UNIT -4

Avoiding Trademark Pitfalls

7 Tips to Avoid Common Trademark Pitfalls:

1. Select a distinctive mark.
In order for you to distinguish your goods and services from others, your trademark
must be distinctive, i.e. not confusingly similar to another’s mark for similar goods or
services. If your trademark confuses consumers as to the source of origin of your goods
or services, you run the risk of losing your mark and even a lawsuit for infringement. So,
make sure your mark is distinctive before you begin to use it in commerce.

Trademarks can be:

 Arbitrary (Apple for computers, Kodak for cameras) or

 Suggestive (Microsoft for microprocessor software)

However, trademark protection is not afforded to marks that are:

 Descriptive (Smartphone for smart phones) or

 Generic (Escalator, Realtor, Dumpster)

2. Conduct a search to see if any others are using your mark or

something confusingly similar.
Even if your mark is not identical to another’s mark, you could still be at risk. We
recommend searching through online search engines like Google and reviewing the
U.S. Patent and Trademark Office (“USPTO”) database records. Not all trademarks are
registered with the USPTO, but you still need to be cautious of using marks similar to
others that already exist. Run the search before registering your trademark or using it in
commerce.

Example of Confusingly Similar Names but Vastly Different Products

3. Register your mark with the USPTO.

Trademark registration gives you the exclusive right to use your mark in all 50 states for
the covered goods/services, except for prior users. The registration process can be
started based on the intent to use the mark in commerce, even if you haven’t used it
yet. After five years of continued use in commerce, a registered mark can become
incontestable, meaning that others cannot contest the validity of your mark.

4. Properly mark your trademark.

Remember this difference: a common law trademark (a mark that is not registered with
the USPTO) is marked with ™, and a mark that is registered with the USPTO is marked
with ®. Use the ™ symbol before you file your trademark application with the USPTO
and during the pendency of the federal trademark application. Upon receiving a federal
registration, switch the ™ symbols to ® symbols.

5. Use your trademark as a proper adjective.

The proper adjective describes the generic name of goods or services to which it
applies. For example, we stocked up on Q-tips® cotton swabs and Little Debbie® snack
cakes.

Incorrect:

Little Debbie® represents a third of the snack cake market.

Correct:

Little Debbie® snack cakes represent a third of the snack cake market.

The risk of using your mark as a noun instead of an adjective is total loss of your
trademark rights. If your mark is used as a noun and becomes a generic term for the
goods or services with which it is used, you will lose your exclusive rights to the term
and your competitors will be able to use it without risk of infringement. Two previously
trademarked terms that became generic are aspirin and escalator.
So, be sure to use your trademarks as a noun. Use your trademarks as an adjective
modifying the good or services. Pass the Jello-O dessert, please.

6. Format your trademark the same way every time.

Avoid these common inconsistencies in formatting:

 Using upper case and lower case

 Using a hyphen and no hyphen
 Including a space and no space
 Using various colors and fonts, if applicable

Example: Sportsbarn vs. Sports Barn vs. Sports-Barn

7. Avoid using marks that are identical to OR confusingly

similar to other’s marks.
Clearly, your use of a trademark that is identical to another’s mark may expose you to
trademark infringement. Just as important, though, your use of a mark that is
confusingly similar to another’s mark may also expose you to trademark infringement.

Factors of infringement include:

 Strength of plaintiff’s mark

 Similarity of plaintiff’s and defendant’s marks
 Similarity of products or services
 Similarity of channels of trade/customers
 Sophistication of customers
 Defendant’s intent in adopting it’s mark
 Actual confusion
 Likelihood of expansion of product lines

It is fair to use someone else’s trademark in order to identify the other party or its goods
and services. The use must not be misleading, and a disclaimer can be used to avoid
confusion.
Trademark mistakes are easy to make but can be avoided. Select a distinctive mark, do
your research, take the appropriate steps to protect your mark, and follow the rules of
proper use. You will avoid the pitfalls that are all-too-commonly made… even by the
pros.

Feasibility Analysis or Feasibility Study

A feasibility study is a detailed analysis that considers all of the critical aspects of a proposed
project in order to determine the likelihood of it succeeding.

Success in business may be defined primarily by return on investment, meaning that the project
will generate enough profit to justify the investment. However, many other important factors
may be identified on the plus or minus side, such as community reaction and environmental
impact.

Although feasibility studies can help project managers determine the risk and return of pursuing
a plan of action, several steps should be considered before moving forward.

Preliminary Analysis

Although each project can have unique goals and needs, there are some best practices for
conducting any feasibility study:

 Conduct a preliminary analysis, which involves getting feedback about the new concept
from the appropriate stakeholders
 Analyze and ask questions about the data obtained in the early phase of the study to
make sure that it's solid
 Conduct a market survey or market research to identify the market demand and
opportunity for pursuing the project or business
 Write an organizational, operational, or business plan, including identifying the amount
of labor needed, at what cost, and for how long
 Prepare a projected income statement, which includes revenue, operating costs,
and profit
 Prepare an opening day balance sheet
 Identify obstacles and any potential vulnerabilities, as well as how to deal with them
 Make an initial "go" or "no-go" decision about moving ahead with the plan
There are several different kinds of feasibility studies. Understanding
the types of feasibility studies and the technicalities of the concept is
important for any business. They are elaborated below:
1 – Technical Feasibility

Technical feasibility study checks for accessibility of technical resources in the

organization. In case technological resources exist, the study team will conduct
assessments to check whether the technical team can customize or update the existing
technology to suit the new method of workings for the project by properly checking the
health of the hardware and software.

Many factors need to be taken into consideration here, like staffing requirements,
transportation, and technological competency.

2 – Financial Feasibility

Financial feasibility allows an organization to determine cost-benefit analysis. It gives

details about the investment that has to go in to get the desired level of benefit (profit).
Factors such as total cost and expenses are considered to arrive simultaneously. With
this data, the companies know their present state of financial affairs and anticipate
future monetary requirements and the sources from which the company can acquire
them. Investors can largely benefit from the economic analysis done. Assessing
the return on investment of a particular asset or acquisition can be a financial feasibility
study example.

3 – Market Feasibility

It assesses the industry type, the existing marketing characteristics and improvements to
make it better, the growth evident and needed, competitive environment of the
company’s products and services. Preparations of sales projections can thus be a good
market feasibility study example.

4 – Organization Feasibility

Organization feasibility focuses on the organization’s structure, including the legal

system, management team’s competency, etc. It checks whether the existing conditions
will suffice to implement the business idea.

Purpose

A feasibility study of a business can help choose the best available alternative by
assessing the opportunity cost. The reasons for rejecting one option can reveal
weaknesses of the company; investigating options can lead to undiscovered
opportunities. From these, a company can assess why certain factors pull them down
and find measures to mitigate them. When these steps are executed, and necessary
corrective actions are taken, it reflects on its performance. Thus profits can follow easily
and attract investors. This analysis can also help in securing funds from financial
institutions. These studies analyze the company’s existing business models and the gaps
it carries. Solutions suggested by them reduce the risk of failures. They tell us whether a
proposed business idea shall be taken forward by its practicality. Finally, it checks
whether it is doable by estimating the opportunity and threats of the plan.

Industry and Competitor analysis

Industry and Competitive Analysis (ICA) is an essential part of any strategic management process in firms
and other organizations. It contains a very practical set of methods to quickly gain a good grasp of an
industry, be it pharmaceuticals, information and communication technology, professional services, or
even the beer industry. The purpose of ICA is to understand factors that influence the performance of
an industry and firms within that industry. Gaining such understanding supports firms in developing
effective competitive strategies.

Industry:
Defined as “the collection of competitors that produces similar or substitute products or services to a
defined market” .Industry segments are formed as the products or services of the industry are targeted
to particular subsets of the general market . Whether it’s an industry or a segment, it’s still referred to as
“the industry.

Lifecycle Stage
• Emerging (very new, young industry growing at 5%/yr)

• Shakeout (competitors acquiring other competitors and/or companies failing) •

• Mature (growth has slowed to< 5%/ year).

