Identifying Basic Success Factors in New Business Venture
This article aimed to reveal the basic success factors, which necessary and inevitable for new ventures or startups to acquire in order to sustain profitable, growing and value adding.
Author: Shihabeldin E. Abdelhadi
This article aimed to reveal the basic success factors, which necessary and inevitable for new ventures or startups to acquire in order to sustain profitable, growing and value adding.
The emergence and development of business venture is not a spontaneous one but a dependent phenomenon of economic, social, political, psychological factors often nomenclatured as supporting conditions to entrepreneurship development. These conditions may have both positive and negative influences on the emergence of entrepreneurship.
Venture owners have need to develop leadership style that enable them steering their small firms, they need to be trained how to conduct market research, SWOT analysis, business plan and business model. In order to succeed, Entrepreneur has to learn how to assess the opportunity for new business by observing the trend and to professionally manage the business operations.
Keywords:
Business Venture, Competitive Strategy, Entrepreneurship, Opportunity Identification, Personal Attitude, Recognition Process, Reputation, Venture Management, Venture Success, Venture Viability.
Studies identified several success factors, the followings are conglomerates of the key among them
- Opportunity Identification and Evaluation
The successful entrepreneur is who has the ability to identify the opportunity for new business by observing the trend, solving a problem or finding gap in market place.
The trend may be economical, political, technological..Etc. Observing trends may provide great opportunity to anticipate what the forthcoming situations are, and initiate creative ideas to suite the anticipated circumstance. Unique initiatives that solve problems and add values to customers can generate excellent business opportunity. Bridging and market gap always realize business success, it is often identified when a certain market segment is not satisfied due to its narrow size and its member needs are not taken into account.
A favorable circumstances evaluation is quite crucial for venture success. Evaluation should be made in terms of:
- Attractiveness
- Timing
- Durability
- Creation and adding value
The opportunity evaluation is required to be systematic and conducted over four dimensions:
- Market analysis, which includes customer’s expectations and segmentation, competition intensiveness, market size and growth rate, business life-cycle.
- Financial outcomes, which is represented by; profit, BEP, time to positive cash flow, ROI, business strategic value, capital requirements, exit mechanism.
- Competitive advantage: cost, price control, competitor strategies, source of differentiation, entry lead time
- Management team and risk issues
- Entrepreneurial Mind-set and Attitude
The personal attitude and attributes of the entrepreneur is very crucial if not the determinant factor in new venture success. This is because the development of new venture – no matter small business or new project in already established firm – depends great deal at the beginning on the talent, creativity and the vision of the lead entrepreneur.
The dominant desirable and acquirable attitudes and behaviors in the successful entrepreneurial are:
a) Determination and commitment
b) Leadership style and behaviour
c) Opportunity recognition and obsession
d) Risk taking and tolerance of ambiguity
e) Ambitious, targeting high standard
f) Self-confidence and reliance
g) Creativity and Innovation
Some researchers consider the opportunity recognition as a common universal culture of entrepreneurship, which can be transferred into knowledge base training for would be entrepreneurs (Mitchell et al 2002a).
According to Wright et al (2000) entrepreneurial cognitions can be described as more extensive use of heuristic and individual beliefs that impact on decision making, which contrasts with the more systematic and structurally coordinated managerial decision making.
Studies demonstrated that, entrepreneurial opportunity seeking and recognition process is a key factor in entrepreneurs’ success in discovering opportunities and suggested that opportunities are recognized as a result of entrepreneur’s search for information cue and questioning of those things that most people take for granted. (Pech & Cameron, 2006).
- New Venture Assessment
Venture assessment is the process of determining whether the business opportunity viable and demonstrates profit potential. This process produces brief description of the business model to decide whether pursue additional investment of time and money for additional research. The venture assessment not necessarily a complicated business plan, there many tool to assess the venture viability. (Kermit W. Kuehn et al, 2009) proposed that a new venture assessment process will typically involve a series of increasingly complex decisions (and processes) as to venture viability, not simply the all-or-nothing evaluation implied in the business plan.
The proposed process would involve a series of steps starting with a breakeven analysis passing by going concern analysis and end with either a feasibility study or a full business plan depending on the objectives.
- Employing Appropriate Entry Competitive Strategy
Creation of new business doesn’t mean the success, the success if it is not sustainable growth, it is maintaining presence in the market and not terminated. In today’s highly competitive market, new business wouldn’t survive unless equipped with differentiated competitive advantage.
Identification of the appropriate strategy to be employed is major part of market penetration activities. This needs deep understanding of internal and external business environments.
Studies identified five generic competitive strategies:
a) Low cost provider strategy
b) Broad differentiation strategy
c) Focused low cost strategy
d) Focused differentiation strategy
e) Best cost provider strategy
The employed competitive strategy is expected to sustain and succeed unless supported by an array of resources and competencies that adequately fit and the adopted strategy. On the other hand, it’s necessary for the sustainability of the competitive advantage to be difficult to competitors to duplicate and all other alternatives have no great added value to acquire. (Porter, 1990)
- Create Reputation
The reputation is the thing that lacks the newly established venture (newness). It defines the firm identity in the market. Establishing strong reputation provide a firm a competitive advantage. The stakeholders don’t see the company capability and ability to provide better value that the old and well established companies due to absence of history of success. Creating good reputation reflects positive perception to stakeholders and this will add extra value to the company as the suppliers offer good terms, investors appealed by the perceived success, acquire customer trust and then create solid customers base, attract talent and skilled human resources. All these shape the successful development of the new business.
- Venture Management
The term venture management represents the array of activities that encompass the transferring the new business idea form assessment and scrutinizing phase to a successfully running business in the market. According to (James D. HIavacek) this transfer to be carried out by a full-time interdisciplinary team established at either corporate or divisional level, which we call it venture team.
This study found out some reason of failure of new venture in this phase (transfer phase), contraries of which can then be interpreted and success factors.
To address this phase of venture life positively the entrepreneur/owner should consider the following important measures:
a) Conduct reliable market research and identify the market needs
b) Charter/master plan defines the functions, operation procedures and boundaries of entire venture management activities to be developed and adequate budget to be secured.
c) Secure high calibre and product champion type leader for the venture team and the team itself to be composed of creative, energetic highly skilled members.
d) Ensure involvement of top management or other partner in order to shape a unified vision towards the long term objectives.
e) Quarterly review the business plan
Bibliography
Hlavacek, J. D., 1974. Toward More Successful Venture Management. Journal of Marketing, Vol. 38, No. 4 (Oct., 1974), pp. 56-60
Kuehn, K. W., Grider, D., Sell, R., 2009. New venture assessment: moving beyond business plans in introductory entrepreneurship courses. Journal of Entrepreneurship Education, 2009(12)
Mitchell, R., Busenitz, L., Lant, T., McDougall, P., Morse, E., Smith, B., 2002a. Toward a theory of entrepreneurial cognition: rethinking the people side of entrepreneurship research. Entrepreneurship: Theory & Practice 27 (2), 93–105.
Petch, R. J., Cameron, A., 2006. An Entrepreneurial Decision Process Model Describing Opportunity Recognition. European Journal of Innovation Management 9(1). January 2006
Porter, M. E. (1990). The Competitive Advantage of Nations. Harvard Business Review, March, April 1990.
Wright, M., Hoskisson, R.E., Busenitz, L.W. and Dial, J., 2000, ‘Entrepreneurial growth through privatization: the upside of management buyouts’, Academy of Management Review, vol. 25, no. 3, pp. 591-601.