The Challenges for Business Start-Ups - Essay Example

?The Challenges for Business Start-Ups Table of Contents Table of Contents 2 Introduction 3 Entrepreneurship and Innovation 3 Innovative Idea 6 Acquisition of Funds 6 Location 7 Supply of Raw Materials 9 Human Resource 10 Marketing and Customers Acquisition 11 Conclusion 13 Recommendations 14 References 15 Bibliography 19 Introduction This research paper intends to identify the challenges that are faced by business start-ups in order to remain afloat as well as to ensure sustainable growth. A start-up business venture is generally a brainchild of an entrepreneur who desires to come up with certain innovative product or offering which is completely distinct from the existing offerings or is competitively superior in quality and usage. Entrepreneurship and Innovation The entrepreneur has an important role in producing innovative products as well as services. The innovation is all about inventing a new product, therefore generating an idea for a product is the main characteristic for an entrepreneur. The entrepreneur is a creator of wealth which results in development of economy (Talloo, 2007). The entrepreneur has to develop a definite approach to promote their business. Previously the meaning of innovation basically implied technological leadership, but at present it has become a common strategy for every business. Entrepreneurship is required to adopt an approach to ensure that flow of innovation is in right direction according to strategies of the business. There is a need to review an innovation in a business as competition in the marketplace is increasing. In this context, such an innovation is “The Cave” which is an innovative marketing technique of Procter & Gamble, which has protected the company for many years. “The Cave” is 3D rooms which make a projection of the visitors into an implicit world through which P&G are able to monitor the reaction, behaviour and experience of consumer in a store such as Boots, Asda and Tesco. “The Cave” restores each detail of a store; captures all interior of store, visitors walking in a store, selecting the product, turning the product to read the tag or manufactured date of a product. This technique helps the company to redesign their store display, product as well as packaging and layout. This is an innovation offered to customer in a different way (Vila & MacGregor, 2010). According to Sawhney, innovation is a formation of an essential value to customers and businesses by considerably changing one or other aspect or by creating completely a new business structure (Sawhney & Et. Al., 2006). The business has to concentrate on holistic business structure for an innovation. General approach of innovation such as product along with technology is inadequate supply for demand of competitive market (Vila & MacGregor, 2010). The business starts with a commitment from an entrepreneur to become successful. The appropriate planning of a business is required for businessmen before starting its business; it can be part time or full time business. The planning regarding time, resource, product as well as service and marketing are essential for a business. The graph for a financial and personal estimation has to be created for identification of proper financial aspects for a business (Aspatore & Vault (Firm), 2002). The information and forecast is the key factor for a business. The following are a few steps followed to start a business: 1. Identification of a business: The selection of the business line is a difficult job for an entrepreneur. One may choose manufacturing or restaurant or service industry but there is no doubt that an innovative idea is required to start a business. The in-dept study of an industry has to be done to understand or gain sufficient knowledge of a particular business line. The market survey is a process to be more focused on the business and hence helps to obtain data related to a specific business. 2. Identification of basic business management: The fundamental aspects such as financial management, book-keeping, accounting, human resource, marketing, production arrangements are essential to be designed in advance. 3. Arrangement of funds: The arrangement of funds is the main problem to an entrepreneur to start a business. There are different ways of funding such as personal or borrowing from bank, hence it is important to maintain a good relationship with the banks. 4. Managing funds effectively: The records of cash in-flow along with cash outflow have to be maintained to observe utilisation and generation of cash in a business. 5. Managing people: The business has to find out competent and qualified employees to become successful in future. 6. Customer satisfaction: The customer has to be provided with high quality services and innovative products. The survey of their behaviour is to be done to understand their needs and desires and provide an innovative product and service according to the findings. 7. Follow rules and regulations: There are various rules and regulations for a business and it has to be followed to run the business for a long period. Tax records and other related to government policies have to be maintained properly (Entrepreneur Press, 2003). The planning is the effort of an entrepreneur to collect information related to opportunities of a business in the market and to utilise the information by taking advantages of those opportunities (Delmer & Shane, 2003). Prior research for a business includes collecting and observing information, identification of strategy and risk, planning of financial growth, estimation of essential task and documentation of the above factors (Castrogiovanni, 1996). Innovative Idea The most complicated challenge for a business is to create an idea which provides an actual commercial potential. Innovation is a key driver for success of a business. For example: Bert Claeys, an operator of Belgium movie theatre has created the first Megaplex which consists of 25 screens and total number of 7600 seats. In first year the company