Entrepreneurship And Small Business
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Introduction to Business Chapter 6: Entrepreneurship and Small Business
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It is important to combine steps three and four so it is possible to identify a problem to solve by looking at various industries as an outsider. This often provides an aspiring entrepreneur with the ability to see a problem others might not. Successful startups solve a specific pain point for other companies or for the public. This is known as "adding value within the problem.
Say, for example, you identify the process for making a dentist appointment is complicated for patients, and dentists are losing customers as a result. The value could be to build an online appointment system that makes it easier to book appointments. Most entrepreneurs can't do it alone. The business world is a cutthroat one and getting any help you can will always help and reduce the time it takes to achieve a successful business. Networking is critical for any new entrepreneur. Meeting the right people that can introduce you to contacts in your industry, such as the right suppliers, financiers, and even mentors can be the difference between success and failure.
Attending conferences, emailing and calling people in the industry, speaking to your cousin's friend's brother who is in a similar business, will help you get out into the world and discover people that can guide you. Once you have your foot in the door with the right people, conducting a business becomes a lot easier. Every entrepreneur needs to be a leader within their company. Simply doing the day-to-day requirements will not lead to success.
A leader needs to work hard, motivate, and inspire their employees to reach their best potential, which will lead to the success of the company. Look at some of the greatest and most successful companies; all of them have had great leaders. Study these people and read their books to see how to be a great leader and become the leader that your employees can follow by the example you set. Given the riskiness of a new venture, the acquisition of capital funding is particularly challenging, and many entrepreneurs deal with it via bootstrapping: financing a business using methods such as using their own money, providing sweat equity to reduce labor costs, minimizing inventory, and factoring receivables.
While some entrepreneurs are lone players struggling to get small businesses off the ground on a shoestring , others take on partners armed with greater access to capital and other resources. In these situations, new firms may acquire financing from venture capitalists, angel investors, hedge funds, crowdfunding, or through more traditional sources such as bank loans. There are a variety of financing resources for entrepreneurs starting their own businesses. Obtaining a small business loan through the Small Business Administration SBA can help entrepreneurs get the business off the ground with affordable loans.
SBA helps connect businesses to loan providers. If entrepreneurs are willing to give up a piece of equity in their business, then they may find financing in the form of angel investors and venture capitalists. These types of investors also provide guidance, mentorship, and connections in addition to just capital. Crowdfunding has also become a popular way for entrepreneurs to raise capital, particularly through Kickstarter. An entrepreneur creates a page for their product and a monetary goal to reach while promising certain givebacks to those who donate, such as products or experiences.
Bootstrapping refers to building a company solely from your savings as an entrepreneur as well as from the initial sales made from your business. This is a difficult process as all the financial risk is placed on the entrepreneur and there is little room for error. If the business fails, the entrepreneur also may lose all of their life savings. The advantage of bootstrapping is that an entrepreneur can run the business with their own vision and no outside interference or investors demanding quick profits.
That being said, sometimes having an outsider's assistance can help a business rather than hurt it. Many companies have succeeded with the bootstrapping strategy, but it is a difficult path. A small business and entrepreneurship have a lot in common but they are different. A small business is a company, usually, a sole-proprietorship or partnership, that is not a medium-sized or large-sized business, operates locally, and does not have access to a vast amount of resources or capital.
Entrepreneurship refers to an individual that has an idea and intends to execute on that idea, usually to disrupt the current market with a new product or service. Entrepreneurship usually starts as a small business but the long-term vision is much greater, to seek high profits and capture market share with an innovative new idea. Entrepreneurs make money like any business: they seek to generate revenues that are greater than costs. Increasing revenues is the goal and that can be achieved through marketing, word-of-mouth, and networking. Keeping costs low is also critical as it results in higher profit margins. This can be achieved through efficient operations and eventually economies of scale. The taxes you will pay as an entrepreneur will depend on how you set up your business in terms of structure.
Sole Proprietorship: A business set up this way is an extension of the individual. Business income and expenses are filed on Schedule C on your personal tax return and you are taxed at your individual tax rate. Partnership: For tax purposes, a partnership functions the same way as a sole proprietorship, with the only difference being that income and expenses are split amongst the partners. There are many benefits entrepreneurs can achieve through taxes, such as deducting their home office and utilities, mileage for business travel, advertising, and travel expenses. C-Corporation: A C-corporation is a separate legal entity and has separate taxes filed with the IRS from the entrepreneur.
