Starting and Developing a New Venture - Literature review Example

Starting and Developing a New Venture Introduction The report explores challenges and opportunities for starting a new restaurant business in Cardiff city focusing on the current economic status of UK. Starting a new business in UK requires one to have full knowledge of the business environment and experience related to the area in which he or she intends to venture into (Lange et al., 2007). Also, an investor should have sufficient resources for the investing in the business such financial and human resources. In order to evaluate the business environment and individual capacity to venture into a particular business one should make a comprehensive business plan that will guide the investor in screening the business idea and mapping the available resources into the business model to predict the business profitability (Gabrielsson et al., 2004). The business plan will assist the investor to predict the capital requirement, the returns from the investments, and resources available or the sources of funds to implement the idea (Tucker & Lean, 2003). Finally, the business plan will enable one to assess managerial capacity and depict the area of inadequacy for further action. This report will examine the challenges or risks a person may face when establishing a restaurant in Cardiff city in UK and the available opportunities for establishing the business under the current UK economy. The city has good opportunities for establishing a successful restaurant venture, but there are myriad challenges that may impede the establishing of the business. Current UK Economy Currently, UK and other parts of the globe are undergoing rapid economic recovery after the great recession that affected the entire globe since 2008 and lasted until 2012 (The CBI, 2014). In UK the rate of employment is quite high especially in the construction industry (Crown copyright, 2014). An increasing number of workers create demand for products and services thus offering restaurants an opportunity for growth (Crown Copyright, 2013). The UK economy has recovered from a great recession and is expected to continue performing well throughout the year through 2015. According to PWC, (PWC, 2014) all sectors of the economy are progressing well and businesses are doing well. The growth is mainly in the creation of job opportunities as the economic gross domestic products (GDP) growth for the year 2014 projected at 2.6 percent (The CBI, 2014). The GDP growth rate in UK is estimated to be 2.6 percent in the year 2014 and 2.4 in the year 2015 (Crown copyright, 2014). The growing GDP and employment rate in the Cardiff city offers an appropriate environment for starting a restaurant business in Cardiff city. Furthermore, the government policies favour the establishment if new ventures in order to absorb the high number of unemployed persons that were partly caused by economic depression. According to Sims et al. (2002), small businesses contribute to more than 67 percent of employment of opportunities in the economy. Therefore, starting a restaurant in Cardiff city will gain a lot of support from the UK government due to its concern for economic growth and creation of employment opportunities. Even though the UK economy has shown good signs of recovery, only the middle class consumers are convinced that the recession period is over while upper and poorest populations believes the economy is still recovering (Wiltshire County Council, 2006). Unfortunately, the middle level consumers account for the minority population making up only twenty-eight percent of the total population. The poorest group which makes forty percent of the economy and the richest group that accounts for thirty-two percent are not yet satisfied with economic recovery. The observation has an implication that the smallest group of the Cardiff city makes potential buyers while majority of the residence are not likely to form the client base from the local consumers. The advantage with local consumers is that once they become loyal traders are assured of frequent clients in their restaurants (The International Bank for Reconstruction and Development, 2013). However, with a few local populations being in the class of potential customers the new restaurant venture may have to focus on the visitors in order to survive in the market. Cardiff is a flattest city with about 346 thousand people. It is a major tourist centre in UK and receives about nineteen million visitors annually (Bloomsbury Publishing Plc, 2013). The city attracts products from developing countries because of its fair prices and ethical trading practices. It is the city of parks offering more green space per individual compared to any other part of UK. It has many recreational facilities, sport centres, developed commuter rails, has one of the best shopping destinations in UK and has Llandaff cathedral for Christians (Collier et al., 2007). Cardiff is access by various means whether using airplanes, train or motor vehicles. It is only 154 miles for London and it takes only two hours from London to Cardiff by train (Monomax, 2014). It hosts various commercial and cultural activities. The city is surrounded by buildings and the life in the city is more affordable compared to the capital city and is a modern city that offers visitors with a variety of social amenities including cafes and shops (Monomax, 2014). The city is the capital of sport for 2014. Preparation of a Business Plan Establishment of a new business venture is a well planned process that takes time between the conceptions of ideas to launch of the business. It requires the investor to “formulate ideas, research, raise funds, and find partners” and the launch of the venture (Smallbone et al., p. 55). An entrepreneur intending to start a restaurant business should have prior knowledge in the same industry or may have to hire workers who have prior experience in running a restaurant. The work experience and knowledge acquired through training are very critical for the entrepreneur who intends to establish a new business enterprise. The investor or business manager should have the capacity to assess the business growth. Although the growth of various businesses can be assessed using different approaches the common measures include the examination of business size and financial stability (Gabrielsson et al., 