Options for Becoming an Entrepreneur
Entrepreneurship is understood as willingness and capability of developing, organizing and managing a business venture along with its risks so as to make profits. Starting of a new business is a common example of entrepreneurship. An entrepreneur is the person who owns a venture, business, or company and is responsible for its development (Mellor & Coulton 2009, p. 14). This paper critically analyzes various options for becoming an entrepreneur. Four specific options are compared and contrasted. These are buying an outlet in an existing franchise or starting a new franchise; buying or starting a new corporate enterprise; starting a family business; and buying or starting an independent venture.
Description of the Industry
The selected type of business that I wish to do is high-end clothing retail business, which is in the fashion industry. The business would be located in the city of Dubai in the United Arab Emirates (UAE) market. Dubai is a popular shopping destination for those who want to buy clothes for men, women and even children (Seymour 2010, p. 53). This city-state wants to be the world’s Islam fashion capital and has established a special design district that offers tax breaks to designers and business organizations that are ready to relocate there (Gorman 2015). The clothing industry in the UAE is very competitive, and thus it would be important to spend a few months carrying out market research, learning trends in the industry, and creating a detailed business plan prior to entering the industry (Othman 2017, p. 1378).
I wish to enter the clothing retail business because it is in a thriving industry. The fashion industry is an industry that could help me get a stable income each month with sufficient scope for advancement. Gorman (2015) reported that there is an increase in spending on high-end Shariah-compliant clothes by people of the Islamic faith, just as the religion is expanding and is projected to become the largest religion globally by the year 2050. In the year 2013, Muslims spent an estimated $266 billion on clothes, and by 2019 their spending would reach roughly $484 billion (Gorman 2015). Therefore, the market for my business is a lucrative one and the venture is feasible. In addition, the clothing retail business is a type of business that matches my interests as an individual and meets the needs of my specific clientele, who comprise Muslim people in the UAE. In particular, I would focus on attire for Muslim men and women.
Type of Entrepreneur
The type of entrepreneur that I would like to be is sole proprietor. I am interested in becoming a sole proprietor given that the business is inexpensive and easy to register, all the profits made in the business would be mine to keep, and I will have direct control of the process of decision making. Furthermore, the working capital needed for starting the business is minimal and regulatory burden is light (Fleischman & Bryant 2010, p. 6). In addition, with this sort of entrepreneurship, the entrepreneur could operate the enterprise under his/her own name or could use a name that is fictitious. The fictitious name used is only a trade name and does not establish a legal entity that is distinct from the owner (Fay 2010, p. 46). However, a major shortcoming with this type of entrepreneurship is that the owner is individually liable for the debts of the enterprise.
Benefits and Drawbacks of the 4 Options
The benefits of starting a business as an independent venture include the fact that the person is his/her own boss, the costs for start-up are relatively low as there are minimal costs to creating an independent venture, the owner gets to keep all the profits, and the owner has maximum privacy. In addition, it is easy to change the legal structure of the business later on in case circumstances change (Woodfield, Woods & Shepherd 2017, p. 12). Also, creating and operating one’s own business is easy and straightforward, and the owner is able to wind up the business easily. Transfer or sale of the business could occur at the discretion of the independent entrepreneur. Lastly, the sole proprietor, as Wiese (2016, p. 38) pointed out, has complete decision-making power and control over the firm. The drawbacks include the fact that taking holidays could be hard for the entrepreneur, it could be difficult to retain workers of high-caliber, and the company’s life is limited. Moreover, the entrepreneur has unlimited liability for debts given that there is no legal distinction between company assets and personal assets. Also, the entrepreneur has all the responsibility for making daily corporate decisions, and one has limited capacity to raise capital (Mellor & Coulton 2009, p. 66).
A family business is understood as a commercial venture where members of the family are involved. One advantage of a family business is commitment. Given that the family’s needs are at stake, there is often a greater sense of accountability and commitment (Lansberg & Gersick 2015, p. 402). It is notable that such level of commitment is virtually not possible to generate in non-family companies. The lasting commitment results in extra benefits, for instance stronger customer relationships; a better understanding of the organization, industry and job; as well as more effective marketing and sales. The second advantage is stability of the firm. Usually, position within the family determines the member that would lead the business, and consequently, there is often longevity in leadership that brings about overall stability in the company (Ayranci 2010, p. 84).
