Entrepreneurial Venture

What is Entrepreneurial Venture ?

An entrepreneurial venture is simply referred to the establishment of a new commercial business, social business or other such form of businesses. These ventures can also be termed as a 'new venture' or 'new enterprise'. Entrepreneurs play a big role in the creation of a new venture due to their personal goals and ambitions. In business life cycle, establishment of a new venture is the first stage where a new business is first assessed and then established. Entrepreneurial ventures are not the same as small business enterprises, though they share many common characteristics. Both of them have economic relevance but they provide benefits and outcomes distinct from each other. 

Schumpeter defines entrepreneurs as people who bring about significant alterations in the equilibrium thereby creating new products and processes that redefine the way we live. Small business owners on the other hand, run a business within pre-set guidelines and do not make the same kind of alterations as entrepreneurs do. Some examples of small businesses are small shops, food stalls, service providing agencies, etc. They constitute the "economic core" and tend to be slow as they adopt paradigms which are well established in the market. However, it should be kept in mind that even entrepreneurial ventures start on a small scale. The difference is that the kinds of goal entrepreneurs of larger firms set are comparatively larger in scope than the small business owners. Entrepreneurial ventures have three common traits. These are innovation, creation of value and focus towards growth.

For example, with the advent of internet marketing and selling, e-commerce of hotel rooms for of bills, companies like Flipkart, E-bay (for online purchase of products), and other entrepreneurial businesses (online booking of stay), Paytm (making online payment of recharge, etc.), etc., have emerged. Value e creation is done by entrepreneurial ventures in many ways. They can create new employment opportunities which are not based on some existing business unit. They focus on niche marketing and identifying the potential customers whose current demands are unfulfilled and catering the same. Entrepreneurs can also be characterized by having a clear cut vision of where they need to take their business. This may cover vision to grow on regional, national and even international basis.

Essential Requirement for Entrepreneurial Ventures

A newly developed business venture requires greater commitment as higher level of risk is involved during its initial stages. Those entrepreneurs who are likely to have sufficient knowledge regarding the market conditions are generally able to launch a successful business venture. This knowledge is a result of the experience and information that the entrepreneur has gathered and also the research that he has undertaken. In this view, following are the essential requirements or need for a successful business venture : 

1) Appropriate Market Analysis : 
The entrepreneur needs to have a good idea of the opportunities that exist in the market and the challenges that the product is likely to encounter. Such idea about the potential opportunities and threats in the business can be developed with the help of appropriate market analysis. The entrepreneur should measure these aspects against the strengths and weaknesses of the developed business plan. Market analysis involves evaluation of various factors such a size, profitability, growth rate, and price structure of the market as well as evaluation of various distribution channels. For conducting an effective market analysis, entrepreneur should be aware of the on-going market trends and identify the ones which are favorable and unfavorable for his business venture.

2) Adequate Financing for the New Venture :
Financing the new venture with adequate amount of capital is very important for its success. In fact, lack of capital sources is a very big reason for the failure of new ventures. When a business unit new in the market, it does not have a set of core customers or a well-known brand. Many times. the loans from entrepreneur's family members and founder's savings are used for financing a new venture. Although there is nothing inherently wrong in bootstrapping (i.e., starting business with minimum finances) but the entrepreneur needs to look at all costs with a critical eye so that the firm is able to sustain itself in the long run, even in case of no profit. It is therefore important that the sales and profit forecasting is done in a sensible manner so that the organization does not run with too many risks.

3) Identifying a Suitable Niche : 
It is very essential for a new venture to create its own unique space in the market by identifying a suitable niche segment. The selected niche should be such that it is in accordance with the strengths of the new business venture and helps in minimizing its One way of doing this is to segment weaknesses. One the market in terms of demographics. Every segment will be then analyzed in terms of its strengths and weaknesses. Factors which are to be considered while identifying the niche include marketing methods that are applied while identifying the potential customers and analyzing competitiveness in the market. Also, the product and service paradigms need to be unique. Various new ventures tend to target a large market segment in their initial stages which generally creates a pressure from increased costs (required for marketing activities such as advertisements and promotion) and large number of competitors.