was capable to capture 50% of the market. It was also able to produce low cost structure in the whole industry. This is how Bert Claeys has produced a new innovative idea for which the company can sustain for a long period of time (Agarwal, 2010). The manufacturer of watch, Swatch with the help of cost innovative idea is one of the successful brands. The company used plastic instead of leather or metal and has reduced the parts from around 150 to 51. The watch case was sealed with ultrasonic welding as a substitute of screws which was a new as well as cheaper technique. This resulted in reduction in cost of direct labour from 30% to 10%, of total cost and the manufacturing cost was around 30% less than the other competitors from Hong Kong. This shows that an innovative idea can reduce the cost of a product (Kim & Mauborgne, 2010). Hence, while starting a business, a research has to be done to understand tools and techniques used by competitor in the market and an ideas has to be introduced which would be beneficial for a society as well as business. Acquisition of Funds The fund acquisition is another challenge for a start-up business. As demand of market is changing and the competition is rising, it is difficult for a company to raise fund from the market and at times the business are restricted for credit as well as capital. Nowadays, the credit crunch has gone down for large firms but still smaller firms are facing problem for borrowing capital or exerting a pull from new investment (Harvard Business School, n.d). For example, Facebook as well as Twitter, social networking related sites, had a great challenge for acquiring funds. These sites had adopted a venture capital method, which had reduced the barrier for entering in the business. It depends upon an idea generated by the entrepreneur for acquiring funds easily, as there are different methods from where fund can be generated (Knowledge Behind the News, 2007). Boomerang Logistic is a supplier of reusable plastic container for the restaurant business. Initially, there was a requirement of $35,000 for starting a business and the company acquired money from the founders and value added investors (Shapland & Et. Al., n.d.). Location Another essential decision which has a long term implication is a decision in selecting of best location for a store or factory or plant. It can be identified that there is no ideal location for every company or firm. Every business is unique and requires different locations with different advantages. Each business has to consider its requirements while selecting a location. Location is a site of a business and is an important factor as it has managerial, social, technical, strategic and economic implications. It has great influences on distribution and production cost of a business or firm. In many cases, marketing and production costs vary by approximately 10% merely as of location. The location must be selected where rate of production along with distribution cost is less per unit. The proper decision has to be taken regarding selection of location to avoid risk related to growth limitation. There is a relation between location and growth in addition to success of a business and it depends upon the nature of a business for selecting a location of business. The challenge of business is to select best location where there will be easy availability of raw material, technology, water supply, electricity, human resources and transports. The problem of selecting a location may arise at the time of expanding a business. The selection of location depends upon various factors such as social, economic as well as political (Talloo, 2007). In this context, for an example David Bear, initiator of McDonald’s had faced substantial challenge, when he first built a restaurant in semi-urban Chicago. There was a barrier for a restaurant business because the cost of location was high. The cost was 50% higher than most of the luxurious restaurants which his company had opened in the period of 1990s. The cost of land acquisition, site development and land development was high for McDonald’s (Barth & Et. Al., 2006). The following are factors that have to be considered before taking a decision for locations: Supply of Raw Materials Accessibility of raw materials at reasonable price is a factor that has to be considered by a start-up business. The raw material cost for a business is half as much as cost of finished products. The quality along with supply of raw materials has a great influence on the location of a plant or factory or store. The ubiquitous materials such as water, sand and clay which can be easily available has less impact on location but if there is a high requirement of ubiquitous materials than it has influence on selecting a location. For example paper manufacturer requires large quantity of water supply and pottery business requires high amount of clay and thus the best suitable location for these two industries is near river bank (Talloo, 2007). In the year 2006, the Brazil government had adopted different measures for improving the economy. The government offered more number of tender to private sectors which delivered a sustainable growth of an economy. This economic reform had created lots of opportunities for upcoming business (Armstrong, 2006). Market Proximity Market proximity is an important factor for a business to select a location near to the market because promptness and cost of service to the customer depends upon the market proximity. The location is separated into wide geographical areas where the product has national and international demand. Depending upon transportation of raw materials or finished goods, the location has to be decided whether to select a place near to raw material place or at the place of consumption (Talloo, 2007). Communication and Transportation Every business or firm has to take into consideration the availability of adequate and reliable transportation facilities for handling, distributing and assembling of raw materials as well as finished products. The