This study lists the obstacles that start-up companies face in the corporate world, the unique business form, the marketing mix (4 Ps) and different means of funding a business. The case of Smarts starting a café has been addressed in-depth and it is proposed that they start a sole-owned company. They could also fund their venture by obtaining bank loans, taking into account the benefits of this approach.
The Smarts are considering starting a café that has acquired some experience in cooking and brewing coffee on their recent trip to Egypt. They have sought insights into starting a business from different sources and would like to know about the possible challenges they will encounter, the best business form to start, the types of leadership to employ and the financing methods available to finance business startups. Though starting a café solely seems to be easier, there are numerous costs and hurdles that are associated with it (“The Complete Breakdown of Food Truck Operation Costs”, 2014).
Challenges Facing a Startup Business
Raising finance. Huge sums of finances are required in rolling out the product or service, hiring key staff as well as fitting out the new office spaces for the purpose of starting up the business. Such costs require one to set aside a reasonable startup capital. Taking into consideration that the Smarts want to open Egyptian Delights Café that will require importation of most of the raw materials from Egypt, it is apparent that they really need huge capital. Their combined net salaries may not be sufficient to facilitate all the initial start-up expenses. The Smarts will be compelled to seek a bank loan in a bid to top up to their initial financial requirements. While some entrepreneurs aim at landing at angel investors, attempting to convince them of the worthiness of their money in the business is a big challenge, particularly for first businesses. In an attempt to overcome this challenge, one needs to develop the capability of selling their vision and ideas to the potential investors.
Marriage and lifestyle. Starting a business will require not only deployment of necessary resources but also the dedication of time so as to oversee the business pick, especially during the initial stages. The managing of the new business will take more time and probably cut the private hours, which are necessary for going on holidays or trips abroad (Jordan, 2013). Thus, the entrepreneurs will have to change their lifestyles and perhaps, their marriage may be affected because of reduced time of having fun together as a family.
Form of Business
The most appropriate form of business that the Smarts can take is the sole proprietorship. A sole proprietorship is a business which does not exist legally on its own apart from the owner. The losses and incomes arising out of this business are taxed basing on the personal income tax returns of the owner. The sole proprietorship, indeed, is the simplest form of business under which an individual may operate a business. The owner of this kind of business is responsible for its debts personally. This form of business is popular among the startup business based on its simplicity in starting and the nominal cost involved. Considering all aspects surrounding the Smarts, it is imperative that the new startup café should take the form of a sole proprietorship (“Answers to 20 of the Most Frequently Asked Questions about U.S. Small Business”, 2016).
Building a Team
The Smarts should hire a team to oversee the operations of the business as from the start of the operations of the café. Running a café is a time-consuming process and, given the fact that the Smarts are employed, they cannot have enough time to run it on their own due to the challenges that are associated with running a startup, especially when you are new in the game (Alton, 2017). Similarly, they need expertise which can only be found through the hiring of the experts to run the café from the beginning. Therefore, while selecting the team to run the café, they should consider selecting the individuals who are familiar with operations of cafés and possess the necessary experience.
Leadership and Motivation
The Smarts can lead their employees by allowing them an opportunity to participate in running and decision-making process. Everyone should be given a chance to participate, contribute ideas freely and encourage innovative solutions. As such, the Smarts should use the democratic or participative leadership style. Motivation in any organization is crucial as it stimulates the employees to focus their energy on meeting the goals and objectives set by the management. Such motivation will enable the Smarts to have a good relationship with clients and professional associates (“7 Habits of Great Small Business Owners”, 2013).
Use of the marketing mix is an approach of ensuring that the right products or services avail in correct places. Thus, the 4 Ps represent a crucial instrument in understanding which service or product one can offer as well as how to plan for the product or service offering effectively. The 4 Ps are:
Promotion. Involves activities such as advertising that are aimed at ensuring that a company has more sales and the public is aware of it. The promotion channels used should be able to reach the target customers. For instance, if the product is meant for young people, social media can be a very effective promotion tool (“Social Media”, 2017).
For the Smarts to promote their café, they need to adopt some strategies that can see the demand for their products rise. First, they can choose to price their products a bit lower than the products of the competitors in the industry, which will ensure that the demand for their product increases. However, while pursuing this strategy, they need to take caution not to price their products too low because the price at times reflects quality. Second, the Smarts can promote their café through advertisements, particularly by utilizing the social media, billboards, and print media. The advertising messages should be able to tell the benefits the customers will accrue by consuming the food and beverages at their café.
Product. A product is an intangible service or tangible good that seems to meet the specific customer needs or demand. In the market, all products adhere to a coherent product lifecycle. Therefore, it is pertinent for the marketers to understand comprehensively and plan for the needs of the various stages in the product cycle. Also, they need to be aware of the unique challenges associated with each stage so as to prepare beforehand on how to deal with them. Besides, the marketers need to understand the product benefits as well as the salient features of the product or service. Likewise, they need to identify the possible buyers of their services or product.
Price. The given component covers the real amount it will cost the consumer to acquire the product or service. The price tagged to a product or service reflects the value of the service or product that the consumer buys. It is imperative for business owners to understand fully how the customer perceives what they are offering.
Pricing strategy can affect the supply and demand of any product or service in the market. When the price is a bit low, the demand will increase while the supply tends to increase. On the other hand, when the price is higher and even higher as compared to the existing products or services in the market, then, the demand will decrease as the supply increases. Accordingly, the Smarts must price their products in relation to the prevailing products in the market so that they are able to sell them.
Place. This component deals with the way of how the product or service will reach the customer. Therefore, distribution, under this component, is critical. The marketers should assess the best distribution channel that fits a product or service.
The world of business orbits around the capital. The Smarts will need $50,000 to purchase a new truck required for the transport services, equipment will take $30,000, ingredients – $15,000, and labor costs will amount to $10,000. Moreover, additional $50,000 will be required to support the business during the first months of operations before cash flows become steady. The Smarts will probably encounter the deficiency of $80,000, and, therefore, will have to look for a financing option.
For startups, it is normally hard to obtain the source of finance due to the uncertainties regarding their viability. Moreover, lack of funds can hinder important activities in the new business such as hiring skilled employees (“11 Challenges Startups Face”, 2016). One of the ways that the Smarts can use to obtain funds for their startup involves angel investors – individuals who invest in startup companies during the early stages in return for a 20-25 % return on their investment. Venture capitalist is another form of financing. The disadvantage of this form of funding is that a venture capitalist has to be given a share of the ownership of the business. Additionally, the Smarts can secure a loan from a bank to finance their project. However, among these sources of funding, the Smarts can consider obtaining a loan from a bank and pay back at an interest that is spread over a given period of time. The given method will see them maintain ownership of the businesses, and, also, they can pay back the loan using their salaries and the proceeds from the business.
The Smarts have not only made an informed decision to start a café but also have gone ahead to research the commercial viability of their business. Startup ventures, normally, encounter a number of challenges such as financing challenges, management issues, and competition from existing businesses, however, the Smarts will specifically encounter the challenge of obtaining finances. The available sources of financing their business include venture capitalists, angel investors, grants and bank loans. Considering the impacts of each method of financing, it is recommendable for the Smarts to consider bank loans as their source of financing the additional costs. In regard to the marketing mix, the Smart will have to take into account all the 4Ps in the operation strategy so as to exploit fully this business opportunity.
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