4) Workable Marketing Plan : 
A feasible marketing plan tailored with the niche of entrepreneurial venture is essential for the success of business. With the help of an appropriate marketing plan, the new venture sets its goals, direction and purpose. Such plan also includes relevant information about the venture's objectives, strategies, as well as products. For making an effecting marketing plan, the costs associated with the marketing functions needs. be budgeted. Such a budget should cover all cost related to marketing activities conducted in one) year. Also, the entrepreneur should measure the success of the marketing efforts. The marketing plan should also aim at mapping the strengths and weaknesses of the product against the specific needs and buying behavior of customers in the targeted niche market.

Stages of Entrepreneurial Venture / Five Stages of Venture Life Cycle

Any entrepreneurial venture goes through five main stages (venture life cycle stages) namely, new venture development, start-up activities, growth, stabilization, and innovation or decline. These 5 stages have been explained below in detail : 

Venture's Typical Lifecycle

Stage 1: New-Venture Development : 
This is the initial stage which is associated with the formation of the new venture. It lays down the processes to develop an entrepreneurial venture and therefore requires appropriate assessment and innovation. It involves the assimilation and distribution of resources. Beside this, it resource involves assessment, innovation, and networking at the initial stages of entrepreneurial venture development strategy. The various ingredients of the strategy like vision, mission, goals and general direction that the organisation will take are decided at this juncture.

Stage 2: Start-Up Activities : 
The next stage is concerned with creating the foundation of the business plan, search for sources of capital and finance, performing marketing activities and developing an operative entrepreneurial group. This therefore requires a greater amount of driving force to be incorporated in the launch plan of the strategy to organisation. It can be considered similar to the description that Chandler has given for the rationalization of the use to resources. It is characterized by operational and strategic planning procedure specifically designed for recognizing the competitive advantage of the firm and discovering sources of finance. The maximum importance is given to marketing and finance functions.

Stage 3: Growth : 
The growth stage requires major transformations in the form of improvements in the strategy that has been adopted by the entrepreneur for the business venture. The strategy has to be redrafted keeping in mind the competition and other forces the current business environment. For example, many firms find the growth of their business unmanageable and hence fail in their business endeavors. Many creative organisations are also unable sometimes unwilling to manage the greater administrative burden of growth and are often forced to switch to other businesses.
During this stage, a positive change is seen instead of leadership exercised by one person only (like in the first stage), a team-oriented leadership approach is adopted. The problems being faced by the entrepreneur at this stage are greater than those faced during the initiation stage. This often forces him to develop an entirely new set of skills thereby maintaining the entrepreneurial spirit for the growth of the business venture.

Stage 4: Business Stabilization : 
As the name suggests, the stage of business stabilization is referred to as the stage where the new venture that has been initiated is now enjoying stability in its endeavors. This stage is a combination of both the events that happen in the market as well as the efforts made by the entrepreneur. This stage is characterized by increased level of competition, gaining - recognition in the market, customer indifference to products/services of entrepreneur, etc. As a result, the sales of the organisation increases to a satisfactory level and the entrepreneur has to think about the future course of business. This stage is often called as 'swing stage because after this phase, the organisation either enters a path of high growth or sinks down incurring losses. This is why, innovation plays an important role in this phase.

Stage 5: Innovation or Decline : 
Lastly, the stage associated with entrepreneurial venture development is either innovation or decline depending on the market positioning and image of the products/services of the new venture. In this stage, the choice before firms is very simple; they must innovate or they will not survive. Organisations with great financial resources often resort to acquiring great financial smaller but more innovative firms. The new may also have a robust new product development team which works on developing the new products to augment the existing ones in the market. Different strategies are required to be formulated for each stage involved in the life cycle of the new venture. All these stages are important as an entrepreneur can readily grow his business by applying significant strategies at each stage.

Suggestions to Avoid Failures of Entrepreneurial Venture 

Entrepreneurs can avoid failure of their ventures in the following manner (solutions to business failure) :

1) Acquiring Business Insights : 
Entrepreneurs should develop insights of the business in which they are operating by conducting research activities, interacting with buyers, suppliers, associates, consultants, etc., who are supposed to provide useful information related with the business. This can help them in avoiding entrepreneurial failure.