heavy perishable industry or business requires a reasonable transportation cost hence it is important to consider transportation cost while deciding a location. The service of communication is also essential for every type of business. The information has to reach accurately; timely as well as completely, thus proper communication helps to access demand in the market as well as availability of material along with labour (Talloo, 2007). Government Policy In planned economies, the location of a business is regulated through policy related to government. For example, the government of India offered different types of incentives to firms or businesses for establishing their business in underdeveloped area. The objective of the country is to maintain a balanced economic development. The government also offers other incentives such as non-tax incentives, tax concession and deduction of exercise duty. Government policy includes the clearance of environmental issues from their respective authority (Talloo, 2007). Human Resource Human resource has an important role in a business. It helps to develop the capabilities of a business which are required to compete in a competitive market (Lengnick-Hall & Lengnick-Hall, 2003). The acquisition of employees which is essential for a business is an important factor while choosing a location. The business especially hires an employee of the residential region. The business prefers skilled and knowledgeable employees (National Corporation Highway Research & Et. Al., 1999). According to observation made by IBM/MIT study, using a workforce successfully is not about receiving a right data but employees along with organizational management plays an important role for creating opportunities (Cornell University ILR School, 2011). The economic reform during 2006 in Brazil includes business regulations and labour market reforms. This reform has helped new business to obtain labour easily. There was an increasing job opportunities in the market (Armstrong, 2006). Marketing and Customers Acquisition The main aim of marketing is to understand the customers’ needs and perceptions. The function of marketing is an important aspect for creating awareness regarding business in the market. The customer acquisition is the main challenge for a business. Marketing focuses on selling of product which has been produced by the business. The traditional view of marketing was product-oriented; the product was given a preference and aim of the business was only to sell a product. However, at present the conception of marketing has changed, it focuses mainly on customers as they generate profit for a business hence customer acquisition, satisfaction and retention have become the important factors. For instance, Pay Pilot was started in the year 1998 and at that time the company’s main challenge was to acquire customers. The company established a technology for security of Palm Pilot. The business plan of the company was to secure the money by using a secret code on Palm Pilot and transfer money to another Palm Pilot electronically. The next question for the company was to obtain customers, so the business used email as a medium to create awareness about the new technology and hence the company started growing all over the world (Graduate School of Business Stanford University, 2001). Conclusion This study has helped to identify that there are several challenges while starting a business and hence it should consider certain factors which help the business to become successful. There are several cases where business fails to operate due to failure to address the above observed challenges properly and hence becomes difficult for the business to sustain. Even an excellent value proposal or challenging business model may not be sufficient to become successful in future. The innovation may intimidate a company’s major stakeholders such as employees and general public. For instance Merrill Lynch planned to build an on-line brokerage house or service, but its price of stock went down by 14%. The report showed that there was a conflict within the division of a company, thus employees are the most important resource for a business for acquiring a customer. The business has to look after the employees’ desires and wants; accordingly they should be motivated towards fulfilling the objectives of the employers as well as the organisation (Goffee & Et. Al., 2000). When an innovation is related to technological advancement which can create damage to the political along with social norms, it affects the general public. For an example, Monsanto created genetically modified foods which were harmful for the consumers. While generating an idea, it should be an ethical way of doing a business without harming the people and society (Goffee & Et. Al., 2000). Recommendations The above study is related to start of a business hence opportunity of a business has to be checked properly to analyse potential future growth of a business. The business opportunity is a general planning of a product as well as services for marketing them. Prior to investing in a business opportunity, it is essential for an entrepreneur to think about certain factors that affect the business. The time taken for running of business opportunity has to be measured. The brand new plan or idea which is not in the market takes long time to explore. The fixed address and phone number is essential for a business that creates a base for the business and assures the investor of its progress since there is certain business which only depends on the internet site as well as email address. The confirmed business opportunity requires certain amount as an initial investment which includes primary sum for product inventory, membership fee and others. The ideal business opportunity is actually provided by a consistent company having a verified track record. The business opportunity is supposed to involve small initial investment along with high probable profit, both for short and long period. 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