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Definition of small business and entrepreneurial ventures

 Small business firm: is independently owned and operated, is not dominant in its field and
does not engage in innovative practices.
 Entrepreneurial venture: any business whose primary goals are profitability and growth
that can be characterized by innovative strategic practices.
 The basic different between those twos lay not in the type of goods or services provided
but in their fundamental views on growth and innovation

Characteristics of entrepreneur ventures

Entrepreneurial ventures belongs to the first stage of Thain’s Stages of Corporate Development
which is led by the entrepreneur who founds a company to promote an idea of a product or
service. The entrepreneur tends to make all the important decisions personally and is involved in
every detail and phase of the organization.

The stage 1 company has little formal structure which allows the entrepreneur to directly
supervise the activities of every employee. At this stage, entrepreneurial venture usually focuses
on a single product or service at a defined market niche in a short term while the oriented toward
growth makes the venture start looking for another one. Thus, competitive and functional
strategy issues are more important than corporate strategy. However, due to its size and simple
organization, planning is usually short range and reactive. The typical managerial functions of
planning, organizing, directing, staffing and controlling are usually performed to a very limited
degree, if at all.

The greatest strengths of stage 1 corporation are flexibility and dynamism. The drive of the
entrepreneur energizes the organization in its struggle for growth. The greatest weakness is its
extreme reliance on the entrepreneur to decide general strategies as well as detailed procedures.
If the entrepreneur fails, the company usually fails too. This is labeled as a crisis of leadership.

The use of strategic management and strategic planning in entrepreneur ventures

Studies show a strong relation between strategic planning and small-businesses or entrepreneur
ventures’ financial performance. In other words, small and new entrepreneurial venture increase
their chances of success if they make a serious attempt to work through the strategic issues
embedded in the strategic management model. The key is to focus on what is important and the
set of managerial decisions and actions that determine the long-run performance of the company.

Unfortunately, strategic planning and strategic management is not a popular practice in those
firms. There are several reasons which can be cited for the apparent lack of strategic planning
practices in many small-business firms and entrepreneur venture. First of all is the limit amount of
time. Due to its small scale and simple organization structure, entrepreneurs sometimes are busy
with day-to-day operating problem which results in neglect in long term planning. Moreover,
many CEO of small venture may have an idea of the product but are less aware of strategic
planning or even consider it as irrelevant to the small-business situation. This is partly results from
the lack of skills needed to begin strategic planning of managers and they may not have or want
to spend the money needed to import trained consultant. The last reasons come from the lack of
trust and openness. Many small-business owner managers are very sensitive regarding key
information about the business and thus, are unwilling to share strategic planning with employees
or outsiders. For this reason, boards of directors are often composed only close friends and
relatives of the owner manager who are unlikely to provide an objective viewpoint or professional
advice.

One way to ensure the fit between idea and reality is to follow the strategic decision making
process. However, in literature, the current decision making model does not really fit in the
situation of small business and entrepreneurial ventures. Due to its innovative natures which
involves continuous changes and since these firms are less organized, the decision making process
need to start rather from the scanning of environment than the examination and evaluate of the
current missions, objectives, strategies or policies as it was in big company. In other words,
entrepreneurial ventures need to develop a new mission, new objectives, strategies and policies
out of a comparison of its external opportunities and threats to its potential strength and
weakness.

The strategic decision making process can be explained through eight main stages. Following this
adjusted decision making process gives more freedom and flexible to the entrepreneurial venture
while assuring the quality of decision.

 Develop the basic business idea that has target customers or market: an idea is a concept
for a product or service that currently does not exist or is not currently available in a
market nice. It may be a brand new concept (radical innovation) or improvement to a
current product or service (incremental innovation). The idea may come from a person’s
experience or generated in a moment of creative insight.
 Scan and assess the external environment to locate factors in the market and
environment that pose opportunities and threat: the scanning should focus particularly
on market potential and resource accessibility
 Scan and assess the internal factors relevant to the new business: the entrepreneur
should objectively consider their personal assets, area of expertise, abilities, and
experience, all in terms of the organizational needs for the new venture
 Analyze the strategic factors in light of the current situation using SWOT and SFAS Matrix
of the strategic factors.
 Decide go or not go: if the business idea appears to be a feasible business opportunity,
the process should be continued. An opportunity is an idea for a new product or service
with a market that is willing to pay and compromise for a profitable business.
 Generate a business plan that specifies how the opportunity will be transformed into
reality: the plan serves as a vehicle through which financial support is obtained from
potential investors and creditors. It increases a new venture probability of survival and
facilitates new product development.
 Implement the business plan
 Evaluate the implemented business plan through comparison of actual performance
against projected performance result. To the extend that actual results are less than or
much greater than the anticipated results, the entrepreneur needs to reconsider the
company’s current mission, objectives, strategies, policies and program and possible
make changes to the original business plan.
Sources of innovation

