Analyzing Types of Businesses
Any entrepreneur’s choice of a legal business structure molds the path of his new venture, and in the long run, success and sustainability (or lack of). Every type of business – micro2, micro, small, and growth venture – has its merits and demerits in terms of context (corporate, technological, social, and international) and roles (as small business banker, venture capitalist, community based advisor, or agent), which individuals use to determine their viability for selection. Of course, according to Stokes, Wilson and Wilson, any entrepreneurship venture selected has to align with the individual’s vision, suit his or her equity capital restrictions, barriers to entry, chances of survival, choice of industry and market, and prospects of growth, among other factors (95). To determine the suiting entrepreneurship choice and whether one would fit in, it is important to analyze each one. This paper performs an analysis of various business types, using real-life illustrations, to determine the most feasible one for an individual with limited capital.
Essentially, a Micro2 entrepreneur is an individual who has set up a business but has never hired any full-time employee. The term Micro2 is used because of the complexity of the structures and approaches the entrepreneurs utilize. Micro2 businesses have been described as the non-employers, self-employed, “1099” employees, and necessity employers, and in literature, have often been dismissed as lifestyle or insignificant. However, as outlined by Friar, Micro2 account for 76 percent of businesses in the United States, which demonstrates its popularity among entrepreneurships (3). This business is very appropriate for a young entrepreneur who recognizes opportunity and desire to be autonomous, live comfortably doing what they love, balance family, and work better, and be world changers, as opposed to being termed as “copiers.” A prudent example is in the industry of personal businesses (for example, beauticians), specialty trade (plumbers), or professional services (such as payroll). Sites such as LinkedIn can help Micro2 entrepreneurs market their wares. For example, Joy Couper describes herself as a Consultant Payroll Specialist (self Employed) while Kara O'Rourke describes himself as a self-employed payroll systems manager (LinkedIn 1). Micro2 business type is particularly viable to individuals who possess competence in a certain area, for example, physicians, consultants, and contractors. However, people with no professional skills can benefit too, for example, lawn mowing, or house cleaning. The main advantage of this is that the business motive is to strongly make profit, ensure sustainability, survival, and avoid having to work for others. Micro2 businesses are purely motivated by profit, which is the entrepreneur’s chief objective.
In terms of technology, Micro2 businesses have an advantage because they can significantly reduce barriers using technological innovations. An entrepreneur can start with minimal investments and sell it for millions later, or grow it to be a huge MNC. Here, technology works for the individual. For example, when an individual sets up a small printing business in his basement, he can achieve profitability and eradicate barriers of space. He or she can also be more innovative (as competitive advantage), especially where technological innovation is required, for example, in software business startups (Stokes, Wilson and Wilson 45). According to Friar, services comprise over 60 percent of Micro2 business sales (7). Just Eat, which Klaus Nyengaard founded in his basement in Denmark, expanded and was valued at £1.47 billion at its initial public offering in 2014 (Startrack Media Limited 4). Similarly, Bob Maydonik, founded Square36, an online micro2 business after getting the idea of selling oversized yoga mats from a rigorous home fitness program (Skelle 4). This means that a micro2 business, depending on the achievement of set goals, can expand into a listed company and even become international. It is significant to remember that Apple (established in a garage) started off with the founders’ own input in terms of human resource, before expanding to become a globally renowned and successful multinational corporation (MNC). Thus, micro2 business is an extremely viable type of business for individuals who want to be autonomous (yet have a chance of growth), directly supervise few employees, obtain overall control, and maintain a work-life balance as they do what they love. However, to expand into a global corporation will take many years and will only occur when the business is at a certain stage of its growth process. This requires great patience and commitment. Another critical disadvantage is the lack of guarantee of payments by customers.
When looking at my interests in terms of a micro2 business, I would say that I wouldn’t particularly excel starting in this field. As mentioned above, micro2 business sometimes start of by people pursing what they love doing and perhaps even working alone. I wouldn’t imagine myself working in that environment since I personally don’t do well working alone. Its not that cannot or I rely on people, no; I would say that working with a partner would allow me to build a pool of knowledge with my partner and strengthen what we plan on doing. In addition, micro2 business usually mimic your lifestyle and way of living. It would mean that your full dedication needs to go in the work as we saw from Lifestyle Street Gear when he first started his business. My personal belief is that if you can hire workers to do work that they are able to or have the knowledge then why not leverage them. Indeed, you have to take into consideration their costs and contributions however that will be discussed in the next section of the paper.
