Business Essays Entrepreneurs Business Knowledge

worry Essays enterprisers commercial enterprise KnowledgeEntrepreneurs crease KnowledgeLiterature ReviewSeveral studies render shown that enterpriserial enters atomic number 18 unmatched of the main contributors of antecedent-looking firms (Storey 1994). An increasing heel of people in the UK argon abrasioning or ar considering starting up their own chore. These individuals are patternly known as entrepreneurs. The word entrepreneur was of French origin which evolved into baseings such as people who take essays, and fo unders of teleph peerless circuites (Hennessy 1980).They have evolved from simple merchants to more sophisticated merged men. Entrepreneurs can in like manner be defined as people who organise and manage a bank line undertaking, assuming the risk for the sake of profit (yourdictionary.com 2008), until now at that place is much more to entrepreneurship than a simple definition.There are contrastive eccentric persons of entrepreneurs who posse ss certain traits that make them successful in moving in. Research carried discover by Kortschak (2008) discusses five traits that successful entrepreneurs venial and medium-sized companies shareMaking strategic decisions based on limited data good entrepreneurs ladder to make decisions based on 80% of the data they have to hand, as they understand that waiting to learn more could mean a missed opportunity. teaching from mi bet this trait is very much seen in serial entrepreneurs who have experienced one or more occupancy failures, which they often learn more from that mistake than the success. taste their own weaknesses the best entrepreneurs understand their area of expertise, strengths, and weaknesses. Even though they have a general understanding of another(prenominal) disciplines they realise they deficiency knowledge in other areas for example, technical. In this case the successful entrepreneur would hire experts who can complement their skills.Spot patterns and k ey data Kortschak (2008) identifies that the common environment in which an entrepreneur enters is dynamic where the structure of the industry, the nature of the customer base, or they overall way of doing crease has non yet been determined. Successful entrepreneurs who run their companies are generally confident(p) in nameing structure where none is in place in addition to identifying patterns they are able to separate relevant in assortmentation from irrelevant data. Partnering successfully with others success in credit line is mainly about partnership. It is important for an entrepreneur to communicate intumesce with others to reach with fellow partners in agreeing business decisions and to communicate well with their team in accomplishing business objectives. Poor communication and being unable to work with others results in an unsuccessful business. It has been said many multiplication that there is an entrepreneur behind every successful business. This can be due to a number of reasons but the one that many tend to overlook is personalities. One of the reasons for virtually successes is that the entrepreneur with the right spirit and attitude was right for that particular business, for example, Bill Gates was seen as The Visionary for his innovative ideas, and Anita Roddick, founder of Body Shop was seen as The Improver as she wanted to improve the environment using natural ingredients in her products and ridding harsh chemicals and animal testing of cosmetics.Zahorsky (2008) identifies that there are nine personality character references of entrepreneursThe Improver with this personality eccentric the entrepreneur is more focused on using their conjunction as a means to improve the world / environment. They have an ability to run their business with high integrity and ethics. Example of an entrepreneur, Anita Roddick, founder of The Body Shop.The Advisor this business personality types put forwards a high level of supporter and advice to customers. The motto with this personality type is the customer is right and everything must be done to please them. This personality types build their companies to become customer focused. Example of an entrepreneur, posterior Nordstrom, Founder of Nordstrom. The Superstar with this personality type the business is normally centred around the charisma and high energy of the superstar CEO and more than often the business is built around the entrepreneurs own personal brand. Example of an entrepreneur, Donald Trump, CEO of Trump Hotels and Casino Resorts.The Artist with this personality type the entrepreneur leave tend to build their business around the unique talents and creativities they posses for other businesses demanding creativity such as web design. Example of entrepreneur, Scott Adams, creator of Dilbert.The Visionary an entrepreneur with the visionary personality type allow intimately in all probability be based on the future vision and thoughts of the founder. This personality type leave behind have a high peak of curiosity to understand the world around you and set up plans to avoid the problems. Example of entrepreneur, Bill Gates, Founder of Microsoft Inc. The Analyst this personality type is often the tush for science, engineering, or computing firms that are well known for problem solving. The entrepreneur possessing this personality type pull up stakes run their business as an analyst and continuously focus on fixing problems in a logical way. Example of entrepreneur, Gordon Moore, Intel Founder.The Fireball the entrepreneur with this personality type will be full of life, energy, and optimism. Their company would make customers feel the firm has a get it done attitude in a fun way. Example of entrepreneur, Malcolm Forbes, Publisher, Forbes Magazine.The Hero the business run by the hero personality type would have an incredible will and ability to lead their company through any challenge and can assemble bully companies. Ex ample of entrepreneur, Jack Welch, CEO GE.The Healer the healer personality leaves nurturing and harmony to their business and an ability to survive with an inner calm. Example of entrepreneur, Ben Cohen, Co-Founder of Ben Jerrys Ice Cream. An entrepreneurs business personality