2004). The restaurant business can be assessed in terms of number of clients the restaurant receives per day, the income of the business and the variety of products and services the business offers to the clients. The investor should maintain manageable staff enough and motivate them to ensure maximum efficiency. This will not only reduce the cost of operation, but it will also increase production efficiency. The business plan should have an advertisement strategy for promoting a new business to the potential clients. Creating customer awareness is very essential for the success of a restaurant business in Cardiff city (PwC, 2014). Considering that most of the clients will be visitors who may not be having prior knowledge of the city and the restaurants offering products and services of their choices, it is of prime importance for the restaurant owners to use various advertising media to create awareness to the visitors. Cardiff city receives about nineteen million visitors annually during the population about 360,000 people. Therefore, even a new restaurant has a higher chance of survival by targeting visitors through advertisement. Social media and internet advertisements can play a significant role in reaching visitors who come from all over the world (Law, 2013). The business owner can strengthen business operations through establishing relationships with stakeholders. According to network theory establishing business relationships with other institutions or individuals ensure effective operations of the business (Littunen & Virtanen, 2009). The networks are either informal networks that “consists of personal relationships, families, and business contacts” or formal networks that “consists of venture capitalists, banks, accountants, creditors, lawyers, and trade associations” (Littunen & Virtanen, 2009, p. 339). The entrepreneurial relationships influence their know-how and the business advancement. Business interrelationship helps the entrepreneur to seek for financial support and any other support necessary for business advancement. At the initial stage of the venture, the funding is very critical for the success of the business. The entrepreneur should design appropriate strategies to utilize management potential towards the achievement of managerial goals. Business Risks Financial challenges Establishing any business requires cash to finance the idea. The business owner should ensure they have adequate finances before they start operating a business (Tucker & Lean, 2003). This requires the business owner to develop a business plan that determines cash inflows and cash outflows. A business plan will guide the investor to access the cash flow of the business and the period in which the business is likely to generate sufficient income to cater for its expenses (break-even point) and the projected growth rate of the business during a particular period under projection (Sims et al., 2002). The business requires a lot of finances to cater for initial investment expenses before it gains access to the market and start generating adequate returns for advancement. Managerial challenges The success of a new venture is dependent on a number of factors (Hutter, 2011). The business is influenced by internal and external environment that determines the performance of the business. “Technical and industry specific skills have highly significant direct relationship with growth, while the external environment” has a lesser impact (Sims et al., 2002 p. 243). New business ventures are faced with various challenges that cause most of them to fail in the first year of establishment. Inadequate finances are a major barrier to success of the new business ventures. An entrepreneur should have the capacity to identify opportunities and work to exploit that opportunity for economic gain (PwC, 2014). For example, when establishing a restaurant the entrepreneur should be able to plan in advance what they intend to achieve, how they will achieve it and when they should achieve their plans. Goal setting theory advocates the establishment of goals and strategies to achieve those goals could compel one to pursue those strategies an avoid misallocation of resources by pursuing other things beyond what was the initial goal (Cangemi & Miller, 2004). Managerial skills will enable the entrepreneur to set goals that are realistic and attainable. Furthermore, they will be able to establish strategies to pursue those goals and maintain them in the right track during the implementation period. Inadequate Demand Insufficient market knowledge and inadequate demand for the products and services is another barrier to the establishment of successful business venture (Chapman & Ward, 2007). The investor should be ready to conduct a market survey in order to establish the customer needs and assess the quantity of the products they need. Development of market requires the investors to identify different market niches for their products. In a restaurant business, the quality of services offered to the clients influences the market developments. The restaurant should ensure the staffs is adequately trained to give clients the best services since customer service in the hospitality industry influences customer loyalty to the business (Cangemi & Miller, 2004). In addition, the investor should maintain a high level of hygiene and promote a safe environment for the workers and visitors. Competition Before the investor starts a new restaurant business in Cardiff city require adequate research to understand to the market and develop an opportunity by either proving unique products and services or blending various foods to satisfy different clients based on community where they come from (Wiltshire County Council, 2006). The new investor should be able to comprehend the plays in the same industry and the products they offer. Having the knowledge of the competitors and their products will enable the investor to design unique the product they intend to bring in the market in order to compete effectively with existing players. There are various restaurants in the city dealing with specialized foods for foreigners and locals. Woods Brasserie restaurant is famous for fresh fish and French foods and Bully’s restaurant serves local foods while South Indian deals with Mint and Mustard (The National Museum of Wales, n. d.). The existing competition in the industry