Problems Entrepreneurs Face

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B R I D G

ProblemsEntrepreneursFace

June 2003

By Gwen Richtermeyer, Ph.D.Director



B R I D G

ProblemsEntrepreneursFace

June 2003

by

Gwen Richtermeyer, Ph.D.

Director




Table of Contents

Int roduct ion..................................................................... 1

Problems in the Beginning .......................................... 1

Finance ...................................................................... 1

Management ............................................................ 2

Market ing.................................................................. 3Technology ............................................................... 4

Problems Now ................................................................ 5

Finance ...................................................................... 5

Management ............................................................ 6

Market ing.................................................................. 7

Technology ............................................................... 8

Addressing the Problems ............................................ 9

Demographics ...............................................................10

Methodology ................................................................. 10

About Us ........................................................................ 11

Charts and Graphs

Char t 1, Financial: Problems THEN .......................... 1

Char t 2, Management: Problems THEN .................. 2

Chart 3, Marketing: Problems THEN ....................... 3

Char t 4, Technology: Problems THEN ..................... 4

Chart 5, Financial: Problems NOW ......................... 5

Chart 6, Management: Problems NOW ................. 6

Chart 7, Marketing: Problems NOW ....................... 7Chart 8, Technology: Problems NOW ..................... 8

Chart 9, Preferred Learning For mat ........................ 9

Chart 10, Ideal Learning Environment:.......................

Time Allocation ...................................................... 9

Chart 11, Ideal Learning Environment: Activit ies... 9



B R I D G

Introduction

The “Problems Entrepreneurs Face” study was

undertaken in fall of 2002 by BRIDG. It is the

first study in Missouri to take an in-depth look

at the various types of operational problems

entrepreneurs face when they begin theirbusinesses and after they have been in business

for a number of years.

Given that only about one-half of new business

ventures survive five years1, and 95 percent of

all businesses are small (less than 500

employees), we need to learn as much as

possible to positively impact the success rate fornew businesses. This study focuses on four key

operational areas: finance, management,

marketing, and technology.

Finance

A sound understanding of business finance,

access to capital, and relationships with lenders

are integral to the success of any business. When

starting a business, approximately one-third of

the entrepreneurs found CASH FLOW,

FINANCE, INSUFFICIENT SALES

VOLUME, and PRICING GOOD S OR

SERVICES to be the most problematic. Chart 1

displays each finance topic and the

corresponding percentage of respondents who

indicated it as a problem.

- 1

Problems in the Beginning

Financial: Problems THEN

54%

43%

36%

32%

23%

23%

21%

20%

19%

18%

17%

17%

10%

9%

0% 10% 20% 30% 40% 50% 60%

Cash Flow

Finance

Insufficient Sales Volume

Pricing Goods & Services

Delinquent Customer Accounts

Understanding Financial Statements

Obtaining Short-Term Loans

Rent & Property Costs

Obtaining Long-Term Loans

PurchasingObtaining Equity Capital

Using Financial Information

Obtaining a Line of Credit

Building a Relationship with a Lender

1 Headd, Brian. 2003. Redefining Business

Success: Distinguishing Between Closure and

Failure. Small Business Economics 21: 51-61.

Chart 1




Management

In beginning their business, about one-quarter

of the entrepreneurs stated that their

management problems were diverse and

focused on themselves (CONTROLLING MY

OWN TIME, SETTING GOALS andMEASURING PERFORMANCE), their

employees (FINDING/RETAINING

QUALIFIED EMPLOYEES), and accessing

helpful information (GETTING USEFUL

BUSINESS INFORMATION). Chart 2

displays the management topics and the

percent of respondents who indicated the topic

was a problem when starting their business.

- 2 -

Management: Problems THEN

37%

31%

24%

22%

20%

18%

17%

16%

16%

15%

11%

8%

6%

4%

3%

3%

3%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Controlling My Own Time

Finding & Retaining Qualified Employees

Setting Goals & Measuring Performance

Getting Useful Business Information

Employee Turnover

Leading the Company

Motivating Employees

Low Employee Productivity

Preparing Strategic/Annual Business Plans

Handling Business Growth

Employment, Health, & Safety Regulations

Negotiating Leases & Other Contracts

Effectively Using Contractors and Consultants

Motivating Consultants & Contractors

Abiding by a Code of Ethics

Creating a Board of Directors

Effectively Handling the Board/Advisors

Chart 2



B R I D G

Marketing

The two top problems in the marketing area

focus on “how to” — ABILITY TO COST-

EFFECTIVELY ADVERTISE and ACTUAL

SELLING. Chart 3 displays the marketing

topics and respective percentage of entrepreneurs who found each topic a problem

in the beginning.

