Entrepreneurship for Small Businesses
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Published: Tue, 06 Feb 2018
Entrepreneurship creates a new field of business, despite risks and uncertainty. To achieve profit and growth, a business must identify crucial opportunities and assemble the necessary resources to capitalize on them. Most forms of entrepreneurship are small scale businesses which begin targeting a specific class of customers. Entrepreneurship business has a bright vision according to the report by many studies.
Starting business might be an opportunity for people who have been the unemployed, caused by economic recession. There are two important factors to keep creativity which is the ability to develop new ideas and to discover new ways of looking at problems and opportunities. Next innovation is the ability to apply creative solutions to problems and opportunities while enhancing or enriching people’s lives.
Furthermore, the three steps to implement creativity and innovation are developing a strategic plan for a business using the nine steps in the strategic planning process, and building a marketing plan, pricing strategies, financial plan, and cash flow management. These will be necessary for a small business to be successful as well as a harmony with considering the opposite side opinions.
Background of Current Economic Situation
The condition of global economy is in the recession and that is evidence through various economic figures like the GDP, the rate of unemployment, crisis of subprime mortgage which is a huge economic crisis to intimidate the base of economy system caused by deficit of real estate by overestimation (Oshinsky, J., Fleishman, B., Murray, J., & Fields, J., 2007).
Aggregate supply which is a total amount of producing by companies in a country, and aggregate demand which is a total amount of consuming by customers in a country are getting to decrease (Vogel Jr., J., 2007). Especially unemployment rate influences the real living quality of people. The more the unemployment rate increases, the worse the quality of people’s living is. Moreover, the social instability is caused by the high rate of unemployment (Barrell, R. & Holland, D., 2008).
Considering Entrepreneurship as a Solution
In this situation, the establishment of a small business and entrepreneurship is one of the solutions to decrease financial crisis such as a high rate of unemployment and deduction of the GDP. This will provide not only the opportunity to recover the loss of many unemployed workers and the GDP, but also create many jobs and products caused by new entry of small businesses. Furthermore, there are many other reasons to support entrepreneurship as a good alternative to solve the recession (Patterson, S., 1993).
Common people still regard establishing a business as a risky challenge that could lead to big failure. It is usual that one who does not have confidence in his or her success might avoid establishing his or her own business. But, if there is a unique idea to be applied in a new business, and it is certain that a competitive business strategy plan and solid management could be settled based on thorough analysis regarding the new market, the result of small business would not be risky, and could make an amazing profit. Of course, maintaining a study for corresponding customers’ feedback and avoiding any potential drawbacks is an essential requirement for the success of small business (Carmona, J., 2008).
The Positive Aspects of Entrepreneurship
First of all, there are reasons why the entrepreneurship will be appropriate for recovering and restarting a career in the period of recent recession in two points of view. In a viewpoint of the individual entrepreneur, the entrepreneurship will be a chance to create your own destiny after resigning from your former profession. Owning a business provides entrepreneurs the independence and the opportunity to make their desire a reality.
It is certain that the result of managing businesses should be required to their responsibilities if their businesses are successful or not. The small business will be an opportunity to make a difference because they see a chance to make a difference in a cause that is important to them. The entrepreneurs are always looking for ways to combine their concerns for social issues and their desires to earn a good living.
Moreover, the entrepreneurs’ businesses become their instrument for self-expression and self-actualization. Their businesses are exciting and challenging for them. The entrepreneurs usually enjoy their businesses as their hobbies, not a work. Their success of businesses depends on their ability regarding how much they are creative, enthusiastic, and vision will be imposed from their potential capacity (Klein, K., 2008).
Besides, the entrepreneurship will be a good opportunity to earn impressive profits. Many of them do become wealthy. For example, nearly 75 percent of those on the Forbes list of the 400 richest Americans are first generation entrepreneurs. According to research by Thomas Stanley and William Danko, self-employed business owners make up two thirds of American millionaires. Furthermore, small business owners are generally among the most respected and most trusted members of their communities.