I honestly also do not really believe in social businesses. Don’t get me wrong, I want to do good in the world and help when I can yes, but I wouldn’t do that through a business. I believe that work and social awareness cannot really go together. Its also very difficult for a non profit to succeed as a business. As we saw from the Pharos case study, raising money for a non profit is extremely difficult. You would need to rely on donations which is very difficult since the number of organizations asking for donations is vast. Your other option would be getting in investors however they would then be in the board and run the organization as a business rather than caring for the environment or being socially responsible. The reason why Bill Walsh started his organization is because he had a desire to care for the environment, and wanted to do good. He had no interest in running it as a business or making a profit however the lack of funding for any non profit backfires on you when you want to expand and invest in new opportunities. His lack of funding backfired on his R&D. To sum this up, I personally believe that social businesses are a hassle to manage, especially for non profits and being socially responsible when you have a sole purpose of generating profit is not so easy, so why bother. For instance, in Saudi Arabia, the percentage of business that are non profit or have a social mission is extremely small. This may be because the idea is a new one or that Saudis simply have the same mentality as I do (or are greedy but that’s debatable.)
A micro business is a form of entrepreneurship that functions on a very small scale, employing only a few (if any) employees at a time, or five at most, and started with capital below $50,000 (Gupta, Gollakota and Srinivasan 347). Micro or small businesses are typically privately owned corporations, sole proprietorships, or partnerships. Micro businesses usually start off small and can expand quickly into huge employment-generating entities. Internationally, a larger percentage of micro businesses are family-run enterprises, and are usually profit-motivated, with objectives of expansion and sustainability in the long run. This means, as a community-based advisor, this would not be the ideal choice, but would work out favorably as an agent or entrepreneur in professional services. In the U.S., family-operated businesses account for around 42 percent of all nonfarm business revenue receipts, with 28.2 percent of firms being family-owned (Small Business and Entrepreneurship Council 2). In the U.S., most micro-bakeries are the most viable examples of successful micro businesses. The main disadvantage, however, is that family feud or misunderstanding can lead to collapse of the business. Stone Dragon Bakery in Madison, Ohio, is an example of a family-owned micro business. The few employees are family members who are self-taught and dedicated to continuing a line of family tradition (Mclaughlin 2). This form of business has greater prospects of growth than micro2 business because it has access to capital from several people.
Akin to micro2 businesses, technological prospects of micro businesses are immense and work for the business type. Many micro businesses globally have adopted e-commerce as the mode of transactions. For instance, Amanda Hocking is the most renowned self-publishing author of eBooks (Startrack Media Limited 6). Unlike other forms of micro-businesses, self-publishing can be attained working completely alone, with cover editors or designers being the only required additions to the human resource. John Locke is another example of a self-publisher who has exploited technology to make millions from a startup worth nothing. This makes micro business more viable than micro2 because it is usually more difficult to attract capitalist ventures into the enterprise, which means they will grow slower as compared to micro businesses. Playing the role of venture capitalists, this would be a feasible business type to delve into. The use of e-commerce can make the business visible internationally. Similarly, in an international context, micro2 businesses will not receive as much trust as micro businesses with proven objectives for success. Additionally, corporate clients will find it easier to deal with micro businesses more than micro2 businesses.
There are various examples of micro business startups that became successful and now amass hundreds or billions of dollars in annual profits. For example, Paul Allen and Bill Gates worked in their own company, Microsoft, in a garage and slowly grew it into one of the most valuable brands in the world (Stokes, Wilson and Wilson 101). Similarly, Uber, which was founded as “UberCab” in 2009 by Travis Kalanick and Garett Camp, has emerged as a successful micro-business that has attracted venture capitalists. BlueGrace Logistics, located in Riverview, Florida, is an example of a micro business that has grown by 394 percent since it was established in 2009, whereas Kelvin Natural Slush, started by two friends, has grown in terms of sales revenue since the inception in 2012 (Nisen 5). Prospects of faster growth make micro business better than micro2 business.