- 3

Marketing: Problems THEN

28%

26%

19%

19%

17%

17%

17%

16%

16%

16%

15%

14%

14%

12%

10%

0% 10% 20% 30% 40%

Ability to Cost-Effectively Advertise

Actual Selling

Developing a Marketing Plan

Identifying New Opportunities

Branding the Firm

Competition from Large Businesses

Getting Positive Publicity

Identifying the Customer

Implementing Marketing Strategies

Understanding the Customer

Overcoming Negative Perceptions

Effectively Networking

Getting Business from Large Corporations

Getting to the Decision Maker

Developing New Products & Services

Chart 3



Problems Entrepreneurs Face- 4 -

Technology

Technology in relationship to finance,

management, and marketing was not as much

of a problem area for entrepreneurs starting a

business. About one-fifth of the respondents

indicated SETTING UP A COMPUTERSYSTEM was a problem. Chart 4 displays the

topics within the technology area and

corresponding percentage of entrepreneurs who

indicated each was a problem.

Technology: Problems THEN

20%

16%

11%

11%

10%

7%

6%

6%

5%

4%

0% 5% 10% 15% 20% 25% 30%

Sett ing Up a Computer System

Selecting the Best Software

Creating a Web Site

Effective Business Use of the Internet

Integrating Technology into the Firm

Setting Up Information Systems

Creating a Data Warehouse

Product Development & Testing

Effective Facilities, Laboratories

Using Personal Data Assistants

Chart 4



B R I D G

Problems N ow

One-half of the entrepreneurs participating in

this study have been in business for at least 17

years. About one-fourth have been in business

between two and eight years. The problems

these seasoned business owners face today areboth similar and different than those they faced

when starting their businesses.

Financial: Problems NOW

41%

32%

27%

23%

22%

20%

18%

14%

12%

11%

10%

9%

9%

8%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Cash Flow

Delinquent Customer Accounts

Insufficient Sales Volume

Obtaining Long-Term Loans

Pricing Goods & Services

Obtaining Equity Capital

Finance

Using Financial Information

Understanding Financial Statements

Rent & Property Costs

Obtaining Short-Term Loans

Obtaining a Line of Credit

Purchasing

Building a Relationship with a Lender

Finance

While CASH FLOW and INSUFFICIENT

SALES VOLUME remain problems for many,

account receivables and capital enter into the

picture for one-fourth to one-third of the

entrepreneurs. Chart 5 displays the financetopics and corresponding percentages.

- 5

Chart 5



Problems Entrepreneurs Face- 6 -

Management

Control of time and putting the right person in

the right job remain significant problems for

more than one-third of the entrepreneurs. In

addition, the role of manager and leader

emerge as entrepreneurs grow their companiesplacing MOTIVATING EMPLOYEES and

PREPARING STRATEGIC/ANNUAL

BUSINESS PLANS in the top five problems

for experienced business owners. Chart 6

displays the management topics and respective

respondent percentages.

Management: Problems NOW

43%

37%

21%

20%

18%

17%

16%

16%

15%15%

10%

7%

6%

6%

2%

2%

2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Controlling My Own Time

Finding & Retaining Qualified Employees

Motivating Employees

Preparing Strategic/Annual Business Plans

Setting Goals & Measuring Performance

Handling Business Growth

Getting Useful Business Information

Low Employee Productivity

Employee TurnoverEmployment, Health, & Safety Regulations

Leading the Company

Negotiating Leases & Other Contracts

Effectively Using Contractors and Consultants

Motivating Consultants & Contractors

Abiding by a Code of Ethics

Creating a Board of Directors

Effectively Handling the Board/Advisors

Chart 6



B R I D G

Marketing

At this point in the business, entrepreneurs

have learned how to handle some of the

foundational marketing tasks, although

ABILITY TO COST-EFFECTIVELY

ADVERTISE remained the number oneproblem for entrepreneurs. In addition, the

continued need to set one’s business apart from

others surfaces in that COMPETITION

FROM LARGE BUSINESSES and

IDENTIFYING NEW OPPORTUNITIES are

the second and third most mentioned

problems. Chart 7 displays the marketing

topics and respondent percentages.

Marketing: Problems NOW

34%

28%

26%

22%

21%

20%

20%

15%

14%

14%

13%

13%

12%

11%

8%

0% 10% 20% 30% 40%

Ability to Cost-Effectively Advert ise

Competition from Large Businesses

Identifying New Opportunities

Developing a Marketing Plan

Getting Business from Large Corporations

Actual Selling

Implementing Marketing Strategies

Developing New Products & Services

Getting Positive Publicity

Overcoming Negative Perceptions

Effectively Networking

Understanding the Customer

Getting to the Decision Maker

Identifying the Customer

Branding the Firm

- 7

Chart 7




Technology

Current technology problems reveal

sophistication in the technology field and in

how businesses use technology. The top

problems faced currently by entrepreneurs are

EFFECTIVE BUSINESS USE OF THEINTERNET, CREATING A WEB SITE, and

INTEGRATING TECHN OLOGY INTO

TH E FIRM. Chart 8 displays technology

topics and corresponding percentages.

