HOW TO INCREASE THE CHANCES OF BUSINESS SUCCESS
Starting any business, large or small, requires a tremendous amount of time, effort, and resources. It makes sense to start a business that has the potential to grow large and provide a good return on that investment, rather than spending that same amount of effort on a very small business that yields only a single job. In fact, research supports that notion.
The probability of success and survival tends to go up with larger businesses or businesses with more potential. Unfortunately, the vast majority of people who start businesses do not think like entrepreneurs. They think like small business owners wanting to keep everything under control, to grow slowly, and simply to provide a job for the owner.
Although there is nothing inherently wrong with looking at business from this perspective, it does, regrettably, expose the entrepreneur to significantly more risk. Because these small businesses do not create new value, innovate, or have a plan for growth, they tend to be undercapitalized, poorly managed, and unable to differentiate themselves from competitors. How, then, does an entrepreneur increase the chances for success? There is a model for the entrepreneurial process from the point of view of the entrepreneur /founder.
Within each component of the model are opportunities for the entrepreneur to plant the seed of success. The entrepreneur or founder of the venture is at the heart of the new business venture. Even when a venture is started by a team – and most are – one person is typically the lead entrepreneur who began with the vision and concept for the business. In general, all of the components of the process are the result of decisions based on the values, desires, and goals for the founder. The team that supports the founder will generally possess a similar value system, which makes for a team that is well-rounded, covers all the basic functional needs of the business, enhances the founder’s financial statement, and increases the scope of contacts.
One very specific task that an entrepreneur can undertake is to find a mentor – that is, someone who is leading the type of life that the entrepreneur envisions for his or her own future. The next essential component of the process is the business opportunity, which is generally expressed in the form of a concept statement. The business concept identifies the customer, the value proposition, the product and/ or service to be offered, and the method for delivering the value proposition, or benefit, to the customer. It is a critical element of the process because it serves as the foundation for the development of a business model, or way to make money. It also provides a way to test the business opportunity in the market to determine acceptance and level of demand before actually starting the business.
The next element of the process is resources, which include people, physical assets or intellectual property, and financial assets. In general, most entrepreneurs operate in bootstrapping mode, which means that they beg, borrow, outsource, and lease as much as possible in the start-up phase. Bootstrapping is not a liability for a new company but rather a competitive advantage, because more of the early revenues go to the profit line instead of supporting costly overhead that does not generate revenues for the company. It is important for entrepreneurs to minimize the number of resources they need to own to start the business. That includes people, which are the single biggest expense of any business.
Every opportunity has risks and rewards associated with it. Those risks can be financial, personal, or reputational. Risks are also associated with resources, opportunity costs, investors, and strategic partners. However, before entrepreneurs ever risk the time and money of investors and strategic partners, they risk their finances, their time and effort, and their reputations. As stated earlier, a common misconception is that risk is indirectly correlated with reward, such that the higher the risk, the higher the reward. But in reality, the more risky the venture, the more of the company an investor will want to own to ensure that outcomes can be controlled to the investor’s benefit.
Reward is a function of how much value is created by the new venture, and value is often created as risk is reduced. For example, one of the most precarious points of entry for an investor is the concept stage before feasibility has been proved. An investor coming in at that stage will want more control of the business and therefore a larger equity stake, or ownership position. But if the founding team reduces some of the risk by conducting a feasibility study, testing the market, and securing the first customer, the investor will probably require somewhat less control and a smaller stake in the venture.
All businesses operate within the context of an environment that includes the industry in which they operate, legal requirements, cultural dynamics, economic impacts, government regulation, and sources of incentives and assistance, among many other variables. Entrepreneurs need to understand fully the environment in which their business operates so that they can devise strategies that allow them to be proactive in that environment rather than reactive.
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