Entrepreneur and Business Failure - Literature review Example

Entrepreneurship research paper on business failure Table of content Introduction Reason for failure………………………………………………………………….6 Analysis…………………………………………………………………………….8 Conclusion..…………………………………………………………………….....10 References Entrepreneurship research paper on business failure Introduction This paper seeks to explore the ideas involved causing the failure of a small business. There are numerous reasons that cause the downfall of the business for the first few months after the business is started. The paper extensively identifies and elaborates these reasons. The research seeks to explain the remedies for the causes of the business failures in an extensive way. Thereby, outlining the ways in which an entrepreneur can manage to evade the causes of failure. When the business is started, the entrepreneur always prepares for both success and failure. These preparations should be made through a clear plan for the success of the business to reduce failure probability. The plan focuses on the decisions that the entrepreneurs should implement in ensuring that the operations of the business are safe. The businesses have a span, which is depicted as a life cycle. The first stage is the growth stage which is considered to be slow and then followed by a maturity stage and then the decline stage. The determination of the reasons behind the failure to many businesses is vital to the entrepreneurship. However, there are two types of failures, which include the catastrophic failure, and the general lack of success. In this case, we use the case of an American business that was started in April, 1926 and later collapsed due to the issues that are extensively discussed in the paper. The business was known as Eastern airlines travel agencies. It was a travel-related service business that was introduced during the era of modern travel industry. It focused on protection of a travelling customer who is using services offered by the company. This travel agency aimed at reforming the outdated travel industry into a desirable modern industry. The company had the objective of integrating public travelling with diversified traveling. There were various competitors to the business in the air flight industry. Through the implementation of various strategies, many customers were attracted to the services offered. One of the strategies implemented was the purchase of new planes that improved efficiency of the service as well as reduced the running costs. In the attempt to be at the competitive edge, the eastern airline also purchased new planes mainly from General Motors. The main blow leading to the collapse of the airline was provision of state subsidies to rival companies, which significantly reduced their running costs. The agencies would also contribute to the American economy through the creation of employment and promotion of the tourism industry. The company also aimed at dealing with the outdated regulatory systems. The system that had been put in place twenty-four years ago was not reformed (AFTA 2010). The company was willing to reform the current regulatory system to self-regulation after co-regulation. The company provided information to customers for traveling. Therefore, the company operated in the travel agency industry. The provision of information to customers was to be more detailed than they could gain from the Internet. This would facilitate the efficiency of customers obtaining information from the other businesses. This would be a competitive advantage to enable them to meet the set objective of acquiring a large market share. The company focused on employee management in terms of their contributions to attaining set objectives. They also focused on compensation of the employees in regard with the services to the company. Moreover, they offered training to the employees to facilitate an increase in their knowledge and experience in the work environment. They focused on the welfare of the employees and ensured that their terms and conditions of work favored the labor. This would increase the morale and attitude towards work thereby increasing productivity. From the description of the above company, it is evident that they had a plan in order to meet their objective. However, there were certain things that they adopted that led to their collapsing in 1991. The operations of the business were aimed at acting as an agent for selling travel products and services on behalf of suppliers. The company would not hold any stock in hand since stock was not purchased unless the customer ordered. The stock was to be supplied to them at a discount and with the difference of the margin created by the customer payment. This profit, earned from the sales of travel related products and services, was referred to as the commission. After the financial analysis, the business was expected to grow from the reinvestment of the profit. This would have facilitate the payment of the expenses and retain the earnings would have assisted them to expand the business. The achievement of the above financial status would have been attained through strategic planning and commitment to the business. This would have been attributed by the quality of products services offered to consumers. The company emphasized on taking the reliable market strategies to enable them to achieve the desired goal. They were decidedly optimistic following the market research conducted, and the financial analysis indicated that the business will show the expected outcome of attaining a large market share. This company seemed to have a well-laid plan to cater for all the possible problems that may have been encountered during their operations. From the discussion below, there are certain things that were not indicated in the plan that this company had, thus the business failed due to the inattention to these things. However, there are numerous causes of the failure of the businesses. Reasons for failure A starting business faces numerous challenges that are considered to make the business do poorly in the first years of the startup. Various things make the business decline. One of these things is the entrepreneurial burnout and the reduction of the excitement. This burnout may lead to the loss of interest in the business venture making them look for other opportunities. Therefore, for the first few years the business is considered to be in the failing process. The other challenge of the business is the perception of the business by the clients. The client perceives the business to be lacking the potential to provide quality services in order to satisfy more than a single client simultaneously. Therefore, that negative perception affects the business so there are few clients that are willing to acquire services from the small business. This leads to reduced sales turn over, and given the fact that the expenses are still high the business faces the dead-end. The large businesses are the ones that are selected through being given the name recognition. The commencing of the small business has the possibility of failure since minor management mistakes can lead to devastating effect to the small business. Therefore, this deprives the manager of the opportunity to learn from the past mistakes. Once the mistake is committed, it takes many resources to make things right. If the business did not have back up resources to cover for the incurred loses, collapse is imminent. It calls for the entrepreneur to be extra careful with the decisions he or she makes since they may lead to the end of the business. The other cause of failure is the lack of planning in the business. If the planning involves poor management