Introduction
Initial venture in the company is at times very challenging. Business environment is always very dynamic and uncertain. First-timer ventures in particular face greater threats. A successful start-up company is largely attributed to acquiring skills to manage the business enterprise. Consequently first time entrepreneurs have a low percentage of success as compared to successful entrepreneurs with a chronological track of success. To add on even those who had tried and failed never find it any better. This view is articulated in Schumpeter (1934, p, 137) when he claims “The entrepreneur is never the risk bearer, but rather an innovator, that is one who discovers new production process finds new markets, creates new types of organization or introduces new products.” It therefore implies that for one to implement successfully in business functions then skills are instrumental. Business entrepreneurs based on luck alone are bound to fail. This is because skills contribute a lot to the success of a company.
Main text
The skill hypothesis in business success is of the contrary to Khilstrom and Laffont’s (1979) belief. These two authorities attach success in initial investment in business operation to luck. They state that, “Luck is the only determinant of entrepreneurial success.” This can never be true. Luck alone cannot determine the viability of the business development. According to them, entrepreneur models are simple risk-averse individuals who are willing to guarantee workers’ wages and bear residual risk. The concept of luck in business success cannot be outrightly being outlawed. It does constitute as part of success in initial business success. In fact there is business entrepreneur who has made it in life due luck. These are the propellers of the luck hypothesis and disregard the skills hypothesis.
In the world of today, entrepreneur success cannot be largely attributed to luck.
Even though it has a part in business success. Consequently this paper empirically disregards the view valued by Kihlstrom and Laffont of luck hypothesis favoring initial business investment success. This dissertation rather argues in preference of Schumpeter model, that emphasizes success in business initial set up on skills.
The claim that skills are an important component of entrepreneurship is very paramount. This view is further confirmed by an empirical model that indicates that proponents who succeed in prior venture – started a company that is perceived profitable by public – have a 30% chance of succeeding in their next venture. In contrary, first time investors hold a slim chance of 18 per cent. This shows and attributes success in business venture on skills. The reason why those who have past success in business setting a higher chance of success is because of their past experience and acquired skills. Even though it might be better to be lucky than smart.
The evidence outlined in this presentation indicates that being smart has value too.
Most companies fail because they are capitalized, investment demands huge capital.
At times individuals may not be in a position to finance the initial financial demand of a company. Borrowing from financial institutions is therefore an option. These create a burden on the company as the focuses are always placed on loan repayment.
However, currently the world has established means and ways to access capital when the business plan is sound and clear. Quite often it has been noted that rapid growth in business development strains the ability and potential of many businesses to succeed. This is because people in most cases do underestimate the actual cost of operating the business. To operate a business entrepreneurship efficiently and effectively then the cost of operating the normal function of the enterprise must be determined accurately.
Thus the entrepreneur should aim objectively and accurately at maintaining a positive cash flow. This is a very key element to success in initial business set up. This will help the proponent to accurately control the growth of the company since uncontrolled growth eats up cash faster. (Bodybydesign, Jan 16 2008)
Another factor that may contribute to the failure of the company is wild success.
In most cases the first time entrepreneurs are never aware of this monster. However it is a great threat to the success of a business enterprise and should be treated with utmost care and concern. This is a phenomenon that is created due to lack of adequate skills in business.
Unknowing entrepreneurs may interpret wild success as business boom when it works against the successful development of the company.
A company may also fail because of absence of the right management team or leadership structure. Some organization suffers due to ignorance. In the bible the proverb states clearly that, “Where there is no vision people perish.” This is an important concept that applies effectively in business functions.
Before venturing in business development it is prudent to be conversant with the information that surrounds your venture. This will assist the entrepreneurs to eliminate the possibilities incorrectly defined positions in leadership of a business. It greatly affects information flow thus promoting communication breakdown.
Clint Eastwood is quoted saying that, “A man has to understand his limitation.” (Bodybydesign, Jan 16 2008).
People like Bill Gates and Steve jobs are known to be very successful. The spectacular amazement is the states their companies have evolved from and the different management teams for different stages of development in the life cycle of business development the following stages are fundamental:
start up growth, maturity, and death.
At every state of development the business needs a specific skill. For instance, in most cases a strong entrepreneur may not be in a position to successfully take the company into a maturity stage. This is because they may be in lack of adequate managerial skills or key people.
