Entrepreneurship & Small Business Management - Research Paper Example

 Entrepreneurship & Small Business Management 1-10. Discussion Question (DQ1): Entrepreneurship  Entrepreneurship is said to be the process of discovering new ways to combine resources. Since the sixteenth century, the French word entrepreneur has been used to refer to a person who undertakes a business venture.The meaning and role of an entrepreneur have evolved over the centuries. Twentieth century economist Joseph Schumpeter stressed the role of the entrepreneur as an innovator who brings about change in the economy by introducing new methods of production or new products.(Sobel) British economist John Stuart Mill has stressed on the important link between entrepreneurship and economic growth. According to him, entrepreneurship requires no ordinary skill.(Burnett)Today, the Global Entrepreneurship Monitor1 reflects the contribution of entrepreneurial activity towards economic growth in different countries. In economies such as the United States, one witnesses the increasing importance of entrepreneurship, especially when it comes to small businesses. A small business concern is privately owned and operated independently. It generally has a small number of employees and lower revenue/sales as compared to industry giants/leaders. The exact definition/size of such a concern varies by country, industry and function (wholesale, manufacturing, etc).Examples of small businesses can include boutiques, retail stores, specialized marketing agencies, small exporting firms, etc. From the entrepreneur’s point of view, starting a small business is an attractive option because a smaller amount of capital and other resources are required. Lower investment means lower risk and ease in starting off a business. A small business is also easier to operate and may encourage closer bonding between employees and higher interaction with customers. A small business can provide specialized goods/services and cater to market niches where demand may not be sufficient to make large-scale operations viable, at least in the beginning. For example, a few retail outlets such as Berrylicious and Snog have opened up in Karachi recently to sell flavored frozen yogurt. These currently cater to a very small number of customers hailing from the higher SECs. In certain industries, small businesses can innovate quickly and adapt to changing circumstances, as they have ‘less hierarchical management systems and less unionized workforces’.(Schaffer) Processes are often less standardized. They are thus more flexible and can adopt new technologies as well as cater to ever-changing customer demands. 11-20. Discussion Question (DQ2): Business Idea  The idea behind an entrepreneurial venture is of utmost importance and can, to a great extent, determine the success or failure of a business. Business idea generation is therefore a process. An important part of this brainstorming process is skills analysis. Although there may be many lucrative opportunities present in a number of fields, one cannot expect to succeed without the required skills set and understanding of the chosen field. While analyzinghis skills set, an entrepreneur needs to look at his qualification, hobbies and work experiences, as each job will have helped develop a different set of skills. Family history also plays a role sometimes as some sets of skills and expertise are passed down from one generation to another. One should also take into account personality traits like intense detail orientation, inclination towards teamwork and so on.(Bamford and Bruton) For example, a person with a degree in design and work experience with textile companies may consider launching his own fashion label as a good and feasible business idea. Apart from analyzing skills, one also needs to take into account other factors when choosing a business. There are many methods and tools available to evaluate business ideas. Gap Analysis is used to identify an opportunity that exists between the demand in the market and the supply provided by existing comapnies. After brainstorming and initial short listing of ideas, a person can use a tool calledDeficit Analysis to further shortlist ideas. This consists of a table: Business Idea Category Our Resources Required Resources Deficit In the first column, business ideas are listed with some details. Thesecondcolumn is used to list one category to analyze the idea, which can be Finance, Time/Non-financial resources, Risk and Competitors. The third column is utilized to provide an estimation of available resources in the chosen category while the fourth column should list estimates of resources required. The last column can then provide a comparison (difference) between the owner’s skills/resources and those required for the business.