Our first PBL trigger told a story of a an uncle won 5 million euros and wants to invest it, so there is a potential chance to start a business. Now the problem is what and how to do to persuade the uncle to invest in out business and if we even want to start a business.
We agreed, that our main problem will be: Steps to starting a business
and the learning objectives:
Our textbook on pages 274-278 advises on basics of financial management and it states four main goals related to finance. Those are: profitability, which might not be at the early stage but it must happen at some point, liquidity (even when not making a profit, a company must be able to pay all its obligations, thus we always have to make sure that we have enough money not to end up in debts). efficiency, which refers to using all the assets (capital in our case) effectively on things that are essential and not just wasting it, and finally stability, which mainly corresponds to keeping the lending and debt under control.
These goals are all equally important, however the main goal of every business is to make profit, to fulfill the other goals. It is important to maintain the finance effectively form the very beginning. It is a good idea to start from saving every invoice, receipt, etc. to use it in the future.
The problem is that at the early stage, an entrepreneur cannot usually afford an accountant and has to do all of this alone, however Forbes highlights the big advantage of limited amount of transactions a start up usually has. There are also many online tools that are designed to be used for accounting, these are for example Quickbooks, Xero or Wave. They are very intuitive and provide online help. Another possibility to get help with finance could be contacting a school or university and offer our case as a project for accounting students. This way, we get what we need and students could practice on a real example.
And what does actually a startup need money for? According to Business Insider, we are lucky to live in today's world since many costs dropped dramatically, registering the business costs almost nothing and buying expensive software licences to track orders, sources or accounting can be avoided by using free online services. However, Mike Nudelman in his article warns, that 'everything costs more and takes longer than you think'. That's why he recommends to do a very careful cost planning but at the end add 25% more as with most businesses, they actually need around 25% money more than expected. The main areas that we have to consider investing in are costs of registering, premises, machines and materials, staff and their salaries (+ costs related to salaries- insurance etc.) and costs for logo and its register and other promotion materials.
4. Why to become an entrepreneur?
From the trigger we were given, it almost seemed that we only should become entrepreneurs when there is suddenly a capital available, but that is not and it even shouldn't be the only reason to start a business. There are many advantages tat entrepreneurship can provide us with. Barringer and Duane Ireland list main three in their book on pages 31-33:
Being your own boss this usually follows a long-time ambition (positive reason) or a long time frustration from current job (negative reason), many entrepreneurs get inspired at work by good bosses and leaders and try to copy some of their behavior patterns in own businesses. It can also work the other way round; knowing what doesn't work and what should be avoided in supervising a company.
Pursuing your ideas this is another common case of starting a business, either a person finds an opportunity while being employed, decides to leave the job and put this idea in reality or we can also start a business through a particular hobby or leisure activity.
Pursue financial rewards this is typically a secondary motivation since average entrepreneurs do not make more money than employees and especially at the beginning of the business the income can be very uneven and the business might even generate loss.
Those three are generally common for all entrepreneurs and those are also the main advantages entrepreneurship brings, countless more reasons can be found from the internet. I found some less obvious ones from Inc. I find really interesting for example giving family as a reason to start a business- some people do actually leave their jobs, which are too time-consuming and start maybe small and not so profitable business but they are able to work from home and have flexible working hours, so that they can spend more time with their families.
Another reason given in this article was responsibility to society. Nowadays people are much more cautious of the world we live in and how does our behavior affect the environment. While working for a big corporation you usually have little or no control of whether what your employer does is right or sustainable. However, when you own a business you have the opportunity to choose suppliers,
control the whole process and be more responsible to the society and the environment.
Sources
Forbes. How to Manage Your Startup's Finance From Day One. Available from: https://www.forbes.com/sites/vinettaproject/2016/09/27/how-to-manage-your-startups-finances-from-day-one/#6dd34005271e. Accessed: 3.2.2018.
Inc. 10 Best Reasons to Become an Entrepreneur. Available from: https://www.inc.com/ilya-pozin/10-best-reasons-to-be-entrepreneur.html. Accessed 4.2.2018
StartUpBros. 5 Crucial Ingredients of the Prefect Business Idea. Available from: https://startupbros.com/5-crucial-ingredients-of-the-perfect-business-idea/. Accessed: 2.2.2018.
