Student Essay- Some Examples
Essay Topics
Copyright. Rob Sangemino, Ottawa, Canada. March 2001.
Some people say: "the harder you work, the luckier you get." Discuss the role of luck and serendipitous events in determining success. Give an example.
"The road to success" is an insightful adage as it implies both a journey and a destination without qualifying either. Like any journey, one needs to be prepared. Still, no matter how prepared one may be, a journey is never without its detours and unexpected occurences. How we deal with the detours and the unexpected ultimately dictates what we take from the experience.
The expression "The harder you work, the luckier you are" is a flawed one. A more apt interpretation might be The harder you work, the more poised you will be to capitalize on the serendipitous events that come your way. The words luck and serendipity tend to be considered interchangeable terms, but in my opinion are really quite distinct. The term luck is defined as "The force that seems to operate for good or ill in a person's life". Serendipity, on the other hand, is defined as "An aptitude for making desireable discoveries by accident". To me the difference is clear: Luck is attributed to a force outside of oneself, a force acting upon an individual. Serendipity requires certain preconditions or precursors both within the individual as well as externally in order to occur.
Before attempting to illustrate the incredibly complex links between serendipity, luck, and hard work as they relate to success, a brief description of the word "Serendipity's" origin will provide a concretized sense of those components I feel to be interrelated in its definition.
Sir Horace Wampole, an English writer in the XVIIIth century, came accross a Persian fairy tale describing the adventures of three princes from Serendipity (now Sri Lanka), who were sent out into the world by the King, their father, to gain further knowledge. It was not long before the princes realized that although they rarely found what they were specifically seeking, they were nonetheless continually running into treasures, quite by accident, which were of much greater value than that which they had sought originally. Once they realized what was happening to them, each day thereafter became a new and thrilling experience. Horace Wampole termed their experience "Serendipity". Through this brief description of the word's origin, the many components at play in the creation or occurrence of serendipitous events are revealed.
In order to understand the correlation between luck, serendipity, and success, one must consider this simple equation:
Prepartion + Opportunity = Serendipitous Event(s).
The serendipitous event, when capitalized upon, often leads to a succesful outcome to the individual, who can subsequently continue on his/her journey towards additional successes. Often, the serendipitous outcome changes the course or direction the journey was originally following, thus indirectly motivating future successful outcomes resulting from future serendipitous events. One might consider the proverbial "Fork in the road" to understand this concept. The serendipitous event creates a scenario in which "the traveller" must make a choice: Capitalize upon the often obscure "treasure" he/she has come upon, or ignore its existence, either unknowingly or directly. The decision made by the individual determines the direction of the journey's path and consequently the future occurences, serendipitous or otherwise, they may encounter. Luck is not without its place in the course of the journey, however its occurrence, being externally motivated, is inconsistent and impossible to predict, and by no means explains the successes of all individuals throughout history.
Hard work on its own is often not enough - it does not guarantee success. Where hard work does come into play in this equation, is when it is directed towards the preparation component. Those individuals who work hard to prepare for the opportunities that come their way, who do not rest on their laurels waiting for lightning to strike and their "luck to change", are working towards the serendipitous events that have the potential to lead them towards success and alter the courses of their lives. What it boils down to is the fact that success occurs at the intersection of the two key elements of preparation and opportunity. An opportunity alone does not guarantee success, nor does being prepared. When an opportunity arises, an individual must first be able to recognize it and then take advantage of it. If the individual is not equipped with the tools necessary in order to capitalize upon this opportunity, the opportunity is missed and with it, the chance for success at that particular junction on the journey. If, on the other hand, the idividual finds him/herself fully prepared when opportunity comes knocking, the synergy between opportunity and preparedness develops into serendipity and a chance at success.
Serendipity is the key factor in many successful occurences. It is, in essence, all about perception and action. As sentient beings, what we perceive as being reality is really all that matters. Our perception of circumstances and events affects our behaviour and reactions and ultimately shapes our reality. With that said, can one actively work towards creating an environment conducive to the occurrence of serendipitous events…create a planned or cultured serendipity?
True entrepreneurs are hunters, their prey the ever elusive serendipitous event. The entrepreneurialist essence is to actively seek to create the conditions that help to generate their own magic. It is really a mindset where people see the interrelatedness of events. To bring this all together, entrepreneurs are experts at preparedness and as such, when opportunities arise, the synergy that is the serendipitous event is able to occur. If the perception of this serendipitous event is perceived as a chance for success, it can be capitalized upon and converted from a mere chance at success into a successful reality for the individuals. Entrepreneurs, in addition to being experts at being prepared, also seem to have an uncanny aptitude for perceiving the most obscure or ambiguous events as opportunities for success.