• Declining (negative growth for a prolonged period)

Industry Driving Forces

• Driving forces are changes or trends that are causing an industry to change

• Competition intensifying

• Changing customers needs and tastes

• Technological innovation

• Globalization

• Entry of major competitors

• Sudden regulation or deregulation Etc.

Methods of Industry and Competitive Analysis

Industry analysis is a market assessment tool designed to provide a business with an idea of the
complexity of a particular industry. It involves reviewing the economic, political and market
factors that influence the way the industry develops. A competitive analysis is a critical part of
your company marketing plan.

Methods of industry and competitive analysis: The following are the seven critical questions
that help in understanding a company’s competitive environment.

1. What are the dominant economic features of the industry in which the company operates? e.g.,
high investment in reality.
2. What kinds of competitive forces arc industry members facing and how strong is each force? E.g.
FMCG
 3. What forces are driving changes in the industry, and what impact will these changes have on
competitive intensity and industry profitability? E.g. the airline industry.
4. What do market position industry rivals occupy – who is strongly positioned and who is not? E.g.
FMCG, passenger cars.
5. What strategic moves are rivals likely to make next? E.g. cars.
6. What are the key factors for future competitive success? E.g. software
7. Does the outlook for the industry present the company with sufficiently attractive prospects for
profitability? E.g. cellphones

Following methods can be used in industry and competitive analysis in answering the above
questions:

(1) Porter’s Five Forces Model: Industry and competitive analysis can be done by using the
Porter’s 5 Forces model. The model is named after Michael E. Porter, this model identifies and
analyzes 5 competitive forces that shape every industry, and helps to determine an industry’s
weaknesses and strengths. Five forces are –

a) Competition in the industry,

b) Potential of new entrants into the industry,

c) Power of suppliers,

d) Power of customers,

e) A threat of substitute products

 (2) Thompson and Strickland’s-7 forces Model: Michael Porter’s Five Forces Model focuses
only on the competitive forces surrounding buyers, suppliers, established companies, potential
competitors and substitute products. This model excludes many other industry-related factors
that substantially provide inputs for identification of industry’s environmental opportunities and
threats. To overcome it is a shortcoming of Porter’s Model, Thompson and Strickland have
developed a model for the overall analysis of an industry, including competition within the
industry.

The model for industry and competitive analysis proposed by Thompson and Strickland has not
only been able to overcome the drawbacks of Porter’s Model, it also seems to be comprehensive.
It touches on all the relevant issues in an industry that need to be analyzed for assessing the
overall industry situations, including the degree of competition in the industry.

The seven factors of the Thompson and Strickland Model are as follows –

 Industry’s dominant economic features.

 Main sources of competitive pressure and the strengths of the competitive forces.
 Driving forces.
 Market position of the rival companies.
 Competitor’s strategic moves.
 Industry’s key success factors.
 Industry’s overall attractiveness and profitability prospects.

(3) The “Structure-Conduct-Performance” Paradigm: The “Structure-Conduct-Performance”

paradigm is a roadmap for identifying the factors that determine the competitiveness of a market,
analyzing the behavior of firms, and assessing the success of an industry in producing benefits
for consumers.

Formulation of the entrepreneurial Plan

Normally, micro and small-scale enterprises do not include sophisticated techniques which are

used for preparing project reports of large-scale enterprises. Within the small-scale enterprises

too, all the information may not be homogeneous for all units.

In fact, what and how much information will be given in the project report depends upon the size

of the unit as well as nature of the production. A general set of information given in any project

report is listed by Vinod Gupta (1999) in his study on “Formulation of a Project Report”. We are

reproducing it here for your information and knowledge.

8 Stages involved in the Formulation of a Good Business Plan

Project formulation divides the process of project development into eight distinct and sequential
stages.

These stages are:

1. General Information.

2. Project Description.

3. Market Potential.

4. Capital Costs and Sources of Finance.

5. Assessment of Working Capital Requirements.

6. Other Financial Aspects.

7. Economic and Social Variables.

8. Project Implementation.

The nature of information to be collected under each one of these stages has been given

below:

1. General Information:

The information of general nature given in the project report includes the following:

Bio-data of Promoter:
Name and address of entrepreneur; the qualifications, experience and other capabilities of the

entrepreneur; if these are partners, state these characteristics of all the partners individually.

Industry Profile:
A reference of analysis of industry to which the project belongs, e.g., past performance, present

status, its organisation, its problems, etc.

Constitution and Organization:

The constitution and organizational structure of the enterprise, in case of partnership firm, its

registration with the Registrar of Firms; application for getting Registration Certificate from the

Directorate of Industries/District Industry Centre, etc.

Product Details:
Product utility, product range; product design; advantages to be offered by the product over its

substitutes, if any.
2. Project Description:
A brief description of the project covering the following aspects is given in the project report.

Site:
Location of enterprise; owned or leasehold land; industrial area; No Objection Certificate

(NOC) from the Municipal Authorities if the enterprise location falls in the residential area.

Physical Infrastructure:

Availability of the following items of infrastructure should be mentioned in the project

report:

(i) Raw Material:

Requirement of raw material, whether inland or imported, sources of raw material supply.

(ii) Skilled Labour:

Availability of skilled labour in the area, arrangements for training labourers in various skills.

Utilities:

These include:

(i) Power:
Requirement for power, load sanctioned availability of power.

(ii) Fuel:
Requirement for fuel items such as coal, coke, oil or gas, state of their availability.

(iii) Water:
The sources and quality of water required should be clearly stated in the project report.
Pollution Control:
The aspects like scope of dumps, sewage system and sewage treatment plant should be clearly

stated in case of industries producing emissions.

Communication System:
Availability of communication facilities, e.g., telephone, telexes etc. should be stated in the

project report.

Transport Facilities:
Requirements for transport, mode of transport, potential means of transport, distances to be

covered, bottlenecks etc., should be stated in the business plan.

Other Common Facilities:

Availability of common facilities like machine shops, welding shops and electrical repair shops

etc. should be stated in the report.

Production Process:
A mention should be made for process involved in production and period of conversion from raw

material into finished goods.

Machinery and Equipment:

A complete list of items of machinery and equipment’s required indicating their size, type, cost

and sources of their supply should be enclosed with the project report.

Capacity of the Plant:

The installed licensed capacity of the plant along with the shifts should also be mentioned in the

project report.
Technology Selected:
The selection of technology, arrangements made for acquiring it should be mentioned in the

business plan.

Research and Development:

A mention should be made in the project report regarding proposed research and development

activities to be undertaken in future.

3. Market Potential:

While preparing a project report, the following aspects relating to market potential of the

product should be stated in the report:

(i) Demand and Supply Position:

State the total expected demand for the product and present supply position. This should also be

mentioned how much of the gap will be filled up by the proposed unit.

(ii) Expected Price:

An expected price of the product to be realized should be mentioned in the project report.

(iii) Marketing Strategy:

Arrangements made for selling the product should be clearly stated in the project report.

(iv) After- Sales Service:

Depending upon the nature of the product, provisions made for after-sales service should

normally be stated in the project report.

(v) Transportation:
Requirement for transportation means indicating whether public transport or entrepreneur’s own

transport should be mentioned in the project report.

4. Capital Costs and Sources of Finance:
An estimate of the various components of capital items like land and buildings, plant and

machinery, installation costs, preliminary expenses, margin for working capital should be given

in the project report. The present probable sources of finance should also be stated in the project

report. The sources should indicate the owner’s funds together with funds raised from financial

institutions and banks.

5. Assessment of Working Capital Requirements:

The requirement for working capital and its sources of supply should be carefully and clearly

mentioned in the business plan or project report. It is always better to prepare working capital

requirements in the prescribed formats designed by limits of requirement. It will minimise

objections from the banker’s side.

6. Other Financial Aspects:

In order to adjudge the profitability of the project to be set up, a projected Profit and Loss

Account indicating likely sales revenue, cost of production, allied cost and profit should be

prepared. A projected Balance Sheet and Cash Flow Statement should also be prepared to

indicate the financial position and requirements at various stages of the project.