Peter Drucker in his book “Innovation and Entrepreneurship” proposes seven sources for
innovative opportunity that should be monitored by those interested in starting an
entrepreneurial venture:

 The unexpected: an unexpected success, unexpected failure or unexpected outside event


can be a symptom or a source of unique opportunity
 The incongruity : the discrepancy between reality and what everyone assumes it to be, or
between what is and what ought to be may create an opportunity for innovation. Ex: the
side effect of retailing via the internet is the increasing number of packages being
delivered to homes. Since neither Fedex nor UPS can leave a package unless someone is
home to sign for it, many deliveries are delayed. Tony Paikeday founded zBox company to
make and sell a hard plastic container that would receive deliveries from any delivery
service and would be accessible only by the owner and the delivery service.
 Innovation based on process need: when a weak link is evident in a particular process but
people work around it instead of doing something about it, an opportunity is present for
the person willing to explore. The made of grappa (waste of grapes leftover)
 Change in industry or market structure: a business is ready for an innovative product,
service or approach to the business then the foundation of the industry or market shift.
Black entertainment television was born when Robert Johnson noticed that no television
programmer was targeting the increasing number of black viewer.
 Demographics: change in the population size and so on can create opportunities for
innovation. Due to the change in age structure, the development of elder’s catering
services is made popular in Swit
 Changes in the perception, mood and meaning: opportunities for innovation can develop
when a society’s general assumptions, attitudes and beliefs change. Trendy fashion
 New knowledge: advances in scientific and non-sciencetific knowledge can create new
products and new markets.

Company:

The advantage/disadvantage can also be analyzed through Porter’s five forces industry analysis

Advantage of entrepreneurial start-up

 Flexible: a large company is usually constructed with bureaucracy and politics as a result
of organizing thousands of people into working together. Authority is distributed not only
vertically through a chain of command but also horizontally between different interacting
departments. Decisions at all levels require input and approval by multiple people and
must be passed through both bureaucracy and politics. This, will lead to an delay to
response to the situation or the high chance for the decision to be influenced by
individual’s interest. In contrast, entrepreneurial start-up has just been started. Thus,
there is not much to concern. Moreover, entrepreneurial start-up usually has simple
organization structure where power is in the hand of entrepreneur. Thus, decisions can be
made faster and better
 Risk and innovation: a large company’s established customer base is a major asset that it
cant afford to loose. This means they need to support all previous product that still have
any significant amount of users, a problem that is especially difficult in technology based
services. Startup has nothing to lose because they have nothing, thus they have all the
freedom of learning from mistakes and shortcomings in existing products. Mircrosoft is a
terrific example of this problem. The company last’s quarter revenue came to almost 11
billion but the problem is from the development of Hotmail. As one may see, Google’s
Gmail was able to sweep in with a brilliant and innovative webmail service due to not
having any prior architecture to update. The company has been able to plan all these
features from the start, and then code them in right the first time when adding this
functionality is cheap. On the other hand, making even minor changes to hotmail is a
complex task due to the sheer size of platform
 High employee involvement: a large company has far more people to manage and
collaboration has to occur across it, not just within individual departments. Politics
become a major issue and inevitably harm some of the relations between coworker. It’s
tougher to se one’s own work in the results of the company as a whole. In contrast, due
to its small scale, employees have much more involve in the decision making process or
operational issues. This creates the sense of self-fulfilling which leads to positive
psychological contract. Moreover, the working environment in entrepreneurial start-up
companies are more flexible than in large corporation.