One need only examine the following example as proof of this contention. While out in the country wadding around worthless swampland with his son one day, a local businessman happened upon several indications of the existence of a Cartesian Well (opportunity). His business experience, educational background and entrepreneurial mindset (preparation) led him to both the conclusion that the existence of such a well probably meant that an old lakebed lay somewhere nearby, as well as the idea to rehydrate this lakebed and thus create what is today a serene piece of paradise surrounded by a select number of upscale lots slated for development. All of this translates into a serendipitous event…the realization of an outcome that was not sought yet highly desireable, one perceived and transformed into a profitable business opportunity. Many would attribute a large part of the subsequent success of this endeavor to pure luck, and they would be dead wrong: This was clearly a case of serendipity at work.
Believing that fate, luck or chance are in control of one's life or destiny and ultimately dictates success or failure obviates the need for working hard or even working at all. If everything is to happen as a result of some predetermined destiny.then why would one bother to study or work at all?
The concept of serendipity as related to success, with its relative degrees of preparation and opportunity provides a much more concrete context for the comprehension of that which links capitalization of an opportunity to success. The key to remember is that everything revolves around the individual's perception both ability and capacity thereof. In order to attain a successful outcome, one must have a clear idea of what he or she views to be success So often people, through drugs and alcohol, act in destructive ways to numb their perception of reality. Much of what pop culture and the media spews out has a harmonizing effect, causing people to associate with the collective rather than remain individuals. This numbing of perception and harmonization of thought results in a general convergence of thought, a lack of ingenuity and the loss of the ability to think outside the box.
Entrepreneurs in their quest for the "big one", are constantly challenging this pressure to conform. At the root of entrepreneurialist culture lies a fundamental belief that creation and innovation are simply a matter of developing upon and capitalizing on what we see….to conceive a new reality for others to perceive.
Copyright. Kate Livesey, Ottawa, Canada. February 2001.
How important is access to financing in starting a business? What are the alternatives if the banks and venture capitalists turn you down? Can you give an example of bootstrap financing?
The importance of access to financing in starting a business cannot be overstated. To be able to start a successful company, capital is needed to support sales, which are needed to support growth. Very often, sales volume or revenues show the potential of success. To be able to capitalize on this potential, capital is needed to grow. Capital is used to finance assets of the company, hire on new human resources, have a successful management team and increase their customer base. When sales increase, so do inventories, receivables, and payables. This requires an investment of working capital that can often lead to cash shortages. Cash shortages can be the torpedo that sinks the ship. To support this growing investment, the firm needs to acquire additional capital. Cash shortages can cause a lack of inventory that could lead to annoyed customers that could lead to losing valuable business. Any business is valuable for an SME at the beginning.
Many small business owners rely on the bank for financing. But, if the business only relies on bank debt, the debt to equity balance can quickly be shifted to a level beyond acceptance. This makes lenders very wary and uncomfortable when it comes to lending money to a company with long-term debt, especially when the long-term debt is used to finance short-term assets. Also, one must keep in mind that banks often lend money to customers that don't really need them to.
Venture capital firms are also really considered by SME owners. The problem with venture capital firms is that they are looking for a 30-40% up to 100% return on their investment within a very short period of time. They expect an exit opportunity, either a buyout or an IPO. Venture capital firms are very stingy and only agree to look at approximately 10 out of every 100 business plans that are referred to them. They end up investing in less than 1% of the business plans they look at.
There are many alternatives to financing for small to medium size enterprises (SME's). These include personal savings, sweat equity, love money, government programs, micro-lending programs (home equity loans), business development Bank of Canada, credit cards, community programs, the small business loans act, employers, and angel investors, bootstrap financing (future clients, customers or suppliers, receivables factoring, and capital asset lending), and lending circles.
Personal savings is the most frequently used financing method for start-ups of SME's. This can sometimes be a problem when it comes to personal liability for sole proprietors.
Sweat equity refers to the creativity, skills, time, and effort that a business owner must expend during start-up. This type of equity is not bankable but hours worked and time commitment can be good sellers with respect to acquiring other types of financing. Also to be included should be any friends or family that helped with start-up. Also including, for example, if you mother helped to clean the new office.
Love money is money from family and friends and is also very frequently used in the start-ups. This type of financing is good if the business works. It also opens the starter up to many other sources of expertise, advice, and capital. If the business doesn't work and your family and friends lose their money it could be the start of many new problems for the failed entrepreneur. Documentation could be very useful in receiving money from your loved one's just in case things don't work out as planned.
Government funding is also a good source of financing. Not only is the government good for cash assistance but also for information assistance. They can direct young business owners in the right direction for other types of financing that they are not aware of. The problem with small business loans from the government is that they take a long time to get approved and there are always too many string attached.