In addition to above, the Break-Even Analysis should also be presented in the project report.

Break-even point is the level of production/ sales where the industrial enterprise shall earn

neither profit nor incur loss. In fact, it will just break even. Break-even level indicates the

gestation period and the likely moratorium required for repayment of loans.

Break-even point (BEP) is calculated as follows:

BEP = F/S-V x 100

where, F = Fixed Cost

S = Sales Projected
V = Variable Costs

Thus, the break-even point so calculated will indicate at what percentage of sales, the enterprise

will break even i.e., no profit, no loss.

7. Economic and Social Variables:

In view of the social responsibility of business, the abatement costs, i.e., the costs for controlling

the environmental damage should be stated in the project. Arrangements made for treating the

effluents and emissions should also be mentioned in the report.

Besides, the socio-economic benefits expected to accrue from the project should also be stated in

the report itself.

Following are the examples of socioeconomic benefits:

(i) Employment Generation.

(ii) Import Substitution.

(iii) Ancillarisation.

(iv) Exports.
(v) Local Resource Utilization.

(vi) Development of the Area.

8. Project Implementation:
Last but no means the least, every entrepreneur should draw an implementation scheme or a

time-table for his project to ensure the timely completion of all activities involved in setting-up

an enterprise. Timely implementation is important because if there is a delay, it causes, among

other things, a project cost overrun.

In India, delays in project implementation have become a common feature. Delay in project

implementation jeopardizes the financial viability of the project, on the one hand, and props up

the entrepreneur to drop the idea to set-up an enterprise, on the other. Hence, there is a need to

draw up an implementation schedule for the project and then to adhere to it to complete the

project in time.

Following is a simplified implementation schedule for a small business project:

The above schedule can be broken up into scores of specific tasks involved in setting up the

enterprise. “Project Evaluation and Review Technique (PERT)’ and “Critical Path Method

(CPM)’ can also be used to get better insights into all activities related to implementation of the

project.

The Challenges of New venture Start-ups

There are 150 million startups in the world today with 50 million new startups
launching every year. On average, there 137,000 startups emerging every day. These
are huge numbers by any standards.
But the question remains, how many startups tend to survive the violent waves of
change that have completely transformed the very nature of today’s startups?

Yes, there is a huge paradigm shift. And that shift has challenged the overall
functionality of startups.

Challenges are everywhere. And businesses – in general and startups in particular –

are no exception to myriad of challenges that we face today.

Every startup founder knows from the outset that there are going to be obstacles. But sometimes,
they can still surprise you — whether that’s because you just didn’t anticipate them, you’re
unsure of the best way to respond, or you don’t yet have the resources you need to address them
properly.

1: Money
Let’s get right into it: yes, you need money. Unless you’re remarkably lucky and the cash flows
in straight away, either from sales or investors, money is going to be an issue sooner rather than
later.And when cash flow issues hit a startup, they can hit hard, delaying important progress like
rolling out products, hiring key staff, or fitting new offices.

You’ll need capital to fund software or product development, office space, marketing, and more.
Most of your success will flow from that initial investment.

So even though it might seem counterintuitive when you’re trying to minimize financial risk at
the beginning, the last thing a startup needs is to trim back costs (and shed staff) in its early days,
just when it needs to be focusing its energies elsewhere.

Entrepreneur David Roth doesn’t have much patience for people who founded a startup and then
ran out of cash: “As leaders, it’s our job to manage the time and money needed to get to the next
level without running out of either one.”

So plan it all out before you start, lest you find yourself halfway through and suddenly falling out
of the air like Wile E. Coyote trying to run full-speed across a canyon.

2: Neglecting marketing and sales

Some startups think they can ignore those two functions completely and hope that word of mouth
will be enough. Or if they’re a SaaS company, they might believe that sales will grow
organically online, and that IRL sales and marketing teams aren’t needed.

But it’s a false economy to put your faith in customers discovering you unless you make a
concerted effort to grow them with a proper structured plan to promote your startup.
It’s money well spent. And when you’re building your sales and marketing functions from the
ground up, take the opportunity to make them as aligned and integrated as possible right from the
get-go.

3: Lack of planning

It’s amazing how many startups falter because they “forgot” to plan. Or maybe they really did
plan, but they just didn’t cover all the bases.

Key areas like sales, development, staffing, skills shortage, and funding aren’t afterthoughts.
They should all be a part of your business plan right from the beginning.

Not only that, but you need to plan for the things you can’t plan for, too. That is, even if you
can’t prepare for every eventuality, you need to know what you’re going to do when (not if)
events take an unexpected turn.

If your business plan is all optimism and fails to allow for surprises, then you’re heading for big
trouble. As the saying goes, “if you fail to prepare, prepare to fail.” So don’t leave the details to
later.

4: Finding the right people

Certain skills are crucial not only for your business to survive, but also for it to grow. Knowing
the exact skills you need — and how to get those essential people on board — might be the
determining factor in how well your startup thrives.

Delays in finding the right personnel are costly. For a small team, the recruitment process eats up
valuable time that could be spent on other areas of the business, but on the other hand, not having
the right people can create severe bottlenecks and stall the rollout of new products and services.
These are hold ups that no startup can afford, especially in the early days.

And, as your company grows, you might find yourself facing another tricky personnel problem:
realizing that you’ve hired the wrong people. (Or the right people in the wrong roles.) These kind
of uncomfortable truths can be revealed when a startup expands and the cracks suddenly appear
magnified.

That’s why it’s so important to make it a priority to lay out your hiring strategy right at the start.
Then, when you’re clear about what you’re looking for, strategize key hires and think carefully
about each role fits in with the goals you want to achieve.

5: Time management

In startups as in life, there’s never enough time. There are a million and one decisions to be made
and only 24 hours in a day (and allegedly some of those should be spent sleeping).
So start by eliminating or minimizing distractions — anything that gets in the way of running
your business.

Focus your time and energy on the most impactful things. Ask yourself: what is important and
what can be postponed until tomorrow? What is stopping your company growing? Those are the
answers you should deal with today.

And when you’re trying to set priorities, borrow a tip from former Olympic athlete Ben Hunts-
Davis and ask yourself: will this make the boat go faster?

That is to say, will this decision or action have significant, measurable, positive results that will
help you hit your targets? Or is it just a “nice to have” that you can add later?

Cut the noise and focus on things that move the needle (or the boat).

6: Your founders

It’s hard to believe, but a startup’s founders — the very same people who passionately nurtured
their idea from nothing to a business — may actually be contributing to its woes.

While the founders may have developed a great product and set the wheels of the whole venture
in motion, they can’t do everything.

And even if they could, they shouldn’t. It’s not just a time thing (see Challenge #5); it’s a skill
thing.

Good leaders know the extent — and limitations — of their own expertise. They know that being
a great developer, for example, doesn’t necessarily equate to also being great at
sales/finance/marketing/HR/all the many other things a startup needs to do in order to scale
successfully.

So if you’re a founder, avoid making the big mistake of thinking you can do it all alone. Don’t
hoard all the work and major decisions for yourself; spread the workload around. Hire other
executives who can fill in the gaps in your knowledge, and listen to what they have to say.

7: Scaling up

So your products or services are experiencing phenomenal growth — lucky you!

But now you’re finding yourself with a whole new set of headaches as you try to scale to match
this increased demand.

It’s not just a question of adding a few extra employees. As we learned from Challenge #4, you
need to be strategic and prioritize the roles that will have the most impact — and they’re not
always the ones you think. Maybe you need to hire more HR staff (since you suddenly have a lot
more staff), or maybe you need to focus on building out functions like administration, payroll, or
support.

You may also need a larger office space to deal with your increased staff numbers (and if you
haven’t budgeted for that, you’re going to need to come up with an alternative real fast if you
want to avoid stacking your employees like Lego). Or maybe you need to set up offices in other
cities or abroad, so you can better support your key customer base.

