Entrepreneurs start new businesses, realizing their ideas. Another term for their business is startups, namely new businesses focusing on pioneering new products, production methods, or distribution. The term “startup” has become increasingly popular because people are interested in starting one.
These startups are developing new business models. Some disrupt conventional business models by adopting more reliable information technology. E-Commerce is a good example of how to change people’s minds from shopping in stores to shopping online anywhere and anytime as long as they have a smartphone and internet available.
Entrepreneur vs Intrapreneur
Business ideas can come from entrepreneurs or intrapreneurs. The fundamental difference between entrepreneurs and intrapreneurs is who they work for.
Entrepreneurs take risks to realize ideas by pooling resources to set up a business. They are involved in planning, organizing, and managing the business. They work for themselves.
Some entrepreneurs may commercialize ideas by selling products and services for a profit. Others may be more interested in creating positive social changes through their initiatives.
Intrapreneur is another word for internal entrepreneur. They work in a company but have an entrepreneurial spirit.
Intrapreneurs launch new initiatives and develop new businesses to drive company growth. In other words, their business idea is for their company.
The following list summarizes the differences between the two:
- Work for themselves
- Flexible to start a business
- Owning business
- Take greater business risks
- Obtain profit rewards
- Personal costs if the business fails
- Be responsible for themselves
- More limited access to financial resources
- Work for the company
- Bound to the organization’s rules and policies
- New business owned by the company
- Take medium-high risks
- Salary reward or promotion
- Share the risk with the company they work for
- Responsible to the owner/company
- More access to financial resources
Entrepreneurs have certain skills or qualities that set them apart from ordinary people. These skills or qualities help them realize ideas, take risks and grow the business.
Entrepreneurs typically display the following skills:
Innovation. Entrepreneurs must have strong senses to identify gaps in the market. They can figure out what product or service suits consumers’ needs and wants and turn a profit. They usually have an ‘out of the box’ approach to identify gaps and solve problems in the business.
Networking. Entrepreneurs also need to be able to find the right investors or employees for their businesses. So, their business can grow with sufficient capital and the right people. They also love networking to support their business growth or discover new ideas.
Risk-taking. Starting a business requires entrepreneurs to take risks. And risk can take many forms. Examples are businesses failing, profits falling, or personal defaults due to going into debt to fund the business.
Marketing. Entrepreneurs must be proficient in marketing. They often start a business by selling their prototype products to others before hiring employees and more resources.
Communication. Entrepreneurs must be able to convince stakeholders to get involved in the business. For example, they must be able to present an idea to investors and convince them to fund their business.
Determination. Entrepreneurs must be tenacious to grow their businesses. Failure in one business does not make them give up on pursuing other businesses.
Decision-making. Entrepreneurs are involved in many critical decision-making. Assertiveness and thinking out of the box is their inherent qualities.
Leadership. Entrepreneurs are initiators and not followers. They inspire people to work and stay with them.
Characteristics of entrepreneurs
Being a successful entrepreneur takes work. And several characteristics make them successful, including:
Curiosity. Entrepreneurs explore what people need, what makes investors willing to inject funds into their business, and what makes working in a business easier.
Hard worker. Entrepreneurs are willing to work long hours and are happy to take on various tasks when starting a business. They also work smart by finding people and resources to help them operate their businesses – not all jobs are up to them.
Organized. Entrepreneurs make their future plans more organized. For example, they manage resources, task areas, finance, operations, and marketing functions.
Discipline. Entrepreneurs make more than just everything planned and organized. But they are also disciplined in carrying out their plans.
Innovative. Entrepreneurs love to explore new ideas for new products or processes. They also enjoy developing ways to make their business successful, including strategies to keep customers happy.
Structured experiment. Business ideas can come from anyone. But, different from ordinary people, entrepreneurs take it one step further.
Unlike ordinary people, entrepreneurs run tests to determine whether an idea is feasible for commercialization, for example, through research. This experiment also holds true when innovating while running a business.
Starting a new business
Building a successful business is a challenging job. Entrepreneurs face several key challenges, including:
- Identifying successful business opportunities;
- Accessing to capital;
- Determining a suitable location;
- Facing competition from established businesses;
- Building a customer base.
