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What is Entrepreneurial Process ?
Entrepreneurial process or new venture formation process consists of all the activities, functions and actions required for the development of a new venture. It can be seen as an activity through which an entrepreneur creates a new business unit. The entrepreneurs are responsible for identifying, evaluating and developing new business opportunities by effectively managing factors which opposes the formation of a new thing.
Different types of activities, functions and actions. which are related to the understanding of various opportunities and enabling the organisation to accomplish such opportunities are encompassed within the entrepreneurial process.
Stages in Entrepreneurial Process
The various steps involved in entrepreneurial process are shown in the below mentioned figure.
1) Deciding to Become an Entrepreneur :
In order to become their own boss, follow their own ideas and realize their financial expectations, individuals decide to become an entrepreneur. Sometimes, a sudden event may also drive an individual towards the path of entrepreneurship.
For example, a person may suddenly lose his job. and decide to initiate his own business venture or an individual may have saved enough money from his job to start his own business. Entrepreneurial careers are also resulted from various issues related to the lifestyles of individuals. For example, a housewife may not be satisfied by merely looking after her family and desire to start her own business.
The first step in this process can be seen in the form of recognizing any opportunity or an idea related to the development of new product or service. As explained by Shane, Locke, and Collins, entrepreneurial process is initiated due to the decision made by an individual to start an entrepreneurial venture and make efforts in implementing this decision. In their opinion, for understanding the entire entrepreneurial process, it is very important to first understand the motives of entrepreneur. There is a huge difference between thinking to starting a new venture and implementing this idea into reality. An entrepreneur needs to identify the requirements for starting the new venture and accordingly collect the resources. These resources may involve information about the marketing environment, prevailing competition, legal aspects associated with targeted market, along with other human and financial resources. Here, human resource involves partners, employees, and other workers, Thus, collecting these resources is the most important step in in the entrepreneurial matter how lucrative product idea an entrepreneur process No has, one should not move to the next step until all above mentioned information have been collected. For this purpose, the entrepreneur needs to prepare an appropriate business plan which involves details about how to gather the required resources and create a new business venture.
2) Developing Successful Business Ideas :
Most of the businesses fail due to the lack of a real business opportunity and not because of the inability of the entrepreneur to work hard. Opportunity recognition, feasibility analysis, industry analysis, developing an effective business model, etc., are some of the aspects of creating a successful business idea. Entrepreneurs not only identify the prospective business opportunities but also describe the way in which the opportunity recognition process can be undertaken. In the next step, the idea of viable business opportunity is assessed with the help of feasibility analysis. This also involves industry and competitor analysis.
The success of an entrepreneur largely depends on the ability to gain in-depth information about the industry in which he decides to operate. Therefore, a successful business model or business idea includes plans made for better utilization of resources, competing with the other firms, establishing effective relationships with customers, value creation for sustaining business and generating profits.
i) Recognizing and Evaluating the Opportunity :
Recognizing and evaluating the business opportunity is the first step in the process of developing a business idea. This is not an easy to task to perform as most of the good business opportunities do not appear instantly; they require sharp alertness of entrepreneurs and sometimes mandate the development of an effective mechanism which recognizes the potential business opportunities.
For example, some entrepreneurs might question to other people in social meetings whether a product is satisfying their needs, or whether they need a new kind of product which is not available in the current market. By doing so, the entrepreneur is looking for the opportunity so that he can develop a new product. idea matching with the needs of the customers. Another example can be of an entrepreneur who analyses the playing habits of kids at home. This will. help him in generating idea about creating a new kind of a toy which will be more unique for the kids.
Even if there is not any effective mechanism for finding the new venture opportunities, the below mentioned sources can be quite effective :
- Analyzing current products and services in the market,
- Analyzing business operations of successful enterprises,
- Analyzing surrounding competitors.
- Interviewing the members of distribution channel,
- Meeting customers and business associates,
- Questioning middlemen such as brokers agents etc.
- Asking technical people,
- Conducting research and development.
It is important to carefully analyse and evaluate every business opportunity, irrespective of its source of identification. Evaluation process will be the most critical step in the entrepreneurial process as by performing this step, the entrepreneur can analyse whether the desired returns can be generated or not.
The targeted goals as well as personal skills of the entrepreneur should match with the available. opportunity. For making the new venture successful, it is important that the entrepreneur provides the required time and effort towards it. He should be able to trust the business opportunity and develop a feeling of commitment towards the business so as to make personal sacrifices for effective management. of the resulting entrepreneurial venture. The following aspects are covered in the opportunity assessment plan :
- Details of the products and services.
