People who have opposite opinions against entrepreneurship point out ten potential risks. First is management mistake that is the primary cause of business failure. Sometimes the owner of a small business lacks the leadership ability, sound judgment, and knowledge necessary to make the business work. Second is lack of business experience which indicates that most entrepreneurs tend to be beginners to be easy to make management mistakes in their own businesses.
Third one is poor financial control. Effective managers realize that any successful business venture requires proper financial control. Business success also requires having a sufficient amount of capital on hand at start-up. Under-capitalization is a common cause of business failure because companies run out of capital before they are able to generate positive cash flow. Entrepreneurs tend to be overly optimistic and often misjudge the financial requirements of going into business.
Fourth one is weak marketing efforts that means entrepreneurs tend to misunderstand the marketing efforts. For example, owners of small businesses usually believe their businesses will make a great number of customers automatically, but it almost never happens in reality. Building a growing base of customers requires a sustained and creative marketing effort. Keeping customers coming back requires providing customers with value, quality, convenience, service, and fun.
Fifth thing is failure to develop a strategic plan. Many small business managers ignore the process of strategic planning because they think that is something that benefits only large companies. Without a good defined strategy, a business has no sustainable basis for creating and maintaining a competitive edge in the marketplace. Establishing a strategic plan drives entrepreneurs to assess realistically a proposed business’s potential. Sixth thing is uncontrolled growth. Business growth is a natural, healthy, and desirable part of any business, but it must be planned and controlled.
As the business increases in size and complexity, problems increase in magnitude, and the entrepreneur must learn to deal with them. Seventh thing is poor location. Business location are often selected without proper study, investigation, and planning. Some beginning owners select a particular location just because they found a vacant building. The sales business should be influenced heavily by choice of location.
Eighth is improper inventory control. Insufficient inventory control results in shortages and stockouts, causing customers to become disillusioned and leave. More common situation is that the manager has not only too much inventory, but also too much of wrong type of inventory.
Ninth is incorrect pricing. Small business owners usually underprice their products and services for making strong competition. Establishing accurate prices is to know what a product or service costs to make or to provide. Then, business owners can establish prices that reflect the image they want to make for their companies with an observation on the competition.
Tenth is inability to make the Entrepreneurial transition. After the start up, growth usually requires a radically different style of management, one that entrepreneurs are not necessarily good at. Growth requires entrepreneurs to delegate authority and to relinquish hands-on control of daily operations, something many entrepreneurs simply can not do.
Suggestions for Solving the Other Side of Entrepreneurship
Entrepreneurs must know their business field in depth. Small business owners should get the best education in their business area before they set out on their own business. Small business managers have to become serious students of their industry to analyze and examine their industry for their success. Reading trade journals, business periodicals, books, and research reports related to their industry, which can guide entrepreneurs to the success. Moreover, personal contact with suppliers, customers, trade associations in the same industry is another excellent way to get that knowledge.
Small business owners should develop a solid business plan that is a crucial ingredient in preparing for business success. Well written and planned business plan not only provide a pathway to success, but it also creates a benchmark against which an entrepreneur can measure actual company performance. This planning process drives entrepreneurs to ask and answer some difficult, challenging, and crucial questions.
Managing financial resources is also essential part for entrepreneurs to run their business successfully. The best defense against financial problems is to develop a practical information system and then use this information to make business decisions. The first step in managing financial resources effectively is to have adequate start up capital. Estimating initial capital as much double as entrepreneurs expect will be good for starting a business because many costs that entrepreneurs do not expect will come out at the beginning time. The most valuable financial resource is cash. Even though earning a profit is essential to its long term survival, a business must have an appropriate supply of cash to pay its bills and obligations. Managing cash is one of entrepreneurs primary abilities to maintain their business.
Owners in small businesses have to understand financial statements what is going on in the business. These financial statements are reliable indicators of small businesses health. They can be helpful in realizing potential problems like declining sales, slipping profits, rising debt, and deteriorating working capital that are symptoms of potentially critical problems which require immediate attention.
No matter what kind of business entrepreneurs launch, entrepreneurs must learn to manage people. Every business depends on the foundation of well trained, motivated employees. Business owner can not do everything alone. In the end, most dominant sustainable resource is the good quality of the people entrepreneurs have.
Starting business is like running a marathon. If entrepreneurs are not physically and mentally prepared, entrepreneurs had better do something different. The success of business depends on entrepreneurs constant presence and attention. It is critical to monitor a business condition constantly. Also successful entrepreneurs recognize that their most valuable asset of their time, and they learn to manage it effectively to make themselves and their companies more productive.