Traits of Successful Entrepreneurs, Value of Micro, Small and Medium-Sized Businesses to the Economy - Coursework Example

Entrepreneurship Contents Contents 2 1Analyze the characteristics and behaviours of successful entrepreneurs 3 2Examine what is meant by “entrepreneurial spirit” 4 1.3Assess the value of micro, small and medium-sized businesses to the economy 6 1.4Identify the challenges faced by entrepreneurs  8 2.1 Identify sources of finance for a small business 9 2.2 Explain the importance of a business plan and the factors to be taken into account when presenting to investors. Describe the main components of a business plan and explain the purpose of each 10 3.1 Explain the principles of risk analysis, identification, mitigation and management 12 3.2 Assess the potential impact of different kinds of risk on an entrepreneur or small business 12 References 14 1.1 Analyze the characteristics and behaviours of successful entrepreneurs Entrepreneurs are also regarded as innovators who adopt the best possible measures so as to succeed towards long term growth. There are four important characteristics that exist in successful entrepreneurs they are self confidence and ambition, the ability to take maximum knowledge from the mistakes they commit, willingness or rather desire to take faith leap, and respect and trust towards their team. Successful entrepreneurs always possess self confidence to tackle problems and even have the ambition in built in them to achieve more than others (Fuchs and Shapira, 2005, pp. 56-57). They even possess faith and believe that they can solve the problems and that too at a very fast pace. Ambition and self confidence that successful entrepreneurs possess are supported by such leap of faith. The successful entrepreneurs always considers their work place as a learning laboratory where they always learn from their mistakes and focuses on not to repeat the same in future. Idea that is generated by such entrepreneurs brings together a group of people to form an organization but in order to deliver value it is very essential to build trust and respect in an organization which is only possible through an entrepreneur and forms its most important characteristic. The four important behaviours that is present in successful entrepreneurs – clear goal setting, more of involvement and personal responsibility, low fear of failure and utilizing feedback (Muffatto and Giacon, 2012, pp. 76-77). The successful entrepreneur’s plans out clear strategies because their goal is clear in their minds and is also effectively communicated across the team. The work that is done by these entrepreneurs they take full responsibility of it or rather ownership and gets fully involved in the work process so as to be ensured that they would achieve desirable outcome. They also possess low fear level and undertake risk so as to succeed more and have full self confidence that they can achieve their targets. Finally they use feedback from their team or customers so that they make effective decisions which would be beneficial for the organization as a whole. The two actual entrepreneurs who possess such as characteristic and behaviours are Howard Schultz and Mark Zuckerberg. Howard Schultz has been able to take Starbucks to a position in which it has its presence in every market possible. Howard Schultz did not possess any such fear and had a clear goal of making Starbucks a renowned brand in the beverage industry and he has been able to do so by his high involvement and trust in his team (Fritsch, 2011, pp. 34-35). Schultz has such a high self confidence and ambition that he is focusing on as much retail stores as possible so as to sell packaged products of Starbucks and he even did not give up setting strategies when the company was declining growth and closure of many stores. The next entrepreneur Mark Zuckerberg has been considered to be the most influential personality in today’s world. His innovative thinking and ambition to grow gave birth to the most famous social networking site that is Facebook. He was one of the co-founders of this site but through his hard work and working together with all the other team members effectively has made the site gain so much of familiarity. His risk taking behaviour has highlighted the fact that success comes from taking risks. 1.2 Examine what is meant by “entrepreneurial spirit” Entrepreneurial spirit can be defined in various ways, like it can be stated as enthusiasm, excitement, initiative, willingness to succeed and commitment towards idea and the dedication that is needed towards the business venture so as to overcome the initial difficulties and the various aspects of demand that is initially faced by an entrepreneur at the starting phase of the business. Entrepreneurial spirit can also be defined as some skill sets that are possessed by an entrepreneur and it comprises of uniqueness, risk taking attitude, to be creative or innovative, high adaptability to change, business savvy, and finally destructive in nature if the change created by them is unsettling for their team and do not have a strategic direction. Entrepreneurial spirit can further be defined as investing money, taking risk and initiative, identifying any such gap prevailing in the market and then finally setting an aim to feel up such gap (Bornstein, 2007, pp. 123-124). However, the “entrepreneurial spirit” can be more precisely defined as a gift that persuades others to be as successful as the entrepreneur and comprises of certain factors that makes up such spirit such as leadership skills, passion, ambition and positivity. The entrepreneurial spirit is very much important for all the entrepreneurs because such spirit results into high motivational level amongst the leaders. A successful entrepreneur needs to built up ambition and passion towards the initiative taken by one and in order to do so what is required is the entrepreneurial spirit (Bill and Johansson, 2010, pp. 90-91). An entrepreneur is one who has full confidence and faith in their creative idea but such entrepreneurial spirit helps them to be enthusiastic, committed and dedicated towards their new business venture so as to secure long term profit and growth which is very important for any successful entrepreneur. Howard Schultz possesses such entrepreneurial spirit because he has been able to make the brand of Starbucks reach to its peak from its declining phase (Birley, 2005, pp. 78-79). The company had witnessed a very bad phase with closure of many stores but Schultz because of his entrepreneurial spirit has been enthusiast and adopted all possible means such as packaging, advertisements, and even including new product range so that they can attract more number of customers. Howard Schultz has been able to increase the profit margins of the company at a very faster rate and even has set plans and invested money into many retail outlets where packaged products of Starbucks can be made available to the customers. This clearly indicates that Howard Schultz comprises of entrepreneurial spirit such as passionate towards his work, has a positive attitude and dedicated towards his work which has made the brand to rejuvenate in the present scenario. 