Technology: Problems NOW

24%

19%

18%

16%

15%

9%

9%

6%

6%

5%

0% 5% 10% 15% 20% 25% 30%

Effective Business Use of the Internet

Creating a Web Site

Integrating Technology into the Firm

Selecting the Best Software

Setting Up a Computer System

Creating a Data Warehouse

Setting Up Information Systems

Product Development & Testing

Using Personal Data Assistants

Effective Facilities, Laboratories

- 8 -

Chart 8



B RI D G - 9

A better understanding of the problems

entrepreneurs face at varying points in their

business lives provides tremendous

opportunities to shape programs, products,

services, and tools to meet these needs.Just as problems change over time, preferred

ways of learning have also changed. The pressures

and stresses of owning your own business,

Addressing the Problems

information overload, and lack of time are

ingredients that need to be factored into any

attempt to assist the business owner whether they

are starting, operating, or growing a business.

We found that entrepreneurs PREFER ashort, to-the-point learning format and a

blended learning experience. Charts 9 through

11 display these preferences.

Chart 9

Chart 10

Chart 11

Preferred Learning Format

40%

25%

15%11%

9%

0% 10% 20% 30% 40% 50%

One Day Seminar or W orkshop

Topical W orkshop - 4 Hours or Less

Class Using Web or ITV TechnologySeries of 1-3 Hour Topical W orkshops

Class for Several W eeks

Ideal Learning Environment: Time Allocation

29%

28%

27%

22%

21%

25%

20%

20%

20%

20%

0% 5% 10% 15% 20% 25% 30% 35%

Lecture

Individual Application

Experts from the Field

Networking with Peers

Small Group Discussion

Mean MedianWhat percentage of timewould be allotted to:

Ideal Learning Environment: Activities

63%

25%

24%

21%

60%

20%

20%

20%

0% 10% 20% 30% 40% 50% 60% 70%

Face-to-Face with Others

In a Workbook

On a Computer

Online

Mean Median

What percentageof time would be:




Demographics

The entrepreneurs in this study closely match

the population of small business owners in

Missouri. Approximately three-fourths of the

respondents are white males with an average

age of 52. Almost one-half (48 percent) arecollege degreed. Most of the businesses

represented are services (38 percent), retail (19

percent), and construction (13 percent).

Methodology

These findings are based on an industry sector

stratified, random survey study of small business

owners in the State of Missouri. A total of 1,352

surveys were completed, providing a response

rate of 14 percent. A series of focus groups andinterviews with small business owners,

entrepreneurs, and business assistance providers

were held in summer 2002 to gather

information about educational needs and wants,

learning preferences, learning styles, and

concerns or problems faced in starting,

operating, and growing a business. To be eligible

to participate, small business owners and

entrepreneurs must have been in business at

least two years. From this information, a survey

instrument was drafted and reviewed bynumerous small business owners, entrepreneurs,

business assistance providers, and academics.

We used the Dun & Bradstreet Marketplace

database for our sample, initially sending our

survey to 10,000 small business owners in the

state. We followed the Dillman Method for

maximizing our mailed survey response. In

addition to the mailed survey, a sub-database of

1,200 non-respondents was pulled and follow-

up telephone interviews were conducted,

increasing our final response rate by three

percent.

- 10 -



B RI D G - 11

© 2003 BRIDG

About U s

BRIDG, a University of Missouri Outreach &

Extension group, focuses solely on researching

small business and entrepreneurship. Its

research lays the foundation for the creation

and delivery of quality programming, products,services, and organizational processes

specifically developed for small business owners

and entrepreneurs to start, operate, and grow

their businesses.

Other recent reports include a study of

technology companies in Missouri and a study

of Latino/a Business Owners in Greater Kansas

City. For further information or detail, please

direct your questions to Dr. Gwen

Richtermeyer, Director, BRIDG-UMKC, 4747

Troost, #217, Kansas City, MO 64110,816-235-6343, [email protected].



Problems Entrepreneurs Face © 2003 BRIDG, 4747 Troost, Suite 217, Kansas City, Missouri 64110

816-235-6343 | www.bridg.org

BRIDG is supported by theUniversity of Missouri Outreach and Extension Outreach Development Fund

and is located on the Kansas City, Rolla and St. Louis campuses.

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