Creating and Managing New Venture - Research Paper Example

Critical analysis of the process of creating and managing a new venture Entrepreneur is the person who manages to create and operates a new foundation, with the aim of acquiring some profit. By taking the responsibility of managing a new venture, entrepreneur not only undertakes a business venture but also takes the risks behind starting a new business enterprise. According to Stevenson (1983) following is the technical definition of entrepreneurship: "Entrepreneurship is the action taken in search of opportunity that creates resources beyond the control situations". (Stevenson, 1983) This definition elucidates entrepreneurship in the light of three approaches. First, the individual who identifies the opportunity to pursue, secondly, the entrepreneur who seeks resources from the society and finally the society who acquires hidden resources in the form of risks and opportunities. Entrepreneurship is critical to enhancing the innovativeness and responsiveness of businesses, to boost productivity and to improve cost structures and trade performance. The entrepreneurial spirit provides the entrepreneur to uphold new opportunities in the form of new developing markets, new products, new methods of production and management, new marketing channels, the discovery of new inputs and the establishment of new businesses and even new organisational forms. Entrepreneurship equips the entrepreneur with the analysis of how new ideas or information for reconfiguring objects in the material and social world can be implemented thereby creating a new venture harnessed to enhance a nation's wealth. (Harper, 2003, p. 1) Creativity, problem solving, and decision making are three keys which are linked together to survive through a new venture successfully. Creative thinking produces outcomes that welcome problems whereas problems require problem solving response. The response calls for creative aspects; therefore we can say that problem solving is actually creativity. That means creativity and problem solving overlaps each other, thereby producing a creative idea that invokes problem solving and decision making. (Kirton, 2003, p. 136) New Initiatives - Opportunity Recognition A recent Academy of Management Review article stated, "We see the field of entrepreneurship in the light of examination in which opportunities are discovered and analysed in context with how, whom, and what. These highlight future goods and services under discovery and exploitation". (Shane and Venkataraman 2000:218). In contrast with this theory, Schumpeter (1942) described entrepreneurship in terms of creative destruction, whereby an innovation disrupts the equilibrium or status quo in the marketplace. Christensen et al. (1989) proposed a new definition of recognising opportunity in the light of entrepreneurship, according to which a new profitable venture can be initiated when a new business innovation is created or when an existing business is improved. Both the cases lead to a profitable venture. (Christensen et al. 1989:3). According to an OpR theoretical Model, opportunity recognition is inherently a creative process. (Welsch, 2003, p. 74) which in the eyes of Christensen et al. (1994) is nothing but a creative step towards the entrepreneurial process. Others have described OpR as the artistic creation of a new venture (Hills, 1995) particularly in the condition in which the opportunity continues to be processed on the basis of market feedback. Five basic elements of creativity that can fit into entrepreneurship according to Csikszentmihalyi (1996) are preparation (OpR initiation process which starts with the knowledge and expertise of the entrepreneur), incubation (Idea consideration), insight (cognitive evaluation of realising profitable opportunity), evaluation (Formation of insights into businesses), and elaboration (where insight is actualised). (Welsch, 2003, p. 75) The contemporary business environment based upon innovation is analysed in terms of increased risk, decreased ability to forecast, fluid firm and industry boundaries. The entrepreneur upholds a managerial mindset that not only unlearns traditional management principles, and new structural forms that not only allow for change, but also help create it (Hitt and Reed, 2000). Risks Assessment New businesses ventures contain a certain level of risk. Entrepreneurial risks are assessed by taking into account demographic, social and market positions of the economy. It is not necessary that all business succeeds or all business fails, it depends upon the investment and economic consequences which are crucial for the entire surrounding economic community. Risks are assessed in the light of possible operating obstacles and threats that are external to the enterprise and are often less controllable by operating management. These include prevailing economic conditions, market uncertainty, unpredictable results and Government attitudes. The geopolitical attitude of the government can also pose unpredictable situations and threats to a newly formed venture, like unwillingness to accept market liberalisation, retaining its reliance on the continuation of trade barriers and protectionist policies. A newly formed enterprise can be affected by the socio-political atmosphere of the country