Challenges of Business in Today's World

Topics: Venture capital, Business, Entrepreneurship Pages: 11 (3499 words) Published: January 27, 2011
Challenges of Business in Today’s World

This paper will describe the challenges associated with newly formed enterprises, the viability of niche products being introduced into bigger markets and the impact that they entail, and also discuss the reasoning behind consumer’s fascination with exclusivity. Six examples companies will be provided to explain how these factors worked into their success. Challenges of Business in Today’s Economy

Identify at least three challenges when setting up a business. Explain why they are challenges. In today’s credit crunch global economy many entrepreneurs are faced with the daunting tasks of not only finding the necessary resources to produce their products, but the funding and crucial business structure in order for their livelihood to stay profitable.

Funding and Lack There Of
Raising startup capital is an extremely huge task when attempting to set up your own business, especially in today’s credit tight economy. Finding the source to secure the financing necessary to purchase even the basic necessities, such as equipment, acquisition of property, and the hiring of personnel, (Bradsheet) can be one of the most daunting tasks an entrepreneur can partake in. In most cases when starting a business there are two ways to procure the essential funding needed to make this happen; debt financing and equity financing.

Debt financing is the main source of startup capital for many new business ventures. Generally, entrepreneurs will attempt to take out small business loans through banks. This method is by far the most reliable way to secure a business’ commerce. However they are several drawbacks and obstacles associated with this type of financing.

(Debit Financing) The banking industry has implemented many stipulations before they will even offer you a single dime. Many banks now require a solid income history based on previous tax returns, to prove whether or not in fact a person has the ability to pay the line of credit back. Another prerequisite among banks is providing in written form where the allocation of their funds will go. Collateral is also a major deciding factor on whether a loan officer will approve or deny an individual’s request for a loan. If collateral is not present, nor if it meets the banks standards the request will ultimately be denied. An individual with a bad personal credit score will find it almost next to impossible to obtain their much needed capital through this channel. This is where the coveted independent investors and venture capitalist come in, but this type of financing also comes with it challenges.

(Investopedia)Equity financing is the selling of a company’s stock in order to raise capital; in exchange these shareholders then receive ownership rights to the company. The most likely sources are individual investors, such as family members and friends, and the venture capitalists firms. The reality of receiving funding from this hot commodity is highly unlikely, according to the following statistics.

(Shane & Scott)
“The Census Bureau's most recent Survey of Business Owners shows that only 2.7 percent of U.S. companies obtained startup financing from a venture capital firm, strategic investor, friend, or family member.”

The biggest obstacle entrepreneur’s face is convincing outside investors that a business will become profitable. Financiers tend to lean heavily towards businesses that will create a return on their investment. Companies in the infancy stages are not constructed for stock shares to go public nor are they equipped to sell the company from the onset. Without a way to prove that your idea will generate earnings, you’re pretty much better off financing the business yourself.

Nearly all newly formed enterprises rely heavily on their own private assets to start up their business risking their financial future to fund their professional ambitions hoping it will succeed. Should a venture ultimately fail the...

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