Such is the price of success. If you have a plan and the cash to fund all this, great. If not, then
prepare for a painful process.

8: Your comfort zone

Growing a startup can feel like taking one step backwards for every two steps forward. It takes
grit.

At the beginning, you’re going to need to wear a lot of different hats (metaphorically speaking, at
least). And you’re going to have to push yourself to go outside your comfort zone on a regular
basis.

So what are you willing to take on? Are you prepared to put in the hard yards to make your
startup thrive? Can you make a convincing pitch to potential investors when you need funding,
for example?

And just as importantly: is there anything that’s non-negotiable for you? Anything that you do
not, under any circumstances, want to do?

Figuring out your comfort zone early means you can make provisions for this if you need to, so
you can find team members who are comfortable doing the things that make you uncomfortable.

9: Competitors

No matter how great your products or services are, it’s a crowded marketplace.

And it’s growing all the time: you won’t be the new kid on the block for long, and new rivals can
quickly alter the playing field.

So you need to put yourself in a potential customer’s place and see how you stack up. What
makes your company different? What makes your products special? What makes your brand
unique? Why would someone choose you over your competitors?

When it comes to your competitors, you need to hit the right balance between “us” and “them.”
Don’t define yourself solely in relation to your competitors: you need to be confident about what
you’re bringing to the table, too.
But you also need to keep your eye on the competition and the (rapidly-changing) landscape.
Having the right strategy, being able to think on your feet, and being able to adapt to the new
reality will define your success — or failure.

10: Poor management

One thing startups definitely can’t afford is ineffective management. A management team that
worked well in the initial stages may find itself struggling as the startup expands, as they’re
tested by anything from poor sales to market conditions.

You need to have the right people to make the right decisions. (It’s no coincidence that
Challenge #4 + Challenge #6 = Challenge #10.)

So as you build out your leadership team, you need to do two things. (Well, you need to do lots
of things, but for the purpose of this particular point, let’s focus on two.)

Firstly, you need to make sure that your team is working well together. In order to be effective,
you need to keep everyone on the same page. One way of doing this is to build transparency into
your management team’s decision-making process, so everyone on the team knows how the
important decisions get made.

Secondly, you need to make sure that your team is working well, period. Be upfront about what
is and isn’t getting results, and if you spot any underlying longer-term issues, address them as
soon as you can, before they become major problems.

It might lead to some uncomfortable conversations — maybe even some uncomfortable

decisions — but having strong management is vital to guiding your startup in the right direction.

11: Lack of mentorship

You may have a great product or idea, but lack the necessary guidance, market experience, or
knowledge to take it to the next level. That’s where a mentor comes in, with the wisdom and
confidence to help you clear those roadblocks that are holding your startup back.

According to Rhett Morris of Endeavor Insight, 33% of tech firm founders who are mentored by
successful entrepreneurs went on to become top performers.

Having somebody you can lean on when major decisions have to be made, or even just when you
need a sounding board who has already been there and done that, is super useful.

But not everyone will have access to mentors. If you don’t, seek out wisdom from inspirational
founders you admire from other sources, like books, articles, or podcasts. And in the meantime,
focus on building out your professional network, which can be just as important.

And then, when you make it to the top, pay it forward and share your own hard-earned wisdom.
Now that we’ve shared some of our top challenges, we’d love to hear about your startup journey.
Has your startup faced any particularly tricky obstacles? How did you handle them? Let us know
in the comments below.

Sources of Finance
MEANING AND NATURE OF BUSINESS FINANCE

● Every business activity is undertaken with a motive of serving the society and profit earning in the long
run.

● Also, the business is formed on the going-concern concept which means the business activity is
carried out with a motive of continuing it for a long period of time.

● An entrepreneur who carries out the activity invests a sum of money which is known as capital. He
continuously needs to put in money into the business for its expansion, that putting in of money is
known as financing of business.

● Finance is the life blood of a business and the money required to run the business is known as
business finance.

SIGNIFICANCE OF BUSINESS FINANCE

● To purchase plant and machinery, land, buildings and other fixed assets.

● Smooth functioning of day to day operations of the business

● Expansion

Financing Needs Of The Business:

● Fixed Capital Requirements: Funds required by a business to purchase land, building, plant and
machinery, furniture and fixtures, etc are known as Fixed Capital Requirements. The amount of fixed
capital differs from organization to organization and level of operations. The fixed capital is invested for
a longer period of time.

● Working Capital Requirements: Working capital requirements are the funds required for running the
day to day activities and operations of the business. It is used for holding current assets such as stock of
materials, debtors, etc. The working capital requirements are influenced by various factors such as type
of business, size of business, operation cycle etc.

CLASSIFICATION OF SOURCES OF FUNDS

A. On the basis of period:

 1. Short Term: These are the category of funds required for a short period of time generally one year or
less than one year. For example:

● Trade credit

● Loans from commercial banks

● Commercial papers

2. Medium Term: These funds are required for a term of one to five years. For example:

● Public deposits

● Lease financing

● Loans from financial institutions

3. Long Term: These sources fulfill the requirements of the business for the long term or a time
exceeding five years. For example:

● Shares

● Debentures

● Long-term borrowings

B. On the basis of ownership

1. Owners' Funds: Funds provided by the owners of the organization are known as Owners' funds. It
includes profits that are reinvested into the business. The important sources of owners' funds are

● Retained earnings

● Issue of equity shares.

2. Borrowed Funds: These are the funds raised through loans and borrowings. This source includes
raising funds from

● Issue of debentures,

● Loans from financial institutions,

● Public deposits,

● Trade credit, etc.

C. On the basis of source of generation

1. Internal Sources: Funds generated from within the organization are known as internal sources.
Though only short term or limited needs could be fulfilled by this source. For example:

● Ploughing back profit,

● Disposing surplus inventory, etc.

2. External Sources: Large amounts of money requirements are fulfilled through external sources. These
are more expensive sources than internal sources of financing. These are done through:

● Borrowings from commercial banks

● Acceptance of Public deposits,

● Raising debentures etc.

SOURCES OF FINANCE

1. Retained Earnings : When a company earns profit, a certain amount or percentage of those profits is
retained within the business for future use and this is known as retained earnings. When the business is
financed through this source it is known as ploughing back of profit or internal financing.

Merits

● Permanent source of funds

. ● No explicit cost involved in the form of dividend or interest.

● Greater degree of operational flexibility and freedom.

● Enhances the unexpected loss absorption capacity of the business.

● May lead to an increase of the market price of the company's equity shares.

Limitations

● Excess retention of profits may lead to dissatisfaction among shareholders.

● since the profits keep on fluctuating, it is an uncertain source of funds.

● Opportunity cost remains unrecognized so it may lead to suboptimal use of funds.

2. Trade Credit

● It refers to the extension and provision of credit by one one trader to another for the purchase of
goods and services, or other supplies without on the spot payment..

● This is generally used by organizations as short term financing. The terms of trade credit may vary
from person to person based on past records and from industry to industry based on industry norms.
Merits

● A continuous and a convenient source of funds.

● It is readily available if credit worthiness is known to the seller.

● It helps in increasing the inventory levels in case of increase in sales volume.

● While providing funds, It does not create a charge on assets of the firm .

Limitations

● There can be chances of over-trading.

● Fulfils only limited financial needs.

● Costly in comparison to few other sources.

3. Factoring

● This is a financial service in which a third party, namely factor, renders various services like discounting
of bills and collection of clients' debts.

● In this a company gives the responsibility of the collection of debts from the debtors to the factor.

● Also, through factoring large amounts of information can be fetched about trading history of the
organization, the credit worthiness of debtors etc.

● There are two methods of factoring:

Recourse Factoring:

Factor does not assume the credit risk.

Non-recourse factoring: Factor assumes and takes responsibility for the entire credit risk in case the
debtor defaults.

Merits

● A cheaper source of finance as compared to other means such as bank credit.

● The organization is relieved from the task of collection of bad debt.