- Opportunity assessment.
- Analysis of the entrepreneur and the associated team.
- Specification of all activities and resources which may be required for converting the opportunity into a successful business venture,
- Information of capital and financial resources required for creating new venture.
ii) Feasibility Analysis :
The process of evaluating the viability of a business idea for accomplishing success in entrepreneurial endeavor is known as feasibility analysis. Determining the viability of any business idea, i.e.. whether the idea is worth pursuing or not, is the main objective of conducting feasibility analysis. Development of a strong business plan for capitalizing the business idea will be the next step. once the idea passes the feasibility test. However, in case of its failure, the idea is dropped and the entrepreneur again searches for better opportunities. The success of any idea cannot be determined surely with the help of feasibility analysis but it somehow reduces the chances of wasting the vital resources in pursuing unproductive business opportunities.
When different ideas for pursuing a business have been generated by the entrepreneur, feasibility study can be seen as the most important method for selecting the best alternative among the available choices. With the help of this analysis, the various dimensions and aspects of each business opportunity can be analysed deeply so as to check whether the business idea can be converted into a successful venture or not. In some cases, the result of feasibility analysis provides the insights that merely having a business idea is not enough for establishing a successful venture irrespective of deigning a well organised structure. Similarly in other cases, the results also reveal that business ideas are viable, but require a well-organised structure in order to generate profits
iii) Industry and Competitor Analysis :
Before adopting a business idea for new venture start-up, three important questions must be answered by any entrepreneur while studying the industry. The first question is whether the industrial sector in which the entrepreneur is planning to enter is accessible. The second question is whether enough) markets are included in the industry which can accept innovations. The last question is inquiring about such factors in the industry which can neutralize the negative aspects of the industry.
Both at the company and the product/service level, the business ventures must analyse their market positions. Such analysis conducted at company level will provide them with the insights about their market positioning with respect to the competitors. Until the entrepreneurs develop an in-depth understanding of the industry in which they are planning to enter, they are not fully-prepared, irrespective of how enthusiastic they are about starting a new venture.
Conducting the competitor analysis will be the next step after having the complete information about the industry in which the entrepreneur is planning to start the venture. Competitor analysis provides in-depth evaluation about the prospective competitors present in the market. The results of such an analysis provide information about the market positioning of the competing firms and also analyse business opportunities through which the new venture can gain competitive advantage in its endeavors.
iv) Developing an Effective Business Model :
Business model can be defined as a company's blueprint or plan for competing in the market, utilizing the resources, establishing relationship structure, interfacing with the customers and creating value for ensuring its sustainability based on generated profits.
With the development of personal computers and spreadsheet, the concept of "business model" came into being as spreadsheet on computers made it possible to conduct the sensitivity analysis. Such analysis further helped the managers to enquire about the business model based on results of analysis. The different aspects of a business can be analysed by the manager by understanding the rise or fall in sales and by altering the sales data with the help of computer programming. Thus, it can be said that the modelling of business behavior is possible through computers At present, the term business model includes almost every aspect of business which outlines the manner in which a firm competes and survive in the market.
One must understand that with the help of a suitable business model, an entrepreneur can take its business to far reaching heights. In order to ensure the success of a business model, firms establish partnership/effective relationship with their clients, associates, suppliers, etc.
For example, Dell requires the support of its suppliers, transporters, customers, etc., for making its business model successful. Hence, the business model of any firm generally involves a network of its partners (clients, associates. suppliers, etc) and its products. It includes the abilities of various other firms that are willing to participate together.
3) Moving from an Idea to an Entrepreneurial Firm :
Creating a new business team is the first step in converting a new business idea into reality. The team creation process involves gathering the initial management team together and choosing the Board of Directors, subjected advisers, and other top level executives for the development of entrepreneurial venture.
A written document which briefly explains the different aspects of the business is termed as the business plan. Such a document is important for obtaining or raising financial resources for the firm, attracting high quality business partners, etc. In some cases, entrepreneurs become impatient to start the venture and avoid spending time in formulating a well-written business plan, which can be considered as one of their biggest mistakes. By writing a business plan, the entrepreneurs get an opportunity to thoroughly analyse all aspects of the business venture, which further helps in setting targets for undertaking initial phases of entrepreneurial venture. The important activities related to financing or funding and determining various alternatives, which can be used to raise money are also included in the business plan.
i) Building New Venture Team :
A group of founders, advisers, and key personnel which plays an important role in converting an innovative idea into a fully-operative venture is known as a new venture team. In most of the cases, the team formation is a sequential process and not the result of a sudden event. The size of the new venture team depends upon the number of team members which the business venture can successfully manage and afford to pay. However, both paid and unpaid employees are involved in the team, and in some cases, the number of unpaid team members may be more. This team mainly includes the Board of Directors, Board of Advisers, and other professionals who can help the entrepreneurial venture in providing appropriate direction and suggestions.
