In this article we will discuss about:- 1. Resource Mobilization for Startups 2. Types of Resource Mobilization for Startups 3. Preliminary Contracts with the Vendors, Suppliers, Bankers, Principal Customers; Contract Management 4. Basic Start-Up Problems Faced by Entrepreneurs 5. Methods to Solve Startup Problems.
- Resource Mobilization for Startups
- Types of Resource Mobilization for Startups
- Preliminary Contracts with the Vendors, Suppliers, Bankers, Principal Customers; Contract Management
- Basic Start-Up Problems Faced by Entrepreneurs
- Methods to Solve Startup Problems
1. Resource Mobilization for Startups:
The term resource mobilization refers to all activities undertaken by a startup or an organization to secure new and additional financial, human and material resources to advance its mission. Inherent in efforts to mobilize resources is the drive for organizational sustainability.
As fundraisers, we often come across the term ‘resource mobilization.’ Although technical in sense, it merely means mobilizing resources. Now resources can include many different things, not just money, for your organization.
Apart from money, you can also raise support from friends, family, dealers, knowledge of employees, infrastructure etc. So, in order to put all these sources of support into one kitty, including finances, we refer to them collectively as ‘resource mobilization.’
Resource mobilization is actually a process of raising different types of support for your organization. As said above, it can include both cash and in-kind support.
Resource mobilization can also be called as the process of getting resource from resource provider, using different mechanisms, to implement the organization’s work for achieving the pre-determined organizational goals. It deals in acquiring the needed resources in a timely-cost effective manner.
Every business model requires them, and it is only through them that companies generate Value Propositions and Revenues. Key resources can be physical, financial, intellectual, or human.
A microchip manufacturer needs capital-intensive production facilities, whereas a microchip designer depends more on human resources.
Any startup would need all of the following resources, though the financial resource may be considered most important:
(vii) Moral Resources
(viii) Cultural Knowledge resource
(ix) Relational Resource
(i) Financial Resource:
The most important element in starting a business is funding. Even the most basic home business incurs a multitude of startup costs, including registering a business name, obtaining a business telephone line and printing business cards.
Financial resources can be obtained from a variety of sources, the easiest being from:
a. The personal accounts of the company’s founder.
b. Alternatively, loans and lines of credit may be granted from financial institutions,
c. Friends and relatives,
d. Private investors
In addition, many grants are offered from private and public sources to entrepreneurs of all demographics and personal situations.
(a) Personal Investment:
When borrowing, you invest some of your own money either in the form of cash or collateral on your assets. This proves to your banker that you have a long- term commitment to your project.
(b) Love Money:
This is money loaned by a spouse, parents, family or friends. A banker considers this as “patient capital”, which is money that will be repaid later as your business profits increase.
(c) Venture Capital:
The first thing to keep in mind is that this funding source is not necessarily for all entrepreneurs. Right from the start, you should be aware that venture capitalists are looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications, and biotechnology.
Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This involves giving up some ownership or equity in your business to an external party.
Venture capitalists also expect a healthy return on their investment, often generated when the business starts selling shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business.
Angels are generally wealthy individuals or retired company executives who invest directly in small firms owned by others. They are often leaders in their own field who not only contribute their experience and network of contacts but also their technical and/or management knowledge.
In turn for risking their money, they reserve the right to supervise the company’s management practices. In concrete terms, this often involves a seat on the board of directors and an assurance of transparency. Angels tend to keep a low profile.
(e) Business Incubators:
Business incubators or “accelerators” generally focus on the high-tech sector by providing support for new businesses in various stages of development. However, there are also local economic development incubators, which are focused on areas such as job creation, revitalization and hosting and sharing services.
Commonly, incubators will invite future businesses and other fledgling companies to share their premises, as well as their administrative, logistical, and technical resources. Generally, the incubation phase can last up to 2 years. Once the product is ready, the business usually leaves the incubator’s premises to enter its industrial production phase and is on its own.
(f) Grants and Subsidies:
You may have access to this funding to help cover expenses, such as research and development, marketing, salaries, equipment and productivity improvement. Technically, a grant is a sum of money conditionally given to your business that you do not have to repay.