2) Developing Regular Feedback System : 
Performance of a business can be measured with the help of a suitable business plan which helps in setting a benchmark against which the performance is measured. The results of performance measurement can be analysed and feedback should be provided accordingly. This further helps in taking corrective actions involving rectification of wrong assumptions made initially. Thus, a new venture should be construed as a series of experiments where the learning of each experiment reinforces the next stage thereby leading to its success.

3) Managing Financial Resources : 
The entrepreneur needs to have a control on the financial aspects of the business. It is one of the basic estimation that a start-up venture normally requires thrice the amount of estimated time and twice the amount of estimated money. For this purpose, appropriate information system needs to be maintained where all records of business financial prospects are stored so that the entrepreneurs can take important financial decisions on informed basis.

4) Managing People : 
Since the entrepreneur cannot perform every business function alone. there is a need of talented employees. Thus, the success or failure of a new enterprise often lies in the kind of people it is able to attract and retain.

5) Managing Yourself : 
The success of a venture also depends to a large extent upon the entrepreneur's commitment in terms of passion, time and capability. The entrepreneur needs to manage himself in terms of these factors for ensuring the success of business.

Reasons for Failure of Entrepreneurial Venture

An entrepreneurial venture may fail due to the following reasons (reasons for business failure) :

1) Selling too Cheaply : 
Many business start-ups make the mistake of chasing sales volumes. This is because many entrepreneurs believe that by keeping prices low, the entrepreneurial venture will be able to attract more customers. However, in most of the cases, the venture is neither able to: generate enough profit to cover the manufacturing costs nor provide enough cash flow for the growth of the venture.

2) Ineffective Marketing and Advertising : 
Many times, the new ventures formulate their own advertising campaigns and marketing plans without completely understanding the marketing environment in order to manage costs. The prevailing competition in market may be fierce due to the presence of large number of competitors. Any new product needs to have an advertising plan that is different from others, else risk of failure increases.

3) Shortage of Sufficient Capital : 
Many entrepreneurs do not have an accurate estimate of the capital required for running the business in the start-up phase. Sometimes, they also make the mistake of over-estimating the revenues that their product will gain through sales during the initial years of its establishment. The costs involved in the entrepreneurial venture can be huge and entails applying for permits and licences, purchasing insurance, leasing and rentals along with the costs of holding inventory. Capital is also required for acquiring a suitable location for setting up the entrepreneurial venture and developing appropriate infrastructure for accommodating the business files, counters, departments, stores, etc. Apart from this, capital is also required for paying salaries of the employees.

4) Poor Planning : 
Many entrepreneurial ventures also fail due to lack of effective business planning. If the entrepreneur wants to succeed in exploring and winning the commercial activities and business opportunities, then it is imperative that he develops a well thought out and researched business plan which covers all the scenarios that the organisation is likely to face.

5) Impractical Expectations : 
Sometimes, the impractical expectations of the entrepreneur from his newly established business endeavors also become the reasons for failure of entrepreneurial venture. Entrepreneurs often start business with the notion that it will create huge profits in short period of time which often proves to be wrong.

6) Inappropriate Location : 
Sometimes, the best business plans can also fail if the location of the business is not appropriate. For example, business plan to open a retail store having all household items under one roof is an effective plan, but it may fail if its location is chosen at some place where the customers find inconvenience in terms of huge traffic, narrow roads, unavailability of parking facility, unsafe area, etc.

7) Lack of Knowledge about Market and Industry : 
Starting an entrepreneurial venture without obtaining the required level of knowledge about the core industry and market proves disadvantageous for the entrepreneurs. Many entrepreneurs start their business without doing any research for understanding the opportunities and threats of industry in which they have entered and market which they targeting.

8) Underestimating Market Competition : 
Entrepreneurial ventures also make the mistake of underestimating the intensity of prevailing competition in the market. The existing ventures will not allow a new entrant to take away its customers and will typically spend heavily on advertising and promotions to retain their customers.

