This article throws light upon the top six characteristics that makes an remarkable an entrepreneur. The characteristics are: 1. Tasks of an Entrepreneur 2. Planning 3. Business Plan 4. Organising 5. Controlling 6. Managing People in the Small Business.
Characteristic # 1. Tasks of an Entrepreneur:
Creating and building a successful enterprise requires, above all, effectively managing work, the organisation, people and production/operations. This is because both poor management and inexperienced management are the primary causes of new venture failure.
Thus, knowing the principles of management and applying them in practice are of considerable importance to new venture success. We may now see how the three primary functions in managing work and organisation — viz., planning, organising and controlling — can be applied to the special task of launching a small business.
Before proceeding further, we may make a brief review of the first entrepreneurship function which precedes planning. The critical first step is the entrepreneur decision: specifically deciding whether to become an entrepreneur.
As J.N. Donnoelly, Jr. has rightly commented:
“Making the right decision requires a clear understanding of entrepreneurship and the requirements for success. Above all, the decision should be based on an accurate self-assessment of individual skills, abilities and shortcomings, because initially the entrepreneur is the business. He makes all the decisions, initiates critical business relationships, and performs the management functions. The entrepreneur’s strengths and weaknesses (limitations) directly and profoundly affect the enterprise. Table 20.1 enables one to make a self-assessment of his (her) entrepreneurial potential.
One’s answers to these questions can provide some indication of one’s potential as an entrepreneur. If one gives at least 8 unconditional ‘yes’ responses, one has definite entrepreneurial potential.
P.F. Drucker has pointed out that business success largely depends on certain entrepreneurial attributes. The entrepreneur should primarily be motivated by the desire to make profit, because profitability (not self-fulfillment, independence or other non-monetary motivations) is essential for survival.
The entrepreneur has to be an effective planner, organiser, problem-solver and decision- maker. He must be able to manage people well. Expansion in the business is a must, as also a talent for getting along with people and the ability to handle stress. The entrepreneur must have a strong nerve, be prepared to bounce back from inevitable setbacks, and be willing to devote long hours to the business.
Characteristic # 2. Planning:
Of all the functions of managing, planning probability contributes the most to new venture performance. Planning provides a well-thought-out blueprint of action — at least in the nascent stage of a small business. Planning is of strategic importance because mistakes can be very costly, even fatal, when resources are grossly inadequate in the early stage of the business.
Judicious and rational planning reduces the chances of major mistakes; it also forces the entrepreneur to take stock of the external environment of business, competition, potential customers and strengths or weaknesses.
However, despite the importance of planning, many entrepreneurs do not like to plan because planning is thought to be a barrier to the progress in the sense that it hinders their flexibility.
In general, two types of planning exercises are carried out by the entrepreneur, viz., start-up planning and on-going planning. While the former occurs before the enterprise opens for business, the latter is performed at a later stage. The latter provides further strategic and operational direction for the established business.
According to G. Brenner, start-up planning essentially involves providing comprehensive, carefully thought-out answer to the following five questions:
1. What product or service will the business provide?
2. What market will be served?
3. How will the business be established?
4. How will the business be operated?
5. How will the business be financed?
The first two questions can be answered jointly because they are interrelated. In fact, answering one question requires consideration of the other. Many entrepreneurs wrongly assume that a good product automatically sells itself and that a ready-made market exists.
However, most entrepreneurs fail because many unique, creative products face premature death due to lack of customers. New product entrepreneurs should take note of this reality.
Since the market for each business is unique, it has to be assessed separately. At least, four factors are to be assessed in effectively answering these two questions.
The first one is market size — assessing past and projected sales trends, the life-cycle stage of the product/service, and business survival rates. The second factor is competition — determining the bases of competition (price, quality, image, customer service) as also the strengths and weaknesses of competitors.
Thirdly, there is need to assess the customers — their average income and their purchasing power. Fourthly, there is need to assess market share — determining the share of the market that a new business can easily acquire.
Information on all these can be obtained from various sources such at the chambers of commerce or trade associations. After acquiring market information entrepreneurs must gain an in-depth understanding of the competition by studying competitors’ annual reports, financial statements, patent information and even in-depth profiles of corporate managers.