The advantage of an initial start-up of a company is the phenomenon of starting a fresh with the management team. Generally new appointments and involvement in management of an existing company may jeopardize the existing management over time. This might be very disruptive to an organization thus tearing down the company before beginning to build up.
The problem of capital inadequacy for early stages of a company development is so prevalent. This is the reason why there are many financial bodies to offer support to illing business companies. However, these organizations may not be willing to offer financial support to start up companies or entrepreneurs who shows a past track of failure. This limits the ability of proponent to live their dream in business development. Writing a business plan proposal is a common media upon which proponent access fund for initial set up of their business. This process is very hectic unreliable and undeterminable. This therefore creates a lot of uncertainty.
Living in a world of worldwide corruption, accessing funds through this mode is almost to impossible. The question is who you are in the world of business.
This is very disadvantageous to the poor particularly in the continent of Africa where many people live on less than a dollar a day.
Based on the problem that affects business venture, it is important to familiarize the world with significant key elements that contribute to the success of an initial business set up. These elements when properly administered, have the potential to bear many fruits and perpetuate the continual development of the business. Negligence to these elements puts the chances of survival of the business at a stake.
This is because the business world is so wide and broad. Fatherly, it also attracts many individuals. Thus competition is very inherent in business entrepreneurship.
To withstand the torrents of competition, business ethics dictates that professionalism should highly be valued.
This is why the key element of success is an important component of business operation.
To being with, customer relation is very significant. It is prudent and reasonable that your clients should always have a feeling that goods and services they get compare equally to the amount of money they give in return. Dishonesty means of extracting money from clients is unethical and cannot be accepted.
Entrepreneurs build markets by referral from their customers. Dishonesty result to loss of trust from your customers thus they demarketize your enterprise. This is dangerous bearing in mind that they are your first customers there is no option but to be good to them by offering standardized services. Actually, the clients deserve to get a superior product or service that is comparable and very reasonable to the cash they pay.
Customer relationship is one element that is neglected by many entrepreneurs. However it is one of the elements that greatly distinguishes ones company from its competitors. This will also enable the company to create new and maintain loyal customers. This is therefore on engine that keeps business in motion (De Matters, 2004)
Planning is instrumental in all aspect of life. Therefore, another key element to successful business start up is developing a formal business plan. This is because drawing a business plan, gives the entrepreneur a holistic and comprehensive overview of the business. This will ensure that the important component of a business such as financial requirements, marketing information personnel plans among others are put into consideration. As earlier quoted in this study that where there is no vision people perish, noting down every imaginable tough of your initial set up aspects that ranges from budgetary allocation, goal setting and targeted markets gives the companies direction.
This will thus enhance its chances of survival despite the stiff competition from other companies that are producing similar products or substitutes. Business plans consequently compels you to foresee the picture of the company in the further and more importantly is the means upon which this success will be achieved. Many multinational business have registered success. These successes are holistically attributed to efficient and effective establishment of a business plan. It focuses the operation of an enterprise and thereby helps the business from wasteful investment. As an initial developer a business plan should be part and parcel of the initial developments. To ensure that you are not out of track, it is always important to look into the planning processes of successful companies (Amar, 2000)
Another key element that demands keen consideration during start up stage of a company is the business model. This key element of business is not common to many professionals. However, it really matters a lot. Business model can be defined as brochure or booklet upon which the company’s details are described. It also highlights the distinctive and unique character of the company, which makes it different from its competitors. The distinctive nature of production is achieved through offering unique value of good and services. This model was established way back in 1950s. However, it remained dominant for many years.
In the early 1990s the business model gained acceptance and today it is widely used to determine the success of companies. It is believed that (according to Stefano 2007) “A well-thought-out business model is in my opinion the critical starting point to the serious starting point to the serious consideration of creating a new business.”
This model helps the proponent to understand the nature of the business market the person is venturing into. The secret of success through this model is therefore being absolutely certain of existence of ample opportunity for the commodities from your company. This basically refers to market analysis. The market is always dynamic. Understanding the market therefore is instrumental. For example when a company is involved in production of new goods and services, then the market is always available. The company will only need for familiarizes the clients with the new arrival. The competition is always minimal unlike producing goods and services with substitute companies. For example the introduction of computers initially enjoyed the monopoly of supply before other companies found it as a profitable venture.
