Decision

of
Start-up

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Why do you want to start-up your own business ?

• It is hard work without guaranteed success

Economists point of view
New entrants make in-roads when there is expectation of rise in profit
Rate of entry is related to growth of that industry

Economists fail to shed light on human side of the story because

People need money to live

They have dependents to feed

Leaving a secure job to start-up a business more than just earning profit

Number of start-ups is just not dependent on ‘economic’ growth theory.

Antecedence and cultural factors do play a significant role in decision to

Start up a business

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Some people in their life at some time
have the idea that could form to establish
their own business
• But few people actually jump into action and start-up
their business

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Reasons for
starting a business

Idea Trigger Action

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Reasons for
starting a business

Idea Trigger Action

PUSH
Unemployment
These triggers can
Disagreement take the form
‘Misfit’ of PUSH factors
No alternative

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Reasons for
starting a business
Idea Trigger Action

PUSH PULL
Unemployment Independence
Disagreement Personal development
‘Misfit’ Personal wealth
No alternative Recognition

These triggers can

also take the form
of PULL factors

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Reasons for
not starting a business
Idea Trigger Action

Why not to start a Business

Need for income

Risk

No capital

Doubts about ability

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 What you need to start your own
business
A BUSINESS IDEA

You will base your business on skills, experience

Or qualifications.
You feel that there is an opportunity to exploit your
skills but your employer is reluctant
You have got an idea to launch a new business but
your employer is not willing to undertake the risk
Because of your long and sustained contacts in the
industry, and, you want to exploit those contacts
to your advantage

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Sources of business ideas
• Gaps in the market
– Things not available in your area
– New products or services
– Changes in customer demand or markets
– Changes in legislation

• Innovation
– Ways of doing things better or cheaper
– New technological developments
– New market opportunities

• Experience
– Skills or hobbies
– Previous employment

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 What you need to start your own
business

A BUSINESS IDEA

Business Ideas come not so much from asking the

question ‘why?’, but rather from asking the question
‘why not?’

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Innovation is the key in business ideas

• Bolton and Thompson ( 2000 )

Have a problem and seek a solution

(Example :Polaroid camera)

Have a solution and seek a problem

(Example : 3M’s Post-it notes)

Indentify a need and develop a solution

( Jame’s Dyson Dual Cyclon cleaner)

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Personal attributes of Start-Up Entrepreneurs

• Hard worker (business is 90% perspiration and 10% inspiration)

• Committed and dedicated (tenacious and disciplined willing
to make sacrifices)
• Able to bounce back (how are you going to react to NO! Ability
to be persistent in worst odd situations)
• All rounder (jack-of-all trades)
• Opportunity driven
• Results orientated
• Innovative
• Measured risk taker

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
Professional skills of Start-Up Entrepreneurs

• Operations skills

• Business skills
– Marketing and selling
– Accounting and book-keeping
– Planning and administration
– Managing people

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 What you need to start your own
business

CUSTOMERS
Business idea must meet the customer needs and
there is a market demand for the idea to be
transformed into a viable business

Customer will buy your product or service if they

perceive it to be of value to them solving their
problem
Big inventors failed because they focussed on their
product rather on their demand.

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 What you need to start your own
business
COMPETITORS
Know your competitors well before you launch your
business. Enter the market with competitive advantage if
you want to survive and grow

Low growth firms have the least understanding of their competitors (Storey et el., 1987)

Enter a market where there are few competitors ( Cosh & Hughes, 1998). Growth of firm
is inversely proportional to no of competitors

Degree of profitability depends upon structure of the market players;

Customers – suppliers – competitors.

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 What you need to start your own
business

COMPETITION
Porter (1985)
“Aim of any competitive strategy is to cope with,
and if possible, change the rules in your favour”

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
What you need to start your own
business

COMPETITIVE ADVANTAGE

How can you achieve?

There are three ways

Low price
High differentiation
Customer Focus

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Porter’s 5 forces
Differentiation
Barriers to entry
Economies of scale Loyalty switch-over
Product differentiation (customer focus)
Capital requirements
Legal agreements substitutes
Switch costs

Power of suppliers Competitive rivalry Power of buyers

Concentration Number and size Numbers and
Extent of substitutes Industry growth concentration
Importance of supplier Extent of differentiation Extent of differentiation
Extent of differentiation Capacity increments Switch costs
Exit barriers Margin they earn

Threat of substitutes
Changing technology
Changing market
Changing tastes
Switch costs
Extent of differentiation

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Generic market strategies

Broad market (everyone needs

these products/services)

COMMODITY OUTSTANDING
SUPPLIER SUCCESS

Low cost/price High cost/price

Low differentiation High differentiation

MARKET TRADER NICHE PLAYER

Focused market (few need these

products/services)

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Economies of scale
is a challenge for commodity supplier

Average
total
cost per
unit Industry
A

Industry
B

Minimum cost Minimum cost

output for industry output for industry
A B
Output volume
Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Economies of small scale
(Market traders can survive by keeping overheads low)

Average
total
cost per
unit

‘No-mans-land’
How to grow?

Small firm Large firm

minimum cost minimum cost
output output
Output volume

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,
 Niche strategy

Niche marketing involves:

• Selling a differentiated product/service to a well-
targeted, narrow market segment

• Emphasising non-price elements of the marketing mix

• Specialising in customers or products rather than methods of

production

• Stressing the inherent advantages of the firm over its

competitors

Decision to start-up
© Paul Burns, Entrepreneurship and Small Business, Palgrave,