Micro-lending programs are non-government and community-based agencies that have recently originated several innovative micro-lending initiatives to aid in the development of SME's. They were originally introduced to help the poor, the self-employed, and those unable to secure bank financing. Agencies that provide micro-loans are one's such as Women's World Bank and the Calmeadow Foundation of Toronto. The Business Development Bank of Canada also offers Micro-lending programs. They target businesses with revenues less than $500,000 and with less than five employees.
Credit cards are good for short term financing for SME's. They are easy to acquire and some banks now have credit cards that are made just for SME financing. They have a quick application process and can be obtained in a matter of weeks.
The Small Business Loan Act (SBLA) provides loan guarantees on term loans for firms too uncertain or risky to qualify for the traditional bank loan. For many SME owners, the SBLA provides an alternative to pledging away ones assets. Even so, you only need to come up with approximately 15-20% of the financing yourself.
Community programs are defined as community based "pools" of capital. Government agencies are drawing on community members to support economic development. Community programs accept donations from the community to put towards starting new businesses and promoting economic growth in that community.
Employers can be an excellent source of financing. Who else has a better idea of your business potential than your employer?
Angel investors are excellent for seed capital. Angels invest their own personal capital directly into businesses owned by others. There are many different types of angel investors including; corporate angels also known as strategic partners (businesses that invest in other businesses), archangels (lead investors who assemble a syndicate of angels), and immigrant angels (individual angels from other countries). Angels are very interested in the idea and the management potential of the SME.
A good example of Bootstrap financing is to take maximum advantage of trade credit from vendors where allowed. Many vendors will extend regular customers credit for between 30 to 90 days without charging any interest so that their customers can get paid by their customers first. Another method of bootstrap financing is to factor your accounts receivable. This consists of selling ones accounts receivables to a buyer at a discount. Some factors assume full responsibility for collecting and buy the accounts "without recourse" from the business if any accounts prove uncollectible. Some say that factoring should be only used as a last resort when there appears to be a large cash shortage around the corner. Customers are a good source of financing. Some customers will advance the money upfront or even write a letter of credit. There are also other possibilities such as making a customer presale, or accretive financing that is buying a company that provides earnings that are greater than the cost of capital.
Managing cash flow is another bootstrap technique that is often used. An example of this is cutting corners where ever possible including making smart purchase decisions. Included in this could be locating in a relatively cheap office space (Cumberland) as opposed to right downtown (bank and O'Connor) where you will pay a large premium for the office space.
Lending circles are also an important part of SME financing . Peer lending is commitment and ability based. You will work together with four or five other individuals to learn about each other and then construct a business plan for your business and work through any legislated or administrative issues that your business will face. This requires time, enthusiasm and a willingness to work.
For SME's, here is my list of sources of financing (in my opinion) ranked from most important to least important keeping in mind which ones are used most often, to my limited knowledge (excluding banks and VC's):
1) Love money
2) Personal savings
3) Government lending programs
4) Sweat equity
5) SBLA
6) Bootstrap financing techniques
7) Credit cards
8) Micro lending programs
9) Community based programs
10) Angel investors
I made this list from my own experience with family members starting new businesses. All of the entrepreneurs in my family have relied on other family members, or love money. My Father relied on his Father, and my Grandfather relied on this Father, and my Stepfather relied on his Father. Love money is an excellent source of financing. When I start my business I will be asking my Father for a loan too!
Copyright. John Watson, Ottawa, Canada. March 2001.
Question #16: What is more important- having great assets and products or having great people in determining new business success?Can you have a mediocre product or service and great people and still win? What about the reverse?
In this paper I will be looking at the issue of product versus people: which is the more important factor in determining the success of a business venture? I will look at this idea from both the perspective of having great people and a mediocre product as well as having a great product but less capable people. In discussing this topic I will use real-life examples to illustrate my point.
There is a very high degree of complexity to the process whereby a company experiences success or failure, and probably for most companies it is too simplistic to suggest that ultimate success or failure can be attributed to one set of variables. However, there are enough examples that can be considered to fall within the extremes for an examination of the likelihood that great management can overcome a substandard product or that a great product can subsidize poor management.
