Archive for September, 2011
Recent studies have shown the equity sources view experienced entrepreneurs more favorably than those with little or no experience (Kim, Clelland, & Bach, 2010; Zaleski, 2011). Read, Dew, Sarasvathy, Song, and Wiltbank (2009) found experienced entrepreneurs can dispel risk more efficiently through small trial and error steps unlike less experienced entrepreneurs. Trevelyan (2011) found experienced entrepreneurs balance promoting innovations with preventive thinking improving their chances of success.
The perceived influence of entrepreneurial experience helps entrepreneurs raise capital. Investors view entrepreneurs with experience as more adept at planning and managing. Investors view firms that first tap internal funding before seeking external financing more desirable and better equipped to deal with external capital (Myers, 1984). Experienced entrepreneurs showing they can manage their own money gain confidence of outside investors.
If a person wants to start a business, but has little experience that person needs to gain experience managing the resources at his or her disposal. How can a person find help if that person has little experience? Click here to find out more.
Kim, J.-N., Clelland, I., & Bach, S. (2010). Entrepreneurs as parallel processors: An examination of a cognitive model of new venture opportunity evaluation. Academy of Entrepreneurship Journal, 16(2), 57(29).
Myers, S. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 575-592.
Read, S., Dew, N., Sarasvathy, S. D., Song, M., & Wiltbank, R. (2009). Marketing under uncertainty: The logic of an effectual approach. Journal of Marketing, 73(3), 1-18. doi: 10.1509/jmkg. 73.3.1
Trevelyan, R. (2011). Self-regulation and effor in entrepreneurial tasks. International Journal of Manufacturing Technology Management, 18(8), 966-984. doi: 10118/17410380710828280
Zaleski, P. A. (2011). Start-ups and external equity: The role of entrpreneurial experience. Business Economics, 46(1), 42-50.
Entrepreneurs face tough conditions because the current political setting favors big business. Baumol, Litan, and Schramm (2007) talked about when capitalism is good for entrepreneurs and when it is not. Baumol (1990) explained that historically entrepreneurship has flourished when political conditions favored small business. Such conditions recently have existed in China and the Far East, but not here in the United States (Cooke, 2008).
What can people do to improve conditions for small business and entrepreneurs? Big companies have enlisted special interest groups to influence politicians and trump the vote of the people, but that does not make the people helpless to turn the setting around. Although globalism started out well and a place initially existed for small companies in the supply chain, big companies now want to eliminate the middleman through mergers and takeovers leaving many small business unable to have a level playing field with which to compete.
What can people do to restore the growth engine small business provides this economy? People still have dollar votes and can buy from small companies when alternatives exist between large and small companies. I encourage people to do so. I will post a directory of small businesses offering alternative products to those produced by the big companies on our website if a company is qualified and has no interest in it by a large company. Please let us know the product and company information and I will start a directory to promote the idea of buying from small companies. Please leave your information on our website.
Cooke, F. L. (2008). Competition and strategy of Chinese firms: An analysis of top performing Chinese private enterprises. Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness, 18(1), 29-56. doi: 10.1108/10595420810874592
Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism and economics of growth and prosperity. New Haven, Conn. and London: Yale University Press.
Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98(5), 893-921. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9103252727&site=bsi-live
Too many people have creative ideas and do not act on them because they mistakenly believe they cannot afford to act on their ideas. One way to get started is to use a little known technique called bootstrapping. Bootstrapping is a technique that allows entrepreneurs to use money they do not have by swapping services, using trade credit, and deferring payment. Bootstrapping in simple terms is using other people’s money.
Although the technique is not for everyone and does not come without risk, the technique can help an entrepreneur act on his or her ideas at least enough to explore the viability of the idea. However, what business venture can you think of that is totally devoid of any risk? Risk is part of doing business no matter what kind of business a person is in.
Bootstrapping is a way to start small and use what an entrepreneur needs instead of working on a project that is too big. In my experience, one of the biggest mistakes made by new entrepreneurs is they start too big and get into financial trouble. Starting small helps the entrepreneur explore what works and what does not work. This technique allows the entrepreneur to cherry pick successes and abandon unsuccessful ideas.
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When starting a new business firms should consider a suitable setting that allows the firm to adapt and innovate, take risks, maintain a long-term orientation, and draw top management talent. Private firms offer the ability to avoid Sarbanes-Oxley rules, more effectively use leverage, and avoid director liability.
Private firms are more apt to maintain a growth orientation making it easier for them to dispel risk. Human capital is most important in developing a growth orientation and fostering creativity. Public firms focus more on elaborate planning and avoiding risk. Similarly, public firms avoid economic distress costs. Private firms focus on employee welfare and a culture conducive to creativity and growth.
Entrepreneurs should consider maintaining a private firm status as long as possible to facilitate growth and creativity. Going public can increase the chance of bankruptcy. However, smaller private firms are more susceptible to takeover. What is right for your firm?
A firm should think about the best way to organize to fit its needs. Creative firms need more flexible settings to respond to new markets or with creative new products. Firms with less creative products might need more planning and structure to compete with established companies. A company should think about how it does something better, offers a unique product, or how it creates a new unexplored market. More risk requires greater flexibility. More stable settings require more planning and more structure. The most exciting new firms are those that create or meet new needs not thought of by established firms. Usually these types of firms work better as an adhocratic type of firm with more flexibility and a flatter structure. Creative people work best outside a hierarchical type of setting and like the freedom to explore new ideas and approaches to do things better. How do you classify your business?
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Risk taking is a key ingredient in a high performing innovative private firm. Such firms focus on motivating employees to make product innovations, quality improvements, and take risk by employing trial and error approaches. High performing firms assess marketing initiatives and strategic branding to highlight the benefits of innovations and improvements to existing products.
Employee welfare and a commitment to organizational objectives are essential to growth. A tight-knit cultural development within the firm allows employees the autonomy to create and take the necessary risk fueling the firm’s growth. Much of the recent growth in China’s economy came from firms with characteristics. These types of firms are more flexible and able to adapt to changing settings needed to develop their products. A growth orientation enables these firms to deal more effectively with early-stage risks.
Large public companies rely more on stability and avoiding liability from taking on new risks. The aim of the large public company is to preserve existing wealth. The small private firm looks not to preserve existing wealth, but to grow new wealth.
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