The business concept of the entrepreneurial venture is mainly supported by the group of people who initiate it. In the absence of leaders and manpower that can transform the business idea into reality, well-conceived business plan cannot be converted into a real enterprise. In the opinion of an expert, manpower is the most important element which provides strength to the other elements of the firm.
The way in which a founder constructs the new business venture sends a message to the potential investors, employees and partners. Many founders favor the of control and avoid having partners e feeling hiring highly-experienced managers. While, some founders understand their limitations and work really hard to combine the the experienced and professional individuals in their team. In a similar manner, some new enterprises avoid forming any advisory board, while some other other enterprise favors the formation of advisory board by finding the best possible personnel. A strong team helps in influencing and attracting the investors, partners, and employees. The significance of experienced manpower and good quality advice's in the success of the firm is recognized by investors.
ii) Assessing New Venture's Financial Strength and Viability :
The process of managing the financial resources of a firm or business venture so as to accomplish is financial objectives is known as financial management. Considering commercial business as the most common organisational structure, the major objectives associated with financial management may include:
- Maintaining the cash flow,
- Creating wealth for the business venture,
- Providing sufficient returns on investment by considering the various risks associated with the business and the invested resources.
The availability of start-up capital is the main foundation upon which the ability of the entrepreneur to utilize the business opportunity and convert it into a feasible entrepreneurial venture relies. No matter how good the quality of the product or service of a business venture may be, if it has failed in securing financial benefits, then it cannot be consider successful in the long-run.
A business venture can generate its funding either from the external sources, such us lenders or investors or from internal sources, such as partners. It is very important for the business ventures to have the clear information about their financial positioning. They should also have necessary information about their funds and monetary reserves present in the banks, and their ability to meet all the legal requirements. It cannot be concluded that the business ventures that are financially successful will not face financial challenges.
For example, most of the small businesses do not receive payments before 30 to 60 days from the time of sales when they sell their products to big firms such as IBM, General Electric, and Home Depot. Such circumstances create a lot of difficulty for small business ventures as they have to pay their employees, buy raw materials, pay bills. and bear shipping charges. Moreover, there are greater chances of running out of cash if managers do not manage the operations effectively, despite having good sales.
For an effective financial management, the firms are required to answer the following questions regularly :
- How is the performance of business venture? Is it in loss or profit?
- How much is the amount of cash reserve?
- Can all the obligations be met with the available money?
- Whether the resources are utilized effectively?
- How is the business venture performing against its competitors in terms of growth and net profits?
- What are the sources of funds required for capital improvement?
- Can the business venture be partnered with other firms for sharing its risks and controlling the cash flows?
- Is the business venture financially strong?
iii) Preparing Proper Ethical and Legal Foundation :
An entrepreneur has to face several ethical and legal challenges while starting a new entrepreneurial venture. These challenges are complicated in nature. For any entrepreneur, it is quite significant to have better understanding of all these critical issues. They must try to avoid these issues without incurring any major consequence. Developing a stronger ethical culture in the organisation, selecting a lawyer, developing the founder's agreement and performing any illegal action are the most crucial initial ethical and legal issues.
While launching a new venture, it is important to deal with the critical ethical and legal issues as these mistakes can lead to further consequences in the future. Such mistakes are generally made by the entrepreneurs as they tend to avoid legal insights thinking that they have sufficient knowledge regarding law.
The complexity of legal environment increases with the increasing size of the business venture. For example, by involving investors, a re-evaluation of the business venture is required to be undertaken. The various rules and regulations of Securities and Exchange Commission (SEC) will have to be followed by a firm which goes public.
iv) Writing a Business Plan :
Business plan of a firm can be seen as a well-defined written document which has many significant facts, estimates and figures. It throws light on various business proposals along with ensuring the technical feasibility and probable commercial success. It also provides suggestions regarding appropriate course of actions that can be taken in different areas of business.
The first and most important activity to be undertaken by an entrepreneur before starting his new venture is to prepare a feasible business plan, which includes the detailed information about the related industry, product/service idea, and strategies related to marketing, production, personnel and financial concerns. Identification of strengths and weaknesses is the most important part of a good business plan.