types and traits are nigh of the key success factors that blend with the ineluctably of the business. With this combination businesses excel further.The media gives a great deal of assist to those who start their businesses with nothing and turning it into large successful organisation. An increasing number of entrepreneurs are spring chicken individuals with fresh ideas and an energetic attitude. However an entrepreneurs age, educational background, and previous business-related experience is not as nearly as important as his or her desire to learn and willingness to bounce back from the obstacles associated with creating a new business endeavour (a trait that successful entrepreneurs share).A typical entrepreneur starts their business by using their savings, re-mortgaging their house, or borrowing from friends or family at a low or interest free rate which can be skilful when starting out. Eventually the business starts to grow or the finance sources start to dry up, either way the business is in need of financing, which is defined as bills to implement a project it is usually used to mean money lent, or right provided (mos.gov 2008).When subatomic businesses have actually become successful and have a track record then venture capital firms and banks will consider funding the business. Venture capitalists are defined as professionally managed organisational setors (Harrison and Mason 1992). Even though banks are a popular and major source of finance for new and growing businesses, they have become less willing to lend money to new ventures (Mason and Harrison 1995, business backer book).Research from Oates (1992) suggests that major retail banks are apprehensive to fi nancing new ventures after the losses in the early 1900s. Prior to this banks had been willing provide high levels of monetary resource to finance start-up and expanding businesses, this was during the macro-economic boom of the mid 1980s (Murray 1994 business angel book). However the recession following this growth led to a considerable increase in the number of small businesses failing.The bank of Englands quarterly bulletin in February 1994 report that throughout the recession (1992 1993) business failures had risen to 55,000 a year. This compared to a more normal rate in the 1980s had more than doubled, and the vast majority of these failures were in the small business sector. Thus the effect of this was a substantial increase in bad debts suffered by banks. The strain of these bad debts and their negative impacts on profits led to banks being reluctant to finance businesses that have just started out.Smith (1994 business angel book) suggests that many banks prefer to use shor t-term overdraft finance rather than long-term, fixed-rate pecuniary packages. This is because shorter-term packages are not as damaging when the business experiences financial difficulties, hitherto banks will cater for new businesses that have an passing strong and promising proposal. This has led banks to avoid financing small / medium sized firms, thus release a gap in the market for financing smaller businesses.The venture capital industry in the UK is very well developed but does not adequately cater for young businesses. Murray (1994, business angel book) views the venture capital industry as not being a major source of finance for entrepreneurial ventures. One of the reasons why nearly venture capitalists avoid small business investments is because they are not pleased with administrative tasks that come with these investments, especially when the likely conk is not substantial and does not compensate the amount of work askd for young entrepreneurial ventures.Accordin g to Smith (1994 business angel book) venture capital firms focus more a great deal on management buyouts and the development of established existing businesses, rather than new ventures. Due to this locating of venture capitalists it has led them away from the small / medium sized firms, which excessively has resulted in a gap for new entrepreneurial ventures. The table ? below highlights some of the main differences between business angels and venture capitalists.Table ? Business Angels vc Venture CapitalistsSource www. c0ventures.comAs it can be seen from table there are many differences between business angels and venture capitalists. The table highlights an imperative point discussed earlier of business angels investing at the start-up / early stage of a small business whereas venture capitalists invest at a later stage of medium to large organisations. The table also shows that business angels are more active and work force on in their investments (active angels) whereas the venture capitalists are more strategic.The gap between family/friends and banks is often referred to as an equity gap. Financial Times interviewed Peter Jones (an extremely successful entrepreneur and investor) who quotes that there is a funding gap out there for entrepreneurs starting out and that finance is available for them but very saturated to find and at this stage for an entrepreneur it is probably the single most biggest hurdle (Moules, Financial Times, 2006).The challenge of overcoming this equity gap is amongst one of the topmost reasons for small businesses not achieving their full emf. According to an article in The Guardian most entrepreneurs overcome this obstacle by obtaining finance from Business Angels (Kollewe 2007, Guardian). Business Angels are successful entrepreneurs running successful businesses, they invest in budding entrepreneurs in return for a percentage of the business and tend to invest in businesses that have the potential to return a healthy pr ofit.The term angel was originated by Broadway insiders in the early 1900s to describe wealthy theatre-goers who made high risk investments in theatrical productions (Mason 2005). The term business angel was given to those individuals who perform essentially the same function in a business context (Benjamin and Margulis 2000). However, this type of business financing has only become significant since the 1950s and 1960s.Business angels are now defined as private, wealthy individuals who invest their own money as well as their time in small, young, unquoted