with respect to future commercial development. Other factors affecting new ventures performance includes the extent and pervasiveness of crime and corruption, market fluctuations etc. Not all of these problems confront every new venture that is associated with privatised firms. (Miller, 2000, p. 154) In order to avoid entrepreneurial failures, risks and threats are assessed. Challenges with new ventures Innovation requires some unpredictable situations that do not guarantee the success or failure of newly formed small scale or large scale enterprises. Each new business venture faces an environment that is partly friendly and partly hostile, partly known and partly unknown. Although a great idea, adequate financing, and sound management are obviously important in beginning a new venture, the external environment will also be a crucial factor in the success or failure of the undertaking. The implication is clear: new-venture decisions should be based on a careful analysis of this external environment, and this can be accomplished by conducting a market opportunity analysis (MOA). (Hills, 1994, p. 115) The Convergence Hypothesis: One of the challenges of entrepreneurship is to understand the importance of 'convergence hypothesis', which relates to the dynamics of cultural change. Being an entrepreneur, one must be able to confront to identify the similar growing trends and requirements of the changing world. Assuming that, with sufficient diffusion of technology and the appropriate introduction of other resources, all societies will go through a similar growth process and will come to share common characteristics. However an entrepreneur must not consider the cultural values and patterns of social relatedness in the same manner. It is true that all societies are expected to have a common destination, regardless of the uniqueness of their cultural origins, but their cultural norms differ. (Harper, 2003, p. 129) Sudden changes in the Market: As the markets change, or the venture matures, the role set also shifts. To continue successfully, the entrepreneur must adjust to the emerging managerial role by learning new behaviours, such as the delegation of authority, adopting attitudes consistent with the changing role such as becoming a mature family owned business. Unfortunately, entrepreneurial behaviours that once were adaptive may now interfere with the changed expectations. The resulting conflict may contribute to the downfall of the business venture. (Hills, 1994, p. 288) On the other hand, successful adaptation to the new role expectations can offer new benefits; while on the other hand, an entrepreneur is always ready to welcome venture failures by accepting risks. One benefit is access to multiple segments of society. These different segments may offer distinct network assets that include resources, monetary (prestige) rewards, and contributions to personal growth and development. In this regard, networks become value-added contacts. An entrepreneur is a true identifier of the sudden changes in the market and therefore takes the challenge of getting up to the people's expectations. An entrepreneur being an innovator identifies the relationship that exists between marketing and innovative interface by applying appropriate marketing tools, concepts, and theory in supporting new venture creation and new business growth. An entrepreneur explores various means in which entrepreneurial attitudes and behaviours can be applied to the development of marketing programs. (Slater and Narver, 1995) Pricing Decision: Pricing decision is the major challenge in entrepreneurship since it determines the financial stability of the company. An entrepreneur not only have to simply price products that have manufacturing costs, or services with large human elements in delivery, but also he has to take into account that profitability of pricing decisions depends on revenue and variable costs. It is even more important to get the pricing done well early in the product's life. Lowering price over a product's lifetime makes no customer unhappy and no one complains but to raise a price significantly because the product's perceived value is much higher than what is thought by the entrepreneur makes customers unhappy. Risk is always taken by innovator on a new product or service. (Lodish et al, 2001, p. 45) Image Building: Part of the entrepreneur's challenge is to convince the external market to believe in his or her vision. For example, one factor that makes it difficult to obtain capital (not fully secured by collateral) is the perception by the potential providers of these funds that the business will not be successful. The keys to selling anything are image and confidence and for an entrepreneur (whose attitude is more optimistic), these may be even more critical with respect to selling herself or himself to significant others such as bankers, investors, and employees. (Hills, 1994, p. 290) Discontinuance Criterion: The threat of 'discontinuance' or 'exit' from a venture is common in entrepreneurship which not only changes the ownership but also for any reason could lead to discontinuance of ownership (Mitchell, 1994). An entrepreneur being aware of the exit or closures always minimises risk by adopting entrepreneurship strategies. Entrepreneurial Exchange: The issue then arises