How to start a business? Typical steps in starting a business include:
- Developing business concepts and plans, including how to set up, run, and grow a new business;
- Obtaining capital and financing, whether from their own pocket or those closest to them, or external funding such as bank loans and venture capitalists;
- Managing resources, including business location, employees, organizational structure, fixed assets, and inputs;
- Registering a business to obtain a business license, legality, and protect the name or brand owned, including obtaining a tax ID;
- Opening a bank account for daily financial transaction needs;
- Marketing products to targeted markets, including how to attract customers.
Reasons to start a business
Why entrepreneurs are willing to start a business. In fact, some are willing to quit established jobs to realize their business idea. Many reasons explain why someone would choose to set up their own business, including:
- To make more money by setting up a profitable business;
- To commercialize hobbies by monetizing their enjoyment;
- To be their own boss and more flexible in managing their personal life;
- To gain self-satisfaction and increase self-esteem when successful;
- To help or benefit others by solving their problems, as social enterprises do;
- To pass wealth to their family for a better future;
- To fill gaps in the market and meet business opportunities;
- To maximize skills because they have the required qualities;
- To survive, for example, because of the pressures of life (poverty) or after being fired.
Finding business opportunities
Businesses fill gaps in the market to satisfy needs and wants. Sometimes, they start a business because there is a demand for the products they can provide. They’ve seen an opportunity to meet customer needs in a way that’s different than what the market is currently offering.
In other cases, they must develop innovation to come up with a business idea. For example, they must find opportunities to replace products in the market with better ones.
Broadly speaking, business ideas emerge through:
- Original idea
Original ideas can be inventions or innovations. Invention requires entrepreneurs to create something new that has never existed before. The printer when it was first invented is an example. Likewise, when it was first launched, the personal computer was an invention.
Meanwhile, innovation is developing something new from what already exists. For example, the printer was developed into a 3D printer.
Innovation includes enhancing or changing existing product features to make them more effective. For example, personal computers are upgraded by adding new hardware to increase performance. Adding a high-resolution camera to a smartphone is another example.
Commercializing a successful invention is also considered an innovation. Likewise, adapting products from time to time to be relevant to consumer demand also falls under this definition.
Adaptation is adjusting an existing product or service to meet the demands of different customers. For example, a restaurant offers a diverse menu to satisfy different diners.
Adaptation is different from innovation. While innovation generates new solutions, adaptation applies solutions to new scenarios or conditions. Implementing halal menus in Muslim countries, as is done by world fast food companies, is a good example.
Resources for business ideas
Developing original ideas and adaptations above is about how entrepreneurs come up with business ideas. Meanwhile, where do entrepreneurs find business ideas? It can be from:
- Coincidences during their daily activities;
- Their skills or hobbies;
- Personal experience and others;
- Previous work experience;
- Reading or attending conferences and exhibitions;
- Market research;
- Brainstorming session;
- Commercializing ideas from others;
- Observing trends.
Factors to consider when starting a business
Several factors need to be considered when starting a business, including:
- Business idea, how feasible and profitable is the business idea;
- Financial sources, including how much initial capital is needed and where to get it;
- Human resources, such as who to recruit, how much they are paid, and whether they need training;
- Work areas, such as dividing them into specific tasks or functions such as operations, marketing, finance, and human resources and determining who is responsible for what;
- Management, such as appointing who will lead, organize and manage the business. This includes who will handle each business function;
- Fixed assets, such as where the business will be located and what machinery and equipment will be needed;
- Suppliers, such as where the business buys its raw materials and other resources, including who is potential to supply and how to build a good relationship with them;
- Customers, such as where the business will sell products and who is the target market for the business. This also includes understanding the customers’ tastes and preferences in the target market;
- Marketing, as related to product specifications, unique selling proposition, price, location to sell, and product promotion;
- Legal issues, such as patents related, compliance with applicable laws and regulations, and the required documents.
Problems facing new businesses
New businesses often face several problems. Some have had success overcoming them. However, only a few have succeeded.