Computers were too efficient that it could not compete at the same level with another writing machine like typewriter (Stefano 30th November 2007)
Availability of finances is a crucial component of initial stages of a business development. Companies significantly differ in a number of aspects. These include capital requirements, the companies’ ability to attract investors and favorable manner of capitalization. It is therefore recommendable that the entrepreneur should adapt an operational implementation and development strategy for soliciting capital which is a fundamental requirement recurring continuously and repeatedly through out the life of the company. Harroch, et all (2003) holds the view that, “Prior to seeking any form of funding, a start up company should develop a financial strategy which establishes its capital needs in support of its operational objectives over time as well as identifies optimum sources and manner for obtaining that capital. This strategy should be formed together with the development of the company’s business plan as the absence of sufficient financial means will relegate the most promising business concept to the category of great unrealized ideas. “(P, 702) Before venturing into institutions, it is always important to accurately determine the initial capital demand of the company. This is because premature excess fund will result not only in excessive capital cost that may lead to greater ownership dilution, but also be detrimental to the development of the company. The proponents should also explore the possibilities of alternative source of funding.
This includes personal saving, fund raising and may be donations. These kinds of funding do not require to be paid back. This therefore puts the business on a safer track financially since the company has no commitment or urgency to pay back the funds as compared to borrowed fund from financial institutions, which also charge an interest. (Harroch et al, 2003)
The next key element of a successful company start up is the establishment of a dynamic culture of transparency and truth. Many businesses people particularly those in executive position do not like criticism. Positive criticism is pivotal in the development process of the company. As the popular say goes that “people are your mirror”. Consequently it is always advisable to welcome whole-heartedly positive criticism. Despising positive criticism is therefore very unfortunate and unbecoming kind of behavior. Stefano 2007 confesses a personal experience that “The truly successful operations that I have been involved in have had a transparency and a lack of hierarchy when it comes to the right of any individual to offer a suggestion or criticism that was in the best interest of the company. “This is indeed very unfortunate and also contrary to international agreement that acknowledges the role of every individual in decision-making process. One of the successful implementation of this principle is the founder of star bucks. It is documented that the founder of star bucks did establish a wonderful corporate culture.
The employees were expected to serve their clients in an efficient effective and polite fashion. And excitingly, with a smile on their faces.
Stefano 2007 agrees with this culture when he says that “I have been to star bucks at multiple locations through out the world and I have found them to be uniformly polite” this fundamental puts emphasis on corporate culture which primal matters and has the potential to uplift the company and make it endure and prosper despite the stiff competition in the market.
The power of information to tremendously change the face of the company cannot be underestimated. Communication is therefore an important key element of success when starting a company.
In most cases, it is believed that lack of knowledge means powerlessness. This translates to inadequate understanding of the companies operation and the market for the goods and services. Due to lack of adequate information than concern the company’s environment, its foundation is shaky and will definitely crumble to the ground. With regard to this it is important to maintain efficiency and effectiveness in communication. Customers or clients hold fundamental knowledge to promote the company’s growth.
Their comment on the goods and services the company offer is therefore crucial. However, some companies despise this information. This will therefore result into loss of market as customers will not be satisfied and fulfilled by the kind of commodities the company offers.
The main reason is partly because their views are not taken seriously. For example Stefano 2007, appreciate communication as a major elements of business success and states that, “I have always told employees that they should not leave the office until all of their phone calls and e-mails have been returned. This shows everyone with whom your company deal with that you care enough about them to promptly respond to their queries”
Experience has a higher stake on the performance of the company. Consequently experience is therefore one of the key element of a successful business venture. It is obviously clear that man cannot forge a head with limited knowledge. This is an aspect that is widely and broadly appreciated. The view is consistently valued by Eesly and Roberts (2006) who, having utilized data from a survey of alumni of the Massachusetts institute of Technology, showed that entrepreneurial experiences increase the likelihood of success. Financial institution having realized this factor favors serial entrepreneurs as compared to first time entrepreneurs or those who had tried and failed. The reason being that a serial entrepreneurs records a history of success and therefore less risky. First time entrepreneurs and those who had tried and failed have slim chances to be considered for funding since the institution fears for their fund. Kaplan and Strombery (2003) having studied the contractual terms of venture capital financing holds the view that serial entrepreneurs receive more favorable control provisions than first time entrepreneurs. They also enjoy favorable board control, vesting liquidation rights and more upfront capital. Experience in industry operations also is appalled for likelihood for success.