The third advantage is reduced cost. Family workers in a family business, unlike regular employees, are usually ready to contribute their own money for purpose of ensuring the company’s long-term success. This could imply taking pay cuts or contributing funds. It is notable that this advantage is particularly important in challenging times for example during recessions where it is necessary for the top leaders to personally suffer or tighten the belt for the organization to survive (Parker 2016, p. 1245). The fourth advantage is long-term outlook. According to Fay (2010, p. 49), non-family businesses usually focus on attaining goals for this quarter whereas family businesses think many years, or even decades ahead. This long-term perspective and patience allows for good decision making and strategy.
The drawbacks include the following: first is family conflict. At any business organization, conflicts are bound to occur. In family businesses, long-lasting, deep-seated quarrels and fights could affect everyone in the organization and could draw divisive lines. Given that members of the same family are involved, conflicts could be a lot harder to solve and could lead to difficult endings (Umirzakova et al. 2016, p. 152). The second limitation is lack of succession planning. Most family businesses do not have succession plans either because there is a lot of trust in the family members to address this when the time is right, or because the leader has no desire to accept the fact that one day she/he would have to resign. Thirdly is nepotism. A lot of family-owned companies are disinclined to allow people from outside the family into top positions. Consequently, individuals are given positions for which they lack experience, education or skills (Parker 2016, p. 1250).
A corporate enterprise is generally a form of business whose liability is limited. This means that when such an organization is created, it will allow the entrepreneurs to keep their own finances and assets distinct from the company itself (Campbell 2011, p. 25). There are a number of benefits of a corporate enterprise. Firstly, this option of becoming an entrepreneur guarantees financial security since there is limited liability. The second advantage is that the corporate enterprise is a separate legal entity from the owner. Therefore, the firm would be able to exist beyond the life of the owners (Lupulescu 2015, p. 68). Thirdly, in a corporate enterprise, the directors of the firm are often the key shareholders. As such, both the company control and ownership remain in their hands. Decision making process is easy and quick, with little fuss, which allows for a more successful business management platform.
Even so, the drawbacks of a corporate enterprise include complex accounts. For example, there are more restrictive and complicated rules that govern the bookkeeping and accounts of such companies than sole proprietorships. The firm has to produce annual accounts incorporating balance sheets, double entry format, and other notes (Wells 2014, p.79). The second drawback pertains to cost. Setting up a corporate enterprise is generally costly. Thirdly is dilution of powers. Because of the nature of a corporate enterprise, disputes between the shareholders and directors are likely to occur given that their ideas of what is best for the firm differ. The management of the company would be further diluted when the company’s shares are sold so as to increase the funds of the organization, since increasingly more individuals have a say in how the firm is run (Tricker 2011, p. 389).
Buying an outlet in an existing franchise is also a notable option for becoming an entrepreneur. The first benefit to the franchisee is economies of scale. According to Cavaliere and Swerdlow (2008, p. 11), franchising allows a small entrepreneur to effectively compete within the marketplace and make the most of economies of scale. It is of note that a franchised network is able to purchase goods on more favorable rates compared to individual businesspersons. This offers a considerable advantage over smaller independent competitors. Additionally, the services, system, equipment and products that have to be tested in the marketplace would already have a degree of consumer acceptance (Woodfield, Woods & Shepherd 2017, p. 3). The second benefit is decreased risk since the franchisee’s risk of business failure is reduced. Because the franchisor has proven the business concept within the market before franchising, for instance through a pilot, many typical problems are likely to have been solved already and thus the risks to the franchisee are decreased (Madanoglu, Lee & Castrogiovanni 2013, p. 1005).
Thirdly, a franchise offers skilled management. M?ndez, Galindo and Sastre (2014, p. 845) pointed out that the franchisee would have access to quality training as well as assistance to establish her business from the first day. This helps the franchisee to avoid a lot of mistakes and pitfalls of independent entrepreneurs who are starting from scratch. The fourth advantage pertains to advertising. Franchisees are usually required to pay some financial contribution toward a central advertising fund that the franchisor administers. The contribution from the franchisor in addition to the pooling of finances from other franchisees enables the franchisees to access extensive advertising countrywide or regionally, which in turn serves to increase the brand awareness and the business’ profitability (M?ndez, Galindo & Sastre 2014, p. 847).