(Bamford and Bruton) The internal strengths and weaknesses of the potential businesses can be listed down, based on the entrepreneurs existing skills and resources. An aspiring entrepreneur can also evaluate an idea by answering questions such as the following: Is the idea original, an adaptation or based on a new concept or combination? What short-term gains can be expected?Is the projected revenue acceptable? Are the risk factors manageable? Does theproduct/service have a natural sales appeal? Is it affordable? Will customers buy it or do you need to wait for the right time? Does the product/service fulfill a needor has to create one via promotions? (Princeton) 21-30. Discussion Question (DQ3): External Analysis To evaluate an industry’s attractiveness and long-term profitability, Harvard Business School professor Michael Porter’s Five Forces Model can be used. The five competitive forces in this model are: threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and the degree of rivalry between existing competitors. These will help choose an industry with the highest profit potential and determine how to create competitive advantage for the business. To identify the threat of entrants, an entrepreneur needs to check if he has protected technology, long-term industry experience, a unique selling point and if there are benefits to be gained from economies of scale (which may not be possible with a smaller scale of operations). For existing competitors, one can see how they respond to change in the industry and if the industry is experiencing growth.Factors such as differentiation of products, size of competing firms, ease of exiting the market, etc. need to be evaluated. The threat of substitutescan be analyzed by considering the possibility of reverse engineering and the likelihood of products becoming obsolete. The bargaining power of buyers can determine flexibility of pricing strategy. This will depend on the amount of their income spent on the product/service, their familiarity with the product/service and ease in switching from competition. The bargaining power of suppliers can be rated based on how easily one can switch to a different supplier or alternate materials and how important one’s business is to the supplier.(Gustin) A PEST (Political, Economic, Social and Technological) Analysis will help identify influences on the industry and potential business of the external environment. For instance, if an entrepreneur wants to set up a new lifestyle store, he will have to consider political factors such as consumer protection, taxation, competition regulation, international trade regulation, etc., both generally and specifically for the retail industry. He will have to see the income distribution, demographics and lifestyle changes in the areas he wants to serve. He will also have to adopt the kind of technology being used in modern retail operations and consider the rate of technological obsolescence. General economic factors such as inflation, unemployment and government spending will need to be taken into account to judge the viability of operating and growing a business. 31-40. Discussion Question (DQ4): Mission and Strategy  The mission of a business should be defined clearly. It should cover the purpose of the business, values, strategy and scope, and standards of the business. It can be based on the sustainable or long-term competitive advantage (greater value to customers) which the business will offer. Alderson2 “was one of the first to recognize that firms should strive for unique characteristics in order to distinguish themselves from competitors in the eyes of the consumer” (Hoffman 2000). Michael Porter has postulated four generic business strategies for gaining competitive advantage. These strategies are related to the extent to which a business differentiates its products and the scope of its activities (narrow versus broad). Differentiationinvolves selecting criteria used by buyers and positioning the business to meet the same. Often this strategy is related to premium pricing, which reflects high production costs and value-added features provided to customers. For instance, Mercedes uses this strategy. Cost Leadershipis another strategy suggested by Porter. Its objective is to become the lowest-cost producer in the industry although this may not be possible for a small business. Dell Computers use a cost leadership strategy. With Differentiation Focus, an entrepreneur chooses one or a few target market segments in which he differentiates on the basis of special needs of the consumers not being met by competition, which is targeting a bigger group. Niche retailers and others use this strategy, which can be adopted by small businesses. Cost Focusis used to gain a lower-cost advantage in one or a few market segments with me-too products. For example, some small retailers sell their own label products. This strategy can also be used by small businesses.