Issues in Business Start-up

1. Entrepreneurship and Small Firms 4thedition Chapter 11 Issues in Business Start-up David Deakins and Mark Freel slides by Margaret Fletcher

2. Approaches to Start-up • Every business start up is a unique event. • Everyone has a different set of skills and experiences, which may give rise to Entrepreneurship opportunities. e.g. Personal SWOT • This combination of aspects is the starting point for going into business.

3. Personal SWOT • Strengths: Skills, qualifications, aspirations, opportunities, experience, ambition, ability, interests. • Weakness: e.g. lack of money. • Opportunities: Capital, having an idea, knowledge, skills, support, change (technical, social, economic, demographic). • Threats: Insecurity, external pressures (to go into employment), recession

4. Approaches to Start-up • Intuitive • Methodological • Incremental Richardson and Clarke (1993)

5. Approaches to Start-up The Intuitive Approach • Opportunistic. • Strong personal belief in the idea • Minimal planning. • Can be viewed by some as the “true” entrepreneurial approach. • Has the advantage of speed. • Tends to be high risk.

6. Approaches to Start-up The Methodical Approach • Clear goals and plans methodically pursued. • Minimises risk. • Maximises chance of support. • But, can lead to “paralysis by analysis”.

7. Approaches to Start-up The incremental approach • A clear intention to go into business, step by step. • Steps may be related to risk reduction. E.g. Initially working in spare time to develop the product. • Involves planning but can be highly pragmatic.

8. Pre-Start-up Issues • Promoters - Events which encourage people to see business ownership as an attractive option. (Richardson and Clarke, 1993). • Positive - role models, receiving money or access to finance, liking the lifestyle, encouragement. • Negative - Job frustration, limited promotion, glass ceiling, lack of time.

9. Pre-Start-up Issues • Inhibitors - factors or events which deter people, usually negative e.g. Fear of failure, fear of the unknown, seeing others fail, perceived lack of security. • A catalyst or trigger can spark action e.g. redundancy, change in family commitments/lifestyle, sum of minor events, frustration with work. Graduate entrepreneurs (Scott and Twomey 1988) • Predisposing factors - background, parental and other role models, work experience. • Triggers - seeking work, unemployment, career advice.

10. Motivations to Start a Business Graduate Entrepreneurs (Fletcher 1999)Push and Pull factors: • Burning ambition from schools days. • Desire for greater job satisfaction. • Flexibility. • Turn a hobby or interest into rewarding work. • Best use of experience and qualifications. • Spotted a gap in the market. • Didn’t like experience of working a large firm. • Outlet for their creativity.

11. Stages in the Start-up Process • Formation of the idea. • Opportunity recognition. • Validating the idea; planning and preparation. • Entry into entrepreneurship • Launch and development of the ongoing business

12. Proposal Evaluation Basic ingredients of success (1)(MAIR Model, Gibb and Richie 1982): • Motivation and commitment - necessary drive. • Ability and skill - technical, managerial, behavioural. • TheIdea in relation to the market - market need. • Resources - sufficient premises, labour, materials, finance.

13. Proposal Evaluation Basic ingredients of success (2) • Plan and strategy -Linking all of the elements, charting the future, monitoring. • Organisation and administration - legal form of business, taxation requirements, other legal aspects, insurance, book-keeping systems.

14. Start-up Options • Starting from scratch. • Buying a going concern. • Buying a franchise. • Management buy-out (MBO)/management buy in (MBI).

15. Starting from Scratch • High autonomy - do things as you like from the start. • May be cheaper, avoid initial purchase costs. But • Potentially higher risk than other options. • Takes time to build up the business and income. • No goodwill from customers or suppliers.

16. Buying a Going Concern • Might be less risky. • Customer/supplier goodwill. • Funders should be more ready to lend. • Provide immediate income. But • High initial outlay. • May inherit problems, e.g staff. • Goodwill may not last long, customers may move on.