● Protection against bad debts to the firm in case of non-recourse factoring

● At times, the factor also provides finance to the company, that is he makes advance payment of the
debts taken by him to the firm.

● It is flexible and does not create charge on assets of the firm.

Demerits

● It can be an expensive source, if there are number of invoices of smaller amounts.

● Customers may not feel comfortable dealing with a third party(factor).

4. Lease Financing

● This is a contractual agreement where the owner of an asset called as lessor grants the right to use the
asset for a certain time period that is lease period to another party named as lessee in return for lease
rentals

. ● once the lease period ends, the lessee gives back the asset to the lessor.

Merits

● It helps to acquire the asset for a lower investment.

● Provides finance without dilution of or ownership of or control of business.

● Does not affect the debt raising capacity of the organization.

● Lease rentals are tax deductible expenses that leads to tax advantages.

● Risk of asset wear and tear is borne by the lesser.

Limitations

● The agreement may impose certain restrictions to use.

● Normal course of business may be affected in case of non- renewal of the agreement.

● The lessee cannot take advantage of the salvage value of the asset, as he is not the owner of the asset,
and has to return it to the lessor.

5. Public Deposits

● A public deposit is money raised from public organizations. They have higher interest rates than bank
deposits and may be used for short term and medium term funding requirements.

● It can be for a period of up to 3 years and the regulating authority for public deposits in India is RBI.

Merits

● Easy and convenient source of finance.

● Lower costs as compared to banks.

● No charge on the assets of the company is created.

Limitations

● Not suitable for new companies.

● Higher dependency on the public exists, thus making this source unreliable..

● It is not suitable in case the deposits are large.

6. Commercial Papers

● A commercial paper is an unsecured promissory note which has been used in India since 1990.

● A Commercial Paper is used as a promissory note by corporate buyers who are highly rated.

● It helps them meet their short term funding requirements and can be issued for anytime between 7
days to 1 year.

● Non Resident Indians (NRIs), primary dealers, Foreign Institutional Investors (FIIs), All-India financial
institutions can raise commercial papers.

Merits

● It can be sold without any restrictions

● Highly liquid.

● Provides higher funds as compared to loans.

● Freely transferable

● Companies with idle funds can invest in commercial paper, and earn good returns.

Limitations

● New firms cannot raise money using Commercial Paper

. ● The amount of money depends on excess liquidity available.

● extending the maturity of Commercial Paper is not possible.

7. Issue of Shares

● A company needs huge investments to start a business, this amount is known as capital.

● Since, it is impossible for one individual to bring in such a huge amount of capital, the entire capital is
divided into small units known as shares, where each person holding shares is referred to as a
shareholder.

● Generally, there are two types of shares issued by the company:

a. Equity Shares

b. Preference Shares.

a. Equity Shares:

● It is one of the most important sources of raising long term capital.

● Equity shareholders are said to be the owners of the company as they invest money into the company
and become fractional owners of it.

● Also, they have the right to vote in the company, and they receive dividends on the amount invested
by them.

● The capital procured from such a source is referred to as ownership capital or owner's funds.

Merits

● It is suitable for those investors who seek to assume high risks for better returns.

● No burden to the company, as paying a dividend is not compulsory.

● It serves as permanent capital as it has to be repaid at the time of liquidation.

● Democratic control over the management of the company is given to shareholders through voting
rights.

Limitations

● The returns are fluctuating in nature so investors who need steady income may not prefer equity
shares.

● Cost of raising funds from equity shares is quite high as compared to other sources.

● It is more of a complicated process and may take longer time to raise funds.

b. Preference Shares

● The holders of preference shares hold a preferential position in respect to equity shareholders in two
ways:

○ They receive a fixed rate of dividend before any dividend for the equity shareholders.

○ Their claim for receiving the capital at the time of liquidation is settled just after the creditors of the
company.

Merits

● It provides steady income in the form of fixed returns.

● It comparatively bears a lower risk. ● They have preferential rights over equity shareholders.

● It doesn't create any sort of charge against the assets of the company.

Limitations

● It is not suitable for investors aspiring for higher returns.

● The rate of dividend is generally high as compared to that of debentures.

● Dividend paid is not deducted from profits as expenses.

8. Debentures

● It is an important source of raising funds or long term debt capital.

● It bears a fixed rate of interest.

● Debenture holders are the creditors of the company.

Merits

● Preferred by investors who want fixed income with lower risk.

● Non dilution of the voting rights as they do not carry voting rights.

● Less costly as compared to that of equity and preference share capital.

Limitations

● A permanent burden on the company as they are fixed charge instruments.

● The company has to make provisions for repayment in case of issue of redeemable debentures.

● Raising finance from this source limits the borrowing ability of the firm.

● Debenture holders do not get voting rights.

Types of Debentures

● Secured and Unsecured

● Registered and Bearer

● Convertible and Non-convertible

● First and Second

9. Commercial Banks

● Commercial Banks are those banks which provide funds to organizations for many purposes as well as
various time periods.

● They extend their loan support to organizations irrespective of their size in the form of cash, credit,
overdraft facility, discounting of bills, etc.

● They provide banks with timely assistance by providing funds at the time of needs.

● Secrecy of business is maintained.

● An easier source of finance as formalities of issuing of prospectus and underwriting is not required.

● A flexible source as funds can be increased as per requirements.

Limitations

● Generally, the funds are available for a short period of time and renewal becomes a difficult process
and is uncertain.

● The Company may have to keep assets as security as the banks ask for security assets before issuing
such loans.

● Sometimes, the terms and conditions imposed by the banks are quite difficult.

10. Financial Institutions

● There are numerous financial institutions established by the government of India across the country.

● These institutions finance the businesses and are set up by both state and central governments.

● There are development banks especially established to promote industrial development in the
country.

Merits

● Provide long term funds which are not provided by the commercial banks

● Provide various services such as managerial advice, financial and technical advice to the companies.

● Increases the goodwill of the borrowing company in the capital markets.

● Funds can be made available even at the time of contingency and can be paid in easy installment
without being a burden to the company.

Limitations

● A rigid criteria is followed to sanction loans.

● Too many legal formalities to follow make it a lengthy process.

● Certain restrictions are put on the company to restrict the powers of the management of the
company. For example: restrictions in respect to payment of dividend.

11. International Financing

a. Commercial Banks

These banks act as an important source of financing to non-trade international operations. They extend
their support all over the world for foreign currency loans. For example: Standard Chartered.

b. International Agencies and Development Banks

They provide medium to long term loans for the development of economically backward areas of the
world. These are set up by the governments of various developed countries. Example: EXIM Bank and
Asian Development Bank (ADB).

c. International Capital Markets

Various MNCs and corporate houses depend on borrowings in the form of rupees and other foreign
currency. The financial instruments used for the same are:

i. Global Depository Receipts: A GDR is a negotiable instrument or an instrument that can be

traded freely in various foreign capital markets. These are issued by the Indian companies to
raise funds from abroad and can also be traded on foreign stock exchanges.
ii. American Depository Receipts: This instrument is issued by the American companies and can
be traded in American markets. It can be issued to only citizens of America and can only be
traded in US stock exchanges.
iii. Indian Depository Receipts: IDRs are issued to Indian residents only and can be traded on
Indian Stock Exchange. It is denominated in Indian Rupees. It is issued by an Indian Depository
to enable foreign companies to raise funds from Indian Capital Markets. Standard Chartered PLC
was the first company to issue IDRs.
iv. Foreign Currency Convertible Bonds (FCCBs): As the name suggests, FCCBs are those bonds or
securities which have an option to be converted into equity or depository receipt after a certain
span of time. It is generally done at a predetermined rate or exchange rate. It has a fixed rate of
interest and is issued in a foreign currency. It resembles the convertible debentures in India.

FACTORS AFFECTING THE CHOICE OF THE SOURCE OF FUNDS

The choice of source of funds greatly depends upon various factors like:

1. Cost of finance: The source of funds generally bears two types of costs namely: a. The cost of
procurement of funds
 b. Cost of utilization of funds. Both these costs are to be strongly analyzed before deciding which source
to consider.

