21 March 2011 . Academic Earth. William A. Sahlman- Lectures and Courses. 1 May 2007. 21 March 2010 . Brad Shepp, Debra Shepp. Amazon Top Seller Secrets. New York: Amacom, 2009. "Case Study: A Strategic Analysis of Amazon.com in 1997." 25 March 2008. Bizcovering. 21 March 2010 . Harvey, M.T. "Amazon’s Details of Global Dominance." 2 December 2010. Stanford Technology Ventures Program. 20 March 2011 . The Economist. "Amateurs on Amazon." The Economist (1999). The Economist. "Amazon, the software company." The Economist (2000). Read More