The business income will be taxed at the corporate tax rate rather than the personal income tax rate. What else do entrepreneurial success stories have in common? But adhering to a few tried and true principles can go a long way in diffusing risk. The following are a few characteristics required to be a successful entrepreneur. Direct client contact is the clearest path to obtaining honest feedback about what the target market likes and what you could be doing better. Not only does this make customers feel empowered, but happier clients are more likely to recommend businesses to others. Personally answering phones is one of the most significant competitive edges home-based entrepreneurs hold over their larger competitors.
Paradoxically, while customers value high-touch telephone access, they also expect a highly polished website. Just make sure a live human being is on the other end of the phone number listed. Few successful business owners find perfect formulas straight out of the gate. On the contrary: ideas must morph over time. Whether tweaking product design or altering food items on a menu, finding the perfect sweet spot takes trial and error.
Former Starbucks Chair and CEO Howard Schultz initially thought playing Italian opera music over store speakers would accentuate the Italian coffeehouse experience he was attempting to replicate. As a result, Schultz jettisoned the opera and introduced comfortable chairs instead. Through the heart of any successful new business, a venture beats the lifeblood of steady cash flow, which is essential for purchasing inventory, paying rent, maintaining equipment, and promoting the business.
The key to staying in the black is rigorous bookkeeping of income versus expenses. Of course, such sacrifices can strain relationships with loved ones who may need to adjust to lower standards of living and endure worry over risking family assets. For this reason, entrepreneurs should communicate these issues well ahead of time, and make sure significant loved ones are spiritually on board. Running your own business is extremely difficult, especially getting one started from scratch.
It requires a lot of time, dedication, and failure. A successful entrepreneur must show resilience to all the difficulties on the road ahead. Whenever they meet with failure or rejection they must keep pushing forward. Starting your business is a learning process and any learning process comes with a learning curve, which can be frustrating, especially when money is on the line. It's important never to give up through the difficult times if you want to succeed. Similar to resilience, a successful entrepreneur must stay focused and eliminate the noise and doubts that come with running a business. Becoming sidetracked, not believing in your instincts and ideas, and losing sight of the end goal is a recipe for failure. A successful entrepreneur must always remember why they started the business and remain on course to see it through.
Knowing how to manage money and understanding financial statements are critical for anyone running their own business. Knowing your revenues, your costs, and how to increase or decrease them, respectively, is important. Making sure you don't burn through cash will allow you to keep the business alive. Implementing a sound business strategy, knowing your target market, your competitors, your strengths and weaknesses, will allow you to maneuver the difficult landscape of running your business.
Successful communication is important in almost every facet of life, regardless of what you do. It is also of the utmost importance in running a business. From conveying your ideas and strategies to potential investors to sharing your business plan with your employees to negotiating contracts with suppliers all require successful communication. Not every entrepreneur is the same and not all have the same goals. Here are a few types of entrepreneurs:.
Builders seek to create scalable businesses within a short time frame. These individuals seek to build out a strong infrastructure by hiring the best talent and seeking the best investors. They have temperamental personalities that are suited to the fast growth they desire but can make personal and business relationships difficult. Opportunistic entrepreneurs are optimistic individuals with the ability to pick out financial opportunities, getting in at the right time, staying on board during the time of growth, and exiting when a business hits its peak. These types of entrepreneurs are concerned with profits and the wealth they will build, so they are attracted to ideas where they can create residual or renewal income.
Because they are looking to find well-timed opportunities, opportunistic entrepreneurs can be impulsive. Innovators are those rare individuals that come up with a great idea or product that no one has thought of before. These individuals worked on what they loved and found business opportunities through that. Rather than focusing on money, innovators care more about the impact that their products and services have on society. These individuals are not the best at running a business as they are idea-generating individuals, so often they leave the day-to-day operations to those more capable in that respect. These individuals are analytical and risk-averse. They have a strong skill set in a specific area obtained through education or apprenticeship.
A specialist entrepreneur will build out their business through networking and referrals, resulting in slower growth than a builder entrepreneur. As there are different types of entrepreneurs, there are also different types of businesses they create. Below are the main different types of entrepreneurship. Small business entrepreneurship is the idea of opening a business without turning it into a large conglomerate or opening many chains. A single-location restaurant, one grocery shop, or a retail shop to sell your handmade goods would all be an example of small business entrepreneurship.
