Apart from basic challenges such as capital requirement or fund requirements, some other important challenges that a new business generally faces and solutions to these problems are discussed here in.
When a completely new business is opened, the management of the organization has the responsibility of commencing the business.
Be it a multinational company or a small scale firm there arises various problems on commencement of a new business right from capital/fund requirement to market expansion which the entity must be aware of and it should be able to tackle with these issues in the right way.
A newly opened business (which may be of any type or size) may face various problems such as :
1) Capital/ fund requirement.
For commencing any business the entity requires finance.
The main problem with the companies is that they may take the wrong financial decisions relating to procurement of finance.
The company can get Finance either but way of debt
or by equity.
The company or it's financial managers should be aware of the following:
1) Risk.
- Debt is more risky because the company will have to pay interest irrespective of whether it is earning profit or not.
- Equity is less risky because the company will have to pay dividend to the owners i.e the shareholders only in case of profits earned.
2) Cost of Capital.
- Equity is more costly in comparison to debt as the company has to share the profits earned among the shareholders. Higher the profits more will be the cost of capital. Subject to some exceptions.
- Debt is less costly as the company will have to pay only fixed rate of interest.
2) Low or even no market for it's products.
Reason : Due to lack of Goodwill obviously since it is a newly opened firm or it may have similar business in the surrounding area which may be well known.
3)The business experiences low sales.
Reason : The newly opened firm operates just like any other firm in this surrounding area.
Therefore, why will customers of the existing firm change their mind and purchase from the new firm if it does not benefit them in terms of quality, freshness,offers, discount,after sales service or short credit facility to regular customers.
Thus low sales leads to less revenue and hence the business cannot cover it's cost in the ordinary course of business leading to loss and finally close down of the business.
So, how can a newly opened firm in general operate successfully in the market and continue it's business ???
These questions tend to rise.
How to create Goodwill in the market?
How to increase sales?
How to face competition?
Yes, all of these questions are
inter related and they have
a common solution.
Solution:
1) Use of Strategies in business.
For eg: Jio's strategy of cheap pricing (Rs.399) with better quality (4G net with unlimited talktime) has shaken the markets of Vodafone and idea.
It had invested approximately 1.5 lakh crores for the entire JIO project and is earning approximately 1/3rd of it's investment in a year.
[ This eg. is written with the point of explaining the concept and in no way intends to promote or affect the Goodwill of any brand]
Use of Strategies in business can fulfill the gap of what position the entity is and at
what position it wants to be.
(Will be explained in detail with amazing examples in the next blog post. Follow for updates.)
In the modern world, with advancement in technology and developments in various fields, use of information systems in business is vital and essential.
Amazon, Flipkart, Paytm, Google are some of the best examples of companies using technology in business and conquering the global position.
Flipkart in 2008 commenced it's business with a capital of approximately 4,00,000 Indian rupees and with the help of technology in 10 years i.e in 2018 sold it's business to Walmart for approximately 1,00,000 crores.
This is how technology works amazingly perfect in business.
For instance,
1) Use of
barcode scanner in malls saves time and human efforts.
2) Classes in the present time have started their own websites, applications and online lectures where students all overs the world can access the same from home.
Thus as compared to the past where classes used to teach 120 students of 10 to 12 batches in a year,
Now virtual classes can teach thousands of students in the world and act as an amazing source of revenue.
However with use of information systems i.e technology, the lectures are accessible from all over the world thus is more convenient for students and consumes less time, less efforts and has reduced costs for the business.
3) Good business practices.
Eg: Tata group enjoys a good corporate image in India and in the world because of it's good business practices.
It was ranked 34th (which is the highest for India company) among the top Global 500 companies in 2014 as per Brand Finance rating.However,it's ranking has subsequently dropped and in 2016, it's ranking fell down to 103 in the world due to various issues. But it is still number one in India.
4) Be Different from the competitors.
Analyse the internal environment of the business i.e the manpower of the company, machines, management- subordinate relation within the organization to know it's strength and weakness.
- Analyse the external environment of the business i.e whether competitors innovate new product so to grab the opportunities and to be aware and proactive of the threats. In this case by modifying existing products etc
- Review past performance of the business if it is an existing Enterprise and see what strategies were used there in.
- Review competitors strategies.
- Conduct R&D expenditure to know Customer preference.
Obviously, we all prefer shopping online for most of the products and Amazon.in is one such e-commerce website which we all are relatable to.