Perhaps the best current example which tends to support the hypothesis that superb management can compensate for less-than-stellar products would be Microsoft. From all accounts which I have heard from those more technically inclined than myself, Microsoft products are far inferior to the competition. Why then is Microsoft the 800 pound gorilla of the personal computer industry? If the Apple Computers' MacIntosh operating system is superior to Windows, and competing web-browsers are more user-friendly and less prone to crashing than Microsoft's browsers, then the answer to Microsoft's dominance of the personal computing industry must be connected to its management. While much has been made in recent years of Microsoft's monopolistic practices, the fact remains that some very aggressive and forward-thinking strategic planning had to have been undertaken in order for Microsoft to attain a position from which it could exert any monopolistic leverage. We must bear in mind that when Microsoft entered the computer industry, IBM was the dominant force. However, it was the traditional mindset in existence at IBM which allowed the creative minds at Microsoft to become so successful. IBM saw mainframe computing as the past, present, and future of computing. It was done that way because computing ‘had always been done that way'. The nimble minds at Microsoft saw a potential revolution in computing via the personal computer. IBM represents an example of a company that did survive based on superior product and reputation, despite less capable management. Unfortunately for IBM though, it survived in a much reduced capacity vis-a-vis the computing industry.
A counter-point to Microsoft's success can be found in Apple's lack of success. Apple has a superior operating system, has been far more innovative in its products, yet they have been dwarfed by Microsoft. Perhaps the answer lies in the focuses of the respective founders. Steven Jobs spoke of creating "insanely great things"; which he may well have accomplished. However, it was Bill Gates who built ( I am arguing, though probably not an original argument) the ‘insanely great' business model for the personal computing industry.
Despite their incredible success, Microsoft seems to defy most of the basic tenets of marketing. They don't have the best product, they aren't first to market, and other companies have better customer support. What they do have is a superior business model, aggressive, well developed marketing plans, and strategic alliances with such major players as Hewlett Packard. So although now Microsoft products are pervasive across most major brands of PC's, and occupy a position from which they can dictate terms and conditions to their customers, brilliant strategic management and "higher-order thinking" was required to get them where they are today.
Harley Davidson motorcycle company is another firm which provides an interesting case study on the relationship between managerial efficacy and success. Harley Davidson has been around for decades, it had a history of die-hard advocates who forgave its less-than-perfect construction. However, when Honda introduced its line of motorcycles to the North American market, with many models designed to attract the Harley enthusiast, the superior quality of the Honda product drove Harley Davidson to the brink of bankruptcy. A change in management at Harley Davidson was the catalyst for a remarkable comeback. Aggressive marketing was the cornerstone of this revival, which was driven by the cultivation of a lifestyle image promoting the idea of the Harley representing rugged independence and rebelliousness. This lifestyle marketing plan, combined with smart alliances with the entertainment industry, which saw their motorcycles prominently displayed in popular culture, associated with major international stars, has seen Harley Davidson become an extremely successful business. The image of the product has become so popular that they have recently patented the motorcycles trademark exhaust sound, due to so many competitors trying to copy them. Thus, even though the Harley Davidson motorcycle still has a reputation of being temperamental and high-maintenance, the brilliant business plan for rescuing the company has seen an increasing number of fans attracted to the image, willing to forego superior quality products in exchange for being part of the "culture" of Harley Davidson.
Other examples of inferior products becoming the industry standard exist, such as the Beta versus VHS home entertainment wars of the early 1980's. Beta is the superior video tape format, explaining why it is the video format used by most, if not all, television stations. However, Beta made a critical error in managerial decision-making. Beta adopted a closed standard, meaning that they refused to share (via licensing, etc.) their intellectual property with anyone. VHS, on the other hand,opted for an open standard, meaning that they licensed their intellectual property to any interested party. It was this kind of superior managerial vision which led VHS to win the battle for home entertainment supremacy.
In order for a business idea to become a sustainable business venture, you need far more than merely a good idea. First of all, you need to find out if there is a market for your idea. You need to determine whether or not you can cost-effectively turn the idea into a marketable good or service. Then you need to communicate the existence of your idea, and the benefits of your idea to your target market. You need to finance the project, creatively, so that you don't bankrupt yourself, or put yourself in a position to lose control of your business, if and when it ultimately does succeed. You need to strategically plan where, when, and how fast to implement your business plan. The preceding is merely an illustrative, and by no means an exhaustive, list of the issues that a new business venture faces. Given the depth and breadth of challenges facing the manager/developer/owner of a new enterprise, combined with the dynamic environment within which these decisions must be made, absent sound business acumen, a product will not succeed on its own merits alone. Conceptually it is hard to envision a company that could succeed in spite of poor management, unless it were a company which, due to governmental regulation or some other barrier to entry, had a monopoly position in its industry. For example, numerous governmental agencies and crown corporations have been charged , rightly or wrongly, with inept management. Nonetheless, given their unique competitive positions, they can survive, if not be considered truly successful, despite poor management.