There are some drawbacks of buying a franchise. The first one pertains to reputation. According to Woodfield, Woods and Shepherd (2017, p. 4), the franchisee’s dependence on the power of the trade name of the franchisor could be a significant disadvantage if the franchisor, for instance through neglect or poor management, allows the brand to be called into disrepute. The franchisees share in the franchisor’s failures just as they share in its success and benefits, and the failures of the franchisors have a knock-on effect on their franchised network. The second drawback relates to control. The franchisees are subject to regulation and control by the franchisor through the operations manual and the franchise agreement (Madanoglu, Lee & Castrogiovanni 2013, p. 1006). The third shortcoming pertains to products. The franchisee has to pay royalties, in addition to a mark-up on services/goods received from the franchisor or the franchisor’s supplier. A franchisor is, in most cases, exclusively tied to the product supplier and is not allowed to sell similar or other products. The desire of the franchisee to grow could be frustrated by the franchisor’s narrow mindedness (Madanoglu, Lee & Castrogiovanni 2013, p. 1006). The other disadvantage relates to dependence. The franchisee could become over reliant on the support of the franchisor to the degree that she is unable to make independent decisions. The franchisee, in such situations, has practically become a disguised employee and the business would stagnate (Welter et al. 2017, p. 99).
Benefits and Drawbacks of buying an existing business versus starting one from scratch
The benefits of buying an existing business include the following: a market for the entrepreneur’s service/product has been established already, the difficult start-up work has been done already and the firm has procedures and plans in place, and existing managers and staffs would have experience that they may share with the entrepreneur (Wiese 2016, p. 37). In addition, the entrepreneur would acquire existing employees, clients, contacts, stock, equipment, plant, suppliers, and goodwill. Equally important, the firm has a financial history that gives the entrepreneur an idea of what to anticipate and could make it easier to attract investors and secure loans (Woodfield, Woods & Shepherd 2017, p. 5).
The drawbacks of buying an existing business include the fact that the business might be badly managed, poorly located or have low employee morale. Businesses that underperform may necessitate a significant amount of investment in order to make them profitable, and the business may require considerable improvements to old equipment and plant (Jianhong & Nadkarni 2017, p. 32). Furthermore, the personality of the seller and his/her established relationships might be a notable factor for the company’s success. Moreover, external factors like a declining industry or growing competition could affect the company’s future growth. Lastly, the entrepreneur would have to invest a considerable sum of money upfront and he/she would also need to budget for professional fees for accountants and solicitors (Mellor & Coulton 2009, p. 34).
The benefits of starting a business from scratch include the following: firstly, there is no baggage given that the business does not have any history for the entrepreneur to overcome when he/she starts a new business venture. Secondly, there are lower startup costs. Wiese (2016, p. 39) mentioned that depending on the type of business the entrepreneur is intending to initiate, the costs could be lower in comparison to a franchise business in which there are no up-front purchasing fees or supply costs. The third advantage pertains to site selection. When starting a business from scratch, the entrepreneur is able to choose the location in which to locate his/her business and the marketing procedures that he/she would like to follow (Woodfield, Woods & Shepherd 2017, p. 6). The fourth advantage relates to independence. When starting a business from scratch, the entrepreneur creates all business systems and makes all the decisions. Even so, there are a number of drawbacks. Firstly is limiting financing. When starting a business from scratch, financing for the company is harder to get. The second drawback is delayed profitability. Where the market is not established yet, it might take a long time to become profitable (Mellor & Coulton 2009, p. 38). Thirdly is the high risk of the business. Success of the business is completely dependent upon the entrepreneur and his/her business talents. The other limitation is certainly high commitment. It is of note that starting one’s own business calls for a higher commitment of both energy and time (Fleischman & Bryant 2010, p. 6).
In conclusion, this paper has thoroughly compared and contrasted a number of options for becoming an entrepreneur. The drawbacks and benefits of starting an independent business, starting a family business, starting/buying a new corporate enterprise, and starting/buying a franchise have been discussed. Based on the analysis, the recommendation made is that I will not acquire a venture. I would rather start my own business from scratch and operate it as an independent venture or sole proprietor. This is because the drawbacks of acquiring a venture outweigh the benefits derived. I would rather be a sole proprietor given that it is inexpensive and easy to register, all the profits made in the business would be mine to keep, and I will have direct control of the process of decision making. Besides, the working capital needed for starting the business is relatively small, and I would be able to choose the location in which to locate the business and the marketing procedures that I would like to follow.
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