1.3 Assess the value of micro, small and medium-sized businesses to the economy Micro, small and medium sized enterprises create a lot of value towards the economy. These enterprises employ a significant base of employees and require a small amount of seed capital in order to set up a business. These enterprises create a wide range of value to the economy. However the three most important values that is created by micro, small and medium sized enterprises is through strengthening the purchasing power of the economy, creating more number of jobs, and adding more of business convenience (Fayolle, Kyro and Ulijn, 2005, pp. 96-97). These business helps in employing more number of people and utilizes a large base of labour force which ultimately increases the economic condition of a country as more percentage of population is employed it would indicate that the income level of the country would increase. The second factor relates to increasing the purchasing power of the economy which is very closely linked with the first factor that creates value. Purchasing power of an economy would only increase when the population has income level which is supported by such enterprises. These enterprises help in creating the demand factor in the economy and if the purchasing factor is high then it would contributes towards adding value to the economy (Zucchella and Paolo, 2007, pp. 102-103). The third value creating factor is that of business convenience if these enterprises can built a strong position in the market then it would attract more number of foreign players to invest in some business operations in the economy and would help to increase the growth rate and sustainability of the particular economy. MSME’s helps to increase the per capita income of the economy and wherever the presence of such MSME’s is high there is a rise in per capita income which ultimately indicates high purchasing power of economy. This can be further illustrated in the diagram below- (Kushnir, 2010) The MSME’s also employs majority percentage of labour force across the world and this plays a very important factor in increasing the economic condition of a particular region. If the unemployment level of a particular region is low then it would indicate that the economy is in much more stable phase which is rather a value adding factor for the economy. This can be more clearly justified in the diagram below- (World Bank, 2009) The data provided clearly indicates that the total employment across the globe comes majorly from these MSME’s and thus contributes towards economy through employment. MSME’s majorly contributes towards developing a strong business platform and even giving employment to a large percentage of population of the economy. When the unemployment level of an economy is low it is beneficial for the business as well as an economy as a whole. So these MSME’s creates great business opportunity and at the same time creates demand and purchasing power of the consumer market that enables to establish high value for the economy. 1.4 Identify the challenges faced by entrepreneurs  Entrepreneur are often faced by many challenges but the biggest challenge for an entrepreneur is manage his or her business in the most effective way so that it can create more of value for its customers and society and at the same time undergo optimum utilization of resources so as to maximize its returns. However the four main challenges that are faced by an entrepreneur is to stay aligned with new innovation, to create a good organizational culture, manage cash flows and set funding, and establishing credibility. The first main challenge is to get funding by the entrepreneurs and manage their cash flows as effectively as possible (Hisrich, 2012, pp. 56-57). Funding is very important for entrepreneurs in order to create and even grow their business and in the initial stages of business venture many investors and bankers do not lend out money or even show much of interests in buying shares of the company which proves to be a great challenge for an entrepreneur. Managing cash flow is also very much essential for entrepreneurs as in order to make money the most important thing is to get money (Kumar, 2003, pp. 234-235). Often there lies a need to maintain safety funds or buffers to handle emergency situations. The next challenge that an entrepreneur faces is of creating a great culture. This is very important as it comprises of building trusts, respect and harmony within the work place. This is a biggest challenge for the entrepreneurs in today’s scenario as it relates to attracting as well as retaining the talented personnel in the organization so as to achieve growth and success. This factor is very simple but often ignored by most of the entrepreneurs amongst other priorities which gives rise to work place conflict. The other challenge is to be aligned with new innovation which is subjected to a lot of change even in a micro second. The biggest threat to all the entrepreneurs is the evolution of new innovative technologies that could cause a diverse affect on their business strategies to the extent of making them obsolete. It is very necessary for all the entrepreneurs to be well aware of the shifting trend of innovation and to develop strategies so as to stay ahead. The business model restructuring and even incorporating a new technology into the system requires a very talented team. In today’s scenario entrepreneurship is a very common aspect which has given rise to a large number of entrepreneurs and businesses. Hence one of the major challenges that an entrepreneur faces it is set up their credibility along with the products or services that is being offered by them. The failure of an entrepreneur to establish the trust factor with their customers can lead to downfall of their business venture and even makes the chances less for their survival in the highly competitive business environment. 