(Competitive Advantage) Some specific strategies to gain sustainable competitive advantage can also be highlighted here. One of the ways is to hold intellectual property rights – patents, copyrights, unique domain names, etc. that provide competitive protection for a long period of time. Introducing a dynamic product line, instead of a single product, is another way. Gillette is a good example of a company that has kept on providing innovative products and using patents to stay ahead of competition. A breakthrough in technology or manufacturing process, which leads to significant cost reductions, can also become a sustainable competitive advantage.(The 6 Keys To Real Sustainable Competitive Advantage) 41-50. Discussion Question (DQ5): Marketing and Harvesting  To make an effective marketing program, one needs to identify the target market and survey it in detail to figure out the demographic and psychographic patterns. Short-term as well as long-term strategies need to be formulated while marketing objectives should be aligned with overall business objectives. The essential components of a marketing planare as follows: Market Analysis: This will contain information about the target market, business competitors and market environment. It will analyze the ease of entry and exit, the gap between demand and supply, the intensity and nature of competition, etc. Product/Service Analysis: This will include a detailed description of the product/service and comparison with rival products/services. Sourcing of materials may also be considered. Marketing Strategies: This will be based on the marketing mix, the 4Ps, that is, Price, Place, Product and Promotion, which come together to position the product in the target market. Proper positioning is the foundation for success. For example, if a business wants to sell branded handbags, apart from the product features (shape, color, material), the high pricing and placement of bags in large, posh shops - frequented by people with high income and a penchant for branded goods – will help build that perception, apart from advertising and other promotions, which will do the same. Finance/Budgeting: The part of budget allocated to marketing will obviously have a great impact on the process. Focus should be on achieving the maximum result from the available resources, with proper planning. An effective marketing program should be able to reach out to the target market, retain customers, experiment and embrace change.(Nagdeman) Many businesses, especially small businesses, over the course of time face problems such as increasing competition, limited cash flow and economic issues. Some changes in the external environment may cause a small business to start declining. In this scenario, turnaround strategies are required, which generate money and /or reduce costs. “The choice of turnaround strategy would depend on various factors such as stages of sickness i.e. tending towards sickness, incipient sickness and the gravely sick, causes of sickness i.e. external or internal or both, operational performance gap, strategic gap etc.”(Yadav) The entrepreneur may consider bringing about changes in the management structure to make way for new concepts. He may take the assistance of outside expertise for improvements. Unprofitable portions of the business or product lines may be closed down. Unused assets or those that are no longer required may be sold off. Another strategy could be to reduce employee-related costs. (Acevedo) 51.-60. Discussion Question (DQ6): Political and Economic Markets  Capitalism is defined as an “economic system, dominant in the Western world since the breakup of feudalism, in which most of the means of production are privately owned and production is guided and income distributed largely through the operation of markets.” (Britannica) Capitalism thus gives birth to a free market economy, with minimal government control over resources and profit maximization as the main objective. To explore the origin and development of capitalism, one can look at Adam Smith’s The Wealth of Nations, published in 1776. Smith explored the interrelationship between the factors of production, the market and the state, providing a ‘comprehensive examination of the emerging market capitalist system’. (Ingham) Karl Marx3 agreed with Smith about market efficiency resulting from division of labor, competition and trade but he focused on the ‘inherent inequality of power of capitalist property relations.’ He believed that the system eventually had ‘destructive tendencies.’(Ingham) German sociologist and political economist, Max Weber focused on the ‘distinctive way in which profit was pursued’. He defined capitalism as the ‘satisfaction of human needs and wants by industrial production undertaken by bureaucratic enterprises in which net profit is rationally calculated.’