or improper financing activities, it may lead to misappropriations of the business funds. Mead (1998) argued that the other cause is the lack of credit causing the business to have insignificant developments due to the constraints posed. The business lacks the funds to acquire more facilities that can contribute to the growth of the business through an increase in production. The small businesses have limited access to loans and other facilities like the economics of scale thus leading to shortages of funds and more expenses. The small business also faces competition from other businesses that were initially in the market. The other business may have developed the way of surviving in the market through the acquiring trends that act as a competitive advantage for their business. The airline business was run in a highly competitive market, which required it to be devilishly swift in implementing new strategies. The provision of subsidies to its competitors was an enormous blow. The subsidy significantly reduced the running costs of its competitors. As a result, they made more returns on capital and had sufficient resources to intensify their marketing. Mead (1998) argues that the competitive advantage from the other businesses has a negative effect on the starting business and can lead to its collapsing. The business also faces the problem of having a low demand for the products and services that it offers to the customers. Therefore, it makes the business reduce supplies for the customers since in case there is surplus it will lead to wastage that in turn leads to losses. The other problem is the insecurity faced by the business and limitation in working capital. Mead (1998) explains that the small businesses have limited resources, thus this makes them insecure in the way that they are not willing to venture or invest in other markets since the undesired outcome of loss would lead to the collapse of the business. This insecurity causes the business to perceive failure as the end of the business; thus, the manager is not willing to take chances with the limited capital that is available for business. Analysis The businesses are considered to have a unique combination of substantial success factors. Some of these factors are suitable for the application in all the businesses. According to Holland (1998), the company that collapsed in this case should have considered certain success factors in order to survive in the market. The company should have focused on having a global outlook. This is through the approach interacting with other companies in order to share information, products and technology. The organization should have considered the global trends that affect the availability of resources. These trends dictate the increase or decrease of the demand of services and products in the market. Therefore, the organization can meet the need of filling the unfilled spots in the organization. The business can also prove the challenge to the government in order to intervene. The government can offer assistance through the provision of relevant information to the organization. Holland (1998) argues that the organization should have also focused on seeking the relevant training programs for the areas that are crucial for the business. In this case, the business seems to have concentrated in training the employees on all the areas thus failing to focus on the key areas that would have rescued the business from collapsing. The areas that are of importance to the business at this situation are the management. The manager needs the relevant knowledge in order to ensure that the organization is managed through informative decision. There is the relevance in the training of the manager since there is a significant difference between a trained manager and the one who is untrained. The training runs the business to success compared to the untrained. There is a notion that the entrepreneurs fails as managers due to their traits. The traits that they had during the beginning of the business like the ambition, creativity, self-confidence, and obsession seems to affect the business. Holland (1998) argued that these traits are considered to have a negative effect to the business at the growth stage. The company should have considered having an abrupt shift in the management style. The growth of the company may have pushed the entrepreneur of the business to the areas that they are not competent. The obsession of control is one of the features that may have become a liability in managing the business growth. The entrepreneur may have the business not grow due to the fear of losing control of the business. Holland (1998) proposes that, the entrepreneur would have considered recruiting a professional manager with the relevant experience in the field in order to facilitate the growth of the business. Consequently, holding on to the management of the organization by the fact that one is the owner is not a reasonable decision. They should have considered employing another manger to run the business. There is also need to make the required improvement of gathering the customers’ information in order to personalize the marketing and services provided by business. Amyx (2005) explains that this strategy was not mentioned in the company that collapsed, it is one of the things ignored. The business would have considered that the more they knew their customers the more they were meeting their needs. According to Amyx (2005) other factors also contribute to the growth of the business that would have been crucial to the business. This factors include selling a variety of products and services, competitive pricing, business networking and acquiring credit from the bank in order to have additional capital. It is evident that the above-mentioned business never decided to use any of these survival techniques. The other solution lied in the business structures. The organization should have considered facilitating a disciplined financial management. The organization should consider having differentiated services and products to satisfy customer needs. The business should have been located in a place that is easily accessible to customers. Conclusion The paper has explored the various issues that are involved in the growth of the business. These issues if not well focused on leads to the failure of the business. It is evident from the business in this case which is a chain of travel agency collapsed due to the assuming some facts during their business planning. This was without bearing in mind that a slight mistake in a small business during the growth period can lead to the end of the business. The paper has also proceeded to explain among the various causes of failures in the businesses. This is through outlining and explaining in details effect of each cause to the business. The other part focused on the things that the organization should have done in order to ensure that the business has made it to the maturity stage of the business. Therefore, it is necessary to ensure that the guidelines are followed in order to facilitate the growth of the business in the first few years. References American federation of travel (2010). AFTA discussion paper. Sydney. Afta. Amyx, C. (2005) Small Business Challenges – The Perception Problem: Size Does not Matter. Washington Business Journal. Mead, D. C. (1998). Micro and Small Businesses tackle poverty and growth (but in different proportions). Paper presented at the conference on Enterprises in Africa: between poverty and growth. Centre for African Studies, University of Edinburgh, 26-27 May. Rob Holland. (1998). Planning Against A Business Failure. Retrieved on Feb 21 2012. Read More