In conclusion, given the intensely competitive nature of private industry, where new participants will quickly enter any unprotected market niche which demonstrates potential, a poorly managed company, regardless of product, will likely fail. While there are the IBM's of the world, which have survived incompetent management, they are the exception which proves the rule. Even as an exception to the rule, they embody the type of company which I described earlier as the prototype for surviving poor management. IBM became a powerhouse during a time when the knowledge required to design the mainframe systems was rare and highly specialized, and the costs involved in developing mainframe computers represented a significant barrier to entry. Therefore, they had the requisite high barriers to entry necessary for a company to survive with less competent management. Consequently, from the examples I have illustrated in this paper, it is my contention that barring governmental protection or high barriers to entry, competent, aggressive management is a necessity for success in a free enterprise economy.
Copyright. Darcy McRae, Ottawa, Canada. March 2001.
Second-Hand Sales: The Difference Between Sales and Marketing
From the beginning of business to the modern day business institution, the concept of sales and marketing has been blurred, misused, and misunderstood. This paper will explain the vast differences between sales and marketing. From definitions of sales and marketing, transactions and perceptions, personal and organizational, cultural and departmental, to who should be involved in sales within the organization, this paper will delve into the uses and needs of sales and marketing.
Sales vs. Marketing
Selling (sales) is described as the art of persuasion, communication, and negotiation of ideas, goods, and services to complete transactions that satisfy individual and organizational objectives. The sale is more interactive with the customer. Lets break this definition down into its parts. First, selling is an art of persuasion, communication, and negotiation. This shows that selling is a skill that is used to interact with the customer. Next are ideas, goods, and services. Selling concentrates on the product and its characteristics. The last point within the definition of sales to highlight is the function of completing transactions. Selling is used to complete contracts and create revenues for the organization.
Marketing is described as the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. Lets break this definition down into its parts. First, marketing is a process of planning and execution. For there to be processes, plans, and executions, there must be structures, goals, and missions, which describe an organizational tool. Next in the definition are conception, pricing, promotion, and distribution. Marketing involves the beginning stages of product development, the pricing structure, promotional campaigns, and distribution channels, which describes organizational development. The last point within the definition that I want to point out is the purpose of creating exchanges. Marketing is mainly used to create the initial contact between the organization and the buyer.
Product Transaction vs. Product Perception
Selling is about moving inventory, selling product, and creating cash flow. Selling is a personal tool used by the person for their organization's benefit. A good example is when a person is in an interview. The interviewees use sales to persuade, communicate, and negotiate themselves into a job prospect. Sales are the revenue-generating department of every organization. Without sales, there is no cash flow; without cash flow, there are no revenues; and without revenues, there is no business.
Marketing is not about selling the product, creating cash flow or moving inventory. Marketing is management's tool to build a perception around the organization or a product that is conducive to their target market and organizational goals. The beer industry is the perfect example of this. Their commercials have long stopped advertising the qualities of their product. They now concentrate on the perceptions of drinking their product. Take Nike for example, they have one of the strongest public perceptions in respect to their logo across the world. When you see the Nike swoosh, you don't think of a particular product or even a quality standard, you see athleticism, drive, and spirit. Fed/Ex is another example, where the perception they market is peace of mind that your package will arrive on time. Let's go back to the interview example. The resume is marketing, it persuades the employer to see the perspective employee and creates the initial contact.
Personal vs. Organizational
Selling (sales) is the personal contact with the customer. Selling is a personal skill rather than an organizational process. This has come about from sales usually being on a one-on-one basis. For the sale to be completed, a relationship must exist between the seller and the buyer. Therefore, personal traits play a huge part in the success of the sale. Having said that, these are some traits that make a good salesperson: (1) belief in the product, (2) belief in oneself, (3) good timing, (4) a sense of humour, and (5) the ability to realize what your customer needs.
Marketing is the organizational structure of the corporate image. Marketing is an organizational process rather than a personal skill. This has stemmed from marketing being information intensive. For this information to be useful, it must correlate with each other. Therefore, rules and standards must exist. The marketing department will spend a lot of resources researching and developing strategies to create an image of a product. This is a highly process-intensive endeavour, with many organizational rules and regulations dictating the flow of information. These rules and regulations were created by the organization so that employees have a procedure to follow.
Culture vs. Departmental
Sales have a more fundamental aspect to an organization because of the personal skills required to be a good salesperson. A company with a strong culture and highly devoted employees will intuitively promote the company and its products. I call this "Second-Hand Sales". This meets the first test of a good salesperson - belief in the product. Through a strong company culture, the sales team now extends to the entire employee base rather than just one department. This alone can increase revenues dramatically. This can also create a familial atmosphere amongst employees, produce a better working environment for everyone, and give the sense that everyone contributes to the success of the organization. A good example of this is Nortel. Everyone I know who works at Nortel loves to tell other people how much they love their work, and about the wonderful things they are creating. This is a huge advantage for Nortel because of the exposure they are getting through positive "vibes" in the greater community. A good example of the opposite is Canada Post. Most of the people I know who work at Canada Post don't like their work or the organization. This creates a poor public image and reduced revenues.