Disadvantages of entrepreneurial start-up

 Human resource
 Highly dependence on entrepreneur
 Less well structure
 Narrow strategic look
 Capital
 Relationship

Key reasons for failure in entrepreneurial startup

 Management skills: ninety percent of business failure are associated with management
inadequacy, which consist of either management inexperience or incompetence. Good
management efficiently implements and monitors the strategic and operational plan of a
business.
 In adequate financing: Financing is the lifeblood of growing a business whether in the
startup phase or in a later stage. Many business fail due to lack of proper financing
channels. It is not a matter of unavailability of funding, but the lack of planning for
funding to support opportunities for growth. Trouble results when entrepreneurs do not
have sufficient awareness of the costs involved in raising capital, are not prepared with
alternative sources in case of rejection from financiers, fail to consider using a
combination of debt and equity to fund the business or in general, failing to plan for
growing their business to avoid the crisis of financing.
 Poor business planning: nine out of ten business failures in the US are caused by a lack of
general business management skill and planning. A good business plan helps identify the
mission, cost structure, market, external influences, strengths and weakness of a
business.
 Unworkable goals: it is one thing to set goals and other thing to set workable goals.
Entrepreneurial initiatives are fundamentally influenced by uncertainty. Setting realistic
goals, within the bound of acceptable risk taking and optimism is important
 Product/service problem: poor product/service design or an inappropriate distribution
strategy can hinder success. Timing is also an issue. A product or service may be too early
or too late into the market to be successful
 Diminished customer base: competition can cause the customer base to diminish. From a
small business’s perspective, it is good to focus on a customer strategy that works well for
their business. At the same times, it’s also dangerous to focus only on one recipe for
success. Diversifying the customer base is an important factor of building the business.
Being flexible enough to adapt to new trends and ideas is important to staying business
 Uncontrolled growth: uncontrol growth of the business can also cause it to fail if not
handled appropriately since successful growth requires a professional management team,
flexible organization and proper systems and control
 Lack of entrepreneurial skills: mostly during the startup phase of a new business, lack of
entrepreneurial skills in an owner can cause the business to fail while this may not be true
during the later growth and maturity periods of business where more administrative and
management skills are required. A small firm’s success depend on the fit between
individual owner characteristic, owner behavior and environmental influences.
Entrepreneurs generally have a high need for achievement and social awareness, and
they are high risk taker. Thus, they may contribute to business failure
 Misreading the market: indicated by the failure to reach the critical mass, required in
sales volume and profitability. It is also due to competitive disadvantage or market
weakness

Strategy for success:

After consulting all the most common reasons quoted for entrepreneurial start-up’s failure, there
can be four main strategies which can be adopted for the new venture to consolidate its position,
properly manage its affair and sustain its success:

 Maintain a market focus: the new venture needs to remain close to the customer,
especially in the area of innovations and new product development. In other words, they
need to focus the product on customer needs in a segment of the market in order to
achieve a dominant share of that part of the market. For entrepreneurial start-up, going
after opportunities in market niches too small or too localized to justify retaliation from
market leader is a good method.
 Establishing proper financial foresight (resources): business success brings a financial
burden that must be managed. This need for financial management has three
components related to cash flow (cash flow can not be managed from day to day or on an
ad hoc basis but must be planned and secured), capital structure (to support expansion
and growth, the entrepreneur need to seek for financial support from different sources
which takes time and energy. Thus, this process needed to be planned in advance),
financial control (the enterprise need to install basic control system on its critical
performance areas)
 Building up top management team (resources): expansion and growth may mean that
the enterprise outgrows management by one person or a few partners. If one or two
persons at the top believe that they must do everything, then management crisis is
inevitable. Instead, they need to recognize the need to share in the burden, the
responsibility, the reward and the excitement of running te business.
 Leader: the entrepreneur plays an active role in the firm’s success. In general, the leaders
can be an innovator who turns creativity or novelty into reality. The entrepreneur as
innovator produces new things, create new ways of doing things. The innovator may be
creative and unconventional, capable for lateral thinking. The entrepreneur can also be a
promoter, sponsor or champion who is concerned to develop the innovation into a viable
and successful business proposition. Last but not least, they can also be a catalyst who
facilitates the work of the innovator and the promoter’s role. The catalyst need to identify
business opportunity or opportunity for innovation, put together resources and
organization to exploit these new opportunities, is prepared to take personal risk and
accept the consequence of failure.
 Building a learning and entrepreneur culture
 Strategic planning: is needed to maintain the focus on essential core competencies and
long-term values. Entrepreneurs should focus on opportunities, not on problems and try
to learn from the failure. Strategic planning also allow the firm to be able to act at the
right time to get ahead and stay ahead of competitors; thus strategic positioning and
sensitive to the environment is important. It also gives entrepreneurs detail knowledge on
the key to success in the industry and the physical stamina to make job done.
 Take risk: the firm need to create a sense of urgency that makes them action oriented