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Stages of new business development

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In this assignment I am going to explore the steps and challenges involved in developing a sustainable new business. I will cover the important procedures in vetting an idea and look at where  opportunities for new businesses can be found. I will discuss areas such as the stages of new business development and the problems encountered; along with the strategies which can be implemented and the decision making process. Within this there will be discussion of the Marketing environment, marketing mix and SWOT business analysis. There will be application of these discussions to our virtual online bike retail brand created within class, and references to the wider business world. 

The opportunity
Before one can start with the steps to creating a new business, first you must have an idea.  Allen, R states that “the creative journey begins with maintaining a journal of ones thoughts and ideas ” (2012, p.52).

Ideas can be drawn from a number of different places, these include; A ‘gap in the market’ for a product or service, an imbalance between supply and demand, a recognisable future possibility or demand, or an improved or more competent business model, process or system (Rae, D. p,3) It could also be a transfer of something, which works in one situation/country/time, to another (this would be taking an idea from one place or year, and bringing it to another place or time where it may be once again relevant and useful). Finding the correct opportunity may act as a barrier to a new business idea. By harnessing creativity and innovation many new business ideas have taken place, and succeeded.

Creativity – “For the entrepreneur, creativity is an essential tool that is used to seek out a business opportunity, finding unmet needs in the marketplace, or finding innovative ways to meet those needs.” (Burns, P. 2011, p.87) Even though innovation can also be considered creative, it can also mean creating a completely new idea, business model or a new market. An example of a company   which used creativity to create a new market would be Apple with the first iPhone product. It was the first smartphone to be invented, and it created an entirely new market in the mobile phone industry in 2007. (Cohen, P. 2007)

Innovation – An idea can be “putting the familiar into a new context” (Allen, R. 2012, p.52), this means changing or modifying an existing idea for improvements into a new market. For example this could be something such as the Apple Watch; watches and smartphone technology already existed separately, it was the innovation of putting the two into one product which brought an old idea into a new context. 
In class we were set the task of creating a new biking company and running it through a simulation called SimVenture. The industry and type of company was already determined for us, so we were able to skip this first step covered. However we needed to decide how to be innovative and find a gap in the cycling market in order to decide exactly which sector of the market we were targeting. We named our business ‘RaceRapid’. 

Defining the business concept
It is important that the new business concept takes into consideration; Customer needs, value consideration along with connection and channels to distribution.  For RaceRapid we decided our business concept would be affordable road-racing bikes, and we would attempt to tap into the casual amateur market; at a cheaper price than our competitors. We used both primary and secondary market research to determine the need for the product, and to discover what we had to compete against. We found we had only one competitor in the road racing market, and their bikes were of a high price, directed mainly at serious and committed road racers. We decided we could undercut that price and make road racing affordable to casual amateurs who were previously priced out of the market. We believed this to be an innovative move as we were hoping to bring road racing bicycles to a previously untapped market.

“Identifying an opportunity is only part of the equation for new venture success. There also has to be a way to make money with this venture” (Allen, R. 2012, p.73)  The best way to ensure there is a financially attractive opportunity is to create a comprehensive business plan.

Once the idea and opportunity is identified, a business model can then established. Usually a business model covers areas such as market segments & value proposition, marketing strategy, resources (needed or available), operational plan, risk & strategic options and a financial plan (Burns, P. 2011, p.147). It’s purpose is to clarify the direction of the business; what does the business aim to be? It’s future vision; how will the business evolve and cope with growth? It can also aim to attract financing as it can be used as a sale tool if presenting the business to an investor. Business plans can be used to entice partners, executive level employees and also to secure accounts with suppliers. Another use for a business plan is to map out how the company will be managed; it conveys the structure and can therefore be referred to in the future in order to ensure the business is being run as intended (Burns-Millyard, K. 2016)

Allen, K (2012, p.68) states that there are four major problems that are associated with business models which could offer some explanation as to why they may fail; these are:

Flawed logic – This can be assumptions made about the future which are untrue, for example the company Napster, a file-sharing site, made a false assumption that it would not be held accountable for copyright violations regarding the MP3 Files its users were sharing and downloading. This lead to it being shut down by a court order in 2001, despite its popularity and success until this point. (Allen, K 2012, p.68)
Limited strategic choices – Both the value capture process and the value creation must be considered and satisfied. An example of a company assessing only one of these points  is pets.com, as it was built on the notion that customers would find it easier to buy pet food online, not realising this creates an extra stop when doing weekly online shopping, and customers would prefer to buy their pet food at the same time as their own, stated by Allen, K. (2012. p.68).
Incorrect value creation and capture assumptions – It is important for some businesses to remember that the person who receives value from the product/service may not be the one financing it; an example of this would be a new medical instrument, often it’s not the patient who is paying for the product, but the healthcare industry. It is important to find a way to make money from the value created. 
False assumptions regarding the value chain – This can be described as failing to plan for innovation into the future. It is important to note that things will change in the future and adaptions must be made in order to continue to grow a business and expand into other markets. UPs were successful in harnessing the ability to innovate and adapt in the example of Tobisha’s system of Laptop repair. They noticed laptops were being sent to japan and back in order to be serviced and noticed the opportunity to repair them directly onsite. (Allen, K. 2012, p.68)