Business deals based on trust and mutual respect are the guarantees of many established small companies. These owners are proud of the trust and recognition they receive from the customers they have served faithfully over the years. A study by the National Federation of Independent Businesses found that seventy eight percent of Americans believe that small businesses exerts a positive influence on the country’s direction, a ranking exceeded only by science and technology (Zimmerer T. W. & Scarborough N. M., 2008).
Most advantage of the entrepreneurship is that owners of small businesses can make their hobbies their work, and they can enjoy their work with great interest and fun. Even though their business is not successful, they can satisfy just their working process because they have a business they enjoy and love (Shah, A., 2007).
In a viewpoint of the contribution to society of the entrepreneurship, not only small companies lead the way in creating jobs, but they also take the brunt of training workers for them. One study by the Small Business Administration concluded that small businesses are the leaders in offering training and advancement opportunities to workers.
Small companies offer more general skill instruction and training than larger ones, and their employees receive more benefits from the training than do those in larger firms. Even though their training programs tend to be informal, in-house, and on–the–job, small companies teach employees valuable skills, from written communication to computer literacy.
Small businesses also produce fifty one percent of the country’s private GDP (Gross Domestic Product) and account for forty seven percent of business sales. In fact, the US small business sector is the world’s third largest economy, trailing only the entire US economy and China. Small companies also are incubators of new ideas, products, and services.
Small firms actually create thirteen to fourteen times more innovations per research employee than large companies. Traditionally small businesses have played a role in innovation and they continue to do so today. Many important inventions trace their roots to an entrepreneur, including the zipper, FM radio, the laser, air conditioning, the escalator, the light bulb, the personal computer, and the automatic transmission (Stottlemyer, T., 2008).
Likewise, the entrepreneurship business has a positive vision based on above facts. If the entrepreneurs want to make their business successful, they need a good plan to differentiate their business from other businesses. Thus, creativity about their business should be represented as one of the main factors of success. Creativity is not only an important source for building a competitive advantage, but it also is a necessity especially for survival of small business.
Small businesses relatively have disadvantages for the high cost to produce goods and services, and narrow selling channels compared with big companies. Therefore, creativity is a very important part to motivate the company, making it more competitive in the market. Creative ideas would not be easy to be caught, thus should be found after the creative process which involves seven steps (Spence, R., 2006).
Preparing for Entrepreneurship
The first step is the preparation that includes a formal education, on the job training, work experience, and taking advantage of other learning opportunities. These ways can provide a foundation on which to build creativity and innovation. For instance, the adaptation of attitudes of a lifelong student will assist owners of small businesses to establish and manage their businesses.
Every situation you meet will be an opportunity to learn about the business. Reading many writings even if it is not in your field of profession, will be a source of creativity and innovation which are frequently originated from blended ideas and concepts in various fields of different expertise. In addition, gathering articles related to your small business should be the great guide book to bring the information from which to draw ideas and inspirations.
Furthermore, joining professional and trade associations and attending their meetings will be a chance to brainstorm with others who have similar interests. You can learn how others solved specific problems, which will give you new insight to solve your problems of business. Besides, there are practical plans to prepare for creativity like investing time in studying other countries and their cultures. This offers incredible business opportunities for entrepreneurs with necessary knowledge and experience by your global experiences.
The second step is the investigation which requires one to develop a solid understanding of the problem, situation, or decision. To create new ideas and concepts in a particular field, an individual must first study the problem and understand its basic components. Creative thinking comes about when people make careful observations of the world around them and then investigate the way things work (Zimmerer T. W. & Scarborough N. M., 2008).
The third step is the transformation which involves viewing the similarities and the differences among the information collected. This phase requires two types of thinking: convergent and divergent. Convergent thinking is the ability to see the similarities and the connections among various and often diverse data and events. Divergent thinking is the ability to see the differences among various data and events (Zimmerer T. W. & Scarborough N. M., 2008).