A related point may also be noted in this context. Since most entrepreneurs launch a business that offers a product or service already available in the market, each entrepreneur must devise an effective positioning strategy for his product or service. Positioning requires the entrepreneur to devise a certain product or service characteristic that will be considered unique by potential customers.
In case of a new product or service, since no data on demand or pricing are available, the entrepreneur must determine at the outset whether demand exists and, if so, what customers are ready to pay for the product. Market surveys and test marketing are essential to answer such questions.
Moreover, marketing a new product or service requires additional spending just to explain what the new products or services are. As a general rule, regardless of whether a product or a service is new or old the entrepreneur should select a business that has a healthy market, is financially feasible and matches his own objectives and abilities.
The answer to the second question (viz., how will the entrepreneur enter the business?) is that three strategies are available: buy out, start-up and franchise.
Firstly, the entrepreneur may buy out and acquire an existing company in the chosen business and market. This strategy is often treated as the easiest way to start a business because it affords a speedy entry into a business and market. As soon as the buy out contract is signed the staff, facilities and supplier and distribution networks are immediately provided.
A company with a proven record of success and consumer usage provides advantages that can be developed with years of effort and patience. However, in any buyout, one has to take a balanced view because companies for sale often possess, major, sometimes hidden, problems.
Since entrepreneurs have to deal with what they have purchased, they cannot develop all aspects of the business exactly as they prefer. As Donnelly has cautioned: “An effective buy out requires careful selection of a company, a thorough evaluation of the company’s strengths and weaknesses and obtaining a fair price for the business”.
In the start-up the entrepreneur has to start from the beginning, i.e., has to create the business from scratch. He can exert his complete discretion in defining and building the business strategy according to preference. However, it is to be noted that the time, effort, requirements and risks of start-ups are usually high.
In the franchise, the entrepreneur (franchisee) provides a product or service under a legal contract with the franchise owner (franchiser). The latter provides the distinctive and clearly identifiable elements of the business (the name, image, signs, facility, design, patents), an operating system and other services.
In order to obtain a franchise, the entrepreneur has to pay an initial fee and thereafter a percentage royalty on sales. The entrepreneur has to operate under the rights and restrictions of the contract.
Of late, franchises have become an increasingly important and growing form of business. This is largely due to the fact that they are less risky than start-up or buy outs.
Such franchise business achieves a high rate of success mainly because of the support the franchiser provides — usually management and employee training; operations and accounting systems; a well-established (as widely known) brand name; reputation and financial, marketing and management assistance.
There are two major drawbacks of this type of business strategy. First, one may refer to inadequate franchiser support: problems arise when the franchiser does not provide the necessary guidance, reputation and support. Secondly, the entrepreneur’s creative freedom is usually inhibited by the franchise contract, which stipulates how the business is to be run.
Franchise contracts specify various aspects of business such as the products sold, retail quality standards, prices, hours of operation and many other aspects of the business. Apart from all these, franchise contracts specify a starting date — the length of the franchise agreement, renewal periods and termination clauses.
In order to ensure success, there is need to evaluate the prospective franchiser (growth rates, performance, reputation, degree or support) as also the franchise contract. In the U.S.A. where franchise are an increasingly popular form of new business, many entrepreneurs obtain franchiser evaluations from the company’s other franchisees and examine the franchisers depth of management.
Furthermore, entrepreneurs often conduct their own market analysis in addition to reviewing the franchisers assessment.
The entrepreneur answers the fourth question (viz., how will the business be operated?) by planning the business’s various functions such as production, marketing, personnel and research and development. As for production, the entrepreneur determines who will supply materials and plans the layout of the product facilities.
In the area of marketing, the entrepreneur has to plan how the product will be distributed to retailers and how it will be promoted. Operations planning, also involves two other management functions (organising and controlling).
The answer to the last question (how will the business be financed?) depends on its need for fixed and working capital.
The successful financing of business is based on financial planning which has three steps:
(1) Estimating the business’s projected income and experises,
(2) Estimating the required initial investment, and
(3) Locating alternative sources of financing the firm’s current and future operations.
