Amar Bhide - Questions Every Entrepreneur Must Answer - Case Study Example

Amar Bhide - Questions Every Entrepreneur Must Answer The premise for the journal is that most business ideas and concepts, no matter how brilliant they may seem fail to come into fruition. In other words, most would-be entrepreneurs get good ideas and concepts but they fail to actually create viable businesses that enable them to carry out their business ideas. In other instances, businesses come into existence. However, after a little while, they fold up and that is the end of the story. Bhide argues that there are some important things that go amiss in these businesses that neither take of or those that fail. This is the basis for the journal. This means that there are some important things that every entrepreneur needs to be sensitive to. And failure to pay attention to them will either make the business unable to start operations or fold up. The central theme that Bhide proposes are: strategy, people, control/management and innovation/competitive advantage. These are important things that a business must have viable and cogent means of attaining on a sustainable basis. In other words, these four things are so important that the commencement of successful businesses depend on their sustained attainment. To buttress his point, Bhide identifies that every organization has a unique system and structure. In other words, every organization provides services to members of the society. In doing this, every business has a unique set of internal and external resources that it puts together to attain results. Thus, a business, before commencement must have a plan and resources to execute its obligations to internal and external stakeholders. Questions Every Entrepreneur Must Answer provides a practical framework within which would-be entrepreneurs can ask practical questions that can help them attain the four main elements of successful businesses viz strategy, people, control/management and innovation/competitive advantage. The practical questions are: 1. Where we want to go. 2. How to get there 3. Is it possible for us? [this generates the next two questions] - What resources do we need. - What resources do we have. Central Motivation for the Discussion In order to demonstrate the background of his paper and show the important of the paper to businesses around the world, Bhide gives evidence of hundreds of thousands of businesses that never get operational. This is mainly because most of them lack the structure that is necessary to induce sponsors and investors to build an interest in the business. In relation to young companies, he cites practical issues like the case where profits do not cover cost of operations. In this situation, a young business must seek investors who are ready to put money into the venture. However, in most cases, investors are too busy looking for large organizations to invest in. so, the company end up becoming insolvent and then it is closed down. Other young companies experience phenomenal growth and then take the wrong investment decisions which leads to disaster. Others get surrounded by a lot of advisers who advise in their own interest. Since new entrepreneurs can hardly sift between selfish advise and good advice, they get caught in a situation where they lose focus and invest in the wrong ventures or wrong proportions. This leads them to fold up in a short time. Clearly, the lack of structure for a business proposal means no funding. Also, the lack of structure can lead to wrong decisions which can lead an organization to fold up. Finally, the wrong advise can lead to serious issues that can cause a business to become insolvent and fold up. With these three cogent points raised, Bhide justifies the need for a business to ask critical questions before commencing operations (3). A business will need to answer these questions before venturing into the next phase of commencing operations. Otherwise, there is a chance that they will either not get funding and never start operation or get into a struggle in the future that would cause the business to fold up. First Step: Goal Clarification Bhide demonstrates clearly that entrepreneurs often start businesses with motivations that are tied to their personal interests (3). In contrasting the entrepreneur with the director or CEO of a public company, he points out that the entrepreneur is motivated solely by his own vision and aspirations. However, the director only has a fiduciary obligation of maximizing shareholders wealth. The director operates within rules that are defined by the rest of the board. The entrepreneur however needs to come up with a vision that is molded into a strategy which is implemented. Personal Aspiration This refers to the end that the entrepreneur has in sight. It relates to what the entrepreneur wants to attain through the business. In most cases, this relates to the need to get profits. However, there are other aspirations that most entrepreneurs look at. This includes growth and sale of the business. Others look at quick profits whilst others look at sustained profits over a considerable period of time. Sustainability and Size Although most businesses look at profits and benefits for the entrepreneur, businesses also have bills and other payments that they need to make in order to stay operational. Businesses need to make money to pay suppliers, taxes and other important things. So when an entrepreneur gets a vision and a plan, he needs to find ways of getting the business to pay for its costs of operations. This relates to discussions on survivability and profitability. Survivability relates to the ability to make enough money to cover fundamental costs of operations. It is only when the costs of operations are covered that a business can make profits in order to meet the personal aspirations of the entrepreneur. Also, most entrepreneurs need investors. Most investors will not put their money into a business if there is no evidence of sustainability. Thus, it is common for entrepreneurs to vary the size of their businesses. They start small and as they show hard evidence of sustainability and profitability, they get more investors who support them or build the business organically through profits. Risk & Sacrifice The aspiring entrepreneur must not be carried away with the potential for attaining personal needs. This is where most businesses falter. A would-be entrepreneur needs to do a realistic assessment of the risks and the demands of a business they propose to set up. This means that they will have to identify important risks and critical success factors and document them specifically. Through this, they can identify the kind of resources and scope of work that they ought to do to attain their vision. Clearly, the motivation and an examination of how to remain operational and also the risks provides an abstract picture of the business. After