Entrepreneurship and Innovation in an Organization

Reasons why one does not start their own firm

Starting a new firm requires proper planning in order to overcome any anticipated challenges. This is outlined in a business plan because it is better you make a mistake in writing other than in the market. The challenges here include lack of new ideas, lack of expertise and lack of enough capital. Founders of firms lack new ideas as to why customers would prefer their business other than the existing ones. They have no idea of what would make customers decide to purchase from them. For instance, they may decide to open the firm early, uphold integrity and improve on quality of their products and services (Barrow, 2005).

To start a new venture, one requires a variety of skills. The founder has to learn about the customers and the new markets they will venture. The founders should be able to multitask since they will handle many things at a go. Often, those who lack expertise learn through mistakes and this comes at some price. For example, lack of marketing skills as well as management skills hinders people to begin their own businesses. Lack of enough capital to start the business is another barrier. For instance, costs incurred may be due to renting the business premises, stocking the business, paying electricity bills or even paying the labor needed (Barrow, 2005). All these costs prove to be so huge that the founder cannot afford to raise them.

Forms of bank credit and factors to consider before offering the credit

Long-term credits- they extent for a longer period and they are mostly required when one wants to purchase, renovate or expand a fixed asset like an installed plant or a major equipment. Short-term credits are required to raise cash to acquire new stock, add up to the working capital or repay debts. The difference between the two is that the interest rates in long-term credits are higher than in short-term credits. Credit cards involve high interest rates and do not require collateral. Before a financial institution offers credit to anyone, they may consider the character of the borrower whether they are trustworthy, reliable or willing to pay. The borrower’s ability to pay is also another concern based on the current and the expected earnings as compared to existing debts (Moore, 2008). Other factors to consider may include the security of the credit, the lender’s regulatory and economic conditions, the entrepreneur’s credit history and the net worth of the entrepreneur or the amount of capital they have.

Asset based valuation

The value of the business is determined by the amount of assets it has. The methods include the modified book value, the replacement value and the liquidation value. The modified book value focuses on the numbers shown in the balance sheet of the firm. These amounts are then adjusted to show the differences between the historical cost of assets and the market value. In the replacement value method, the cost of replacing the firm’s assets is estimated. Liquidation value method involves estimating the amount of money the firm would receive if it were to end its operations or liquidate its assets. The fourth method is referred to as the discounted cash flow, which involves discounting the future cash flow of assets to their valuation date. The discounting is done using a fixed interest rate. This method is also referred to as the present value.

The five forces model of industry analysis

These forces affect the industry and understanding them provides a good picture of the degree of competition that my Stop and Shop Company may face. The first force is threat of new entrants where the new entrants seek a market share and bring a new capacity. The only way to limit their entry is through barriers. The entrepreneur needs to examine the barriers and learn the expected reactions of the existing firms. The costs and legal requirements are barriers that protect the already established business. In the Stop and Shop Company, the barriers are greatest when there is no protection in terms of processes by patents in acquiring licenses and permits if any. If the brand loyalty is not strong, then the new entrants are encouraged. Other factors include low startup costs, high customer switching costs and easy access to inputs like raw materials, locations or government subsidies. As the new CEO of this company, I will ensure that I enhance the brand image of my company, make use of patents and form alliances with associated products. The company will also use the cost leadership strategy to deter new entrants. Another force is threat of substitutes. For example, in the grocery firm, there are a variety of vegetables and fruits thus customers may prefer a certain variety to another. This threat exists when the demand for a product is low due to either higher prices or a substitute that is performing better (Pradhan, 2009). Due to this tastes and preferences among customers, intensive market research is required in order to master the customers’ needs.

Another force that I will analyze is the bargaining power of suppliers, which is the ability of the suppliers to control the cost and supply the inputs in the market. In retail, the cost of the product available to the retailer for sale to the end customer is very important for it is essential in profitability of the industry. If the suppliers have a higher bargaining power then the industry is unattractive. I will therefore ensure that our company purchases one of the key suppliers or form a partnership with them thus a distributive power. Bargaining power of buyers is another force. The ratio of suppliers to buyers is the determinant here. If the suppliers are many and the buyers are few, then the buyers have a higher bargaining power to negotiate over price of goods and services. If the products are not unique, the buyers may buy from other suppliers. Stop and Shop Company will ensure unique products are produced and create awareness of the products we offer. Competition brings about rivalry in business. In a weak competitive market, firms may raise prices, provide low quality products and make more profits. In a strong competitive market, firms focus on quality of products and the prices may be low. In the grocery industry, competition is high because products are perishable and they need to be sold quickly. Stop and Shop company believes in quality of products and therefore this will be our line of focus by ensuring that we sell products that are fit for human consumption. Despite all forces that affect our grocery business, I believe that it is an attractive business for it makes profits for the entire company. These forces should be clearly examined and put into considerationto overcome these challenges (Pradhan, 2009).

The rich versus the king paradigm in founders dilemmas

Businesses start with the major aim of making profits. This opportunity provides a motivation to people to produce goods and services. However, another motivation to start a business is the control motive. An entrepreneur’s strategic choices can be affected by the trade-off between financial gains and decision-making control. The financial gains represent the rich while keeping decision-making control represents the king. Firms pursuing multiple strategies may be stuck in the middle. According to Noam Wasserman, entrepreneurs who make strategic choices in line with their motivation have a higher chance of achieving the motivation. Therefore, entrepreneurs who make choices as per the profit motive become rich while those who make choices as per the control motive become kings. The dilemma here is whether the entrepreneur should focus on the profit motive or the control motive (Smith, 1991).

The personal profit motive drives the private enterprises and new ventures focus on this. To resolve this dilemma, challenges involved in assembling resources for the new business should be emphasized. Although the entrepreneur may be ready to control the resources necessary for the new business, they must acquire resources from outside. The more the resources the new venture gains, the better the competitive position. The major resources are the human resources and financial resources. According to my opinion, these two motives are inseparable. This is because to earn profits, resources must be controlled properly. If this is not done then misuse of resources occurs and the firm may incur extra costs that are not necessary. Therefore, a firm should focus on becoming rich and king because both are interrelated and lead to business success (Smith, 1991).

References

Barrow, C. (2005). Enterprise development: The challenges of starting, growing and selling businesses. London: Thomson.

Moore, C. W., & Longenecker, J. G. (2008). Managing small business: An entrepreneurial emphasis. Australia: South-Western/Cengage Learning.

Pradhan, S., & Pradhan, S. (2009). Retailing management: Text and cases. New Delhi, India: Tata Mcgraw-Hill Education Pvt. Ltd.

Smith, A. (1991 ed.). The Wealth of Nations. London, Everyman’s Library.