Because of the high process level and structural nature of marketing, a layered hierarchical employment environment is created. Almost every company has a marketing department. Through the layers of processes, many levels of employment occur, from junior analysts to senior analysts to management. Each level has specific tasks that they are responsible for and then pass on the completed work to the next level. This work method is common in most organizations. The work passes along the hierarchy until it reaches the top where the major decisions are made according to this information.
Who should be involved in sales?
One of the largest problems people have with sales is the perception that it is beneath them to do. Selling is now perceived as one of the lesser business skills. People believe that the most effective business method is through management training. It is flawed to believe that management skills exclude sales skills. All good CEO's have great sales skills and pride themselves on it.
As mentioned above, having an entire organization carrying out Second-Hand Sales is beneficial for the organization. The most effective way to achieve this is for the top to lead by example. The Board of Directors, CEO, President and other executives should be selling advocates for the company. These people, above all else in the organization, should be good salespersons. They should believe in the products, believe in themselves, have good timing, and a sense of humour as well as the ability to realize what their customers need. It is important to have these traits in all employees. The more salespeople and Second-Hand Salespeople an organization has, the more successful it will be.
Conclusion
Selling is a personality-based skill and an art form. Meanwhile, marketing is process and structure oriented, organization based, and departmental.
Copyright. Alex Arjanov, Ottawa, Canada. March 2001.
What is more important - having great assets and products or having great people in determining new business success?
There are many aspects that determine business success, some of which are tangible and many that are not. If we were to view entrepreneurial success as a function of core competencies, we would discover that a vast majority of these find their origins in intellectual property of entrepreneurs and some lie within the dimensions of the product itself. In order to understand how business success is achievable, it is important to realize the potential of these core competencies: some can be invented, others trained, and others come with years of practice. What is more important - having great assets and products or having great people in determining new business success? Can one of these be sufficient enough for a business to succeed?
Many entrepreneurs entering the world of business are convinced that it is the product that opens the magic door to success and the rest merely form minor implementation details. This might appear possible if, for instance, we look at the success of Coca Cola - a great invention and a phenomenal product, which seems to sell itself well enough, because someone developed success-spelling formula sometime in 1880s. Although that had happened before the industrial revolution, the product was selling then and continued to sell into the age of mass production, telemarketing, and eventual globalization of the world's economy. However, if we look deeper into the operations of the company now, we will see that it is a function of endless marketing campaigns to withhold the competition, global expansion strategies to reach all the corners of the planet, and continuous improvement to capture wider target markets. Great products and great assets are tangible sources of competitive advantage; they form a good ground to work on. Better products tend to catch better reputations, promoting themselves through positive image, word of mouth advertising, and brand loyalty. Great tangible assets in turn allow operations to be more efficient by reducing waste and cycle times where applicable, improving quality, leading to customer satisfaction, all of which play a considerable role in business success.
From the beginning of the 20th century until now, the structure of businesses was developing as they strived to be more efficient and more competitive. Modern businesses have evolved from basic functional and divisional structures to dynamic task teams and flexible work groups, with cross-trained employees to make people create value in more effective ways. Having a great team of colleagues is vital for business success - in the beginning critical moments of establishing new businesses a good team is a must. The team has to be competent, flexible, and adaptable in order to realize its synergy, to create and implement the plan that benefits all the members. A good team is able to integrate all the functions of the business from Sales and Marketing to Operations and R&D into a common goal. Furthermore, integration is a very important factor in determining success of the business, since by effective communication and group work the team can ensure that there is no dissonance between the functions of the business. Great people in business become exceptional leaders, they are champions in their field and have the ability to motivate the team, coordinate and collaborate people, and create the inner energy of the idea that drives the company.
It is important to mention that in the long run everything becomes variable. A great product only retains its quality if it is developed, assets remain useful and efficient if they are upgraded, and even great people need to adapt to the inevitable changes in the business environment. Presently, many entrepreneurs resist acknowledging the potential of the net and the general trend toward globalization, and do not adapt their business models to use all available resources efficiently, and by doing that they weaken their competitive edge. This is one of many reminders of how important it is to have a learning team to be able to run a good business for any considerable period of time.