2.1 Identify sources of finance for a small business A small business enterprise can get various sources of funding to start up a business. The first sources of finance are small business administration loan. A Federal Government Agency that is SBA provides funds for all these kinds of small business enterprises. Such offices even exist throughout locations in United States so as to provide the required help and assistance to these small scale enterprises. The primary factor for such loan is a proper investigation of the business cash flow and even the owner needs to possess more than 20% of the stake in the business venture to be eligible for the loan (Fayolle, 2010, pp.119-120). The second source of financing is through taking a private loan from friends, family or relatives. This kind of loan requires proper documentation in the form of loan amount and other terms and conditions along with the interest rate which forms an official record and is also needed in various forms of profits and taxes paid by the business. The next option that is available to such small business is to issue a personal bank loan that is on the basis of personal guarantee such as that of a house (Dana, 2004, pp. 156-157). The other partners of the company may not be or may be liable for such personal loan. Lastly the most common source of funding is venture capital investors who provide funds basically to those business enterprises that are in the start up phase. These investors are concerned with the growth potential of the company and provide funds in regard of the shares that the company offers to them. They demand majorly for a business plan that is more realistic and can highlight the future growth of the enterprise. For a small business the most suitable source of funding is private loan or a personal bank loan this is because the owner can access to the funds at a much faster rate through these sources and also because these funding sources do not have any additional requirements such as other investors and just depends on the interest rate that the owner needs to pay with the principle amount. These two sources of funding are most suitable for a small business simply because of two reasons it is the most simple and structured way of utilizing funds for a business. 2.2 Explain the importance of a business plan and the factors to be taken into account when presenting to investors. Describe the main components of a business plan and explain the purpose of each Business plan is very important for any entrepreneur since it serves as a tool of communication for investors and bankers in sourcing funds and even gives a clear picture of what the position of the business would be in the future market place (Pinson, 2008, pp. 114-115). These type of plans helps in analyzing the various potential risks that the business may encounter and hence helps in developing some of the effective strategies in order to handle such risk factors. The business plan for the employees and the management is used to give clarity in strategic decision making and goal setting, for upper management it serves as a tool to develop action plans, for the shareholders it serves as highlighting the growth potential of the business venture, and for the bankers and investors it reflects the profit and potential of the venture (Sullivan, 2000, p. 79). The business plan is even useful for small businesses as it helps to determine the position of the business venture in the present scenario and also it future prospect. A good business plan that needs to be presented to the investors is structured on the basis of eight important factors such as whether the plan fits the need of business, whether it is realistic and can be implemented, whether it is specific and the results can be effectively tracked or not, whether the plan clearly defines the responsibilities and assumptions, and it should be well communicated to the people (Jury, 2006, p. 106). The business plan can be divided into two major sections one is the non-financial section that comprises of the purpose behind the company, the potential customers of the company, the competitors and the best possible way to run the enterprise. In this section of the plan all the intangible elements are taken into consideration and this even highlights the competitive environment where the business would operate, company’s motive and even describes its potential market segment. The financial section of the plan is the most important for the investors comprise of start up expenses, operating expenses, cash flow and future profitability (Finch, 2013, p. 196). This section highlights the possible expenses of the company comprising of its start up business process and its operating costs. This section even comprises of cash flow statement that consists of funds that needs to be managed effectively by the company for its smooth flow of operations. The future profitability component would outline the point where the company is expected to reach breakeven and even when it is expecting to make profits (Abrams, 2003, p. 45). This information is of high value for the investors so as to have a clear idea when the business would be able to pay back on their investments. 3.1 Explain the principles of risk analysis, identification, mitigation and management As per the entrepreneurial context risk can be defined as an event or outcome that results into undesirable outcomes but an opportunity for an entrepreneur to reach towards its goal. Risk for an entrepreneur is taking a chance that may result into a loss or may even result into a profit. There are various approaches of evaluating risks however the most common tool that is used to evaluate risk is a risk map on which all the possible risks that can occur are plotted and are ranked on a scale of one to ten (Jones and Dimitratos, 2004, pp. 134-135). The evaluation is on basis of the ranking scale the risks which are ranked as 1 are least in terms of consideration and that which has been ranked as 10 is to be considered first by the company. The three approaches through which risk can be managed are accepting it, reduce it, and eliminate it. The first approach can be considered by the company in terms of accepting and being prepared for the risks that would take place, the second approach is adopting means so that the level of the impact that the risks can cause can be lowered and the third approach is eliminating which means that any such business operations that result into encountering such risks would not be performed. 3.2 Assess the potential impact of different kinds of risk on an entrepreneur or small business The three most important risks that affect the operations of a small business enterprise comprise of strategic, financial and operating risks. The financial risks indicates a sudden increase in the rate of interest on the loan been taken from the bank or any such payments that is not being made by any customer. These risks disrupt the cash flow of the company and can even affect the rate of revenue generation by the company. The strategic risks comprises of a new competitor entering the market which results into sudden changes in the industry pattern and even in consumer behaviour and even can affect the market share that was acquired by the business. The operation risks comprises of any form of theft or breakdown of machine that disrupts the entire mode of business operations of the enterprise resulting into loss of market share and profit margins. References Abrams, R. 2003. The Successful Business Plan: Secrets & Strategies. Toronto: The Planning Shop. Bill, F., and Johansson, A.W. 2010. (De)mobilizing the Entrepreneurship Discourse: Exploring Entrepreneurial Thinking and Action. UK : Edward Elgar Publishing. 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