Issues in Business start up

Wairindi Daniel
Out line

 Issues in Business start up

 Idea formulation
 Creativity and Opportunity recognition.
 Pre-start planning, preparation and Determining the
Best Location
 Choosing the community
 Renting or buying a commercial building; Looks;
Livability; Layout;
 Home-based business
Idea Generation

 Initial business idea take time to formulate,

research, raise funding and find partners and
refine it before the launch of the business.
 Every business start up is unique event;
circumstances that contribute to success are
intangible and may be different for each
individual entrepreneur
Idea Generation Cont’d …

Business start up process can be broken down into a

number of stages:
1. The formation of the idea
2. Opportunity recognition
3. Pre-start planning and preparation including pilot
testing
4. Entry into entrepreneurship
5. Launch and subsequent development.
1. The formation of idea
 The formation of idea will be affected by a nascent
entrepreneur's past experience, training, education,
and skill development.
 The accumulation of knowledge, skills and
experience is termed as human capital.
 Formation of business ideas may be influenced by
work experience , by individual training and
recognition that a particular product or process could
be done better.
 The importance of human capital tends to be
reinforced by external financial institutions since in
most cases bank managers rate previous
experience as important factor in lending to new
venture entrepreneurs.
The formation of idea Cont’d …
 Younger entrepreneurs who will have limited human
capital may have limited access to finance.
 Young entrepreneurs below 30 are under-presented
in entrepreneurship because of limited personal
capital and limited access to finance.
 Influence of family and friends.
 Education is an important conditioning experience
.Creative thinking can be enhanced or constrained
by the education system and this will affect the way
view opportunities, not just in our formative years but
later in life as well.
 Obtaining the right environment and the right team of
individuals is important for creative thinking and
hence idea formulation.
The formation of idea Cont’d …

Barriers to creative thinking

 Vertical thinking; defining a problem in only one
way
 Stereotyping situations and compartmentalism
 Compressing information
 Complacency and non-inquisitiveness.
Reacting and conforming to ‘norms’ often limits
creative options. To encourage individuals to think
creatively, it may be necessary to change the
environment or to employ different techniques.
2. Opportunity Recognition
Moving from the idea stage to the exploitation of
the opportunity requires many elements to be in
place.
 The economic environment has to be conducive.
 The culture must be appropriate for risk taking
and the nascent entrepreneur Must have
confidence to take the idea suggested by
opportunities through to fulfillment.
 Opportunities are generated by change. E.g.
food and drought.
 Change may be political, economic, social,
demographic or technical.
Opportunity Recognition Cont’d …
 These factors are the engines of change, but
harnessing such change to create new business
ventures entrepreneurs to formulate ideas and fit
them to the opportunity..
 Cultural attitudes to risk and failure can also
impinge at this stage. E.g. in UK they have lower
tolerance levels of failure compared to USA
 Recognition of opportunity does not have to come
from new entrepreneurs, existing entrepreneur.
Can exploit opportunities by setting up additional
business portfolios through selling an existing
business or using harvested capital to launch
another new business a process that may be
repeated several times (habitual).
3. Pre-start Planning and Preparation.

 Research, obtaining information (to determine

entry strategy) and raising sufficient finance are
important factors for new business creation.
 The length and time of the search activity will
depend on the opportunity and the
characteristics of the new venture. Due diligence
procedures of raising funds may take 12 months.
 Preparation means finding the right
management team with complementary skills. It
is important to get a right mix of skills in the
proposed new business idea.
4. Entry and Launch
 The timing of entry is important. While advantages
exist for first movers, moving too early can result in
insufficient customers to make heavy investment
worth while.
 The issue of timing becomes crucial if the protection
of intellectual property rights (IPR) is involved.
 Developing the entry strategy is an important part of
the launch of the new business; attention will need
to be paid to marketing, a factor that sometimes
neglected by a technology-based entrepreneur.
 There important relationship between marketing
and entrepreneurship.
5. Post Entry Development

