New ventures and entrepreneurship - Essay Example

New ventures and entrepreneurship Introduction Entrepreneurship is the backbone of society. Entrepreneurs create and exploit millions of opportunities so that the needs of certain people may be met. Entrepreneurship in the modern business arena is more progressive and dynamic compared to other centuries, but the objectives are the same (Baghai, Coley, and White, 1999:26) Ventures are the manifestations of the ambitions and visions possessed by entrepreneurs, but their creation involves so many aspects that require addressing before success can be achieved. In this paper, I will explore various dimensions of new ventures and entrepreneurship, from the challenges involved in entrepreneurship to the motivations for creating ventures. I will also provide relevant arguments and evidence to support the claims presented. Entrepreneur’s Problems in Creating a Company Formulating the Business and Vision Idea This is one of the biggest challenges faced by entrepreneurs. Coming up with business ideas is easy, but developing a sound business idea is more daunting. It is often the first challenge confronted by all entrepreneurs, especially when creating a new venture. Creating the right business opportunity or innovatively formulating an idea is surely a difficult task. The first real task of any entrepreneur involves envisioning the idea. Entrepreneurs should be able to visualise what others cannot (Barth, 2011:42). While people around them see only problems, entrepreneurs should see great opportunities. However, envisioning opportunities is only the beginning. The biggest challenge is the ability to transform this opportunity into an evolutionary business idea. This qualifies as a business challenge because the steps involved in developing challenges into business opportunities is akin to attempting to turn copper into gold. Formulating a vision is, indeed, a business challenge because sometimes entrepreneurs should transform themselves into magicians. Majority of people are receptive to the current entrepreneurial approaches, but it is an entrepreneur’s responsibility to visualise and predict the future. An entrepreneur should always remain a couple of steps ahead of development to avoid becoming irrelevant (Birley & Muzyka, 2000:45). It is also the responsibility of an entrepreneur to fit futuristic plans and ideas into the present, and to create solutions for others’ problems. Most innovative, entrepreneurial ventures in the last four decades were envisioned long before they became realities. For example, for Apple CEO Steve Jobs wanted every to have a PC while Bill Gates wanted to develop user-friendly software for personal computers. These visions allowed Gates to become the richest individual in the world while Jobs became the most recognisable business personality of the 21st century. Sourcing Capital Having developed a sound business proposal, the next challenge involves raising capital in order to support the creation of the new venture. Only entrepreneurs have an excellent understanding of business ideas. Attempting to rope investors into ideas that are only good on paper is a very big challenge for all entrepreneurs. Attempting to convince them that they are capable of actualising the idea and being trustworthy is extremely challenging, especially in new ventures (Chandra, 2013:34). Raising capital involves more than just sourcing for funds. Most investors prefer to invest in operational ventures with limited risk. They also want to believe that they will get good returns for the risks the entrepreneur is asking them to take. Most effective business proposals never make it past the venture capitalist juncture because the entrepreneur is either unprepared or cannot raise the required capital. To surmount the challenge of amassing capital, entrepreneurs must have a credible and convincing presentation to make, supported by stable business plan and excellent persuasion skills. Creating a Business Team Although the entrepreneur is the architect of the business idea, he needs a team to help him implement proposals and realise his ambitions. The entrepreneur cannot take on all the roles required to make the venture successful; he needs assistance from a team of skilled and like-minded individuals in order to implement the business idea (Zimmerer & Scarborough, 2005:47). For example, if the entrepreneur is an accountant by profession and the business idea involves manufacturing, he will have to assemble a team of skilled, semi-skilled and unskilled staff who can perform other roles that facilitate the attainment of the business plan (Feinleib, 2011:56). The process of assembling a business team begins even before the task of amassing initial start-up capital emerges. Majority of brilliant business ideas and products do not receive funding because the entrepreneur approaches capital accumulation individually. A business team is an important, yet commonly ignored vehicle for successfully raising venture capital. An entrepreneur is not perfect, no matter how capable he or she may be. He has strengths and weakness that need to be managed in order to facilitate his ideas. This is why a business team is so important; it masks or compliments an entrepreneur’s weaknesses. A team is vital in managing a successful business. It is the responsibility of the entrepreneur to ensure that he shares his vision with the business team (Trost, 2011:69). The entrepreneur is also responsible for believing in potential and being motivated by harnessing that potential to achieve objectives and create more opportunities. If members of the business team cannot understand the entrepreneur’s vision and envision a future with the business, then they do not deserve to be part of the venture. An efficient and effective strategic business team consists of an accountant, a legal adviser, a banker, a financial adviser, and any other professional who will have a huge impact on the business. Finding Good Staff Good staff means not only