companies with whom they have no family connections (Deakins and Freel 2003).BNET.com (2007) defines business angels as an affluent individual who provides capital for a business, typically an equity investment. It is well known that angels rarely loan money without any strings attached (i.e. investing in return for a percentage of the business equity) they most often support entrepreneurs and new businesses.Landstrom (1993) state s that most business angels have the same characteristics overall. He profiles them as heterogeneous host of people, as almost all business angels are or have been entrepreneurs from different backgrounds.However research carried out by Coveney and Moore (1998) suggests that there is more to a business angel than just absent to make money. Coveney and Moore (1998) discuss that there are six different types of business angels. (See table 1 table of different angels in book page 11).Entrepreneur Angels these are the most active angels and experienced investors. They tend to have been successful entrepreneurs and now looking for ways to diversify their portfolio or expand their current business. They are well known for making frequent and large scale investments, not just for financial gain but for satisfaction of making investments and interacting with the founders/managers. They are also considerable wealthier than other individual business angels.Corporate Angels these are comp anies that make angel type investments. These types of angels have been found to invest larger funds than other business angels and have corporate resources at their disposal (Coveney and Moore 1998). They tend to invest mainly for financial gain. Income Seeking Angels are active business angels who make some and small investments for financial gain and to generate income/job for themselves. Wealth Maximising Angels are a group of active business angels who have made some(prenominal) investments in new and growing ventures, they make their investments primarily for financial gain. They are generally wealthy but not as wealthy as entrepreneur angels. Latent Angels these angels are inactive angels who have made one or two investments in the old but not in the cash in ones chips troika years. Latent angels are self made private individuals who are very wealthy and have vast amounts of funds to invest. When looking to invest latent angels will be concerned with location of the v enture as they would prefer to invest in opportunities close to home, as shown in table (ba v svc)?. Virgin Angels are angels who have not made an investment as of yet but are looking to finance new and growing businesses to create an income for themselves and to increase the return on their investment as much as they can. Virgin angels have fewer funds to invest than active angels. According to Mason and Harrison (1995)(business angels book) there are more virgin angels than active angels and that if half of the virgin angels became active then the total informal venture capital market would grow to ten times the size of formal venture capital market.Most of the time angels prefer to be active angels as they like to invest in ventures and monitor their investments to promise success. Similarly they prefer to invest in new young companies that are at their start-up stage and within close proximity to their home or work place (Harrison et al 2003). However research shows that altho ugh angels prefer to be active angels there are more virgin angels than active. (please see chart below).Chart ? Business Angel market could become 10 times largerSource www.1000ventures.comChart (above) shows that in 2000 there were more virgin angels recorded than active angels, this suggests that there are reasons for business angels not being active in investing in entrepreneurial ventures. If the virgin angels could find the right venture to invest in then the business angel market could potentially increase significantly. Could this be solved by angels den?Mason and Harrison (1995)(business angel book) state that most small / medium sized businesses are successful because of the right angel that has backed the business. This could also suggest that the wrong angel could mean failure of the business which is not the case as business angels have experience in all areas of running an organisation but are experts in certain areas, thus this does not mean the business would be un successful.As mentioned earlier Business Angels fulfil an increasingly important funding niche, as banks only loan capital at interest, and venture capitalists invest relatively large sums generally when businesses wish to expand (see appendix I), which leaves the angels to support numerous new businesses each year.The critical issue for young vibrant businesses is finding sufficient funding for start-up and growth (Southon, Financial Times, 2008). Most entrepreneurs first look to banks, and venture capitalists for funding, these sources however can fund only a small percentage of businesses. It is now common for young businesses to find funding from business angels as they cater for this funding niche.The involvement of banks investing in entrepreneurs is cut back than the venture capitalist investments (Fiet and Fraser 1994). Some of the benefits of banks entering venture capital finance are discussed by Fiet and Fraser (1994). One of these benefits suggests that the participatio n of banks would contribute to the elimination of the widely reported capital gap that may exist for funding new ventures.However due to the low involvement of banks investing in new and young entrepreneurs this has increase the involvement of business angels.There have been surprisingly few attempts to compare business angels with non-investors (banks). This is largely due to the fact that their exact population is unknown, however as mentioned earlier a number of studies show that there has been a significant increase in recent years.It is evident from Fiet and Frasers (1994) research that business angels provide much more funds for new businesses than venture capital firms and banks, yet their existence is not as well known as banks. Mason and Harrison (1995)(business angel book) state that the reason for business