Looking at micro businesses on a personal basis, I believe that they are are solid foundation for any business that has a vision for growing big. Micro business can leverage, while making more profit. We also have to highlight that this can take time. Indeed, if I plan on running a Micro business, I would need more capital which can be brought in from my savings, or family. I would say that a micro business has a larger chance of success. I like to see things prosper and grow. To be able to get in people along the way and learn from them. I believe that starting a small business with something would have a greater chance of success. You would be able to nurture the business and allow it to grow to its full potential. I always look at these large corporations such as uber and Microsoft and they simply fascinate me. They way they climb their way through the top. I like to start something small (to my capacity) and allow it to grow big. There might come a time where I plan on starting a business with someone, perhaps I have the idea however don’t really have the great business knowledge, a business partner would teach me things along the way however would also mange the business in the most efficient way possible. Something that I really plan on doing in the future is not follow the family business of plastic manufacturing as soon as I graduate from college. Something that I plan on doing is starting something small, I’m not sure what yet, but the desire and willingness is there. As we learnt, family businesses have great risks however grow big overtime. Since the family business is fairly old, I believe that following my father’s footsteps in necessary however as I mentioned, micro businesses are something that I plan on exploring since in believe starting with someone and hiring some people along the way allows you to really expand your knowledge while allowing you to build wealth for the long run. I would also enter a market or industry that I understand and know I can excel in. For instance, starting a micro business in the plastic industry would be something that I understand and have previous knowledge in thus wouldn’t be something totally new. After all, since there are no taxes to be paid on workers in Saudi Arabia, the burden isn’t as bad.
Small businesses usually do not conform to any clear parameters, but can be described as sole-proprietorships or partnerships that have a maximum of nine employees (Stokes and Wilson 75). Small businesses are independently financed and for factories, possess less than 500 workers. Technically, small businesses are driven for profit as the owner desire to reap maximum profit margins in the short run and sustainability in the long run. Based on their size at startup, most small businesses underline social missions alongside their entrepreneurial ones. For example, businesses can introduce missions that reward customers, the community, employees, or display a business model that is favorable in terms of globally accepted norms and trends, like going green. Most small businesses sum their social missions in their social statements, especially in the case of small factories that have to work with environmental regulators and communities surrounding them. For example, a small business may utilize eco-friendly cleaning products for home cleaning (Lussier and Joel Corman 168). Holstee, located in Brooklyn, New York, sells eco-friendly apparel and accessories, with its social mission stating that it intends to “breathe life into everyone.”
Small businesses are appropriate from an agent or consultant perspective. For example, a consultant who worked with McKinsey as a partner, Marc Marc Vollenweider, started his own consultancy firm in 2000, and by 2012, it had over 2,600 employees globally (Skelle 6). Small businesses find it easier to work with corporate clients than micro2 and micro businesses can, because of their superior growth capacity. Additionally, venture capitalists are attracted to small business with potential of growth, which means they can achieve global recognition. However, according to Small Business and Entrepreneurship Council, around 50 percent of all small business startups in the U.S. fail in their first five years of operations (4). In spite of this, despite being small businesses, those that are successful pose significant challenge to huge corporations. Examples of small, successful startups that have chosen to be “great” instead of ‘big” include Afterburner ($400 million in revenue), Balsam Brands ($90 million), Cue Ball Group ($200 million), and Redmond ($65 million) (Forbes 1). These successful businesses are embodiments of the potential of small businesses. In contrast with the other form of business startups, small businesses can operate internationally and achieve the benefits of a wider market, of course, using e-commerce technology. For example, Sono-Tek Corp., a company developing ultrasonic spray coating technology and based in Milton, New York, obtains an annual revenue of around $10 million, with its 60 percent of the revenues realized from non-U.S. clients (Startrack Media Limited 5).