limits the extent to which the new investors can gain entry into the market. The success of the business in a competitive industry is determined by the ability of the business managers to design products and services for a particular market (Atherton, 2012). Designing the products ensures the products are of high quality and affordable to the consumers. The producer has to ensure greater profit margin than the competitors and should come up with differentiated products to add value to the consumers. Furthermore, the trader should ensure the quality of products and services constantly supplied to the consumers in order to promote consumer loyalty. In a restaurant business, the trader should ensure a continuous supply of produce throughout the year because the demand is expected to prevail round the year (Sadler-Smith, 2010). However, in case the restaurant is handling products that are seasonal in production they can purchase supplies in large quantities and store for use during shortages or look substitute products to ensure consumers’ demands are met throughout the year. Risk of Liabilities to the workers and visitors The business owner is liable for the injuries sustained by either workers or customers at the business premises (Sims et al. 2002). Too high workers compensation reduces business income and can cause a business to fail its operations. The business is required to maintain clean and safe work environment in order to minimize liabilities to the visitors and the workers and increase business profitability. However, in a restaurant business the risks are always high due to the nature of business. The fire outbreak, food burn and injuries caused by slippery due to spilt liquid in the premises are rampant and cause business a lot of expenses due to compensation and lawsuits (Atherton, 2012). Other challenges Government policies also hinder smooth operations of a new business enterprise and can result to collapse of the business. The major government regulations are those dealing with employment ad environmental protection (Atherton, 2012). The investors have to ensure they have licenses and certificates of authorization to continue with operations in order to minimize friction with regulatory authorities. Finally, personal constraints limit business capacity to establish successful venture. An investor may not get experienced employees to start a business with and adequate training of the employees may continue to affect business operations (Lange et al., 2007). Therefore, an investor should hire qualified personnel to run a business and ensure its expansion. Adhering to regulation framework is essential for the survival of the business. The restaurant owner should be aware of the existing policies such as environmental policies and ensure they adhere will them and obtain clearance certificates. Other regulations include employment policies, tax policies and so on. The business owner should understand the employment policies and give workers wages according to minimum wage requirements and avoid employing children below the age of sixteen years (Hussain et al., 2006). Success factors The success of the business is determined by the management strategies applied by the managers. Irrespective of the prevailing conditions the success of the business will be influenced by how efficient the managers will be able to mobilize resources and target the market for their products (Littunen & Virtanen, 2009). Various businesses use different strategies to gain access to the market and expand the market operations. For example, some business owners differentiate their products or services in order to target a particular market. The owners have to be extremely innovative in order to develop various products for particular markets (Hussain et al., 2006). Some businesses lower the price of their products in order to attract more clients while other comes up with unique products for the new market. However, the business should be careful to avoid compromising the quality of the products and services as they attempt to lower the price. A restaurant business opening its operations in Cardiff city should target a particular market in order to survive the competition from the existing businesses. The business should be ready to respond to the need of the clients in order to survive the market competition (O’Gorman & Smurfit, 2001). For example, there is an increasing concern for health foods and most consumers are turning to organic foods. Starting a restaurant venture in Cardiff city may require the investor to focus on health foods and such as organic beef, vegetables, fresh juice and coffee among others. Most clients are trying to avoid junk foods due to health concern thus there is a probability that many clients will be looking for restaurants offering organic foods. Furthermore, there are many unemployed people who can assist the investor to run a business and pay them according to the minimum wage requirements (Smallbone et al. 1995). Conclusion Investing in a new business requires the investor to make a comprehensive business plan that will enable him or her to project income and expenses of the business. It will enable him to assess available resources, managerial capacity, available market and opportunity for market expansion, market competitors and develop strategies for achieving the business goals. Starting a new business venture in Cardiff city in UK is a viable business idea because the UK economy is growing rapidly after recession and the rate of employment is impressive. Furthermore, Cardiff city is a tourist destination and with very high number of visitors thus offering an opportunity for business growth in the hospitality industry. However, the business owner is likely to face financial challenges, inadequate managerial skills, stiff competition from existing businesses and poor projection of market demand. Bibliography Atherton, A. (2012). Cases of start-up financing: An analysis of new venture capitalization structures and patterns: International Journal of Entrepreneurial Behaviour & Research, Vol. 18(1). Pp. 28-47. Emerald Group Publishing Limited Bloomsbury Publishing Plc. (2013). Good Small Business Guide 2013. (7thEd). UK: A&C Black. Pp. 1-608. Chapman, C. & Ward, S. (2007). Project Risk Management: Processes, Techniques and Insights. UK: Wiley. 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