angels not being well know as other investments is because many of the investments made by business angels goes unrecorded by the government due to the scale of investm ents.Research undertaken by Macht (2007) discusses the post-investment period of business angels and their involvement and impact upon their investments. This study focuses solely on business angels where a accompany was administrated online and electronically to business angels to explore their involvement and impact on their investments after the investment had been made, hence post-involvement. This was a useful analysis of why business angels invest and what motivates them.However the research does not consider the entrepreneurs or any other investment when the analysis was carried out. The study by Macht (2007) could add value to this research when assessing what factors business angels contribute in their investment and what sets them apart from banks.There are many banks offering loans to entrepreneurs to either start up their business or support the magnification of the business. Banks requires a thorough business plan submitted for them to evaluate whether the individual is credit worthy, whether they will be able to pay their loan, and within what timescale.According to Small Business Administration (SBA) the most common way entrepreneurs finance their growing or expanding business is through banks (SBA 2008). Banks provide the finance needed if the individual can manifest the ability to keep in business, and their ability to repay the loan and meet the firms other obligations. SBA (2008) state that a more difficult route of obtaining finance is from business angels and venture capitalists as these individuals and firms assist companies to grown in exchange for equity or partial ownership. (refer to appendix show a graph of a business life cycle, i.e. start-up, expansion, maturity etc).SBA (2008) assert that there is no such thing as one hundred percent financing and that it would be required from the entrepreneur to invest some funds into the business before a lender will provide financing, especially banks. However research has shown that bus iness angels have financed entrepreneurial ventures one hundred percent based on the entrepreneurs idea / invention.Dragons Den has become a popular show on television where a group of angels form a network to invest in budding entrepreneurs who livery their business ideas to the business angels. It has become apparent from this program that business angels have provided one hundred percent finance in entrepreneurial ventures.When applying for finance to business angels they generally would want to know details of the entrepreneurs current financial situation and background, however with banks it is much more complex than this. There are several questions a bank would need answers to before they would consider any exercise for a business loan such as, the specific spirit of the loan, the amount you are requesting, when and how long you would need the funds, how the loan will be repaid, what collateral will be used, and whether the business owners will provide a personal guaranty of some sort.A typical loan request involves the following componentsStatement of blueprint outlining your purpose of the loan, what it will be needed for, and for how long etc.Business plan outlining what the business does and its short and long term goals.Financial statements this will outline the financial capacity and performance of the business which is important as it will give the lender an insight to how you have generated revenue in the past and how you will continue to do so in the future. A thorough complete loan application alone would not suffice when borrowing funds from a bank. Further evaluation would need to be done on an individuals financial background to see if they are credit worthy, this is different to the evaluation of the business financials. According to Barclays Plc bank, there are three aspects of credit in making loans decisions which are outlined below.Character a check on your financial status and personal credit history.Capacity having sufficien t cash flow to pay off the loan.Collateral providing assurance to the lenders as a last resort should the business not prove profitable.Collateral is a key aspect when applying for finance to a bank. Banks would want to lower the risk of lending as much as possible so that they would feel more confident the loan would be paid on time and in full, which is why they require security on assets, i.e. house, car.Majority of banks offer various loan packages for those wishing to start up or expand their business. This is with the intention to suit the loan to the needs of the particular business. For example, a common loan that banks offer are the small business start up loan package, which are only available on a guaranty basis. The small business loans are not fully guaranteed by the Government where normally if a payment default occurs the Government will reimburse the lender for its loss up to a certain percentage.To be eligible for a small business loan the firm must not exceed one hundred employees in a wholesale business, or generate more than $21 million in yearly revenue (HSBC 2008). This varies for a manufacturing firm (please refer to appendix ? SBA slides 15). In addition to this, assistance cannot be proved to non-profit organisations, firms involved in illegal activities, or a monopoly situation or businesses engaged in pyramid sales. The small business loan can be used for many purposes such as, purchase of land and buildings, long or short term working capital needs, or purchasing an existing business.Other loans offered by banks are special purpose loans, and basic micro-loans. The special purpose loans serve specific markets such as export markets. The special purpose loan is designed to be short lived that is only required at times of market needs. The basic micro-loans are small loans for small businesses who struggle to obtain conventional financing but have good prospects for repaying the loan back.The micro-loans are under $35,000 but on ave rage the loan size is $13,000, according to Halifax bank plc. These loans help finance the equity gap