The fourth step is the incubation which is concerned about the time of subconscious needs to reflect on the information collected. To an observer, this phase of the creative process would be quite boring; it looks as though nothing is happening. In fact, during this phase, it may appear that the creative person is loafing. Incubation occurs while the individual is away from the problem, often engaging in some totally unrelated activity. Working on the problem or opportunity in a different environment helps stimulate your creativity (Zimmerer T. W. & Scarborough N. M., 2008).
The fifth step is the illumination which occurs at some point during the incubation stage when a spontaneous breakthrough causes “the light bulb to go on.” In the illumination stage, all of the previous stages come together to produce the “Eureka factor”- the creation of the innovate idea. In one study of two hundred scientists, eighty percent said that at least once a solution to a problem had “just popped into their heads”- usually when they were away from the problems (Zimmerer T. W. & Scarborough N. M., 2008).
The sixth step is the verification. For entrepreneurs, proving an idea as accurate and useful may include conducting experiments, running simulations, test marketing a product or service, establishing small scale pilot programs, building prototypes, and engaging in many other activities designed to verify that the new idea will work and is practical to implement. The goal is to subject the innovative idea to the test of cold and hard reality (Zimmerer T. W. & Scarborough N. M., 2008).
The seventh step is the implementation. The main purpose of this step is to transform the idea into reality. Many people come up with creative ideas in order to promise new products or services, but most never take them beyond the idea stage. What sets entrepreneurs apart is that they act in their ideas. An entrepreneur’s final goal is to make their innovative ideas in the reality successfully (Zimmerer T. W. & Scarborough N. M., 2008).
Designing a Competitive Business Model
After establishing creative ideas which are differentiated from other competitors, entrepreneur needs to design a competitive business model. Obviously the number of strategies from which the small business owner can choose is enormous. But, there are three basic strategies remain permanently. First one is cost leadership. A company pursuing a cost leadership strategy strives to be the lowest cost producer relative to its competitors in the industry. Low cost leaders have a competitive advantage in reaching buyers whose main purchase criterion is price.
They have the power to set the industry’s price floor. This strategy works well when buyers are sensitive to price changes, when competing firms sell the same products and compete on the basis of the price , and when companies can benefit from economies of scale. Not only is a low cost leader in the best position to define itself in a price war, but it also can use its power to attack competitors with the lowest price in the market.
Next is the differentiation. A company following a differentiation strategy seeks to build customer loyalty by positioning its goods and services in a unique or different fashion. That enables the business to command higher price for its products or services than competitors. The key of differentiation is to be special at something that is important to the customers. In other word, a business strives to be better than its competitors at something customers value.
Last one is the focus strategy which recognizes that not all markets are homogeneous. In fact, there are many different customer segments, each having different needs, wants, and characteristics. The principal idea of the focus strategy is to select one or more market segments, identify customers’ special needs, wants, and interests, and approach them with a good or service designed to excel in meeting these needs, wants, and interests. Focus strategies build on the differences among market segments. Fro instance, most markets contains a population of customers who are willing and able to pay for the premium goods and services, giving small companies the opportunity to follow a focus strategy aimed at the premium segment of the market.
Entrepreneur should plan the strategic management process. Generally small companies that lack clear strategies may achieve some success in the short run, but as soon as competitive conditions stiffen or an unanticipated threat arises, they usually “hit the wall” and fold. Without a basis for differentiating itself from a pack of similar competitors, the best a company can hope for is mediocrity in the marketplace. In today’s intensely competitive global environment, entrepreneurs who are not thinking and acting strategically are putting their businesses at risk. Strategic management is the mechanism for operating successfully in a chaotic competitive environment.
The goal of developing a strategic plan is to create for the small company a competitive advantage which is the aggregation of factors that sets the small business apart from its competitors and gives it a unique position in the market. Every small firm must establish a plan for creating a unique image in the minds of its potential customers. A company builds a competitive edge on its core competencies, which are a unique set of capabilities that a company develops in key operational areas, such as quality, service, innovation, team building, flexibility, responsibilities, and others, that allow it to get over past competitors. They are what the company does best and are the focal point of the strategy. This step must identify target market segments and determine how to position the firm in those markets. Entrepreneurs must identify some way to differentiate their companies from competitors.