However, you are bound legally to use it under the terms of the grant, or otherwise you may be asked to repay it. As well, once you are granted money from one government source, it is not uncommon to receive further funding from the source if you meet program requirements. The Government announces grants and subsidies to Startups from time to time.
(ii) Intellectual Resource:
Intellectual resource is the intangible value of a business, covering its people, the value inherent in its relationships, and everything that is left when the employees go home, of which Intellectual property (IP) is but one component. It is the sum of everything everybody in a company knows that gives it a competitive edge.
The term is used in academia in an attempt to account for the value of intangible assets not listed explicitly on a company’s balance sheets. On a national level intellectual capital refers to National Intangible Capital NIC.
A second meaning that is used in academia and was adopted in large corporations is focused on the recycling of knowledge via Knowledge management; Intellectual capital is used in the context of assessing the wealth of organizations. Understanding the intellectual capital in an enterprise allows leveraging of its intellectual assets
The start-ups also require this resource and can mobilize it from within the close circle.
(iii) Human Resource:
The success of an organization is heavily reliant on the talent and strength of its employees. The hiring of experienced professionals with track records of excellence within their area of expertise ensures that the mission and goals of the company will be carried out efficiently and with competence.
Strong team members can be recruited using a variety of methods. Staffing agencies and executive search firms specialize in placing talent of all levels within every industry. An alternative is to find employees through referrals from individuals whose judgment is trusted.
Though initially the start-ups cannot do a large hiring, but whatever human resource, they hire, must be “High Potential Individuals”.
“Teams should be able to act with the same unity of purpose and focus as a well-motivated individual.” – Bill Gates
(iv) Physical Resource:
Whether a small home business or a retail operation with multiple locations, every organization must have the appropriate physical resources to survive. This includes a proper workspace, working telephone line, adequate information systems and effective marketing materials. This aspect of business planning can be one of the costliest. As such, it is important for an entrepreneur to realistically assess his needs before making any purchases.
Most of the start-ups have had the history of starting the operations from home, garage of a very small place initially.
(v) Educational Resources:
Perhaps the greatest thing an entrepreneur can do when establishing a new business is to gain as much education possible. By understanding his/her competition and gaining an in-depth knowledge of his/her industry, he/she will be better prepared to make smarter decisions regarding the direction of his/her firm.
Educational resources can be found through professional trade associations that are geared toward his/her industry, local chamber of commerce as well as the Small Business Administration.
(vi) Emotional Resources:
Starting a business can be an extremely stressful endeavour for an entrepreneur to undertake. To maintain the sanity as well as stay motivated, it is important to have a support team that can give inspirations and guidance as needed. This team may be composed of friends and family as well as a mentor or professional group.
(vii) Moral Resources:
Moral Resources include solidarity support, legitimacy and sympathetic support. These resources can be easily retracted, making them less accessible than other resources.
(viii) Cultural Knowledge Resource:
Cultural Knowledge resource has become widely necessary and universal. Known Examples include how to accomplish specific tasks like enacting a protest event, holding a news conference, running a meeting, forming an organization, initiating a festival, or surfing the web.
(ix) Relational Resource:
It consists of such elements as customer relationships, supplier relationships, trademarks and trade names, which have value only by virtue of customer relationships, licenses, and franchises. In fact relational resource is separate from human and structural resource and therefore, it indicates its immense importance to an organization’s worth.
The value of the relationships a business maintains with its customers and suppliers is also referred as goodwill, but often poorly booked in corporate accounts, because of accounting rules.
HIPOs, as they are called, high potential employees are the ones who have exceptional potential, ability and aspiration for successive leadership positions.
3. Preliminary Contracts with the Vendors, Suppliers, Bankers, Principal Customers; Contract Management:
Preliminary or Pre-Incorporation Contracts:
When the contract is agreed, on behalf of the company before its incorporation they are called the preliminary Contract or pre-incorporation Contract. These contracts may relate either to the property, which the promoter wants to purchase for the Company or the technical knowledge which is essential for the success of the company. These types of contracts cannot bind the company until it is incorporated.