2. Financial Position: Business should be in a sound position to repay the borrowed funds. In case when
the company is not in a very good position to pay, those Class XI Business Studies www.vedantu.com 10
sources should be selected which do not become a financial burden to the company.

3. Form of business organization: Raising of funds strongly depends upon the form of business a
company undertakes. For example, in case it is a sole-proprietorship it cannot issue equity shares.

4. Time period: It is important for an organization or a business to choose the funds requirement as per
the time period that whether it is required for a short period of time or a longer period and then raise
funds accordingly from the market.

5. Risk factors: A strong analysis of the risk involved in each source of fund should be carefully analysed.
The source that has the least risk should be selected. For example, equity is less riskier as compared to
loans in respect to financial risk that arises from fixed interest payments, and repayment aspects.

6. Dilution of Control: The choice of what source from which financing has to be procured also depends
upon the extent to which firm is ready for the dilution of control. Such as if existing equity shareholders
aren’t willing to dilute the control they enjoy, in such a case the company may issue finance from source
other than equity share capital.

7. Credit worthiness: The type of sources from which the firm raise its capital impacts its credit
worthiness. Hence the firm should choose sources which do not adversely affect its creditworthiness in
the market.

8. Ease of issuance of finance: The flexibility and ease with which the firm is able to procure finance
also affects the choice of source of finance. Excessive documents, legal restrictions, heavy investigation
and other reasons may discourage the company from using a particular source of finance.

9. Tax Advantages: Some sources of finance are tax deductible, and hence firms can enjoy tax
advantage using those sources. For example interest on debentures is a tax deductible expense, hence
firms wanting to enjoy tax benefits may go for these sources.

PITFALLS IN SELECTING NEW VENTURE

I. Lack of objective evaluation

II. No real insight into the market
III. Inadequate understanding of technical requirements
IV. Poor financial understanding
V. Lack of venture uniqueness
VI. Ignorance of legal issues
 1. Lack of objective evaluation:

It is common that entrepreneurs cannot make a completely objective evaluation of their own
enterprises, there will be blind confidence, just as some designers think their products are
unbeatable, some parents think their children are the best. An effective way to avoid it is to
conduct comprehensive assessment training for enterprise personnel.

2. No real insight into the market:

Many entrepreneurs do not realize the importance of developing a marketing method to lay the
groundwork for a new business. In addition, they do not pay attention to the promotion of new
products and industry life cycle to do full investigation.

3. Inadequate understanding of technical requirements:

This is a problem for many entrepreneurs because entrepreneurs are not all-powerful after all.
However, the development of new products often involves the use of new technologies.
Therefore, sufficient preparations should be made before the development of new products, such
as development funds and possible problems.

4. Poor Financial Understanding:

The lack of financial literacy can lead to a number of pitfalls, such as accumulating unsustainable debt
burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can
lead to poor credit, bankruptcy, housing foreclosure, or other negative consequences.

5. Lack of venture uniqueness

a. A new venture should be unique

b. Performance of service should be superior to competitive offerings
c. Product differentiation
d. Customer’s awareness of difference

6. Ignorance of legal issues

a. Legal requirements
b. Safe working environment
c. Reliable and safe products and services
d. Patent, Trademarks, and Copyrights
 Challenges involved in new venture development or Startups

Every startup founder knows from the outset that there are going to be obstacles. But sometimes, they can
still surprise you — whether that’s because you just didn’t anticipate them, you’re unsure of the best way
to respond, or you don’t yet have the resources you need to address them properly.
1: Money
Let’s get right into it: yes, you need money. Unless you’re remarkably lucky and the cash flows in straight
away, either from sales or investors, money is going to be an issue sooner rather than later.And when cash
flow issues hit a startup, they can hit hard, delaying important progress like rolling out products, hiring
key staff, or fitting new offices.

You’ll need capital to fund software or product development, office space, marketing, and more. Most of
your success will flow from that initial investment.

So even though it might seem counterintuitive when you’re trying to minimize financial risk at the
beginning, the last thing a startup needs is to trim back costs (and shed staff) in its early days, just when it
needs to be focusing its energies elsewhere.

Entrepreneur David Roth doesn’t have much patience for people who founded a startup and then ran out
of cash: “As leaders, it’s our job to manage the time and money needed to get to the next level without
running out of either one.”

So plan it all out before you start, lest you find yourself halfway through and suddenly falling out of the
air like Wile E. Coyote trying to run full-speed across a canyon.

2: Neglecting marketing and sales

Some startups think they can ignore those two functions completely and hope that word of mouth will be
enough. Or if they’re a SaaS company, they might believe that sales will grow organically online, and that
IRL sales and marketing teams aren’t needed.

But it’s a false economy to put your faith in customers discovering you unless you make a concerted
effort to grow them with a proper structured plan to promote your startup.

It’s money well spent. And when you’re building your sales and marketing functions from the ground up,
take the opportunity to make them as aligned and integrated as possible right from the get-go.

3: Lack of planning

It’s amazing how many startups falter because they “forgot” to plan. Or maybe they really did plan, but
they just didn’t cover all the bases.

Key areas like sales, development, staffing, skills shortage, and funding aren’t afterthoughts. They should
all be a part of your business plan right from the beginning.

Not only that, but you need to plan for the things you can’t plan for, too. That is, even if you can’t prepare
for every eventuality, you need to know what you’re going to do when (not if) events take an unexpected
turn.
If your business plan is all optimism and fails to allow for surprises, then you’re heading for big trouble.
As the saying goes, “if you fail to prepare, prepare to fail.” So don’t leave the details to later.

4: Finding the right people

Certain skills are crucial not only for your business to survive, but also for it to grow. Knowing the exact
skills you need — and how to get those essential people on board — might be the determining factor in
how well your startup thrives.

Delays in finding the right personnel are costly. For a small team, the recruitment process eats up valuable
time that could be spent on other areas of the business, but on the other hand, not having the right people
can create severe bottlenecks and stall the rollout of new products and services. These are hold ups that no
startup can afford, especially in the early days.

And, as your company grows, you might find yourself facing another tricky personnel problem: realizing
that you’ve hired the wrong people. (Or the right people in the wrong roles.) These kind of uncomfortable
truths can be revealed when a startup expands and the cracks suddenly appear magnified.

That’s why it’s so important to make it a priority to lay out your hiring strategy right at the start. Then,
when you’re clear about what you’re looking for, strategize key hires and think carefully about each role
fits in with the goals you want to achieve.

5: Time management

In startups as in life, there’s never enough time. There are a million and one decisions to be made and
only 24 hours in a day (and allegedly some of those should be spent sleeping).

So start by eliminating or minimizing distractions — anything that gets in the way of running your
business.

Focus your time and energy on the most impactful things. Ask yourself: what is important and what can
be postponed until tomorrow? What is stopping your company growing? Those are the answers you
should deal with today.

And when you’re trying to set priorities, borrow a tip from former Olympic athlete Ben Hunts-Davis and
ask yourself: will this make the boat go faster?

That is to say, will this decision or action have significant, measurable, positive results that will help you
hit your targets? Or is it just a “nice to have” that you can add later?

Cut the noise and focus on things that move the needle (or the boat).

6: Your founders

It’s hard to believe, but a startup’s founders — the very same people who passionately nurtured their idea
from nothing to a business — may actually be contributing to its woes.

While the founders may have developed a great product and set the wheels of the whole venture in
motion, they can’t do everything.
And even if they could, they shouldn’t. It’s not just a time thing (see Challenge #5); it’s a skill thing.

Good leaders know the extent — and limitations — of their own expertise. They know that being a great
developer, for example, doesn’t necessarily equate to also being great at sales/finance/marketing/HR/all
the many other things a startup needs to do in order to scale successfully.

So if you’re a founder, avoid making the big mistake of thinking you can do it all alone. Don’t hoard all
the work and major decisions for yourself; spread the workload around. Hire other executives who can fill
in the gaps in your knowledge, and listen to what they have to say.