qualified professionally but also complimentary to the business in other ways. For example, although technical skills are required to support business operations, soft skills are equally desirable and important. Any other positive individual attributes (e.g., commitment and hard work) can also help the business to flourish. Most managers depict the process of hiring the right workers as a simple task. They interpret the hiring process as being as simple as publicising the job description and the perfect employee will emerge (Stevens, Sherwood, Dunn & Winston, 2013:51). Entrepreneurs understand how tough it is to find qualified, trustworthy, and hardworking employees. Nowadays most employees are driven by the desire to get paid well to do less. Entrepreneurs know that finding good employees who are dedicated to executing their tasks is very difficult. As a matter of fact, finding good staff is easier than moulding the recruited workers into a unified, purposeful team. Workers are the entrepreneur’s bridge to clients and the outside world, as well as a reflection of the ethics and business culture of any new venture. Finding Good Clients Entrepreneurs find it very difficult to find good clients who will contribute towards the growth of the venture. In the process of growing a business, an entrepreneur will realise that there are good and bad customers. Good customers are rare. They are loyal to the venture and will be ready to forgive if the entrepreneur makes mistakes, recognises them and apologises. Good clients will be keen to do the right thing that will profit him and the business mutually (Sternberg & Krauss, 2014:43). Bad customers are always keen to find weaknesses in a new venture so that they can exploit them for the smallest gain. They will always try to take advantage of the venture’s goodwill and seek ways of stealing from the venture. Bad clients are the biggest causes of bad debt. In summary, good clients grow the business while bad clients always try to collapse the venture. Fighting Competition Competition is the essence of entrepreneurship. It is the key ingredient in any healthy industry with future, therefore, how an entrepreneur manages it determines how successful he or she may be in his new venture. Competition is harder to manage than imagined because the entrepreneur must accept that his venture will not always be the dominant player in the industry unless he understands who his rivals are and how they operate (Rosler, 2011:24). The manner in which an entrepreneur competes is representative of his entrepreneurial ability; a poor competitor is a poor entrepreneur whose venture is more likely to fail than succeed. Competition is not only a motivating factor for success but also a measure of innovation and creativity, the most influential factors in the provision of quality products and services. Where competition is missing innovation cannot thrive, and where there is no innovation only stagnation beckons. Staying abreast of Industrial Changes and Developments Entrepreneurs must expect and prepare for industrial changes and developments when starting a new venture. Industrial changes have built and destroyed many businesses; there are many examples of successful ventures that have been collapsed by minor industrial changes and trends. A good example is the dot-com trend, in which many successful industrial-based firms were vanquished by new web-based dot com ventures (Presse, 2013:19). Experienced entrepreneurs understand that evolution is a companion and are always ready to quickly reorganise their businesses to align with current trends. Entrepreneurs also understand that no matter how innovative, brilliant, or successful their ventures are, evolution ensures that only the best survive, and survival demands flexibility. Leaving the Venture Exit strategies are probably the least considered factor when developing business ideas and starting ventures. Majority of entrepreneurs start operating their businesses without thinking about the course of action in case of failure. This is more common in cases where the venture is successful and the entrepreneur has developed a false sense of comfort that disregards the possibility of failure. Good entrepreneurs know that they must face the challenge of developing and implementing an exit strategy (Mubaraki, Muhammad, & Busler, 2014:48). Lack of exit strategies is what kills most business ventures after the deaths or incapacitations of their founders. Exit plans are extremely crucial to the long-term existence of any venture. Majority of effective and successful entrepreneurs set a specific level as a goal. Once they have achieved this goal, they can leave the business to start something else and entrust its management to other employees. Common goals include market saturation customer base, yearly sales, and yearly turnover. Reasons for Creating a New Venture Entrepreneurs have many reasons for creating new ventures. Contrary to popular opinion, entrepreneurs do not establish new ventures with the intention of making profit alone, as some other people do. In fact, most of the time they do it as a passion rather than a need, and then good management turns the hobby into a business. Entrepreneurs are very ambitious individuals with a keen eye for opportunities and gaps in product and service provision (Kuratko & Welsch, 2003:35). They can look at a failed startup and see opportunities while others may do the same and see only challenges and failure ahead. Entrepreneurs are also driven by change and the desire to fulfil a need in society. This makes it extremely easy for them to create new ventures that satisfy various needs, and to manage these ventures so that they remain aligned with the original vision in the long-term. Combining ambition with keenness for opportunities makes entrepreneurs the common architects of business ideas and proposal. Opportunism and ambitiousness manifest in entrepreneurs in a different way than they occur in other people, and that is why there are very few