The legal position in case of preliminary contracts can be studied under two heads:
(i) Position before passing of Specific Relief Act, 1963
(ii) Position after passing of Specific Relief Act, 1963
(i) Position before Passing of Specific Relief Act, 1963:
a. The preliminary Contract made before passing of Specific Relief Act, 1963 cannot bind the company because it has not legal existence before incorporation.
b. The companies are not in a position to sue on pre-incorporated contracts.
c. Ratification is not possible in the case of the preliminary contract, as the ostensible principal not exist at the time of the contract.
a. The promoters found difficulties in carrying out the work before the Specific Relief Act, 1963, because the contracts prior to incorporation were void.
b. The Specific Relief Act, 1963 came as a relief to the promoters.
c. The Act provides that where the promoters of a public company have made a contract before its incorporation, for the purpose of the company and if the contract is warranted by the terms of its incorporation, the company may enforce it.
Entering into a legal contract with another individual or party helps provide legal protection, as well as a specific outline of the deal. When you enter into a contract with another party, it should meet a few requirements before it can be considered a valid legal contract.
(i) Specific Details:
In order for a contract to be valid it has to feature the specific contract details. In the contract, outline exactly what is being dealt with. If you are buying material from a dealer, it has to have the legal description of the material, so that there is no question about which material is being conveyed.
The contract should also be specific about the names of the parties involved and their role in the transaction. It should also outline the nature of the agreement.
A valid legal contract also must have consideration. Consideration is giving something of value in return for something else. In this section, the factors associated with consideration should also be included. For example, you should include information about payment terms, time considerations and other expectations.
(iii) Capacity to Contract:
Before a valid legal contract is created, both parties must be able to prove that they have the capacity required. This means that the individuals have to be of legal age, depending on state law and they must be of sound mind.
This means that if they are mentally handicapped or are under the influence of drugs or alcohol, they cannot enter into a binding contract. The parties must also enter into the agreement under their own free will and cannot be coerced into signing.
The agreement also has to have legal terms. If you enter into an agreement to perform an illegal act, this would not constitute a legal contract. For example, if you enter into an agreement to launder money for an illegal operation, that contract would not be enforceable by the law because you are involved in an illegal activity.
(v) Proper Form:
A legal contract also must be in the proper form. Typically, this means that the contract must be in writing. The proper form is determined by the type of contract that you are engaged in and the laws of your state. In some cases, verbal contracts are binding and are perfectly acceptable. In most cases, you should do the contract in writing so that no confusion exists if any legal matters come up later.
A contract is created the moment two people agree to do something for each other. These people, who are called “contracting parties”, can be individuals, bankers, customers, dealers, financial institutions, a group of people or representatives of a business.
In general, it is not necessary to sign a document for a contract to be created. A simple verbal agreement can be enough. However, some kinds of contracts must be in writing, and some must even meet other requirements to be valid.
1. Many contracts between merchants and consumers must be in writing.
2. A mortgage contract for property must be in writing and made by a notary.
Of course, even when the law does not require a written document, it is often a good idea to put a contract in writing. When there is a written document and a problem arises, the disagreement does not become a case of “his/her word against mine”.
(i) The terms of a contract must be precise and definite and there must be no room for ambiguity or misconstruction thereon should exist.
(ii) No contract involving an uncertain or, indefinite liability or any conditions of an unusual character should be entered into without the previous consent of both parties.
(iii) Subject to adequate prior scrutiny of terms, general or special, if any, standard forms of contracts should be adopted, wherever possible.
(iv) In cases where standard forms of contracts are not used, legal and financial advice should be taken in drafting the contracts and before they are finally entered into.
(v) Before entering into a contract or an agreement, all pros and cons should be considered and validity of contractual documents should be ensured.
(vi) If you are sued because you did not respect your contract, you can avoid responsibility if you can prove there was an “Act of God” (event beyond human control), unless the contract states that you are responsible even if an act of God occurs.
