Small businesses are the heart of the economic and social system. The risks are indeed great, but the opportunities for success, both financial and psychological, are greater. The characteristics of the successful small business owner are rewarded a very huge fortune. Creativity, innovation, and willingness to take risk also characterize the most successful managers in business. But starting and running a successful small business is no easy task. Many prospective small business owners want to go into business for themselves. So, they hope to avoid many traps.
The objectives:
- To define a small business concept and how to begin small business.
- To qualify small business categories.
- To characterize success and failure for small business.
- To describe how small businesses are financing
Concept of small business
The smallest businesses, often located in private homes, are called micro businesses. A micro business is a small business or enterprise with less than 5 employees and little access to commercial banking. Many micro businesses are side-businesses run via the internet. “Size isn’t the issue. The issue is which firms are adding jobs “(Griffin R., Elbert R. 1995:220).
Small businesses are common in many countries, depending on the economic system in operation. It include: small shops, hairdressers, lawyers, accountants, restaurants, guest houses, photographers and so on. A small business can not be a part of another business because operators must be their own bosses. And of course the small business must have relatively little influence in its market.
How to begin your own business?
Many people try to enter the small business market but usually they failed and lost their money. So you should have a great idea and be brave. If you want to begin your own business you should know these tips:
1. Carefully examine your personality and your skills. It's not a job for everyone.
2. Calculate how much available capital you'll use to start your small business. The more money you have, the wider your options for the type of small business you can start.
3. Decide what type of business you would like to begin.
4. Create a detailed business plan. A plan will help you get your thoughts and goals in order. A business plan includes business information, financial data and supporting documentation like licenses and letters of intent from buyers.
5. Get your business license. For certain types of businesses, you must file for a license.
6. Pick a location for your business. Lease all the necessary equipment. Set a day for opening. Advertise and inform the media so that people know about your business and you can begin getting customers.
So if you perform these steps you could begin your business. Not forget that you risk, but if you want to have business you should do this.
Small business success and failure (advantages and disadvantages)
If you begin your business you should be very careful and you can’t be simple - minded, because you will go broke. Statistic shows that: if 100 small businesses are started 20 of them will be gone by the end of the first year; about 17 will go out of the business in the second year and about 30 will go out by the end of the fifth year. So about 67 small businesses will have failed. It is quite a large number. Only 33 percent are likely to survive. Many small businesses failed because of managerial incompetence and inadequate financial planning.
There are some common causes of both failure and success.
Causes of small business failure:
- Managerial incompetence or inexperience – many businesses are started by people with little or no management training or experience. So if managers do not know how to make basic business decisions they are unlikely to be successful in the long run.
- Insufficient capital – a new business should have enough capital to operate at least six months without earning a profit.
- Neglect – small business owners who are unwilling to work long hours and perform many different tasks are likely to fail.
- Buying too much on credit.
- Borrowing money without planning how and when to pay it back.
Causes of small business success:
- Hard work and dedication – if you invest a lot of time in your business in the future you will have successful and profitable business.
- Flexibility – in small business are easy to adapt to changing market demands.
- Decisions – that are made more rapidly in small firms, because there are fewer people whose opinions must be considered.
It is a fact that hundreds of people become millionaires each year by starting their own businesses.
Financing the small business
If you want to begin small business you should have enough money. It is very necessary point for everyone owner.
The personal resources are the most important source of funds for new business. It include accumulative value, life-insurance, savings account. Business people should borrow some money because the personal resources are not enough.
The lending institutions are financial institutions. They grant a credit for small business. Financial institution promises to lend some money for small business a predetermined sum on demand. Lending institutions are more likely to help finance than new business because the risks are better understood.
Support from
friends and relatives are very necessary too. Often this capital consists of assets such as a computer, automobile and of course cash. Buy if the business goes bad it can create different emotional losses and of course disagreements between friends and relatives.
Investors – it is a group of people who makes an investment. But when you start a business there are a very few people who want to invest in yours business.
Government loans have strict guidelines so in small business it is the least part.