9) Poor Skills of Human Resource Management : 
It is the stated policy of many successful entrepreneurial ventures like Infosys that employees are their most valuable assets. Business ventures which do not treat their employees well often suffer from high attrition rates. This also affects the trust that the customer places on the company and its products. Also, if the organisation desires certain traits and characteristics in its employees, then it may be difficult to find a replacement for them. In such cases, the overall quality and productivity of employees tend to suffer.

10) Anti-Entrepreneurial Environments : 
Certain environmental factors are inherently growth of disadvantageous for the entrepreneurship. No matter how much skilled an entrepreneur may be, environments that are anti entrepreneurial in nature will never support him. This can be the case where the society is such that it does not appreciate and reward entrepreneurship and risk-taking. In such situations, the entrepreneur does not get the much needed support which further leads to their failure during the initial stages of starting the entrepreneurial venture.

11) Undiversified Market and Lack of Information about Customers : 
Entrepreneurial ventures also make the mistake of relying on a few customers for their business. When these customers back-out, then the business has to suffer huge losses and may become bankrupt. Another reason for failure of entrepreneurial ventures may be lack of information about the prospective customers. Sometimes, the business firms do not investigate about the past credit records of the customers as some of them may be fraud and suffer from problems like delay or arrears in payments

12) Legal Problems : 
Several times, the entrepreneurs do not pay much attention to the legal requirements and issues that may be faced by the business in near future. For example, in cases when the drawn-out proceedings of patent infringement become essential, entrepreneurs are often not prepared to encounter such problems. This can be handled by keeping foresightedness. about the legal issues and seeking timely advice's from the legal advisers.

Advantages of Entrepreneurial Venture

Many of the entrepreneurial ventures have failed during their initial years of operation; however, this does not stop the desire in people to become an entrepreneur. This is due to the following advantages of entrepreneurial venture :

1) Independence : 
The freedom of being one's own. boss is one of the utmost benefits of starting a new entrepreneurial venture. The entrepreneur does not need to take orders from anyone unlike an employee of a company. He does not have to report to a boss or give reasons for his actions. Thus, an entrepreneur becomes independent and self-governing.

2) Financial Opportunities : 
The second big advantage of having an entrepreneurial venture is the availability of lucrative financial opportunities and profits that it offers. Entrepreneurs can earn more money in their own entrepreneurial endeavors as compared to working as an employee in some other organisation.

3) Community Service : 
An entrepreneur by starting a new venture can engage himself in providing community services by fulfilling the needs and demands of the public in the form of products and services. Often, the new entrepreneurial ventures provide community service by manufacturing a product which is currently unavailable in the market by predicting its future demand.

4) Job Security : 
By starting a new venture, the job security of the entrepreneur is ensured. He does not have to worry about retirement as he can engage himself in his business as long as he can run the business profitably.

5) Family Employment : 
Starting an entrepreneurial venture also provides the entrepreneur with the opportunity to employ members of the family. Some other benefits are :
  • It allows the entrepreneurs to implement a succession plan as the entrepreneur can forward the main powers of business into the hands of other family members. 
  • Family run businesses tend to have greater morale and bonding. 
  • The business can provide employment to family members even during economic crisis.

6) Motivation through Challenging Opportunities  : 
Entrepreneurs often get a motivation boost from the challenge that they encounter in establishing a business. Various researches state that entrepreneurs get motivated when they face a situation where the chances of success or failure are not known but are greatly dependent on the abilities of the entrepreneur. Entrepreneurs often get a psychological satisfaction when they face such challenges.

7) Increased Level of Income : 
Entrepreneurs also see the entrepreneurial venture as a way through which they can become financially independent. Unlike an employee who has a limited level of earnings and whose increments and promotions. depends on the decision of his senior manager, an entrepreneur has no such predicament. He can enjoy the fruits of his success and there is no limit to what he can earn.

8) Creation of Family Wealth : 
The efforts of the entrepreneur towards the success of entrepreneurial venture not only help in providing benefits to the society but also lead to the creation of family health which can be enjoyed by the future generations of the entrepreneur as well.