Accessing and acquiring necessary resource
“The developed world is an opportunity-rich environment. In economically less developed countries, there are also many opportunities but access to the resources, technology and other means of exploiting them can be much more challenging.” (Rae, D. 2007, p.105). 

It is important when assessing a new business startup that the business environment is taken into consideration when forming a comprehensive business plan. This is because an idea has to be physically viable, and the environment in which the business operates will determine this. The business environment can be categorised into two sections, micro and macro environments.
Micro-environment – Refers the internal environment within a business. These factors are close to the company and affect its ability to serve its customers, the company, it’s suppliers, marketing intermediaries, customer markets competitors and the public (Kotler, P et al. 2013, p.74

Macro-environment – Refers to parts of the wider society (Kotler, P. et al. 2013, p.74), and these factors also affect the micro-environment. The business, however, can not directly affect these factors, whereas the factors do affect them. The acronym ‘PESTLE’ is often used to refer to these factors.This stands for;

Political – Factors such as laws, government agencies and pressure groups can influence how a business may be run depending on where it is (Kotler, P. et al. 2013, p.93). 
Economical – Factors here affect consumer purchasing power and spending patterns (Kotler, P. et al 2013, p.86). These factors include new markets emerging (China, India etc) offering competition to production.
Socio-cultural – This environment consists of forces such as institutions which affect society’s values, behaviours, preferences and beliefs (Kotler, P. et al. 2013, p.95)
Technological – Changing technology can greatly influence a business (Kotler, P. et al. 2013, p.91). New technologies could present new possibilities to a business, but could also threaten a business in terms of competition. 
Legal – Kotler, P. et al. (2013, p.93) states that there has been an increasing level of legislation in recent years worldwide. Legislation sets the constraints within which a business may operate.
Environmental – Environmental concerns have been growing steadily in recent years and the impact a company has on the environment is becoming more and more important. Another issue in the environmental sector of this mix is the growing shortage of natural resources and concerns regarding waste disposal (Kotler, P. et al. 2013, p.89) just to mention a few issues. 

In order to appropriately asses RaceRapid we decided to use the ‘4Ps Marketing Mix’ which is mentioned by Kotler, P et al (2013, p53.) He states that this marketing analysis “consists of tactical marketing tools blended into an integrated marketing program that actually delivers the intended value to its target customers.”

Product – Brand name: RaceRapid. Features: Fast, Light speed. Quality: High.
Price – Competitive Price compared to competitors.
Place – Sale via: online store, social media. To be held onsite until delivery.
Promotion – via social media, television, radio and online advertisements.
Growing and maintaining the business concept
A ‘SWOT’ analysis is a widely used tool for conducting a situation analysis. Kotler, P. et al. (2013, p.55) states that the goal of a SWOT analysis is to “match the company’s strengths to attractive opportunities in the environment, while eliminating.. the weaknesses and minimising the threats.” It can be used at any point within a business’ growth in order to ensure maximum performance and continual growth within the company.

Strengths – In the case of RaceRapid, our strengths turned out to be our price, and our marketing strategy (focusing mainly on social media and Television advertisement as this brought in the biggest return on sales).
Weaknesses – Our bike was slightly heavier and very slightly lower quality than the competitors.
Opportunities – Identifying our weaknesses allows RaceRapid to seek opportunities for improvement. Other opportunities include expanding into a different markets such as the mountain bike sector which has few companies producing products.
Threats – close competitor monitoring and monitoring emerging external factors which may challenge our performance will give us a chance to adapt and stay on top of competition.  

This has been a short out-line of the beginning steps of new business creation, and once a business is running; problems must still be anticipated for, as those discussed above. Business growth has many challenges, Greiner, L.E (1972) describes some of these challenges as the following: crisis of leadership, crisis of autonomy, crisis of control and the crisis of bureaucracy. As a business grows you can tackle these crises with a growing workforce as more staff are recruited. “You delegate but you obviously have got to have that hands-on approach for a while; then you develop people that will eventually take over from you”  (Ndhulkula, D. 2012). The importance of leaders and HR management becomes more apparent, and gives an extra tool with which a business can tackle its future.