Other sources of funding are direct loans (when financial institutions do not qualify for loans), guaranteed loans (direct loan made by institution which will be repaid).
PRODUCT DESIGN
First step is
Idea generation. Market ideas are derived from customer needs. Identification of market needs can then lead to the development of new technologies and products to meet those needs. Market needs can also be identified by observing the performance of those needs, and other products. Many of the most successful products began as imitations or slight modifications of earlier products that had done well. Thus, exploitation of technology can also be a rich source of ideas for new products.
Product selection. That ideas should be developed into new-product need to meet three tests: market potential, financial feasibility, and operations compatibility. Before a new-product idea is put into preliminary design, it should be subjected to analysis organized around these tests. The purpose of product selection analysis is to identify the best ideas, not to reach a conclusive decision to market and produce the product. After initial development, more extensive analysis may be conducted through test markets and pilot operations before a final decision is made to introduce the product. Thus product selection analysis may be quite subjective in nature and based on somewhat limited information. All methods should be used with care because the estimates are likely to be very subjective. As the methods become known throughout the organization, most new products will routinely pass these screening tests.
Preliminary product design. This stage of the product-design process is concerned with developing the best design for the new-product idea. In preliminary design, a great number of tradeoffs between cost, quality, and product performance are considered. The result should be a product design which is competitive in the marketplace and producible by operations. These design goals are, of course, exceedingly difficult to meet. As a result of product selection, only the bare bones of a product will be defined. Preliminary product design must then specify the product completely.
Prototype construction. Prototype construction can take many different forms. One off them, several prototypes which closely resemble the final product may be made by hand. When the prototype has been tested successfully, the final design can be finished and the service franchised or developed on a large-scale basis.
Testing. The purpose of a test market is to gather quantitative data on customer acceptance of the product. Testing of prototypes is aimed at verifying marketing and technical performance. One way to assess market performance is to build enough prototypes to support a test market for the new product. Test markets typically last from 6 months to 2 years and limited to a small geographical region.
Final design. During the final design phase, drawings and specifications for the product are developed. As a result of prototype testing, certain changes may be tested further to ensure final product performance. Attention will then focus on completing the design specifications so that production can proceed.
The product development process is primarily concerned with the conversion of the product vision into a functional and manufacturable reality. As such, product development tends to have more of an engineering focus, dealing with the application of new technology and the creation and testing of functional prototypes
Regardless of organizational approach used for new-product development, the steps followed in developing new products are usually the same. Figure 3.3 is an idealized model of the new-product development process, which consists of the six steps described below.
NEW-PRODUCT DEVELOPMENT PROCESS
Idea generation. Ideas can be generated from the market or from the existing technology. Market ideas are derived from customer needs. For example, there might be a need for a new breakfast food which is nutritional and still good to eat or for a new type of house paint which does not peel. Identification of market needs can then lead to the development of new technologies and products to meet those needs. Market needs can also be identified by observing the performance of those needs. Market needs can also be identified by observing the performance of other products. Many of the most successful products began as imitations or slight modifications of earlier products that had done well. On the other hand, ideas can spring from available technology. When nylon was invented by Du Pont, a whole range of new products was made possible. Examples of other technologies which have spawned new products are those involving plastics, semiconductors, integrated circuits, computers, and microwaves. Thus, exploitation of technology can also be a rich source of ideas for new products.
Product selection. Not all new ideas should be developed into new products. New-product ideas need to meet at least three tests: market potential, financial feasibility, and operations compatibility. Before a new-product idea is put into preliminary design, it should be subjected to analysis organized around these tests.
The purpose of product selection analysis is to identify the best ideas, not to reach a conclusive decision to market and produce the product. After initial development, more extensive analysis may be conducted through test markets and pilot operations before a final decision is made to introduce the product. Thus product selection analysis may be quite subjective in nature and based on somewhat limited information.