We agreed, that our main problem will be: Steps to starting a business
and the learning objectives:
- What makes a good business idea
- Choosing the right business format and its pros and cons
- How to maintain finance?
- Why to become an entrepreneur?
1. What makes a good business idea
I think that there are actually many of people in the world, who have a good business idea but don't have a clue, how and where to start. On the other hand, there are also people with good knowledge of business but they don't have the right idea.
Many great businesses come from a very random idea. Either the owner lacks something himself and believes that he is not alone in it, or he sees opportunity in the place, where he lives. Both of these was actually the case of Nate Alder the owner of Klymit, who was introduced in our textbook (Entrepreneurship- successfully launching new ideas) and who started creating and selling special winter jackets that use noble gas and keep a person warm even in extreme conditions- he wanted to use such product himself and he also saw that there nothing like that in the local market. But overall the idea was very random and he didn't spend years trying to figure out something that would be profitable and that he could base his business on.
The same opinion hold Startup Bros, a website helping future entrepreneurs, they specifically say that "Many times it seems like the best business ideas come from a random flash of genius". The website also suggest five 'ingredients' that every business idea should have.
Those are:
1. Responsive audience, it means that there must be people, who desperately want our business idea, because they lack in their life such product or service (without even knowing about it) and they will be willing to pay for it. In that sense they will respond to our idea.
2. Unique selling point is that something that will make us different from other every other competitor and the customers can't get it from anywhere else. The important thing to highlight is, that the difference of the business must be beneficial, since being different can also be negative.
3. Realistic business plan, Will Mitchel (the author of the article) suggests to actually sit down and think about the idea more realistically. Not to fill some very detailed business plan but just to try track down and project how different ideas might or might not work in the future.
4. The potential for growth and automation, of course every business requires some hard work at the beginning but a good idea creates a business that will after some time run more or less automatically and the owner will just supervise everything and do regular tasks.
5. Personal excitement simply put, the idea for potential business should give us a feeling of excitement and passion. This is usually given as the most important but unfortunately passion itself doesn't create a profitable business.
These tips are more useful in a case when somebody has already an idea and just wants to analyze whether it is potentially good. When it comes to finding an idea the Entrepreneur website suggest very simple steps such as taking a piece of paper and writing down what are my hobbies, strengths, things that bring me joy and start from that. Also, we can thing about the area, where we live, what we find good and bad? Is there anything people need more or different? The article, which I read specifically suggests, to listen to frustrations of friends and family, which can already give us a handful of great ideas. Most successful business have a story of an inspiring moment that started the whole thing. Those are for example Netflix, TED or Amazon.
2. Choosing the right business format and its pros and cons
During the Introduction to International Business classes last semester, we already had one trigger that was focused on starting a business and I already went through the basic company forms so I am only adding a link here.
However, in the textbook that I mentioned above, I found the different types of start-up firms, which is different from the legal forms. Those are:
Salary-Substitute firms: a type of company that generates similar income as what would the owner get from a regular job. The examples are very common, not innovative, yet important companies such as restaurants, grocery stores, hairdressers's, Most of the starting businesses belong to this type.
Lifestyle firms: these companies usually provide its owner to have a business while doing some hobby. Those include people working as freelancers, e.g. tour guides, sports instructors or language teachers.
Entrepreneurial firms: are those we normally think about, when we hear the term startup. They bring new ideas to markets and improve peoples' lives. If successful, they generate huge income and grow to international corporations.
3. How to maintain finance
Our textbook on pages 274-278 advises on basics of financial management and it states four main goals related to finance. Those are: profitability, which might not be at the early stage but it must happen at some point, liquidity (even when not making a profit, a company must be able to pay all its obligations, thus we always have to make sure that we have enough money not to end up in debts). efficiency, which refers to using all the assets (capital in our case) effectively on things that are essential and not just wasting it, and finally stability, which mainly corresponds to keeping the lending and debt under control.
These goals are all equally important, however the main goal of every business is to make profit, to fulfill the other goals. It is important to maintain the finance effectively form the very beginning. It is a good idea to start from saving every invoice, receipt, etc. to use it in the future.