The initiate step of developing a strategic plan is that developing a clear vision and translating it into a meaningful mission statement. Highly successful entrepreneurs are able to communicate their vision to those around them. The firm’s mission statement answers the first question as what business am I in? The mission statement sets the tone for the entire company. The second step is assessing the company’s strengths and weaknesses. Strengths are positive internal factors; weaknesses are negative internal factors.
The third step is scanning the environment for significant opportunities and threats facing the business. Opportunities are positive external options; threats are negative external forces. The fourth step is identifying the key factors for success in the business. In every business, key factors that determine the success of the firms in it, and so they must be an integral part of a company’s strategy. Key success factors are relationships between a controllable variable and a critical factor influencing the firm’s ability to compete in the market. The fifth step is that analyzing the competition. Business owners should know their competitors’ business almost as well as they know their own business. A competitive profile matrix is a helpful tool for analyzing competitors’ strengths and weaknesses (Shah, A., 2007).
The sixth step is to create company goals and objectives. Goals are the broad, long-range attributes that the firm seeks to accomplish. Objectives are quantifiable and more precise; they should be specific, measurable, assignable, realistic, timely, and written down. The process works best when managers and employees are actively involved. The seventh step is to formulate strategic options and select the appropriate strategies.
A strategy is the game plan the firm plans to use to achieve its objectives and mission. It must center on establishing for the firm the key success factors identified earlier. The eighth step to translate strategic plans into action plans. No strategic plan is complete until the owner puts it into action. The last step is to establish accurate controls. Actual performance rarely matches plans exactly. Operating data from the business assembled into a comprehensive scorecard serve as an important guidepost for determining how effective a company’s strategy is. This information is especially helpful when plotting future strategies (Shah, A., 2007).
After that, building a marketing plan is necessary for entrepreneurs to act their managing strategies in reality, which is the process of creating and delivering to customers including all of activities related to winning and retaining loyal customers. Thus, marketing plan focus on the company’s target customers and how to satisfy their needs and wants. Solid marketing plan should determine customer needs and wants through market research, and pinpoint the specific target markets the company will serve. Furthermore, after analyzing the firm’s competitive advantages and building a marketing strategy, entrepreneurs should create a marketing mix for their customers (Spence, R., 2006).
Entrepreneurs should understand where in their customers’ product life cycle lately. They also focus on choosing the appropriate channel and place of distribution and using it efficiently. Setting the right price for their products or services is pretty hard because this work need to utilize the statistic data and catch the emotion of customers regarding their products. At the end of marketing strategy, owners of small businesses should develop a promotion for their products including advertising, personal selling, creating events, and guerilla marketing that is a kind of marketing promotions focused on emphasizing unique comparative advantages relative to other competitors (Spence, R., 2006).
Opposite Side Opinion
People who have opposite opinions against entrepreneurship point out ten potential risks. First is management mistake that is the primary cause of business failure. Sometimes the owner of a small business lacks the leadership ability, sound judgment, and knowledge necessary to make the business work. Second is lack of business experience which indicates that most entrepreneurs tend to be beginners to be easy to make management mistakes in their own businesses. Third one is poor financial control.
Effective managers realize that any successful business venture requires proper financial control. Business success also requires having a sufficient amount of capital on hand at start-up. Undercapitalization is a common cause of business failure because companies run out of capital before they are able to generate positive cash flow. Entrepreneurs tend to be overly optimistic and often misjudge the financial requirements of going into business (US Recession Would Hurt, 2008).
Fourth one is weak marketing efforts that means entrepreneurs tend to misunderstand the marketing efforts. For example, owners of small businesses usually believe their businesses will make a great number of customers automatically, but it almost never happens in reality. Building a growing base of customers requires a sustained and creative marketing effort. Keeping customers coming back requires providing customers with value, quality, convenience, service, and fun.