9) Employment Opportunities : 
The new venture is also a source of employment to society. When an entrepreneur opens his business venture in a region, it gives job opportunities to individuals living in and around that region. For example, a biscuit factory started by Parle provided jobs to many workers living near the factory.

10) Innovations : 
Entrepreneurial ventures generally bring innovations in the market in the form of new products and services, innovative buying and selling methods, creative marketing techniques, etc. One of the recent examples of such businesses is online shopping which is done through various e-commerce service providers.

11) Adds Diversity : 
Entrepreneurial ventures also add diversity to the business world. It not only covers the most profitable and generally opted businesses but also include minority-based businesses such as beauty parlors.

12) Acts as Inspiration for Future Generations : 
New ventures also serve as a source of inspiration to the young generation. For example, the growth of innovation inspired Sachin and Binny Bansal to start Flipkart in India. Future generations therefore get inspired to innovate and start their own business ventures.

Disadvantages of Entrepreneurial Venture

There are various disadvantages associated with the entrepreneurial ventures which are explained as follows :

1) Fluctuations in Sales : 
When an individual is working in a large company he might receive a regular and predictable flow of income. He is therefore able to plan his various expenses like medical, household, education, etc. However, in the case of new venture, there are high fluctuations in the sales and no definite pattern. In some months, sales are very low, while in other months, sales become very high. The business owner therefore needs to balance his cash outflows with his inflows on a regular basis so that there is no liquidity trap. At times, he may also need to take a personal loan to deal with temporary liquidity problems. This problematic situation is common across most start-ups ventures.

2) Competition : 
The increased risk of competition is another problem associated with entrepreneurial an business venture. An entrepreneur may face intense competition after starting the business and running it successfully. Also, a new venture is prone to various changes in the business environment like changes in the demand patterns. For example, various small diners and restaurants often lose their customers to McDonalds and other popular eating places.

3) Financial Losses : 
It is not always essential that all the decisions made by the entrepreneur are likely to be successful. Some of them may not be fruitful. Wrong decisions may create undesirable situations such as excess inventory, stock-out situations, lower revenues due to low prices of products, ineffective advertising campaign, etc. In such cases, the entrepreneurial venture will suffer from financial losses.

4) Employee Relations : 
Unsatisfied employees hinder the growth of an entrepreneurial venture. The new venture may suffer losses if the entrepreneur does not invest much in managing employee relations. Not allowing the employees to talk with each other during work hours may create monotony and dissatisfaction, which further reduces the work efficiency and performance of employees. The belief is that if the employees spend time interacting with each other than the official work may suffer. However, research reveals that treating employees in this manner actually reduces their productivity. They become irritable and do not deal with customers properly. Therefore, the enterprise needs to find a balanced approach towards resolving this problem.

5) Laws and Regulations : 
Every entrepreneurial venture is subjected to numerous laws and regulations which have to be followed for undertaking the business operations. For example, Indian business start-ups have to deduct TDS from its employees and also satisfy other regulations like Income Tax, Service Tax. VAT, etc. Many businesses are also required to obtain a permit or a license before starting their business operations. The ventures also have to adhere with laws associated with location and .construction of business venture, employee remuneration, safety norms, working hours, etc.

6) Risk of Failure : 
The biggest risk that an entrepreneur faces is the risk that his business plan will not succeed and he will have to shut down the business. Such a business failure causes loss to all the investments made in business. This is a huge risk which is faced by all business enterprises, even if the best marketing plans and capital sources are used. This is because those risks involve factors which are beyond the control of the entrepreneurs. For example, events like an economic recession or draining out of financial resources by some dishonest associate could obstruct entrepreneurial growth. The entrepreneurial venture may also face unexpected troubles from natural calamities like earthquakes or floods. Moreover, mismanagement of operations authorities/managers can also create risks leading to failure of entrepreneurial venture.

7) Responsibility : 
A new business venture puts a lot of responsibility on the entrepreneur. The success or failure of the business entirely rests upon his shoulders. In case the entrepreneur faces any problem or the results are not at expected, he has to solve the problem on his own. Thus, the responsibility of running business venture is very hectic and is not suitable for every individual.