 Early stage development is crucial phase

for the novice entrepreneur. The
entrepreneur is naïve and must learn
quickly to understand customers, suppliers
cash flow and dealing with other
stakeholders in the new business.
 Being new, especially if markets are
competitive, means that customers have to
take quality on trust, that suppliers will be
unwilling to give trade credit and that banks
will be unwilling to extend significant credit
facilities.
Determining the Best Location

 The decision to build a distribution center

comes with expectations that it will help a
company reach key markets, hire an
appropriate workforce, and maximize
profitability while minimizing operating
costs.
 Finding that ideal location in a community
that embraces the company's operations,
however, is more difficult than merely
choosing any site within a targeted region.
Determining the Best Location Cont’d …

 Location decision is crucial for a business' long-

term success. Factors such as infrastructure,
labor costs, proximity to customers and
suppliers, and community and site characteristics
need to be part of an acceptable model that
supports the company's goals and objectives.
 If a company selects a less-than-optimal site, it
may have labor availability problems, ongoing
transportation issues, and yearly recurring costs.
These issues can be resolved by paying close
attention to site selection.
Determining the Best Location Cont’d …

Companies choosing a distribution center

location need to consider three key factors
to site selection success:
 Locating near delivery points cuts
transportation costs.*Transportation is one
of the most important factors in distribution
center logistics. The cost of hauling
products from a distribution center to
customers and consumers is based on fuel
prices as well as driver and truck
maintenance costs, which usually increase
annually
Determining the Best Location Cont’d …

 Labor and community acceptance can

make or break a project.* While various
markets may meet a company's
transportation needs, it may be harder to
find a reliable and productive labor force.
As such, labor force is the foremost
community characteristic to identify in
site selection. Firms should also analyze
turn over rates because retraining
employees increases operating costs.
Determining the Best Location Cont’d …

 Site characteristics impact initial

investment and beyond.*Carefully
selecting a site location with ideal
characteristics minimizes up-front
development costs. A fairly flat site that is
not environmentally challenged is the best
location for a distribution center. Blasting
large rocks and mitigating wetlands is
expensive and time consuming. Choosing
sites that are free of environmental issues
also reduces initial site development costs.
Renting or buying a commercial
building; Looks; Livability; Layout;

 Accessibility
 Environment
 Infrastructure
 Zoning
 Proximity to customers and suppliers
 Lay out should be convenient.
Home-based business

 Operating a home-based business can give you the

best of both worlds. Like all small business owners,
you enjoy the satisfaction of being your own boss
and being the person who makes the decisions.
 But if you run your business out of your home, you
also enjoy the benefits of being able to work flexible
hours, of not having to commute, and certain tax
advantages. In theory, you can run a successful
business out of your home and have the flexibility to
be there for your family, spending more time with
your children or arranging your work schedule
around your family's needs.
Home-based business Cont’d ….

 Legalities - Like any other business person, you

need to set up your business legally. You will have
to choose a form of business (such as a sole
proprietorship, partnership or corporation), and
register your business name, if your business has
a name other than your own.
 You may also need a business license, depending
on the type of business you're running. And you
have to run your business according to provincial
and federal laws, which means you may need to
register for Workers' Compensation insurance with
your local authorities.
 Home-based business Cont’d …

 One important consideration before you start a home-

based business will be your house and your
neighbourhood. Continue on to the next page to learn
how to determine how well your house and
neighbourhood will suit starting a home-based business.
 You know how important a consideration location is to
real estate (both commercial and residential). The
location of your home-based business is extremely
important, too. You may not even be able to start the
home-based business you want to start where you are
now, because of issues such as space and zoning.
Before you start a home-based business you need to
consider the suitability of your neighbourhood and
house.
Home-based business Cont’d …

 Zoning - Is your neighbourhood zoned for

home-based businesses? If it's not, you're
just asking for trouble down the road when
the city catches up with you or a neighbour
complains. Many municipalities don't allow
home-based businesses at all, and others
place severe restrictions upon exactly what
kind of business is allowed to operate out of
a family dwelling in a residential
neighbourhood. Check the zoning bylaws
with your municipality.
Home-based business Cont’d …