Fifth thing is failure to develop a strategic plan. Many small business managers ignore the process of strategic planning because they think that is something that benefits only large companies. Without a good defined strategy, a business has no sustainable basis for creating and maintaining a competitive edge in the marketplace. Establishing a strategic plan drives entrepreneurs to assess realistically a proposed business’s potential. Sixth thing is uncontrolled growth. Business growth is a natural, healthy, and desirable part of any business, but it must be planned and controlled.
As the business increases in size and complexity, problems increase in magnitude, and the entrepreneur must learn to deal with them. Seventh thing is poor location. Business location are often selected without proper study, investigation, and planning. Some beginning owners select a particular location just because they found a vacant building. The sales business should be influenced heavily by choice of location.
Eighth is improper inventory control. Insufficient inventory control results in shortages and stockouts, causing customers to become disillusioned and leave. More common situation is that the manager has not only too much inventory, but also too much of wrong type of inventory (Zimmerer T. W. & Scarborough N. M., 2008).
Ninth is incorrect pricing. Small business owners usually underprice their products and services for making strong competition. Establishing accurate prices is to know what a product or service costs to make or to provide. Then, business owners can establish prices that reflect the image they want to make for their companies with an observation on the competition.
Tenth is inability to make the Entrepreneurial Transition. After the start up, growth usually requires a radically different style of management, one that entrepreneurs are not necessarily good at. Growth requires entrepreneurs to delegate authority and to relinquish hands-on control of daily operations, something many entrepreneurs simply can not do (Zimmerer T. W. & Scarborough N. M., 2008).
Suggestions for solving opposite side
Entrepreneurs must know their business field in depth. Small business owners should get the best education in their business area before they set out on their own business. Small business managers have to become serious students of their industry to analyze and examine their industry for their success. Reading trade journals, business periodicals, books, and research reports related to their industry, which can guide entrepreneurs to the success. Moreover, personal contact with suppliers, customers, trade associations in the same industry is another excellent way to get that knowledge.
Small business owners should develop a solid business plan that is a crucial ingredient in preparing for business success. Well written and planned business plan not only provide a pathway to success, but it also creates a benchmark against which an entrepreneur can measure actual company performance. This planning process drives entrepreneurs to ask and answer some difficult, challenging, and crucial questions.
Managing financial resources is also essential part for entrepreneurs to run their business successfully. The best defense against financial problems is to develop a practical information system and then use this information to make business decisions. The first step in managing financial resources effectively is to have adequate start up capital. Estimating initial capital as much double as entrepreneurs expect will be good for starting a business because many costs that entrepreneurs do not expect will come out at the beginning time. The most valuable financial resource is cash. Even though earning a profit is essential to its long term survival, a business must have an appropriate supply of cash to pay its bills and obligations. Managing cash is one of entrepreneurs’ primary abilities to maintain their business.
Owners in small businesses have to understand financial statements what is going on in the business. These financial statements are reliable indicators of small businesses’ health. They can be helpful in realizing potential problems like declining sales, slipping profits, rising debt, and deteriorating working capital that are symptoms of potentially critical problems which require immediate attention.
No matter what kind of business entrepreneurs launch, entrepreneurs must learn to manage people. Every business depends on the foundation of well trained, motivated employees. Business owner can not do everything alone. In the end, most dominant sustainable resource is the good quality of the people entrepreneurs have.
Starting business is like running a marathon. If entrepreneurs are not physically and mentally prepared, entrepreneurs had better do something different. The success of business depends on entrepreneurs’ constant presence and attention. It is critical to monitor a business condition constantly. Also successful entrepreneurs recognize that their most valuable asset of their time, and they learn to manage it effectively to make themselves and their companies more productive.
Entrepreneurship is not ultimate solution for solving recession, but it can be one of primary alternatives to help people come out of economic recession. Although there are risks to start a business, entrepreneurship have many advantages to be valuable for challenging new industry. For instance, good opportunity to earn impressive profits, making hobbies main work, and the contribution to society is representative advantages of entrepreneurship. Therefore, considering the opposite opinions, building solid managing strategy and marketing plan, maintaining a study for corresponding customers’ feedback must make entrepreneurship successfully.
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