Venture capital involves a form of funding for a startup or growing business (Lussier and Joel Corman 12). Venture businesses are those whose aim is to profit financially, and may also be viewed as a small business. The archetypal illustration of a growth company is Google Inc., which has expanded its revenues, earnings, and cash flows significantly since it opened its initial public offering. One or more individuals can finance the startup, which places it at a better position for expansion than the micro2, micro, and small business types. Such growth ventures are established in response to lack of supply within the market or market demand. Growth venture builds rapid-growing startups, unlike micro and small businesses. Typically, venture capitalists prefer to invest in high-growth technological companies, which are spread across IT services, software, telecommunications, networking, electronics and instrumentation, and computers and peripherals, among others. The advantage of this is that the market is already mature, and that innovation can offer leverage. Growth ventures involves allocating certain amounts of money at different phases of the business development, which safeguards against bad investments.
Technology companies younger than five years and with around 20 percent growth per annum, typically known as “gazelles,” make the best options for venture capitalists (Small Business and Entrepreneurship Council 10). For instance, the iPhone, Apple Inc.’s best-selling gadget with an annual growth of around 50 percent, would be a viable choice for a VC. Zynga is an example of a venture growth company that was established in 2007 (Forbes 11). By 2012, the company had grown into an organization generating $1.28 billion, achieving a user base of over 300, million people in three years. Unlike micro and small businesses, venture growth does not involve a period of wait while the proprietors decide if the startup will pick up, since the product is already well-performing in the market. Additionally, it has more rapid growth, which helps in achieving the set objective of financial gain in a shorter time in proven markets. Most growth ventures involve VCs investing huge sums of money in the early stages of startups, for example, Oculus VR, which was established in 2009 by Marc Andreessen and Ben Horowitz, venture investors, and received venture capital from Facebook amounting to $2 billion in 2014 (Kulikowski 2).
Of course, no one would expect me to be a venture capitalist at this age, but it would really be something that I considered. For instance, I would really consider being a venture capitalist in the manufacturing industry because it would be something that I understand and know well. I would know the market. I would get a return on the amount I invest while also sharing my knowledge. It would be basically skipping the tiring worry part of the business (day to day tasks.) As my father always taught me, investing is something to really consider BUT smartly. For instance, something that my father has been talking to me about is income generating investments with investment firms. Indeed, it’s a bit different however I would say that if you were to invest as equity then then the concept would be very similar. I believe that being a VC is something that I would really consider, since in the past 3 years, I began learning a lot in the field. If I were a VC, I would draw a management fee one way or the other and have an upside with the risk spread across multiple investments. With this, I would also learn a lot on along the way, plus enjoy a great less stressful environment.
Corporate / International Businesses
Entering university, the sole type of businesses that I had in mind for myself are international corporate businesses. I was convinced that this is the way to go after I graduate, especially since I’m studying engineering, I would simply follow the family business which is in fact corporate and international. I thought that that was the way for me to learn, by large scale examples and experience. However, after I took this class I realized that this really isn’t the right way to go. In the future, yes it gives you a great platform however with little experience, I believe that the best way for me to truly learn is by working or starting my own micro business and watch it grow along the way. Since working in a corporation was the only thing that I knew of, I didn’t even consider other options. I told myself that working with a big corporation would be great since it would be great on my resume and who wouldn’t want that. However, the thing with big corporations is that, everything is large scaled and the process of getting things done is much slower since it has to go through many people. Also, big corporations already climbed their way to the top. They’re done with all the small little things that a micro business owner would need to worry about.
Something that’s good about Northeastern of course is its coop, however not every coop is as good at the other. A common pattern that seems to be going on is students that are going off working with large corporations, come back hating their coop while others who do their coop in small yet thriving businesses say that they love it. I believe that the reason for this is that students who go off working for small and growing business learn so much along the way. The environment is once in which you can learn and isn’t too serious. Students feel that their work matters and plays a role. Students who work in large companies say they don’t enjoy it as much since they believe that they would have learnt much more if they worked for a small firm.
I believe that this is where I stand. I am aware that working in a large corporation would be great but I honestly don’t see myself working in that type of environment as soon as I graduate. I want to experience every step of the business, watch the ups and downs the business has to go through to survive. Indeed, I see myself working with my father later on in the future, but of course not as soon as I graduate because after this class, I really did realize that how you get to where you are is what matters. We all have a dream of working with large multinational companies. However, my dad always told me you need to climb your way to the top, rather than skipping all the small steps. I can assure you that if I went off and working for a large company after I graduate; I would really despise working there because as I said, I enjoy learning and doing the small little things. I enjoy seeing cause and effects of things which I believ
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