7: Scaling up

So your products or services are experiencing phenomenal growth — lucky you!

But now you’re finding yourself with a whole new set of headaches as you try to scale to match this
increased demand.

It’s not just a question of adding a few extra employees. As we learned from Challenge #4, you need to be
strategic and prioritize the roles that will have the most impact — and they’re not always the ones you
think. Maybe you need to hire more HR staff (since you suddenly have a lot more staff), or maybe you
need to focus on building out functions like administration, payroll, or support.

You may also need a larger office space to deal with your increased staff numbers (and if you haven’t
budgeted for that, you’re going to need to come up with an alternative real fast if you want to avoid
stacking your employees like Lego). Or maybe you need to set up offices in other cities or abroad, so you
can better support your key customer base.

Such is the price of success. If you have a plan and the cash to fund all this, great. If not, then prepare for
a painful process.

8: Your comfort zone

Growing a startup can feel like taking one step backwards for every two steps forward. It takes grit.

At the beginning, you’re going to need to wear a lot of different hats (metaphorically speaking, at least).
And you’re going to have to push yourself to go outside your comfort zone on a regular basis.

So what are you willing to take on? Are you prepared to put in the hard yards to make your startup thrive?
Can you make a convincing pitch to potential investors when you need funding, for example?

And just as importantly: is there anything that’s non-negotiable for you? Anything that you do not, under
any circumstances, want to do?

Figuring out your comfort zone early means you can make provisions for this if you need to, so you can
find team members who are comfortable doing the things that make you uncomfortable.

9: Competitors

No matter how great your products or services are, it’s a crowded marketplace.
And it’s growing all the time: you won’t be the new kid on the block for long, and new rivals can quickly
alter the playing field.

So you need to put yourself in a potential customer’s place and see how you stack up. What makes your
company different? What makes your products special? What makes your brand unique? Why would
someone choose you over your competitors?

When it comes to your competitors, you need to hit the right balance between “us” and “them.” Don’t
define yourself solely in relation to your competitors: you need to be confident about what you’re
bringing to the table, too.

But you also need to keep your eye on the competition and the (rapidly-changing) landscape. Having the
right strategy, being able to think on your feet, and being able to adapt to the new reality will define your
success — or failure.

10: Poor management

One thing startups definitely can’t afford is ineffective management. A management team that worked
well in the initial stages may find itself struggling as the startup expands, as they’re tested by anything
from poor sales to market conditions.

You need to have the right people to make the right decisions. (It’s no coincidence that Challenge #4 +
Challenge #6 = Challenge #10.)

So as you build out your leadership team, you need to do two things. (Well, you need to do lots of things,
but for the purpose of this particular point, let’s focus on two.)

Firstly, you need to make sure that your team is working well together. In order to be effective, you need
to keep everyone on the same page. One way of doing this is to build transparency into your management
team’s decision-making process, so everyone on the team knows how the important decisions get made.

Secondly, you need to make sure that your team is working well, period. Be upfront about what is and
isn’t getting results, and if you spot any underlying longer-term issues, address them as soon as you can,
before they become major problems.

It might lead to some uncomfortable conversations — maybe even some uncomfortable decisions — but
having strong management is vital to guiding your startup in the right direction.

11: Lack of mentorship

You may have a great product or idea, but lack the necessary guidance, market experience, or knowledge
to take it to the next level. That’s where a mentor comes in, with the wisdom and confidence to help you
clear those roadblocks that are holding your startup back.

According to Rhett Morris of Endeavor Insight, 33% of tech firm founders who are mentored by
successful entrepreneurs went on to become top performers.

Having somebody you can lean on when major decisions have to be made, or even just when you need a
sounding board who has already been there and done that, is super useful.
But not everyone will have access to mentors. If you don’t, seek out wisdom from inspirational founders
you admire from other sources, like books, articles, or podcasts. And in the meantime, focus on building
out your professional network, which can be just as important.

And then, when you make it to the top, pay it forward and share your own hard-earned wisdom.

Now that we’ve shared some of our top challenges, we’d love to hear about your startup journey. Has
your startup faced any particularly tricky obstacles? How did you handle them? Let us know in the
comments below.

CRITICAL FACTORS FOR NEW VENTURE DEVELOPMENT

Uniqueness - A new venture’s range of uniqueness can be considerable, depending on the amount of
innovation required during prestart-up. Venture uniqueness is further characterized by the length of
time a no routine venture will remain no routine.

Investment - The capital investment required to start a new venture can vary considerably.
Another finance-related critical issue is the extent and timing of funds needed to move through
the venture process.

Will industry growth be sufficient to maintain break even sales to cover a high fixed-cost
structure during the start-up period? Do the principal entrepreneurs have access to substantial
financial reserves to protect a large initial investment? Do the entrepreneurs have the
appropriate contacts to take advantage of various environmental opportunities?

Growth of Sales - The growth of sales through the start-up phase is another critical factor.

Sales growth rate measures your company’s ability to generate revenue through sales over a
fixed period of time. This rate is not only used by your company to look at internal successes and
problems, it’s also analyzed by investors to see if you’re a company on the rise or a company
starting to stagnate.

It’s vital to understand how to calculate your sales growth, how to improve it, and what makes it
impressive or average. Sales growth rate isn’t just another sales analytic—it’s a key metric for
evaluating the health of your growing business.

Product Availability - Product availability refers to the availability of a salable good or

service, at the time the venture opens its doors. Product availability is a retailer's ability to meet
customer demand at a given item. Retailers may provide detailed information about product
availability to help customers plan and make decisions. For example, products may be
categorized as currently in stock, backordered, stocked on-demand or unavailable. Effectively
managing stock availability requires retailers to balance the need to meet customer expectations
with the cost of maintaining inventory in a dynamic marketplace.

The availability of a salable good or service at the time the venture opens its doors.

Lack of product availability in finished form can affect the company's image and its bottom line.

Customer Availability – Venture risk is affected by customer availability for start-up. A critical
consideration is how long it will take to determine who the customers are, as well as their buying habits.

They say the key to great customer experience is exceeding expectations. Today, we've reached
an age where customers expect to be able to contact or work with organizations whenever they
want, wherever they want and on whatever device they choose.

With such high expectations, it becomes very difficult to even meet them, let alone exceed them.
Availability issues can have a lasting impact not just on customer experience but a company's
bottom line. The lesson is clear: a business outage translates directly to customer outrage.

Taking customers to heart

In considering customer expectations, it's important to acknowledge just how far they have
escalated in recent years. The rise of smart phones and consistently available cloud services has
had a lasting effect on the understandings of what's possible with technology – and it's a one way
journey. In some ways, these giant leaps forward have taken elements that used to be a
competitive edge for industry leaders and turned them into the bare minimum expected by any
serious market participant.

For a long time, without such pressure on these external elements of the experience, companies
could turn much of their attention to internal needs and the challenges that face those teams in
operating and growing a business. That's no longer the case. To make meaningful developments
in the area of customer service, it all starts with considering the external experience and
customer-facing side of your business, no matter what industry you're in.

This kind of change is so broad and deeply tied into many areas of an enterprise that it can only
effectively be accomplished by the C-level leadership team. This in itself can present challenges
depending how in touch that part of the company is with its customers. And there's almost no
such thing as being too aware and conscious of that audience's reaction to you.

Why New Ventures Fail

1. Product/Market Problems
Poor timing: Is the market ready - 1st mover vs. 2nd mover?
Product design problems: Does product function as intended?
Inappropriate distribution: Can you deliver?
 Unclear business definition: Value proposition?
Overreliance on one customer: What if you lose your one account?

2. Financial Difficulties

Initial undercapitalization: Not enough cash?

Assuming debt too early: How do we pay back our debt?
Investor relationship problems: Differing goals, vision, motivations?

3. Managerial Problems

Team issues: How are decisions made and who controls what?
Human resource problems: Are we hiring the right people?