A good business plan generally takes one or more than one year in its preparation. An entrepreneur should seek help in areas in which he lacks knowledge, instead of doing everything on his own. Such areas may include knowledge of legal proceedings, taxation, VAT, SAT, accounting matters, insurance, product liability, business procedures, technology, etc. This is more advisable because most of the emerging entrepreneurs do not have complete knowledge regarding these matters when starting an entrepreneurial venture for the first time.
There exist a lot of helpful sources for people willing to start a new venture. Besides this, the entrepreneur should know that a particular business plan will not be able to foresee all types of problems and challenges and their solution. Therefore, an entrepreneur should also upgrade his business plan from time to time.
v) Getting Financing or Funding :
Individuals who have never entered in any type of businesses lack experience in raising finance and funding. Very few individuals may be aware about the process of raising capital until they actually require for initiating their own business venture. Thus, most of the entrepreneurs try to accumulate the capital from any source as they lack experience and consequently remain unaware about the available financial sources. Due to this reason, the entrepreneurs may tend to rely more on one source of finance, rather than opting for other sources.
In the process of raising funds, it is very important for the entrepreneur to have correct information about various sources from where the funds can be raised. Despite having the dependency on fund raising for survival, most of the entrepreneurs avoid being involved with those individuals who do not understand the long-term goals of the business.
In order to avoid the requirements of raising capital from external sources, most of the entrepreneurs initiate their venture with the intention of raising the required funds on their own. The entrepreneurs have discovered with their experience that operating a business venture without involving outside investors or borrowed capital becomes more difficult than they expect. Thus, for an entrepreneur it is very important to understand the role of investment capital in order to ensure survival and success of the new venture.
4) Managing and Growing the Enterprise :
This is the last stage in the entrepreneurial process. Entrepreneurs have to face various difficulties while managing and growing their entrepreneurial venture. In order to execute the business plan, all the resources that have been gathered by the entrepreneur should be used in an appropriate manner. In this step, there must be a close inspection of different operational problems for a growing enterprise. It involves implementation of a management style and structure, and determination of important variables for success. There should also be a control system in order to identify and resolve the problems faced while executing the entrepreneurial venture. Thus, in order to ensure the success of a business venture, entrepreneurs need to effectively manage and make efforts for the growth of business.
Some of the unique marketing issues encountered by the entrepreneurial ventures involve identifying and selecting target market, establishing a brand, and managing the 4Ps (product. price, place, and promotion). One should also understand and focus on the role of intellectual property for the development of entrepreneurial firms as there will be a greater importance of "knowhow" in the business venture as compared to its assets. For protecting the business ideas, an entrepreneur can use various intellectual property right statutes such as patents, trademarks, copyrights, and trade secrets.
An entrepreneur evaluates the challenges that hinder the growth of the entrepreneurial venture and undertakes planning operations to tackle them. The characteristics and behaviors required for the successful growth of entrepreneurial venture are also evaluated. Further, strategies associated with developing a new product idea, mergers, acquisitions, and franchising are given attention.
i) Unique Marketing Issues :
There are number of marketing issues encountered by a new entrepreneurial venture. Among these, the most critical ones include trying to sell the products and services on the basis of benefits it can provide to customers rather than focusing on improving its features. Another marketing issue is trying to establish a brand name. Both of these issues are serious for the growth of the new entrepreneurial venture. The marketing initiatives of the firm can be hampered in a great deal if the entrepreneur avoids any of these two issues. Such mistake will give a wrong review to the prospective customers about the business venture.
When considering the marketing issues, various questions such as who are the prospective customers of the new venture and how they can be convinced or attracted towards its products and services must be enquired by the entrepreneurs. In order to answer these questions, the following three-step approach is adopted:
- Market segmentation,
- Selecting and creating niche in the target market,
- Developing a unique position in the market.
All these steps are shown in figure given below :
At every step, the entrepreneurial venture should answer such questions as it will help in identify the market and attracting customers in the identified market. All these issues were effectively managed by Gary Heavin during the initial phase of deciding the strategies for his new venture. When a question was asked about the significance of having the well defined target market in the fitness industry, he reverted that there are number of firms in the fitness industry that face tough competition from each other. Focusing on something and performing better than the competitors are the only ways which can be fruitful for an average fitness provider.