Business failures can occur due to external pressures or internal problems. These pressures expose new businesses to risks, where they may not survive and have to discontinue or close their operations.
What problems might a new business face? And what makes new businesses fail? Several reasons explain, including:
- Capital problems where new businesses face low startup capital, leaving them with financial constraints;
- An immature customer base, where a new business has difficulty acquiring new customers or retaining them;
- Marketing problems such as failure to attract customers or generate targeted sales;
- A cash flow problem where the incoming cash flow from sales is not as planned while costs continue to increase;
- Poor business location, which contributes to problems such as high marketing and logistics costs;
- Intense competitive pressure, which can come from other new companies or established companies;
- Human resource management problems, such as poor employees or leadership and difficulty in recruiting outside talent;
- Over-investment in fixed assets, therefore, creates fixed costs, which must be paid even if the company makes no sales;
- Production problems, such as high production costs, unfeasible production methods, and operational disruptions due to man-made or natural disasters;
- A deteriorating economic environment, such as a recession or a significant increase in interest rates;
- Legal issues, for example, a business faces lawsuits even when it has not reached maturity.
Developing a business plan is essential for anticipating risks and the success of a new business. A business plan is a written strategic plan for commercializing an idea by running a business. It is important because:
- As a blueprint for running a business smoothly;
- To get funding by helping to convince investors or lenders.
A business plan usually outlines the following:
- Business and its owner – about the business name, type of business, aims, and objectives, and details of the owner;
- Information about the product – including what is being sold, how much it costs, and what the selling proposition is being offered;
- Production – about how to gather resources and how to produce;
- Market preview – who is the product being sold to, what the market and customer profiles are like, what are the competitive conditions, and what competitive strategies are being developed;
- Finance – details startup capital and its sources and forecasts about income, expenses, and cash flow;
- Personnel – who are the employees recruited and what are their skills, including how they are organized;
- Marketing – including how and where products are sold, how much they cost and how to promote them, and more broadly, the strategy and marketing mix used by the business.
Dynamic nature of business
Businesses must face changes in their business environment, which forces them to adapt. Therefore, they must be able to be flexible to stay competitive.
For example, satisfying consumer needs and wants has several challenges. First, businesses must compete with one another in doing so. Thus, they must ensure their value proposition is superior to attract consumers. If successful, consumers are willing to buy their product rather than competitors.
Second, businesses must also understand and adapt to consumer preferences and taste changes. Such changes influence buying decisions. Failure to adapt puts their business at risk, where customers are not interested in their products.
Apart from changes in the competitive landscape, businesses must also face changes in other factors, including regulations, economic conditions, and changes in technology.
Long story short, understanding what makes a business dynamic requires us to understand the market or environment in which the company operates. In other words, these dynamics occur due to changes in the external environment.
In addition to external factors, dynamics can be caused by internal factors, which can occur due to changes in:
- The company’s vision and mission
- Organizational structure
- Leadership and management style
- Organizational resources
- Organizational culture
Changes in the external environment
The business environment may experience changes as follows:
Changes in the political environment – a change in president in a country can expose changes in policies and regulations, including those related to business. A real example is when the new president introduced privatization.
Economic changes – key variables significantly impact business operations and success, including interest rates, inflation, exchange rates, and economic growth.
For example, an increase in interest rates makes investment costs more expensive. Take another example. The exchange rate depreciation makes importing raw materials more expensive.
Socio-demographic changes – changes in population size and composition affect the demand for goods and services. It also includes changes in consumer preferences and tastes; for example, consumers nowadays want more environmentally friendly products.
Technological change – businesses need to identify opportunities and risks resulting from technological changes. Technological changes are happening fast and affecting various business areas, including production, marketing, and promotion.
For example, e-commerce has forced many traditional retailers out of business. This is because they fail to adapt to changing technology, making them unable to compete with new players who are more technologically prepared.
Changes in the living environment – climate change and increasing temperatures expose many risks. Likewise, natural disasters can disrupt business activities. Floods, for example, impede goods and people’s mobility.
Legal changes – businesses are affected by laws and various regulations, including anti-competition, consumer protection, and employment. For example, when the government increases the minimum wage, it increases costs.