The problem is that at the early stage, an entrepreneur cannot usually afford an accountant and has to do all of this alone, however Forbes highlights the big advantage of limited amount of transactions a start up usually has. There are also many online tools that are designed to be used for accounting, these are for example Quickbooks, Xero or Wave. They are very intuitive and provide online help. Another possibility to get help with finance could be contacting a school or university and offer our case as a project for accounting students. This way, we get what we need and students could practice on a real example.
And what does actually a startup need money for? According to Business Insider, we are lucky to live in today's world since many costs dropped dramatically, registering the business costs almost nothing and buying expensive software licences to track orders, sources or accounting can be avoided by using free online services. However, Mike Nudelman in his article warns, that 'everything costs more and takes longer than you think'. That's why he recommends to do a very careful cost planning but at the end add 25% more as with most businesses, they actually need around 25% money more than expected. The main areas that we have to consider investing in are costs of registering, premises, machines and materials, staff and their salaries (+ costs related to salaries- insurance etc.) and costs for logo and its register and other promotion materials.
4. Why to become an entrepreneur?
From the trigger we were given, it almost seemed that we only should become entrepreneurs when there is suddenly a capital available, but that is not and it even shouldn't be the only reason to start a business. There are many advantages tat entrepreneurship can provide us with. Barringer and Duane Ireland list main three in their book on pages 31-33:
Being your own boss this usually follows a long-time ambition (positive reason) or a long time frustration from current job (negative reason), many entrepreneurs get inspired at work by good bosses and leaders and try to copy some of their behavior patterns in own businesses. It can also work the other way round; knowing what doesn't work and what should be avoided in supervising a company.
Pursuing your ideas this is another common case of starting a business, either a person finds an opportunity while being employed, decides to leave the job and put this idea in reality or we can also start a business through a particular hobby or leisure activity.
Pursue financial rewards this is typically a secondary motivation since average entrepreneurs do not make more money than employees and especially at the beginning of the business the income can be very uneven and the business might even generate loss.
Those three are generally common for all entrepreneurs and those are also the main advantages entrepreneurship brings, countless more reasons can be found from the internet. I found some less obvious ones from Inc. I find really interesting for example giving family as a reason to start a business- some people do actually leave their jobs, which are too time-consuming and start maybe small and not so profitable business but they are able to work from home and have flexible working hours, so that they can spend more time with their families.
Another reason given in this article was responsibility to society. Nowadays people are much more cautious of the world we live in and how does our behavior affect the environment. While working for a big corporation you usually have little or no control of whether what your employer does is right or sustainable. However, when you own a business you have the opportunity to choose suppliers,
control the whole process and be more responsible to the society and the environment.
Sources
Barringer, B.& Ireland, R. Entrepreneurship successfully launching new ventures. Pearson global edition. 3rd edition.
Business Insider. How Much Money Does a New Startup Need. Available from: http://www.businessinsider.com/how-much-money-does-a-new-startup-need-2013-9?r=US&IR=T&IR=T. Accessed: 3.2.2018.
Business Insider. How Much Money Does a New Startup Need. Available from: http://www.businessinsider.com/how-much-money-does-a-new-startup-need-2013-9?r=US&IR=T&IR=T. Accessed: 3.2.2018.
Entrepreneur. Starting a Business: The Idea Phase. Available from: https://www.entrepreneur.com/article/217368. Accessed: 2.2.2018.
Forbes. How to Manage Your Startup's Finance From Day One. Available from: https://www.forbes.com/sites/vinettaproject/2016/09/27/how-to-manage-your-startups-finances-from-day-one/#6dd34005271e. Accessed: 3.2.2018.
Inc. 10 Best Reasons to Become an Entrepreneur. Available from: https://www.inc.com/ilya-pozin/10-best-reasons-to-be-entrepreneur.html. Accessed 4.2.2018
StartUpBros. 5 Crucial Ingredients of the Prefect Business Idea. Available from: https://startupbros.com/5-crucial-ingredients-of-the-perfect-business-idea/. Accessed: 2.2.2018.
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