According to Chattergi, (2005) it was discovered that in medical device industry, start up companies by former employees of other medical device companies registered better performance than other start up companies. The outstanding value of excellent performance by experienced industrialized is also reinstated by Amar (2005) when he says that, “A substantial fraction of the Inc 500 got their ideas for their new company while working for their prior employer. Form the above discussion it is clear that experience is a significant element of business success. It is therefore reasonable and recommended that one should aspire and inspire to venture into company development in line with their experience.
Being in a dynamic world, the business environment is ever changing.
Thus it is always difficult and uncertain to determine the future business environment. It is therefore wise to insure the undeterminable and uncertainties of the future by formulating an alternative plan. This is crucial and instrumental determinant of success in a start up company. This can also be termed as a fall back strategy incase the first approach does not work out as initially planned. This alternative plan could be an actual exit strategy whereby an individual sells off the company since it is not prospering. Consolidation merger and or a new product offering could also be best alternative strategies highlighted in the business plan. Being in business is much fun. However it can be very stressful. This always comes due to lack of alternative route, to direct the company when it is on the verge of collapse. Alternative planning is therefore promotes enjoyable experience in business since any imaginable eventuality is always taken care of. (Stefano, 2007 30th November 2007)
Drawing to the end, it is important to recognize government regulation a key element in a successful start up company. Government through out its machineries has the responsibility to guard and protect lives and property. This is a basic right that is enshrined in the constitution. As an initial venture in company development, it is in order to consider government regulation. License is a legal agreement between two contracting parties. It conveys the right to undertake business to the entrepreneur. This may include the right to manufacture or sell or the right to use your invention and the right covered under the scope of its patent. De Matters (2004) states “licenses almost always grant some form of proprietary property rights. This is usually in the form of intellectual rights. This is usually in the form of intellectual property such as parents, but it may include trademarks and know-how. If a patent pending is licensed, then the license is licensing the rights in anticipation of the appropriate patent rights being issued at some later date. “(P, 326) with regard to this statement, it is important to consider government regulation to protect the right for your company and its uniqueness.
Summary
The initial stages of setting up a business company are challenging and dynamic.
This is because there are numerous problems that affect first venture in business. The problem includes lack of adequate fund, absence of a strong management team, glorifying wild success and limited knowledge on business function. These problems if not efficiently addressed may make the company to collapse. It therefore reasonable to put in structure that will guard the business against such problems. However adherence and efficient implementations of key elements of setting a company enhances the success of the company. These elements comprise of a formal business plan, experience in business operation, efficient customer relation, developing business model, availability of capital developing an alternative plans and government regulations among others.
Work cited
Amar, Bhide “The origin and Evolution of New Business Oxford: Oxford University Press 2000.
Chatteriji, Aron K. “Enterpreneural Performance and innovation in Medical Device Industry. Unpublished working paper, Berkeley: University of California.
Demathes, Bob “Form Patent to profits: Secrets and strategies for the successful inventor square one publisher 2004.
Besley, Charles, and Edward Roberts, “The second Time Around? Serial Entrepreneurs” From Mit, Unplished working paper MIT 2006.
Harrock Richard D, and Gregory C. Smith “Start up and emerging companies: Planning, financing and operating the successful business.” New York: law Journal Press 2003.
Kaplan Steren W, and per Stromberg “Financial Contracting Theory meets the Real world “evidence form venture capital contracts, “Reviews of Economic studies 70. (2003) 281-316.
Whlstrom Richard and Jean-Jacques Laffont, “ A general Equilibrium Entrepreneurial Theory of Firm formation based on Risk Aversion, “Journal of political economy 87 (1979) 719-748.
Lavinsky, Dave, “key components of a business plan part Ii.” Web.
Schumpete Joseph A. “The theory of Economic Development” Cambridge Mass: Harvard University Press 1934.
Stefano Theodore B 2007 Seven tips for sourceful startup” Web.
Bodybydesign, 2008, “ A beginning CEO start up company: Network to freedom. Web.