(vii) To be considered an Act of God, the event must be outside your control. It must have been absolutely impossible for you to predict the event and prevent its negative impact. Finally, you must have been completely prevented from respecting the contract and from having someone else carry out your duties under the contract for you.
(viii) Generally a contract cannot be cancelled. However, it is possible to cancel a contract in some situations such as when the people involved did not have the right to enter into a contract.
(ix) If your contract is cancelled, it is as though it never existed. The people involved must therefore return to the situation they were in before the contract was entered into. To do this, they must give back to the other person everything they received because of the contract.
(x) While you may have the opportunity to negotiate before you agree, it is common for you to be offered the same or a similar contract as everyone else. This is known as a standard form contract. There are laws to protect you from unfair contract terms in standard form consumer contracts where you have little or no opportunity to negotiate with the trader.
There are limited circumstances when consumers may end a contract without penalty and these can include:
(i) If the business has misrepresented the goods, services, terms or conditions
(ii) If a cooling-off period applies.
A cooling-off period is a safeguard designed to give consumers the opportunity to change their minds about a purchase or agreement they have made. You have a right to a cooling-off period when you purchase goods or services through telemarketing or door-to-door sales.
4. Basic Start-Up Problems Faced by Entrepreneurs:
In the crucial initial period, startups face several problems to counter and overcome such as the intense competition for customer, market and venture capital money, the list is very large.
Keeping the venture from becoming one of the walking dead, the entrepreneur can do so by being aware of these predictable, yet preventable problems that can affect its growth and development.
(i) Developing the Vision and Business Idea:
Developing a business idea is usually the first challenge faced by every entrepreneur when starting a business from scratch. Finding the right business opportunity or creatively developing an idea is certainly not an easy task.
“Envisioning the idea” is the first true task of an entrepreneur. As an entrepreneur, you must possess the ability to see what others cannot see. While others see problems, you must see opportunities.
(ii) Raising Capital for your Startup:
After developing your idea, the next challenge you are going to face when starting a business from scratch is that of raising capital. As an entrepreneur, you are the only one that knows business your idea to the core. You are the only one that knows the story of your future.
Trying to convince investors about something that does not exist is definitely a challenge. Trying to make them understand that you are trustworthy and equal to the task is not child’s play especially when you are building your first business.
A major reason why companies fail is that they run into the problem of their being little or no market for the product that they have built.
(iii) Business Model Failure:
One of the most common causes of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting web site, product, or service, that customers will beat a path to their door.
That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases the cost of acquiring the customer is actually higher than the lifetime value of that customer.
(iv) Poor Management Team:
An incredibly common problem that causes startups to fail is a weak management team. Weak management teams make mistakes in multiple areas such as strategy; building a product that no-one wants to buy bad marketing strategies etc. They are also usually poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to market execution will be poorly implemented.
(v) Liquidity or Cash Crunch:
A fourth major reason that startups fail is because they ran out of cash. A key job of the CEO is to understand how much cash is left and whether that will carry the company to a milestone that can lead to a successful financing, or to cash flow positive.
(vi) Product Problems:
Another reason that companies fail is, because they fail to develop a product that meets the market need. This can either be due to simple execution. Or it can be a far more strategic problem, which is a failure to achieve Product/Market fit. Most of the time the first product that a startup brings to market does not meet the market need.
(vii) Finding Good Employees:
Business owners know how difficult it is to find a hardworking, trustworthy employee. Most employees want to work less and get paid more. Finding a good employee who will be passionate about delivering his or her services is quite difficult. Finding good employees is a minor task compared to the business challenge of forging your hired employees into a team.
(viii) Finding Good Customers:
The next challenge you will face in the process of starting a small business from scratch is finding good customers. In the process of building a business, you will come to find out that there are good customers as well as bad customers. You must be on guard for bad customers. Good customers are really hard to find.
A good customer will be loyal to your company and will be willing to forgive you if you make a mistake and apologize. A good customer will try to do the right thing that will benefit both himself and your company mutually. Bad customers will always look for loopholes in the company’s policy to exploit and make a few gains.