as to how the entrepreneur develops and maintains the image required by the market place. For the entrepreneur, however, the audience is more than a collection of dispassionate observers. In case of failure, entrepreneur suffers through legal bankruptcy with resulting losses to creditors (Perry, 2002). So the success of the entrepreneur's image has economic consequences as well as social consequences. In other words, the entrepreneur and his or her network are interdependent in the fashion described by social exchange theory in which each party to the interaction seeks to maximise outcomes, whether these are social or economic. But no participant has complete control over the reward system, so each must accommodate the other's expectations. Network Management: An entrepreneur's mobilisation of resources is dependant upon the market's influence on new venture development and is often transmitted by social contacts, or linkages. It is more than a challenge for entrepreneur to identify the effect of these linkages. For example, in asking entrepreneurs to recount their successes and failures, it is not uncommon for them to emphasise the 'know-how' aspects of starting or running a business rather than the 'know who'. (Peterson and Ronstadt, 1987) Indeed some new ventures may not uniformly rely on networks. Entrepreneurs count on such connections to cut comers, to pave the way for acceptance, and to enhance image and credibility. The external market upholds many challenges in the entrepreneur's social context, like it is challenging for the entrepreneur to identify the influences of market factors on entrepreneurial activity, and the dynamic exchange between the entrepreneur and representatives from this external community. (Hills, 1994, p. 292) It is clear from the entrepreneurial research that cause and effect in the market environment of the entrepreneur involves complex relationships which when simplistically modelled, misinterprets casual relationships. Entrepreneurs need the Government and policy makers to seek the true potential for interaction and that the key variables must be recognised. For example, complexities like the specific market attitude in context with policy makers may alter the effectiveness of the various entrepreneurial behaviors or governmental policies. What compounds the analysis problem is that every entrepreneur has a unique set of personal constituents and micro-market environments. Such market facts help to explain why entrepreneurial ventures are perceived as being chaotic and disorderly. They also help to explain the seeming inconsistency in the influence of various factors over time. Despite the formidable risks involved in cross-disciplinary endeavours, the market context provides a promising light for the entrepreneur. References Bhide V. Amar, (2003) The Origin and Evolution of New Businesses: Oxford University Press: New York. Birley Sue & Macmillan C. Ian, (1997) Entrepreneurship in a Global Context: Routledge: London. Christensen, P.S., Madsen, O.O., and Peterson, R. (1989) Opportunity Identification: The Contribution of Entrepreneurship to Strategic Management, Denmark: Aarhus University Institute of Management. Harper A. David, (2003) Foundations of Entrepreneurship and Economic Development: Routledge: New York. Hills, G.E. (1995) "Opportunity recognition by successful entrepreneurs: a pilot study", Frontiers of Entrepreneurship Research, Wellesley, MA: Babson College. Hills E. Gerald, (1994) Marketing and Entrepreneurship: Research Ideas and Opportunities: Quorum Books: Westport, CT. Hitt, M.A. and Reed, T.S. (2000) "Entrepreneurship in the new competitive landscape", in Meyer, G.D. and Heppard, K.A. (eds) Entrepreneurship as Strategy, Thousand Oaks, CA: Sage Publications Kirton M. J., (2003) Adaption-Innovation: In the Context of Diversity and Change: Routledge: New York. Lodish M. Leonard, Morgan Lee Howard & Kallianpur Amy, (2001) Entrepreneurial Marketing: Lessons from Wharton's Pioneering MBA Course: Wiley: New York. Miller R. Russell, (2000) Doing Business in Newly Privatized Markets: Global Opportunities and Challenges: Quorum Books: Westport, CT. Mitchell, W. (1994) "The dynamics of evolving markets: the effects of business sales and age on dissolutions and divestitures", Administrative Science Quarterly, 39: 575-602. Perry, S.C. (2002) "A comparison of failed and non-failed small businesses in the United States: Do men and women use different planning and decision making strategies" Journal of Developmental Entrepreneurship, 7(4): 415-428. Peterson R., and R. Ronstadt. (1987) Developing Your Entrepreneurial Know-Who and Know- How. London, Ontario: Working Paper Series NC-87-202, National Centre for Management Research and Development. Shane, S. and Venkataraman, S. (2000) "The promise of entrepreneurship as a field of research", Academy of Management Review, 25(1): 217-226. Slater, S.F. and Narver, J.C. (1995) "Market orientation and the learning organization", Journal of Marketing, 59(3): 63-74. Stevenson, H. H. (1983) "Who Are the Harvard Self-Employed" Harvard Business School Case No. 783-042. Boston: Harvard Business School Press. Sundbo Jon & Fuglsang Lars, (2002) Innovation as Strategic Reflexivity: Routledge: London. Welsch P. Harold, (2003) Entrepreneurship: The Way Ahead: Routledge: New York. Read More