17. Buying a Franchise Franchising has grown in the last 20 years. Regulated by the British Franchise Association. • Franchiser provides established product/ service, know-how, marketing, brand name, training, other supplies. • Franchisor can benefit from economies of scale. • Less risky, therefore funders keen to lend.

18. Buying a Franchise But • May require large capital outlay by franchisee. • Trading area may be limited geographically. • May be problems in the relationship with franchisor and financial disputes. • Strict agreements may limit innovation and growth.

19. Management Buy-out/Buy-in • MBO - buy out by an existing manager or team. • MBI - outside entrepreneur or team buy into the business. • May not be seen as creating new businesses. but • Often requires pre-purchase planning and research. • May result in transformation of old business i.e. strategic re-orientation.

20. Creativity and the Idea • “Entrepreneurs ... need to be creative in their thinking”. (Timmons) • Creative thinking is important for formulating ideas. • Requires lateral thinking rather than vertical. • Use imagination rather than logic. • Be open minded to divergent options.

21. Creativity and the Idea • The ability to connect previously unrelated ideas. • The right creative environment is important. • Ideas rarely “come out of the blue”, successful business people spend time looking for opportunities and developing their ideas. (Richardson and Clarke, 1990). • Techniques can be used to help improve creative thinking.

22. Barriers to Creative Thinking • Vertical thinking. • Stereotyping situations and compartmentalising. • Compressing information. • Complacency and non-inquisitiveness.

23. Overcoming Barriers • Don’t assume boundaries that aren’t there. • Keep an open mind. • Keep eyes open for opportunities. • Get more inputs, e.g. travel a new way to work/college. • Ask other people for their thoughts and views.

24. Overcoming Barriers The cheque clearance problem A foreign businessman owes you £1,000. You manage to get a cheque before he leaves for his home country. You bank the cheque, but your bank phones a few days later to say the cheque has bounced. You discover he has £995 in his bank account. What do you do?

25. Overcoming Barriers The cheque clearance problem • Pay £5 in his account and represent the cheque.

26. Brainstorming A means of generating a lot of ideas or problem solving. Lots of people, combining brain power can generate more ideas that an individual. For Example: • Using brainstorming come up with ideas for using a brick, e.g. as a door stop.

27. Brainstorming Rules • Don’t judge the ideas. • There are no bad ideas - the crazier the better. • Quantity not quality of ideas. • Piggyback ideas on those of others.

28. Structured Brainstorming Consumer products Consumer Sales Consumer Services My product or Service Business Sales Business Services Business products

29. Structured Brainstorming Shoes laces soles heels,shoes in unusual materials,for different purposes shoe polish,brushes,storage Consumer products Consumer Services Consumer Sales Mending, repairing, colouring, home repairs relining, made to measure Shop, mobile(van),market stall mail order, web,door to door franchise, store within a store, railway stations, airports Shoes Swap and repair - dancing/circus /theatrical shoes, safety shoe service Shoe advertising Mobile to offices, mail order/web to businesses, self employed rep Shoe agency specialist Business Services Business Sales Business products Shoe making equipment, shoe repairing equipment, speciality shoes, shoe protectors

30. Ideas - into Business

31. Sources of Ideas • Learn how to combine, look in other areas for inspiration. • Skills can be used to make products or services. • Problems can be opportunities, spot a solution to a problem. • Identify people’s needs or wants. • Having a resources can be the basis for an idea. (Adapted from Richardson and Clarke, 1990)

32. Sources of Ideas Opportunities are generated by change • Economic - period of growth, e.g. demand for luxury or leisure items. • Social - changing tastes, e.g. organic food. • Demographic - changing markets, e.g. ageing population. • Technical - changes in technology, e.g. biotechnology, dot.com.

33. Summary • Ideas come from many sources e.g. speaking to people, visiting new places, newspapers. • Creativity and ideas generation is a skill that can be developed. • It can take many ideas before you find the right one - don’t give up. • Most success business people work hard to develop good ideas.