this is done, the would-be entrepreneur can crystallize a strategy that can be used as blueprints for the set-up of the business. This will set the framework within which the business will operate and grow. Second Step: Setting the Strategy Most entrepreneurs are tempted to consider short term strategies. However, if an organization fails to consider a more longer-term solution, it is likely to face the issues with wrong advice, entrapment and the like and fold up. A business needs a strategy. Strategy revolves around the need for a clear direction for a business (Bhide 5). A strategy must be bold and explicit. It must blend aspirations of the business with its long term goals. Strategy defines the scope of the business and this includes the kind of geographical area to focus on, the technological system to use as well as the kind of people and other components of the business into the long term. Strategy involves the definition of the core objectives and vision of the organization. This will mean that the entrepreneur must make an effort to create a formal system of setting objectives and also defining the relevant business units and clarifying what their features and structures would be. Strategy Testing When a business formulates a strategy the contents of the strategy needs to be tested against important things. First of all, the strategy should be assessed for whether it can generate profits over a sustained period or not. Secondly, the strategy must be tested against competitiveness in the industry. This is because a strategy that fails in profitability and competitive advantage is likely to fold up in reality. After assessing strategy, a business must find out if the strategy is realistic or not. If not, the entrepreneur must factor in important aspects of the environment that are practical and close to the reality. Sustainability of Strategy An entrepreneur must ensure that strategy can endure into the future. This means that there must be some allowances for issues that will come up on the way. This is through the examination of innovation and how to deal with changes. There are two important approaches of dealing with change: exit strategy or continuous innovation. This way, the organization can benefit and not have to lose in cases where the variables in the strategy get changed. Also, diversification is an important aspect of strategy that must be addressed. A business that focuses only on one income generation activity or two is likely to fold up when there are changes. A business must have a plan for how to change and invest in different income generation lines to survive into the future. Another important aspect of strategy and sustainability is the need to come up with a plan for expansion. There are several options like opening up branches, licensing new agents or franchising. All this demands some degree of infusion and integration into the strategy. Conservative V Aggressive Approach A strategy must address the balance between assets and working capital. Assets provide the infrastructure necessary to produce goods and services in the future. Working capital involves money meant to fund operations like marketing and pay bills of the organization. Too much investments into assets means that the organization will have limited money to attract customers and this will affect the trading position. On the other hand, the lack of assets means that the long-term survival of the business is in jeopardy because they would have to hire assets and pay more money for it. This will eventually affect profitability. Third Step: Implementation of Strategy The execution of strategy depends on three things: resources, competency and management. This stage is practical in nature and it means that the entrepreneur has to make a series of choices in order to attain a given end. Resources The entrepreneur must answer the question of employees and how to hire the best ones with the meager resources of the start-up. This will mean finding the right crème of people who are willing to sacrifice and contribute to the wellbeing of the organization. Also, since resources are scarce, entrepreneurs will need to cut down costs. They have to ensure that they spend less and also avoid borrowing, which comes with a high cost of capital. Balancing the Growth Rate A business will need to find ways of ensuring that the organization grows steadily in the midst of competitors and unfavorable conditions that most start-ups have to endure. First of all, they need to cut down costs by going for things that are more affordable and not spending too much money. Secondly, they might want to consider attaining economies of scale and scope in order to pay less by buying in bulk. Additionally, a start-up must consider market expansion and in doing this, their best bet will be to sell scarce resource that will allow customers to build an interest in their operations. This will provide competitive advantage and it can be built upon to grow a customer base and capture market share. Also a start up must not spend too much money on capital and borrow too much. It can consider growing organically. In other words, they can fund their growth and expansion by raising funds from within the business. Organizational Infrastructure This refers to the creation of a culture within the business. This involves structures relating to delegation and carrying out specialized tasks. Also, how to mobilize funds is important. This will form the core structure which will create future structures as the company evolves. Conclusion Businesses fail to come into existence or fold up early due to the lack of planning and the maintenance of an appropriate business strategy. Due to this, start-ups that face challenges end up being folded up. To avoid failure, Bhide suggests that entrepreneurs must ask important questions relating to the personal aspirations and sustainability of their proposed business. Once this is done, they can identify the risks they will face and the sacrifices they will be willing to make. With the answers to the questions above, an entrepreneur can come up with a strategy which will set out the objectives, business units and scope of operations as well as blueprints for expansion. Strategies are tested against yardsticks like profitability and competitive advantage to ascertain their viability before they are accepted. Once a suitable strategy is agreed upon, a business must execute it by mobilizing resources, competency, management and infrastructure. In doing this, the only guideline is that the business will need to be careful not to spend too much money and grow at a pace that is appropriate to its strengths. As the organization grows, the company can come up with a culture and rules on how to do things. Work Cited Bhide Amar. “Questions Every Entrepreneur Must Answer” Harvard Business Review. November/December 1996. 1- 12. Web. 24 Oct. 2012. Read More