Internal problems
Involved adequate capital (15.9%), cash flow (14.9%), facilities/equipment (12.6%), inventory control
(12.3%), human resources (12.0%), leadership (11.1%), organizational structure (10.8%), and accounting
systems (10.4%).

Critical Success Factors

Essentially, critical success factors or CSFs are the elements of an organization or project that are vital to

Its success.

The Four Main Types of Critical Success Factors

Rockart identified four main types of CSFs that businesses need to consider:

1. Industry factors result from the specific characteristics of your industry. These are the things
that you must do to remain competitive within your market. For example, a tech start-up
might identify innovation as a CSF.
2. Environmental factors result from macro-environmental influences on your organization.
For example, the business climate, the economy, your competitors, and technological
advancements. A PEST Analysis can help you to understand your environmental factors
better.
3. Strategic factors result from your organization's specific competitive strategy. They might
include the way your organization chooses to position and market itself. For example,
whether it's a high-volume, low-cost producer; or a low-volume, high-cost one.
4. Temporal factors result from your organization's internal changes and development, and are
usually short-lived. Specific barriers, challenges and influences will determine these CSFs.
For example, a rapidly expanding business might have a CSF of increasing its international
sales.

Five Steps to Identify and Develop Your CSFs

To identify and develop CSFs for your organization, follow these five steps:

1. Research Your Mission, Values and Strategy

First, take some time to look through your organization's mission , values and strategy. What are
the challenges and key priorities that your organization needs to be focusing on right now?
If you're unsure, or want to gain some background, do a PEST Analysis to gain a better
understanding of the external market factors that are influencing your organization right now.
Follow this up with a SWOT Analysis to identify how well-equipped you are at dealing with
these market challenges, and to assess your organization's strengths and weaknesses. This all-
round approach should help you to clarify what improvements need to be made and where.

2. Identify Your Strategic Objectives and Candidate CSFs

Identify your organization's key strategic goals – these are usually linked to your mission
and values . Then, for each objective, ask yourself, "How will we get there?" There may be a
number of things that need to happen for you to achieve each of your strategic objectives. These
are your "candidate" CSFs.
For example, if one of your strategic goals is to "reduce waste over the next year," you will likely
need a number of critical success factors to help you to achieve this, such as:

 Reducing carbon emissions.

 Investing more in renewable energy sources.

 Improving the efficiency of supply chains.

 Developing "green" offices and processes.

3. Evaluate and Prioritize Your CSFs

Now, work through your candidate CSF's and identify only those that are truly essential to your
success.
As you work through each candidate CSF, you may see that some are linked or are
interdependent. For example, if have two CSFs – "to increase your share of the market" and "to
attract new customers," the latter would take priority, as it is only by attracting new customers
that you will likely increase your market share.

Prioritizing your candidate CSFs in this way will enable you to really focus in on the areas that
your business must succeed in. You may find that some candidate CSFs are not a priority at all,
in which you case you can cross them off your list.

4. Communicate Your CSFs to Key Stakeholders

Once you've identified your key CSFs, you now need to think about who is best placed to help
you to achieve them. What departments or people will need to be accountable for them? What
activities or operations will be key in helping you to achieve your CSFs? Do any activities or
roles need to be changed or developed to do this?

Once you've done this, communicate your key CSFs to the relevant people. Make sure that
everyone is clear on what they are, why you need to achieve them and how you hope to succeed.
Get feedback from these key stakeholders, too – they are often best placed to identify any
roadblocks or issues that may need to be overcome to achieve success. They may also be able to
offer some great ideas of their own about how to meet your CSFs.

5. Monitor and Measure Your Progress

Think about how you will monitor and measure each of your CSFs. This can be tricky as CSFs
are often very broad and may require input from several different departments and stakeholders
across the business.

One way to effectively monitor and measure your progress is by setting a number of different
KPIs against each of your Critical Success Factors. For example, if one of your CSFs is to reduce
your carbon emissions, you might create a KPI to fill in some detail, such as "Reduce carbon
emissions by 30 percent by 2035."

It's also a good idea to put in place monitoring systems to keep track of your progress. This
might mean assigning accountability for this task to a specific person or department. This person
will be responsible for gathering data and regularly monitoring the organization's progress
toward specific CSFs and KPIs.

So, you would need to think about how this person would gather data on your organization's
carbon emissions going forward, where they should store that data, and how regularly they
would need to update it.
 THE EVOLUATION PROCESS

Whether you're starting a small business from scratch or purchasing an existing company or
franchise, you need to take steps to evaluate the business’s potential and your abilities to make
it work. Your investigation must be thorough, analyzing the risks and benefits of the
opportunity. The evaluation of business requires financial, product and human resource
analysis. Review the potential and the pitfalls inherent in the business to make an informed
decision and increase your chances of success.

Self-Analysis

According to the Arkansas Small Business Development Center, most small businesses fail
because of poor management and the owner’s inability to manage resources. Before you even
start researching the feasibility of your idea and the market you plan on entering, evaluate your
own talents, desires and goals. Consider your willingness to take risks as well as the amount of
time and energy you’ll need to make the business a success. Review your financial, personnel
and marketing skills as well to ensure you have the necessary background to make a success of
your new venture.

Financial Components

After learning about the investment required to purchase the existing business or franchise or
the start-up costs you’ll need initially, evaluate your own resources. Part of a financial
assessment includes the amount you have in personal savings to add to the initial investment.
Banks typically require entrepreneurs to come up with a portion of the investment to show
good faith and willingness to take a risk with the lender. Assess the financing available through
the seller, investors and lenders when evaluating your chances of succeeding.

Market Research

To thoroughly understand what you’re getting into, perform an extensive market research
project to determine the feasibility of your business. In addition to gleaning statistics of trends
and current customer buying patterns, you need to know who your customers are, where they
are located and what kind of competition exists in your area. Consider market research your
first steps in opportunity analysis that help you understand exactly how you will sell products
or services to a specific market.

Risk Assessment

A complete evaluation of a business opportunity includes a risk assessment. An honest

appraisal of the potential risks inherent in your new business can help you prepare for possible
problems and decide whether the risks are worth the investment. Details you need to consider
in the risk assessment process include factors that could negatively affect your business, such
as the general state of the economy, weather events and your competition's competitiveness.
Internal considerations should include your own health, the level of credit available to you and
the number and type of employees you’ll need to hire to run the business efficiently.

Support

Finally, evaluate the amount of support you expect to receive from your family and the
community. You’ll most likely spend an inordinate amount of time in the initial stages of
opening your new business, which could affect your family relationships. Opportunity
evaluation requires professional and personal considerations. Outside hobbies and
commitments may need to be curtailed for some time. Attitudes and cultural preferences in
your community can impact your ability to grow and sustain your business. Evaluate your
standing on all these fronts to ensure you’ve got the necessary support to be successful.
Technical Feasibility

Technical feasibility study checks for accessibility of technical resources in the organization. In
case technological resources exist, the study team will conduct assessments to check whether the
technical team can customize or update the existing technology to suit the new method of
workings for the project by properly checking the health of the hardware and software.

Many factors need to be taken into consideration here, like staffing requirements, transportation,
and technological competency.

Market Feasibility:

It assesses the industry type, the existing marketing characteristics and improvements to make it
better, the growth evident and needed, competitive environment of the company’s products and
services. Preparations of sales projections can thus be a good market feasibility study example.

Organization Feasibility:

Organization feasibility focuses on the organization’s structure, including the legal system,
management team’s competency, etc. It checks whether the existing conditions will suffice to
implement the business idea.

Economic Feasibility:
Economic feasibility covers most of the financial aspects of the financial feasibility analysis. It
looks at profitability, start-up costs, operating costs, overhead costs, fixed and variable
costs, and potential liabilities. This is best overestimated as unplanned costs are bound to
happen. With start-up costs, prepare a budget with planned expenses for initiation.

Competitive Feasibility:

Identifying the competition in a market helps determine if your business idea is feasible.
Information gathered during a competitive assessment also directs how a product/service should
be positioned within the market.