A limited number of customers or businesses which are going to be served or attracted by the entrepreneurial venture are collectively known as the target market. Selecting the target market and positioning the products in this market is essential as all the important decisions will be dependent on the selection of these factors. Sometimes, the business venture may also plan to advertise its products/service through promotional campaigns before deciding about the target market. In such cases, there are chances that a wrong message is sent to the customers regarding the products and services.
ii) Importance of Intellectual Property :
Although intellectual property rights have already. gained much importance to the general public, but with the advent of technology, the awareness about the importance of intellectual property assets have also been realized. There are many firms which are only based on providing knowledge to its customers. Thus, knowledge in the form of information is sold by many advertising agencies, software implementers, internet companies, and computer consultants. Only in recent times, the existence of intellectual property such as domain names and moving images shown on a company's webpage came into the picture. The domain names such as www.microsoft.com are precious for the firm, and must be protected from any kind of violation or wrong use.
There are large number of business ventures and other firms (including the new ventures) that have important intellectual property in the form of information, knowledge content, ideas, etc., which are essential for their success. An entrepreneur should be well-aware about what is intellectual property and in what ways it can be protected. The reasons behind this are as follows :
- The most valuable asset of the firm is reflected by its intellectual property. For example, symbol of an operating system is the recognition for Microsoft, a 'swoosh' logo can be recognized as Nike brand, similarly the trademark of Google, McDonalds, Puma, Adidas, IBM, TATA, etc., are their intellectual property. They are the exclusive property of the firms which own them as per the intellectual property law.
- As per the intellectual property law, the real sense of intellectual property must be understood and the methods must be known so that their unauthorized use can be protected.
- In order to earn the licensing income, the intellectual property can be sold or licensed to any other firm or individual.
iii) Preparing for and Evaluating the Challenges of Growth :
Both existing as well as new entrepreneurial ventures face a lot of difficulties in preparing a plan for and evaluating the challenges hindering the sustainable growth of entrepreneurial venture. The growth in terms of both revenue and profit for a long period of time is termed as sustained growth.
Every entrepreneurial firm strives to grow. The survival of the entrepreneurial venture can be estimated by conducting a clear analysis of growth in terms of sales revenue for a short-run. This will help in analyzing both present as well as future success of the venture. This short-run growth analyzed is generally fast and exciting, and also reflects success in the future. Sales was identified as the only prominent factor for the success of any venture in a study conducted by a group of executives and MBAs of University of Minnesota. There are numerous entrepreneurial ventures such as Starbucks, Amgen, Intuit, Microsoft, and GAP, which provided a fast growth rate and not only benefited their owners but also the firm's employees.
There are always some kinds of risks associated with the growth. Such risks can hinder the firm's operational activities ranging from finance to human resource management functions. It is quite tricky to have the correct growth strategy.
For example, Amazon exercised an aggressive growth strategy by advertising that customers can buy anything for anyone from its online website. Soon the company laid-off its 15% workforce and initiated the elimination of product lines under the slogan "Get the Crap Out".
The entrepreneurial ventures enjoy various benefits in their growth phase which may include having greater access to the market, better reputation and advantages of working with the larger channel partners. Raising additional capital, hiring new personnel, learning to supervise larger structure and greater risk exposures are the components of firm's growth.
iv) Strategies for Firm Growth :
The word "strategy" is derived from a Greek word "strategia", which means "generalship". The term strategy entered the business world from military services where it was originally used. Strategy works a blueprint. as a of an organisation that defines its vision, mission, and also helps in determining the future course of action. Strategy helps an organisation to minimize the strengths of competitors by maximizing its own strengths. Strategy formulated to achieve current goals of an enterprise by optimum allocation and utilization of internal resources and by collaborating different organizational pursuits.
Strategy tries to achieve synergy and balance between objectives, resources and concepts to maximize the possibility of success and fruitful results. In wider terms, strategy refers to determining the fundamental long-term organizational goals and at the same time developing plans, acquiring, allocating and deploying resources in order to achieve those goals. The purpose of formulating strategy is to bring consistency and alignment in the activities of an organisation, which can be accomplished by various endeavors, methods and resources.
In the competitive environment, growth is considered as the most common long-term goal of every enterprise in order to sustain their existence. Growth provides wide range of opportunities to each and every individual in the organisation for its existence and expansion. In order to grow successfully, the organisation has to ensure that the considerations for expansion are met. Growth allows the organisation to maintain and enhance position of the industry, both in domestic and international markets.
A growth strategy creates economies of scale an scope in the organisation. This brings down the cost of operations and also increases the earnings of organisation. Other than this, it also holds control over its external environment and protects the market share from aggressive competitors. Growth strategy in an entrepreneurial firm can mainly be categorized into internal and external strategies. The efforts which are are generated within the firm are termed internal growth strategies which include new product development, and various other strategies related with the product and expansion of the business on global platform. While, external) a growth strategies are those which are dependent on the relationship with the third party (mergers, acquisition, joint ventures licensing and franchising, strategic alliances, etc.)
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