The purpose of product selection analysis is to identify the best ideas, not to reach a conclusive decision to market and produce the product. After initial development, more extensive analysis may be conducted through test markets and pilot operations before a final decision is made to introduce the product. Thus product selection analysis may be quite subjective in nature and based on somewhat limited information.
To assist in product analysis, several methods have been developed. One is a checklist scoring method that involves developing a list of factors along with a weight for each. Each factor is rated on s scale and a total weighted score is computed. If the total score is above a certain minimum level, the new-product idea may be selected for further development. Alternatively, the method may be used to rank products in priority order for selection. A new-product idea may be subjected to more rigorous financial analysis by computing an approximate return on investment.
The RI is simply the product of the probabilities and the projected profit margin divided by the total investment required for product development. The RI is thus a return-on-investment figure; it is not, however, discounted for the sum value of money.
Both the above methods should be used with care because the estimates are likely to be very subjective. As the methods become known throughout the organization, most new products will routinely pass these screening tests. In other words, the methods will have a tendency to become self-fulfilling prophecies. Thus, management needs to continue to ask probing questions about new-product screening decisions.
Preliminary product design. This stage of the product-design process is concerned with developing the best design for the new-product idea. If the preliminary design is approved, a prototype or prototypes may be built for further testing and analysis. In preliminary design, a great number of tradeoffs between cost, quality, and product performance are considered. The result should be a product design which is competitive in the marketplace and producible by operations. These design goals are, of course, exceedingly difficult to meet.
As a result of product selection, only the bare bones of a product will be defined. Preliminary product design must then specify the product completely. For example, suppose that a new CB radio is to be designed because the product selection phase has identified a weakness in the existing products on the market. It is thought that a radio with top-of-line performance can be designed for a middle-of-line price by incorporating new advances in miniature electronics. If such a radio can be built, it will lend considerable strength to marketing efforts. This is the extent f the information available at the end of the product selection phase.
During preliminary design of the radio, a great number of tradeoff decisions will be made. The radio will contain many components, and each of them has cost-performance tradeoff features. Furthermore, size may be a problem assuming the radio must eventually fit into a small housing. During preliminary design, all tradeoff decisions should be based on the design objective: a medium-priced radio with top-of-line performance. As part of preliminary design, the radio will probably be built in a laboratory to a test the integration and performance of the circuits. If these tests are successful, drawing of the preliminary design will be made.
Prototype construction. Prototype construction can take many different forms. First of all, several prototypes which closely resemble the final product may be made by hand. For example, the auto industry regularly makes clay models of new automobiles.
In the service industry, a prototype may be a single site where the service concept can be tested in actual use. Service can be modified, if necessary, to better meet customer needs. When the prototype has been tested successfully, the final design can be finished and the service franchised or developed on a large-scale basis.
Ray Kroc, the owner of McDonald’s restaurants, started with a prototype restaurants in San Bernardino, California. It was characterized by a very clean appearance, the original red and white colors, the limited menu, low prices, and so on. Kroc closely duplicated this facility as the McDonald’s franchise began to expand. The original restaurant was, in effect, a prototype service installation. In the future, as more services are standardized, greater use may be made of service prototypes.
Testing. Testing of prototypes is aimed at verifying marketing and technical performance. One way to assess market performance is to build enough prototypes to support a test market for the new product. Test markets typically last from 6 months to 2 years and limited to a small geographical region. The purpose of a test market is to gather quantitative data on customer acceptance of the product.
Prototypes are also tested for technical product performance. For example, all new military aircraft are tested by use of prototypes. Up to six prototype planes may be built and tested extensively before management approves the final production design. Engineering changes initiated as a result of prototype testing are then incorporated as part of the final design package.
Final design. During the final design phase, drawings and specifications for the product are developed. As a result of prototype testing, certain changes may be tested further to ensure final product performance. Attention will then focus on completing the design specifications so that production can proceed.
For services, the final design phase corresponds to fine tuning of standards and procedures which are prescribed for delivery of the service. For example, in the case of a bank, waiting-time standards for certain types of bank services may be specified.
New-product development process can show in model “New-product development process”