however are subject to the entrepreneurs potential in repaying the loan. (need to find accurate referencing for these banks mentioned, also change $ to . P.s. click on slide link for info).As mentioned earlier, if approaching a business angel for finance then the business angel would need to know financial and background specifics of the entrepreneur and the venture. For an entrepreneur, preparing a business plan is vital whether it be for banks, venture capitalists, or business angels. The hardest part to obtaining finance from a business angel is to actually finding business angels, as business angels are not as nationally known as banks nor are they known for financing as many investments as banks do. Similarly it has been hard for business angels to finance investments due to a lack of access to a range of investments.Hughes (1996) found that business angels would invest more f requently if they had access to a better range of investments however he also stated that many potential ventures which meet the minimum criteria of business angels still goes unfunded. This shows that the right type of business angel cannot gain access to the right type of venture.Recent research shows that in order to overcome the hurdle of the angel meeting the right investment, vice versus, business angels have come together to form networks (FT Moules 2007). This allows a group of angels to combine their funds together to offer larger investments for entrepreneurs needing larger finance.Thus the entrepreneur also benefits from having more than one business angel on board to provide the business with their expertise and knowledge. As mentioned earlier, Dragons Den is a group of business angels who invest in entrepreneurial ventures that are brought forward to them. There have been several cases where more than one angel has invested in the same venture.There has been further dev elopment of the traditional angel networks of meeting entrepreneurs formulation to face. Angels Den has been one of many to launch an online networking website that specifically aims to connect entrepreneurs with business angels (FT Moules 2007). How this works is that the users of this swear out would pay a small fee of around 100 to pitch an idea to the websites private investors. If the idea is liked then entrepreneur must pay a larger fee of around 400 to pitch a full business plan. From this point if the investor is interested in the pitch then a face to face meeting is arranged.The fees that are charged for these websites are to be said a fraction of the cost of traditional marketing, according to Financial Times 2007, Moules. Angels Den does not take equity stakes in funded businesses or a percentage cut from completed deals, and the service is free to business angels (angelsden.co.uk). The website encourages business angels to join which is free for them to do so this is right for entrepreneurs as it does not discourage business angels from joining hence increasing their chances of finding the right angel.This method is gradually becoming well known to the public thus increasing the exposure of business angels. It would therefore become much easier for entrepreneurs to find business angels and not feel banks and venture capitalists are the only affable alternatives for finance, especially for those that have poor credit and no security to offer banks. It would also be easier for the government to measure the investment activity on annual basis and realise that business angels do make more investments than currently recorded that fill the equity gap (FT Mason, 2007).There had been attempts in the past to accomplish similar objectives to the online networking sites as discussed above, these were referred to as business introduction services. They had tried to act as communicators between entrepreneurs seeking capital and interested potential investo rs however this service did not exist online. According to Hughes (1996) these organisations had not been very successful in overcoming the problem of filling the equity gap, which still exists to this day.An article by the businesszone.co.uk states that one of the most common mistakes that individuals starting out in business make is assuming that they can reach their full potential by themselves. Whereas Dragons Den angels Theo Paphitis, and Peter Jones claim that the biggest mistake entrepreneurs make is over-estimating the value of their company and not having enough cash to sustain the business. As Theo Paphitis quotes cash is king.Even though business angels appear to be more beneficial as investors than banks Drury (2008)(nzherald.co.nz) states that the vast majority of business angel deals do not proceed well. This can be because companies can often take much more time than the angel had thought and also more cash than forecasted. This could also be because the angel that h as made the investment is a first time angel investor and thus lack experience. Drury (2008) also states that some angel investors may not know they are an angel yet as anyone moderately wealthy could potentially be an angel if they find a venture to invest in.There are many ways to define beneficial, prenhall.co.uk defines beneficial as producing or promoting a favourable result. In terms of investing in entrepreneurs and which investment would be beneficial for entrepreneurial ventures this can be measured by reviewing what factors are returnous for the entrepreneur and their business.Some of the factors can include the followingFinance providedInterest rateExpertiseKnowledge employ business angel contactsInvolvement from the investor to improve thingsNo involvement from the investor, therefore less interference in the businessStudies have shown that business angels can provide added value beyond financial capital (Ehrlich et al 1994). Having a business angel invest in the ventur e can help sustain free-enterprise(a) advantage, which is beneficial for the entrepreneurs, as the angels bring more than capital to the business they can bring their experience, contacts, and expertise to progress the business further.The resource-based perspective argues that sustained competitive advantage is generated by the unique bundle of resources at t