successful entrepreneurs in the world. For example, an entrepreneurial person has the self-belief and confidence to abandon everything else and start something new to fulfil certain desires and ambitions (Kuratko, 2009:47). There are many cases of entrepreneurs quitting formal employment to go into business, or closing one venture in order to pursue another alternative. This is aided by the fact that they usually have many ideas that they can implement whenever the timing is right. They keep their options open and can balance multiple projects simultaneously, giving them the advantage when it comes to starting and managing various ventures. A common motivation for starting new ventures is failure. Entrepreneurs who have experienced failure before tend to explore other business opportunities with more enthusiasm than normal people whose spirits may be dampened by failure and end up giving up completely (Keohane, 2014:16). Failure makes true entrepreneurs more motivated to continue investing until they find the right idea and balance to achieve success. Other entrepreneurs are motivated by the need to change society. In the current business environment, there are social entrepreneurs who start new ventures in order to spark social change in society. Their social awareness is augmented by a strong desire to fill a specific need that requires entrepreneurial skills and mentality. Entrepreneurs also enjoy taking risks, although calculated ones. This propensity to take risks pushes them to establish new ventures in order to fulfil their risk-taking habits. An entrepreneur might make an investment because the risks involved are comparable to the potential benefits while a normal person will shy away from starting a risky venture no matter the likely gains (Karlsson, Stough, & Johansson, 2014:59). This is one of the biggest differences between entrepreneurs and non-entrepreneurs, and the reason entrepreneurs engage in more business activities than non-entrepreneurs. It is also important to clarify that everybody can engage in business, but not everybody can be an entrepreneur. Entrepreneurs are also often motivated by trends and changes to start new ventures. Industrial changes happen all the time, and the faster one notices and takes advantage of them the higher chance they have of succeeding. As previously mentioned, Steve Jobs and Bill Gates are examples of entrepreneurs who saw and then took advantage of the business opportunities created by industrial trends. Since they are highly dynamic and flexible, entrepreneurs see every change as the creation of new opportunities, which require new ventures to exploit (Jones, Macpherson, & Jayawarna, 2013:32). This is the reason some entrepreneurs have multiple ventures under their management. By keenly observing industry trends, they identify opportunities quickly and then use new ventures as mediums for taking advantage of those opportunities. They find the creation of new ventures to be a simple task, compared to other people who seem reluctant to even start a single venture. Main problems in the New Venture The biggest problems in the new venture are usually not so different from the challenges faced when starting the venture. The main challenges revolve around management, flexibility and adaptability, competition, employees, customers, capital, and awareness. When establishing the venture, these challenges present themselves as tentative, meaning the entrepreneur can confront them once during the whole startup process (Hib, 2013:46). However, after the venture has become operational, these challenges become perennial, meaning they frequently occur and call for flexible strategies that help the entrepreneur limit their impacts on the venture. For example, raising capital may be a one-time affair when starting the venture, depending on the entrepreneur’s financial capability at that time. However, if the venture is successful in the initial stages, then expansion will become inevitable. Expansion requires capital, and it cannot be done summarily like in the foundation stage. The entrepreneur will have to source for funds on a continual basis in order to support either swift or gradual expansion. The other challenge involves competition. Once the venture is operational both the level of competition and the nature of the competitors become much clearer (Harris, Stoyanova & Kuivalainen, 2012:25). Depending on the venture’s performances and the industry it is based in, competition can get stiffer or it can wane. However, the entrepreneur will not obtain a good understanding of the nature and extent of rivalry until the venture is operational, and then he will have to make the necessary changes to fight off competition and post good financial results. Employees and customers are also part of the biggest challenges the new venture will face once it has become operational. Regarding employees, the venture is likely to experience problems like poor retention, high staff turnover, lack of motivation, unrealistic demands, lack of professionalism, and lack of commitment (Williams, 2014:23). These are problems that require skilled and relevant management interventions, and the entrepreneur will have to be effective to prevent these challenges from compromising the survival of the venture. In terms of customers, the entrepreneur will have to develop creative ways of getting current and potential customers to maintain an interest in the company’s products or services (Fritsch, 2011:72). At the same time, the entrepreneur will have to be on the lookout for bad customers, and target only good customers. The entrepreneur will have to develop things like customer relationship management and customer service techniques to be sure of not only attracting but also retaining good customers while expanding the customer base. This is a very tough prospect that most entrepreneurs often fail to overcome. How Governance Mechanisms run in a New Venture Entrepreneurs and financiers are the entities with the biggest influence on how governance