A new venture’s income and expenses are calculated from sales forecasts from the market analysis and approximates cost of production and other operating expenses, drawing from past experience and industry research. These projections are normally done at least in the first year of business.
It is also necessary to calculate the start-up costs. These expenses are one-time only costs of setting up- the business (e.g., installation of equipment, beginning inventory, licences and permits). The entrepreneur has to estimate start-up cost and ongoing income and expenses. Such estimates provide a projection of the amount of funding needed to start a new business and cover costs until the business is running profitably.
In India and other developing countries, most tiny entrepreneurs rely largely, if not entirely, on their personal savings to launch their businesses. Some borrow from commercial and investment banks, savings and loan associations, mutual funds and insurance corporations — life and general.
Venture capitalists also provide finance in those cases where there is substantial profit potential. Venture capitalists are groups of investors who provide funding in exchange for a share of ownership in the company.
Characteristic # 3. Business Plan:
A business plan is very useful at the time of obtaining funding. If an entrepreneur can present a formal business plan, he stands a stronger chance of obtaining finance from a prospective investor. Since this document presents an overall analysis of the proposed business it enhances the entrepreneur’s chances of obtaining external finance. What are the contents of such a business plan?
There are six key components of such a plan:
1. A broad description of product (on service);
2. A thorough analysis of the market;
3. The entrepreneur’s strategic objectives;
4. The plans for each of the functional areas of the business;
5. A profile of the entire management team;
6. The company’s projected financial position and financial needs for fixed and working capital.
The content of such business plan is provided by answers to the five questions of start-up planning raised at the beginning. Table 20.2 gives a broad outline of such a business plan.
The business plan is considered by many successful entrepreneurs as the most important document for launching a business. Since it is some sort of a formal blueprint for the development of the new venture, prospective investors scrutinise it very closely and carefully before deciding to release funds.
Other important parts (e.g., supplies and prospective major customers) also take interest in this plan and they want to exercise the plan before establishing a relationship with the new business. The plan serves other very important purpose. Firstly, the entrepreneur can use it as a tool for communicating to employees his(her) vision and concept of the company.
Secondly, as the company develops the entrepreneur can use it as an important guide for ongoing decision-making.
Characteristic # 4. Organising:
The organising function in involves “developing an organisational structure viz., job design, departmentation, determining span of control and developing anything. Ideally, these tasks provide a structure of relationships and authority that effectively coordinates the organisation’s efforts”.
In small entrepreneurial business, organisational tasks are not much important in the early stages. The organisational tasks of such business are more informal and flexible than in large organisations. This is done intentionally. It is observed that most of the followers intentionally avoid developing written job descriptions for their employees in the early stages of business development.
Instead, oral descriptions are maintained through the company’s first major expansions. It is felt that written job disciplines constrain the potential contributions and growth of employees while the firm is still small.
An employee’s motivation and development are likely to be hampered by the boundaries of a written description. By avoiding written job descriptions entrepreneurs can quickly change major job responsibilities when needed and such need arises frequently when the organisation is in its infancy and is yet to take shape.
Some entrepreneurs also prepare organisation charts. Such a chart is to be viewed as a dynamic, continually charging picture of the company’s structure. It is likely to serve as a tool for continually assessing and re-evaluating the company. It is a measure of thinking through key activities, a way to identify groups and new needs — a tool for thought.
With the growth of firm measures in terms of the number of employees, descriptions and size of work groups and departments, job design, disciplines, the overall structure of the business gradually becomes more formalised.
However, as experts have opined:
“The emphasis of organising is initially on informality and flexibility to accommodate the dynamic change and adjustment that usually occurs in the early stages of a new enterprise”.
Characteristic # 5. Controlling:
We know that the controlling production involves establishing standards, obtaining information that provides a comparison of actual with desired results and taking actions to correct any adverse deviations from standards. In the small businesses, the controlling activities assume special significance at least in the early stages of the venture in as-much-as almost each and every aspect of the business and its operation is new.
This simply means that mistakes are bound to occur. Due to limited resources, it is absolutely essential for the entrepreneur to detect and correct problems as and when they arise. This can be accomplished by making managerial control as effective as possible.