Having discussed the advantages of having great products or assets, and having good products, would a mediocre service or product have a chance for success with great people? If we were to define a mediocre product or service as not entirely meeting customers' expectations, then it is very doubtful that it would succeed in the long run. In turn - some people can sell, and they can sell virtually anything, thus some possible short-term success is promising. However, in the long run if the product or service is not effective, it would be a waste of time dragging behind a bad project. At the same time, a good team will also be able to improve and adjust and develop an existing mediocre idea and perhaps shape it into something more effective that will have better chances of success. Some people are even able to convert the negative sides of the idea into eventual advantages that make the success of a company even greater. ID Software Ô for instance used an error in one of their engine codes to create their most successful virtual physics engine that is used as a template for a variety of gaming software. Not all services or products, however, can be incorporated into successful business models, and it is critical to recognize those projects, which do not have a chance, early enough. Marketing people of a company, however, should be able to spot such details early in the business development process, so that an entrepreneurial team does not go into business with a product or service with no potential. Above all, talented people in business account for a great deal of business success, and behind each good product or service, there is an idea. If R&D develops at the top of its ability, Marketing and Sales find and attract sufficient numbers of people for growth, Operations produces successfully under the constraints budgeted by well-planned Financing, then a company has a good chance of developing and delivering great value.
Now let's look at the reverse side of the scenario, where the product is good but people are mediocre businessmen. In this situation, production may be organized efficiently enough for the sales to indicate some levels of success in the short run. Nevertheless a poor team is unlikely to develop an idea into an effective business model, and even if it does, it is doubtful the firm would be able to sustain any competitive advantage over potential new or existing competition. Since most of the monopolistic industries are very difficult to enter, most of the times some competition is expected when entering the market. Unsuccessful businesses tend to fold in the first two years of operation, and often these have ineffective business models, incomplete marketing analysis and high financing problems associated with low levels of cash flows. That is why it is unlikely that a poor team will be effective in meeting their business goal, or an exit strategy, since it would not be able to keep up with the stress of market entry and growth, and is going to be eventually outrun by better and more effective competition teams.
It is evident that good products, assets, and great people play important roles in determining business success. In an ideal situation, where a great team of educated and experienced people works with a good product or service, success becomes highly probable, perhaps even expected. However, there is also an element of luck - being at the right place at the right time, or taking correct and critical decisions precisely at a needed moment. Necessity is also an exceptional drive for extraordinary performance, and a good team will flex under pressure as opposed to folding like many entrepreneurs do. Looking over both the scenarios, great people will be able to give a good shot at developing a mediocre product or service, and are likely to come up with a better idea even if they are not able to implement an existing one. They will not be discouraged by an unsuccessful attempt, but rather learn from any and every possible mistake and create another more effective business model for the future. A great product in turn is only likely to pull early success for a company without a good team for a short period of time after which that business model is likely to fail or be surpassed by competition. Therefore, select your people with caution, and start a business on a strong base. It is essential to remain critical to your business ideas, to keep focus on constant development, and to learn from each other since business success is a function of many variables, most of which are intangible and achievable by good businessmen.
Copyright. Catherine Cleary, Ottawa, Canada. March 2001.
How important is access to financing in starting a business? What are the alternatives if the banks and venture capitalists turn you down? Can you give an example of bootstrap financing?
Access to adequate financial resources is one of the most important aspects to ensuring the success of a start-up company. Having sufficient financial resource to support your business may make the difference between success and failure. Few mistakes are more dangerous to a new business than making unrealistic assumptions about finances and financing.
It is critical that start up companies realistically analyze the financial needs of their business and the financing options that are available to them. It is easy to cripple a business before it even starts, by planning to use one source of financing and then realizing that the company is unable to access it. In order to secure capital, small business owners must understand the various sources of financing available to them. A contingency plan is absolutely necessary for start up companies because one of the leading causes of small business failure is inadequate start-up capital. Attaining capital is crucial to any start up company for a variety of reasons. Some of the major reasons to attain financing include the need for financing to get sales, to buy inventory, to pay employees, to purchase assets and to pay taxes. Start up companies also need access to financing for advertising, product development, prototypes, testing expenses, product liability, new supplier payments (as they are usually based on cash on demand), materials, patent or copyright registration and field or market research.
Despite the increase in financing options available, access to capital continues to be the most difficult challenge for small business owners. Conventional bank lending and venture capital is not always available or appropriate for all start-up companies. Consequently, many new businesses have to look at other sources of financing. For many entrepreneurs their only assets are enthusiasm and the drive to succeed but regrettably banks don't place much value on anything they can't touch or posses. It is for this and many other reasons that start-up companies have to have access to various sources of financing. In the past decade, wider arrays of financing alternatives have become available to start-up companies.
The most frequently used source of start up capital is the small business owner's personal savings. These personal savings can be in the form of personal assets, retirement funds, savings accounts and personal property. It is very important that a small business owner has a substantial amount of personal equity in the business to show future lenders that they are serious about their business ideas and that they have invested some personal money that they are willing to lose if their business does not succeed.