(Ingham) Fascism is a right-wing political ideology inspired by Italian Fascism – the political movement of Benito Mussolini’s regime in Italy.It is defined by Robert Paxton as "a form of political behavior marked by obsessive preoccupation with community decline, humiliation, or victimhood and by compensatory cults of unity, energy, and purity, in which a mass-based party of committed nationalist militants, working in uneasy but effective collaboration with traditional elites, abandons democratic liberties and pursues with redemptive violence and without ethical or legal restraints goals of internal cleansing and external expansion."(Paxton) This ideology is said to promote war and political violence. It encourages nationalism and the formation of a totalitarian state. It is said to oppose various other ideologies such as communism, liberalism and social democracy. Socialism is a “social and economic doctrine that calls for public rather than private ownership or control of property and natural resources. According to the socialist view, individuals do not live or work in isolation but live in cooperation with one another. Furthermore, everything that people produce is in some sense a social product, and everyone who contributes to the production of a good is entitled to a share in it. Society as a whole, therefore, should own or at least control property for the benefit of all its members.”(Britannica, Socialism) Socialism leads to the concept of planned economies, with public ownership of resources and centralized planning by the state. It also accommodates a self-managed decentralized economy (closer to the free market system), a state-directed economy and market socialism. The main differences are in the ownership of enterprises and government control. The most influential theories of socialism were presented by Karl Marx and Friedrich Engels, who believed in the freedom of the working class from capitalist forces and the formation of a classless society. Their theory referred to a particular historical phase that would phase out capitalism and pave the way for communism. Communismis a political system. It is said to have become a practical movement with Vladimir Lenin: “The Russian Marxist movement preceded Lenin by two decades, but it was Lenin who split off a militant faction from the rest of the Russian Social Democratic Labor Party and forged it into a potent weapon for totalitarian revolution.”(Lenin and the First Communist Revolutions, I) This system also envisions a classless society with common ownership of the factors of production. However, history has shown capitalism to be the most successful political and economic theory, despite its drawbacks such as the unequal distribution of wealth. One of the reasons for its success has been the freedom to enter and exit a market - what Joseph Schumpeter called ‘creative destruction’. He said this was 'the dynamic process by which capitalism purges itself of the old, unproductive and defunct, replacing it with the new, productive and revolutionary.' (Schumpeter) In this situation, only firms that are prospering and new technologies can survive. Schumpeter also thought that capitalism has a dynamic and evolutionary nature which helps make continuous improvements. Friedrich Hayek has analyzed what would happen if capitalism failed. In The Road to Serfdom (1944), Hayek argues that ‘only is capitalism more efficient than socialism, but more importantly, that capitalism is compatible with a free society, and socialism is not.’ He said that personal and political freedom could not exist without economic freedom. He believed in economic planning but only for creating conditions which would help individuals succeed. (Gokce) Bibliography Acevedo, Laura. Turnaround Strategies for a Declining Small Business.. Bamford, Charles E. and Garry D. Bruton. Entrepreneurship: A Small Business Approach. McGraw-Hill, 2011. Britannica, Encyclopædia. "Capitalism." Encyclopædia Britannica Online Academic Edition. S.v. —. Socialism. ncyclopædia Britannica Online Academic Edition. S.v. 11 August 2011. Burnett, David. The Supply of Entrepreneurship and Economic Development. September 2000. 2012 . Competitive Advantage.. Gokce, Taner. The Demise of Socialism and the Ultimate Success of Capitalism. 8 June 2008. . Gustin, Kylon. Competing in your industry.. Hoffman, Nicole P. "An Examination of the "Sustainable Competitive Advantage" Concept: Past, Present, and Future." 2000. Ingham, Geoffrey K. Capitalism. Cambridge: Polity Press, 2008. Lenin and the First Communist Revolutions, I.. Nagdeman, Jay. Create a more effective marketing program. 28 June 2009. . Paxton, Robert. The Anatomy of Fascism. Vintage Books, 2004. Princeton, Creative Research -. Idea Evaluation Checklist.. Schaffer, Jonathan. Ejournal USA - Entrepreneurship & Small Business. DIANE Publishing, 2006. Schumpeter, Joseph. Capitalism, Socialism and Democracy. New York: Harper and Row, 1942. Sobel, Russell S. The Concise Encyclopedia of Economics. 2008. . Stevenson, Howard H. and David E. Gumpert. "The Heart of Entrepreneurship." Harvard Business Review March 1985. The 6 Keys To Real Sustainable Competitive Advantage.. Yadav, Ram Avtar. Managing Corporate Turnaround. New Delhi: Concept Publishing Company, 1992. Read More