There is not much need for control at least at the early stages of business. But with the growth of the firms, most entrepreneurs develop financial, production and inventory control systems.
For day-to-day and week-to-week monitoring certain key business indicators such as sales, production runs inventory, accounts receivable, accounts payable and, most important, cash flow. In most small businesses ensuring that funds are on hand to pay immediate expenses is a particularly troubles some task.
In recent years many small entrepreneur have installed computerised control information systems. The basic object is to get necessary assistance in monitoring various aspects of the company’s performance and in conducting financial and production analysis.
Due to recent fall in the costs of computer hardware computerised control information systems have become a reality for various small entrepreneurs. Moreover, various software programmes are being developed specifically to meet a small business firm’s control needs.
Characteristic # 6. Managing People in the Small Business:
It is a common knowledge that effectively managing and motivating employees is a critical ingredient of effective entrepreneurship.
These activities together constitute the leadership function — “encouraging employees to work to achieve the business goals by effectively communicating the tasks to be performed, rewarding satisfactory (above-average) performance and creating an environment that supports the employees’ efforts and individual needs”.
However, in small businesses, leadership responsibilities cannot be shared. The entrepreneur is the organisation’s single boss. In other words, in a single-owner, newly established firm the entrepreneur is solely responsible for effective leadership.
No doubt, leadership is a critical activity of the corporate CEO. But, quality of leadership is even more vital for the entrepreneur because there are no extra resources to compensate for the adverse effects of poor leadership (such as employee absenteeism or, poor workmanship).
Moreover, in a small business where 10-15 key people are in employment, the entrepreneur’s relationship with each employee has a considerable impact on the firm. This simply means that the quality of the entrepreneur’s personal or business relationship with an employee can have a major effect on the overall venture.
Since contribution of each individual is vital, every individual’s effort is critical to the firm. Thus, training must not only include teaching employees job-related skills but also comprehensive education in management and organisation.
While performing the leadership function, the entrepreneur is faced with one major disadvantage. Due to limited financial resources, entrepreneurs cannot offer employees the salary and benefits that larger, more established firms can provide.
Moreover, due to the uncertainty of any new business venture, it is not possible to offer long-term job security either. For these reasons, entrepreneurs often fail to get quality people — the type of people most suitable for a particular job or task.
However, entrepreneurs enjoy two major advantages:
Firstly, they are in a unique position to create an environment in the company that is likely to promote effective performance. Unlike the CEO, the entrepreneur is not required to deal with prior company traditions and policies that may hamper motivation and performance.
In fact, in small businesses, there are no established traditions, practices , or pre-existing norms of behaviour. In a new venture, the entrepreneur plays the role of a creator, promoter and nurturer of employee excellence.
Secondly, in a small business where employees are often a small group, the company’s basic purpose is clearly communicated under a strong leader: Make the product a success and make the company famous. In a small business, it is easy to achieve this purpose when the company’s product is new and promising.
In such a situation, some sort of cohesiveness develops among members. And, in this congenial, i.e., highly challenging, stressful and familial environment, employees can become highly motivated, driven by a sense of purpose and a firm (strong) belief that everything is possible.
Perhaps the greatest asset of small business is employee pride.
As Donnally has rightly commented:
“Because resources and staff are limited when businesses are small, employee dedication resulting from their direct, personal interest in the creation of products and rendering of services can be considered the best quality control system of all. Such is particularly the case when part of the employee’s income is tied to company performance”.
The entrepreneur has to lead by setting an example for others. Tom Peters has opined that the entrepreneur can create a climate of excellence and productivity in large part by setting a personal example in the way he works and approaches the business, customers and employees.
In this context, one may cite the example of some entrepreneurs who encourage employees to take responsibility by allowing them to make any decisions considered necessary to increase product or service quality and customer satisfaction. It is gratifying to note that even with limited resources some entrepreneurs are creating innovative ways to facilitate effective leadership and motivation.
As Sam Walton — the 1985 ‘richest man in America’ — says in his book Made in America; “Entrepreneurship is risk and hard work, knowing where you want to go and willing to do what it takes to get there … ordinary people joined to accomplish extraordinary things.”