The second most frequently used source of start up capital is love money. Love money is the money that business owners receive from family and friends. The main disadvantage of using love money is that it can cause stress to an entrepreneur, as they have to deal with the stress of spending family money. One of the main advantages of using love money is that in many cases those individuals lending the money provide advice and expertise as well as capital. Another way that family and friends can help a start-up business further their company is by introducing them to others that can provide valuable insight about running a business. For example, they might know someone who has a company synergistic with the new entrepreneurs or that would fit as a strategic partner or investor in the new company. Family or friends might also be able to get the new business owner invitations to luncheons and relevant meetings that will allow them to create networking opportunities, which could lead to further financing. Proper documentation is crucial when acquiring love money so that there are no communication problems regarding the terms of the lending. In most cases it is in the form of a demand note. This demand note is a written agreement that allows the lender to demand money from the business owner at any point in time .
Credit Cards are another source of financing during the start-up phase. Credit cards are mostly beneficial to an entrepreneur if they use it for short term financing due to the high cost of the interest associated with carrying a long-term balance on most credit cards.
Current employers might be another source of start up capital. Employers are increasingly realizing the benefit of helping employees so the entrepreneurs do not need to leave their company in search of sufficient funding. In the past, these entrepreneurs had no choice other than to leave the firm, which thus leads the organization to lose valuable employees. Many times the entrepreneur is working on a business that might be synergistic with the company that the entrepreneur is employed with.
Another form of financing for start-up companies is through micro lending programs. One type of micro lending program is the lending circle. A lending circle is made up of five or more business owners who share in the task of screening loan applicants before they accept the applicant into the group. If one member of the group defaults then the other members must pay the loan. This type of micro lending provides start-up capital that encourages community members to start and build their businesses. Micro lending programs also provides start-up capital at reasonable market rates to members of the community. The small business owner's motivation to repay the loan is mainly attributed to social pressures as well as to the promise of continued access to services.
The Small Business Loans Act (SBLA) is another source of financing for start up companies. The SBLA provides loan guarantees on term loans for firms that are too small to qualify for traditional bank lending. This loan helps small businesses to get started and allows them to continue to grow. This loan is designed to make it easier for start-ups and businesses in the early stages of their life cycle or those with limited equity. The loans may be granted for a maximum of $250,000 and the entrepreneur can expect to pay prime rate plus 2.75%, an annual fee for the loan guarantee as well as an initial fee to the SBLA administration. The government guarantee of an SBLA provides the borrower with the comfort that would in other cases have to be provided through collateral security. In many communities across Canada, governments have also started community-based pools of capital, which encourages economic development in their own community.
While almost invisible because of a lack of media coverage and research, informal investment accounts for the largest, oldest, and most frequently used source of external equity finance for small businesses. Angel investors are a form of informal investment and can be another important source of capital. There are three main types of angel investors in the Canadian market. Informal angel investors are informal investors who invest their personal money into businesses owned by others. Corporate angles are businesses that invest in other businesses and an archangel is a lead investor who assembles a syndicate of angels. Many start up companies have difficulty connecting with these investors because, there is no central meeting place where those who see capital can interact with suppliers of capital. Due to the fragmentation of the market, as well as the fact that many angel investors are not impressed with the managerial skills of the owners of the start up companies, angel investors remain to be a largely untapped market.
Many start-up companies use bootstrap financing in the early stages of acquiring start-up capital. Bootstrap financing is small amounts of seed capital used in early stages of firm maturation. An example of bootstrap financing is factoring. Factoring is essentially the sale or assignment of a sale, trade or accounts receivable for immediate cash. Factoring isn't borrowing money; it's selling your receivables for cash. Factoring is a more expensive way of raising money than normal financing but it does provide quick cash with no collateral or earnings. Factoring can provide any business from start-up to mature companies, access to immediate cash and improved cash flow for expansion or growth without diluting equity or incurring debt. Factoring allows companies to take advantage of trade discounts or early payment options with suppliers and vendors. It also gives the company the ability to reinvest immediately to acquire new sales opportunities. If properly utilized, factoring, at any stage of development, can be a valuable financial tool to achieve expanded sales growth. Start-up companies will want more sophisticated financing down the road but factoring can help to financially secure them in the initial stages of business development. Once the start-up achieves a financial track record, they can turn to other sources of financing.
Start-up companies need to understand and be aware of the financing options available to them. There are many different resources available to start-up companies and most start-up companies will need different sources of financing at different stages of the start-up. Start-up companies that understand this and that follow their financial plan will have a better chance of success.