systems operate in a new venture. They create the governance mechanism of new ventures contingently, based on an estimation of future financial returns. By managing the research and development dimension the entrepreneur accesses information vital in making a tactical move at a final cash-out phase (Foley, 2012:63). The investors can also be notified by running R&D at a fee. The governance system makes the entrepreneur responsible for strategic decision-making for high projected returns. In reality, the governance structure of a new venture allocates certain rights and responsibilities among corporate investors and managers. The most important rights are control rights and cash-flow rights. A good governance mechanism should assign control and cash flow rights in a manner that enables the highest return from investments. The return of any new venture is unpredictable during financing but becomes more apparent after many years of R&D. Venture capital companies initially fund ideas lack both revenue and products. During the exploration process, venture capitalists provide financing via frequent investment rounds (Burns, 2010:38). The governance system of the new venture changes accordingly. Control rights are usually passed on from founder to shareholders with poor financial returns. This change in control could be negotiated following the injection of new capital in each investment session. It could also be explained in the first financial agreement. Control rights are usually allocated contingently on agreeable benchmarks of the venture’s financial results. This type of contingent assignment of control indicates who, between the shareholders and the entrepreneur, should make strategic decisions at later bailout phase. Strategic decisions typically include, but are not limited to, proposing an initial public offer (IPO), selling licenses to retailers and customers, trading the venture to another firm, merging or creating alliances with other ventures in order to develop and sell innovation, and patenting the process or product. New ventures are marked by powerful asymmetric correspondence between founders and shareholders. The founder is usually a professional who is in charge of the initial R&D stage. As a result, he might have a better understanding of the attributes and qualities of the new product or service than the shareholders (Bragard, 2011:29). This implies that he is more likely to know the strategic decisions that uphold the most the creativity in the final development and marketing phase. For example, he might understand if the innovation can be trademarked or not, or if it can be easily refined in a collaborative alliance with another company. The investors, on the other hand, can bridge the informational chasm by investing his time in management and, generally, into supervision at the R&D stage, prior to the introduction of the new product or service into the market. In reality, some entrepreneurs spend a lot of time in the ventures they invest. They actively participate in the venture’s management and while others are quasi-investors (Barringer, Hess, Goetz, & Ireland, 2012:31). In addition, they syndicate to gather information. These types of management and supervision processes come with opportunity costs for the investor who is required to spend less time on other ventures. Control and cash flow rights are both related to ownership that is assigned in a manner that limits the underinvestment of each entity. Recent studies in venture governance reveal that a passing on of ownership from one investor to another in the contracting association prevents, or even solves, the problem of underinvestment. Other studies show that the relation-specific financing is associated with information collection. Consequently, information is used to choose projects in the final decision-making phase. In most new ventures, cash-flow and control rights are assigned in such a way that if the venture performs poorly, the investors gain full control. With better performances, the entrepreneur acquires/retains more control rights (Zimmerer & Scarborough, 2005:21). If the venture posts very good results, the investors hold onto their cash-flow rights but lose most of their liquidation and control privileges. The entrepreneur’s voting, cash flow, and board privileges tend to decline during investment rounds while investors’ rights expand. Researchers argue that governance mechanisms can always be designed in such a way that the entrepreneur has maximum incentives to optimise the venture’s returns. Conclusion New ventures and entrepreneurs cannot be separated; each exists for the other. New ventures are the product of entrepreneurial spirits, and entrepreneurs thrive on starting new ventures and seeing them thrive. This paper has presented the different dynamics involved in new ventures and the roles entrepreneurs play in them. The paper has also shown the difference between entrepreneurs and other people when it comes to taking risks and identifying opportunities. Entrepreneurship is as old as mankind, and it will continue existing so long as there are new opportunities that exist or can be created. Entrepreneurship is the spine of society, and new ventures are the brainchild of entrepreneurs who refuse to be content with status quo. Their ambition drives them to want different things, and this occurs in the form of new ventures. References Baghai, M, Coley, S. & White, D. (1999), The alchemy of growth, London and New York, Texere. Barringer, B., Hess, E., Goetz, C. & Ireland, R. (2012) Entrepreneurship lessons for success, Upper Saddle River, NJ, FT Press. Barth, S. (2011) Planning in new ventures, München, GRIN Verlag GmbH. Birley, S. and Muzyka, D.F. (eds.) (2000), Mastering entrepreneurship, London, FT/Prentice Hall. Bragard, M. (2011) Enhancing entrepreneurship, London, LAP LAMBERT Academic Publishing. Burns, P. (2010) Entrepreneurship and small business (2nd Ed), Basingstoke: Palgrave. Chandra, R. 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