 Neighbourhood suitability - How will your

proposed home-based business fit into your
neighbourhood? Most residential neighbours are
not going to be very happy if you have noisy
machinery running all day long, large trucks
starting up early in the morning, or customers
parking their vehicles all over the place. If your
proposed home-based business involves
manufacturing, or trucks or other vehicles arriving
at or leaving your property on a regular basis,
you should not be operating in a residential area.
Unhappy neighbours can be bad for business in
all kinds of ways.
Home-based business Cont’d …
 Neighbourhood location - Will your
neighbourhood's location work for or against your
home-based business? If you're delivering a product
or service, it probably won't matter if you're located
15 km out of town down an obscure country road
(except for the extra travel cost you incur). But if your
home-based business involves people coming to
you, then they need to be able to find it and get there
easily. In many cases, you won't be able to put up
any signage for your home-based business, although
in others you will be able to have a small,
unobtrusive sign by or on your door.
Home-based business Cont’d …

 Your property's location and appearance - You don't

have to live in a manor with a manicured landscape fit
for a magazine to run a home-based business, but
your property does have to be attractive enough that it
won't scare off prospective customers or clients. Old
cars cluttering the yard, knee-high grass, and
dilapidated buildings with peeling paint are all turn-offs
that can lose you business. A poorly maintained house
and property gives people the impression you don't
look after things - so why would you look after them? If
you're going to run a business out of your home, your
home has to look neat and respectable - at all times!
Home-based business Cont’d …

 Your house's suitability - I'm always amazed at the

number of people who try to run their home-based
businesses out of their kitchens. If the only space in
your home you can devote to your business is the
kitchen or a corner of your basement, don't, unless
your business is virtual and no one is ever, ever going
to see your premises. People who visit your home-
based business will expect it to look (and operate) like
a "real" business. They expect to be able to do things
such as sit down and sign papers in a business-like
environment. Any home-based business will need to
have an entire room set aside as an office space.
Home-based business Cont’d …

 Your family - You're not the only one involved if you start
a home-based business; your whole family will be
involved in the enterprise, for good or ill. You need to
consider how running a business out of your home will
affect your family.
 While many people start a home-based business thinking
that they'll be able to spend more time with their family
than they would otherwise, the lack of separation
between your business and personal life can seriously
interfere with family activities. How will you keep your
family life and your work life separate and how much time
can you realistically devote to both?
Home-based business Cont’d …

 Your work style - As much as everyone likes to

fantasize about it, working from home isn't for
everyone. Before you start a home-based business,
you need to think about your personality and your
work preferences. The three main problems of
working from home are:
1. Working from home can increase your feelings of
isolation and lack of contact with colleagues. Many
people have difficulty coping with working alone for
long stretches of time. This is especially difficult for
those who are used to working in busy office
environments and being surrounded by people.
Home-based business Cont’d …

2. Working from home can cause increased family stress,

because of the difficulty of separating business and
home life. I've already touched on this, but it's
important. If you thought bringing a new pet into your
home was stressful, wait until you start a home-based
business!
3. Working from home calls for self discipline and the
ability to plan and manage one's own time. On the one
hand, being your own boss means that no one else is
telling you what to do. On the other, if you don't keep
yourself focused and on task, no one else will.
Home-based business Cont’d …

 Your personality is also a determining factor in whether

or not you should start a home-based business. While
many people start home-based businesses because
they see it as a natural extension of the hobbies they
love, having a hobby is not the key to running a
successful home-based business.
 Are you an entrepreneur? Do you have the qualities
an entrepreneur needs to have to be a success?
Research shows that successful entrepreneurs share
certain traits and attitudes, such as perseverance, the
desire and willingness to take the initiative,
competitiveness, self-reliance, a strong need to
achieve, and self-confidence (William Jennings, "A
Profile of The Entrepreneur").