Bad customers will always try to exploit the company’s goodwill and look for ways to rip off the company. Bad customers are responsible for bad debts. Good customers build your business and bad customers will always try to liquidate your business.
(ix) Dealing with Competition:
Competition is yet another challenge you will face when starting a business. Most individuals see competition as a plague but competition is a good challenge. It is a benchmark for creativity, the main engine that stimulates innovation and production of quality products at great prices. Without competition, there will be no innovation and without innovation, the world will be stagnant.
Competition keeps us on our toes and drives us to constantly improve our products and services. But you must be warned. Competition can make your business lose its relevance in the eye of your customers so you must always be on guard.
(x) Unforeseen Business Challenges and Expenses:
Just as a sailor prepares for unexpected storm, just as a pilot is always on the watch for unpredictable bad weather and thunderstorms, so must an entrepreneur prepared for whatever comes.
Unexpected challenges can come in the form of:
These business challenges, if not handled properly can ruin your plan to build a successful business. Another challenge you must expect is an unforeseen increase in business expenses. If not handled properly, it might result in constant negative cash flow and eventually; business failure.
(xi) Lack of Research & Development Facility:
We all know that it is a time for innovation and creativity. Any business can fail if there are no efforts being made to constantly innovate. The start-ups lack the financial viability and face cash crunch always, therefore, they find it difficult to have a R&D.
Creating a startup, or managing any business, is all about problem solving. Some people are good at it and some are not. People who are good at problem solving are some of the most valuable and respected people in every area. In fact, success if often defined as “the ability to solve problems.”
In many cultures, this is called “street smarts,” and it is valued even more than “book smarts.” The best entrepreneurs have both. Entrepreneurs who are great problem solvers within any business are the best prepared to solve their customers’ needs effectively as well.
(i) Define the Problem Clearly:
Many executives like to jump into solution mode immediately, even before they understand the issue. In some cases, a small problem can become a big one with inappropriate actions. In all cases, real clarity will expedite the path ahead.
(ii) Pursue Alternate Paths:
Remember, there are some things that you can do nothing about. They are not problems; they are merely facts of life. Often, what appears to be a problem is actually an opportunity in disguise. Even if it does not turn into an opportunity, the entrepreneur must take an alternative course.
(iii) Identify the Cause of the Problem:
Find the root cause of the problem, rather than treating a symptom because if the root cause is not understood, the problem will likely recur, perhaps with different symptoms.
(iv) Identify Multiple Possible Solutions:
The more possible solutions you develop, the more likely you will come up with the right one. The quality of the solution seems to be in direct proportion to the quantity of solutions considered in problem solving.
(v) Make a Prompt Decision:
Select a solution, any solution, and then decide on a course of action. The longer you put off deciding on what to do, the higher the cost, and the larger the impact will be. Many start-ups take too long to decide & that becomes a reason for the failure.
(vi) Acknowledge and Correct:
Instead of getting offended or embarrassed when your product does not do well or someone bad- mouths your brand in attempt to elevate their own, look at the problem as a direct route to connect with your customers or competition. If your customers are unhappy, correct the problem.
(vii) Cut Costs In-House:
Entrepreneurs should run the business as lean an operation as possible, in every process from manufacturing to administrative functions efforts should be made to cut costs wisely. The start-ups should involve employees in this endeavour as well so that they cut costs happily and understand the entrepreneur’s perspective.
Being an entrepreneur is risky business. Every decision you make could potentially hurt or help your company. Believe in trusting your instincts, educating yourself about the pros and cons of your decisions, and getting a second opinion from another entrepreneur in whom you confide.
(ix) Formulation of Strong Business Strategies:
Without strategy, change is merely substitution, not evolution. A solid strategy must be implemented in order to solve any problem. Many startups attempt to dissect a problem rather than identify the strategy for change that lies within the problem itself.
Effective startups always know how to gather the right people, resources, budget and knowledge from past experiences. They inspire people to lift their game by making the problem solving process highly collaborative; for them, it is an opportunity to bring people closer together.