These individuals usually invest their own money and succeed if their business turns a profit, which they live off of. They don't have outside investors and will only take a loan if it helps continue the business. These are companies that start with a unique idea; think Silicon Valley. The hopes are to innovate with a unique product or service and continue growing the company, continuously scaling up as time moves on.
These types of companies often require investors and large amounts of capital to grow their idea and reach multiple markets. Large company entrepreneurship is a new business division created within an existing company. The existing company may be well placed to branch out into other sectors or it may be well placed to become involved in new technology. CEOs of these companies either foresee a new market for the company or individuals within the company generate ideas that they bring to senior management to start the process.
The goal of social entrepreneurship is to create a benefit to society and humankind. They focus on helping communities or the environment through their products and services. They are not driven by profits but rather by helping the world around them. In economist-speak, an entrepreneur acts as a coordinating agent in a capitalist economy. This coordination takes the form of resources being diverted toward new potential profit opportunities. The entrepreneur moves various resources, both tangible and intangible, promoting capital formation. In , there were In a market full of uncertainty, it is the entrepreneur who can actually help clear up uncertainty, as they make judgments or assume the risk.
To the extent that capitalism is a dynamic profit-and-loss system, entrepreneurs drive efficient discovery and consistently reveal knowledge. Established firms face increased competition and challenges from entrepreneurs, which often spurs them toward research and development efforts as well. In technical economic terms, the entrepreneur disrupts the course toward steady-state equilibrium. Nurturing entrepreneurship can have a positive impact on an economy and a society in several ways.
For starters, entrepreneurs create new businesses. Small businesses usually deal with known and established products and services, while entrepreneurial ventures focus on new, innovative offerings. Because of this, small business owners tend to deal with known risks and entrepreneurs face unknown risks. Limited growth with continued profitability is what is hoped for in most small businesses, while entrepreneurial ventures target rapid growth and high returns. As a result, entrepreneurial ventures generally impact economies and communities in a significant manner, which also results in a cascading effect on other sectors, like job creation. Small businesses are more limited in this perspective and remain confined to their own domain and group.
Trading goods—like buying entire lots of branded shampoo at wholesale rates and selling them at retail rates at your retail shop or online—does not constitute entrepreneurship. However, manufacturing your own innovative, herbal shampoo, obtaining a patent on it, and marketing it for business using the same sales channels qualifies as entrepreneurship. A great example is the Africa-based KickStart International not to be confused with Kickstarter who designs and builds low-cost, low-effort, high-yield irrigation products to help African farmers and end poverty. Their main product is the MoneyMaker Max, a "high-quality, human-powered treadle irrigation pump" and they offer a lower-cost, hip-operated version.
Future product plans include a starter pump and submersible solar pumps. Offering that extra room in your home for a monthly fee is simply a rental business. Building a service-based model around this idea is a fantastic entrepreneurial idea. Airbnb implemented the mix-n-match entrepreneurial approach to build a network of all such available rentals in a certain area and make it available to tourists. Without owning a single property, their innovative business model offers a win-win situation for all parties.
The owners get short-term high-paying customers tourists instead of long-term low-paying renters. Tourists benefit from relatively low costs and a secure, home-like stay. Airbnb benefits from service charges for offering this buyer-seller marketplace model, controlling the sales channel without owning a single property. Nothing in this world comes free. In the first example, the entrepreneur takes a risk on the time, effort, and financial investments needed to manufacture the herbal shampoo, getting necessary licenses, and handling legal disputes arising from any consumer complaints and competitions.
In the latter example, the entrepreneur is accountable for ensuring a reliable community of property owners willing to offer proper facilities, as well as the responsibility for handling conflicts arising between various parties. There are several theories put forward by researchers at leading institutes about entrepreneurship. There is no one-size-fits-all model for entrepreneurship. Broadly speaking, entrepreneurship either originates from passion or from identifying suitable business opportunities. A person who is very passionate about developing electronic circuits may accidentally develop a great appliance. Such an individual may not necessarily have the business sense, but they are driven by pure passion. They don't listen to anyone, go with their gut and one day develop a highly marketable product that offers extremely high returns.
They fit into the first category of passionate entrepreneurs. A businessperson with sharp business acumen sensing a profit opportunity with a mix-n-match approach fits into the latter category. Irrespective of the originating category, an entrepreneurial idea, if well nurtured and correctly driven, can be transformed into a very profitable business venture. KickStart International. How To Start A Business. Career Advice. Your Money. Personal Finance. Your Practice.
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