Launching in establishing firm. It is essential that

Launching
a new start-up business is a complex, chaotic and rarely linear process. It
starts when a person or a group of people decide to devote their time and
resources to the formation of a new business. However just intent to start a business
is not enough to make things happen. Start-up business faces a lot of
challenges from the initial stage as there are a lot of uncertainties of
outcomes in the market and a lot of unknowns. Consequently, the process of launching
and setting up a new start-up business is challenged with several types of
risks such as financial, product, market, management/team, and customer.

According
to Allen (2016), in order to minimize financial
risks, two questions should be analyzed and answered, first whether the
start-up business is financially feasible or saying in other words if the
capital requirements of start-up business are appropriate. Second, the start-up
business should make profitability analysis and define if it is worth to make
efforts in establishing firm. It is essential that the financial figures are in
line with the goals that the company sets and that the goals are realistic and
achievable. When all the aspects of start-up business are considered in
conformance, “the business plan with a full set of financial statements can be
developed. That process will further reduce the uncertainty inherent in the
start-up business” (Allen 2016, p. 22). Therefore, a start-up business should
have a well-defined financial plan to ensure that the appropriate amount of the
capital is allocated

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Another
risk associated with the launching of a start-up business is the product risk
that is related to an aspect that start-up may not succeed in creating the
product that it intends to generate. It happens because some start-ups are in
difficulty of making explanations about its product. They fail to explain what
problems does their product solve and why it is worth to invest in this
product. If start-up business fails to address the following issues, it will
fail in addressing the market as customers would not be likely paying attention
to this product. Thus, for minimizing this risk, start-ups should focus on the problems
of customers and fill the gap. Osterwalder, et. al
(2014) in the book “Value Proposition Design”, defined
that value proposition is obligatory for those creating a new venture. The
value proposition enables to outline key issues for understanding and finding
customers’ problems and getting possible solutions.

Moreover,
before launching the business, it is essential to assess the market. Entering
unfamiliar market can present challenges for the start-up business. Therefore,
new ventures should be actively involved in the market for finding out
opportunities in the market. According to Byers et.al.
(2015) market research is used for gathering information and defining
opportunities in the market. It is “critical to the new venture
team: without is, a new venture may launch a product only to find out that the
customer does not value it” (Byers et al. 2015, p. 31). Market research is essential for business start-ups, as “it assists
in understanding customers, assess trends that occur in the market and in addition
to learn about product’s demand in the market. Moreover, market research enables
to consider strategic road mapping route.” (individual journal, 30/11/2017). There
are two types of market research: primary and secondary data collection. The
primary (first-hand data) that can be either qualitative or quantitative and
which deals with conducting face-to-face interviews, surveys, and focus groups.
The secondary (published data) is done by conducting research about the industry,
competitors’ websites, or through the other ways of observation. The primary
research, mainly face-to-face interview, is effective for start-ups as it
creates early evidence of validation, helps to find out about the potential
market and to identify customer’s needs, solutions and buyer personas.

Another
risk associated with new venture creation is management/team risk. It is
associated with the fact that start-up can fail to meet its objectives due to
poor teamwork or because the team is composed of people that do not have
appropriate skills or knowledge. Therefore, it is crucial for a start-up
business to have a good team as only with the help of good team it will be
possible to overcome or minimize risks. 
Good teamwork is essential in finding out ideas for new product
development and in bringing ideas into the market.

Moreover,
the process of setting a new start-up is associated with the risk of customers,
mainly uncertainty of customer’s needs, problems and values. As the start-up
business operates in an uncertain environment, where the company does not know
its customers and have ambiguous views on what their product should look like,
it gets harder for them to forecast the future success.  According to Reis (2011),
usually the start-ups do not have long, stable operating history and the
environment they operate is uncertain, consequently, it is vital for start-ups
to meet the needs and values of the customers. Before starting the business,
ventures should focus on acknowledging what is essential to customers and
afterward process to build “minimum viable product”. According to Onyemah et.al. (2013), companies should figure out if
there is demand for their initial product offerings and afterward immediately
start selling the product not waiting until the product is perfect. Subsequently,
on the way of company development, additional features of the product could be
added.

To
sum up, the abovementioned analyze of the different type of risks shows that
there are a lot of challenges when starting the business and entrepreneurs
should try to reduce the level of risk if it is not possible to eliminate it.
Moreover, company’s disposition to risk growths as the venture become larger and
due to high risks associated with new venture creation, a lot of entrepreneurs
prefer to give up and to drop out at an initial stage before the start-up
business is transformed to an already well-established firm. Therefore
“understanding where the risk lies enables entrepreneurs to respond effectively
through process improvement strategies and buffer strategies” (Allen 2016, p. 439).

Recently
radically new approach has been emerged and obtained the great importance. This
approach is called “lean start-up” and it makes the process of starting a business
less risky.  According to Blank (2013), in lean start up the experimentation, customer
feedback, iterative design is preferred more over the traditional method. Reis (2011) outlined that lean start-up represents a
new approach to creating a continuous innovation. The lean start-up has pushed
the traditional approach of launching a new venture and has the advantage over
it as lean start-up approach first validates the market in order to see if the
business is profitable, thus the risks are minimized. Validating the market is
essential as start-ups do not have long, stable operating history or a relatively
static environment. Moreover, the traditional approach uses the business plan
composed of many pages, that takes a lot of time and effort therefore in order
not to waste time and have less paperwork, lean suggests making a roadmap
instead of using a business plan.

In addition, in the lean start-up framework “designers and
entrepreneurs often rely on Persona to imagine user-centered, undreamed of
concepts that they subsequently test and improve through short iterations and
continuous customer involvement” (Buisine, et. al. 2016,
p. 584). Outlining the buying persona also enables to minimize risks when
starting a business as it helps to identify the needs of customers and address
the product accordingly. “Personas put a face on the
user—a memorable, engaging, and actionable image that serves as a design
target.” (Jascko 2012, p.1056). It is some
character that represents the segment of the population and is described in
terms of needs, goals, and tasks” (individual journal, 30/10/2017). Identifying
buying personas for my group project work was crucial as it helped to become
more user-focused and enabled our team to put ourselves in customer’ shoes.
Moreover, having preliminary identified the buying personas enabled us to
understand the customer, its demands and plan further steps in developing the
business idea.

The lean start-up process uses the principles such as
building business model canvas for outlining hypothesis, “get out of the
building” approach that is called customer development that is used to assess
hypothesis and agile development, that belongs to process where minimum viable
product is created by start-up business and where there is abolished the excess
time and the product is built in short cycles. When launching a new venture,
the business model canvas is effectively used in the lean start-up in
preference to an old method of creating of business plan model. Business
model canvas is composed of nine building blocks: customer segment, value
proposition, channels, customer relationship, revenue streams, key resources,
key activities, key partnership, cost structures. These blocks define various
groups of people or organizations that the business aims to reach and serve.
This business model looks at nine building blocks of the business at one page,
that makes the process more efficient. According to Osterwalder
et.al. (2010, p. 14), “A business model describes the rationale of how an
organization creates, delivers, and captures value”. It is a diagram of how
business creates value for customers and itself. “Business model canvas is used
to easily describe the model of business and to create new strategic
alternatives” (individual journal, 03/12/2017).

Consequently,
validating market, outlining buying personas and building accurate business
model can reduce uncertainty for a start-up business and boost business in tough
situations. Lean approach rather than traditional methods can help start-up
businesses to launch products quicker and cheaper. Moreover, it enables to
deliver products according to the needs of customers. Therefore, lean start-up
makes the process of launching a new venture a smooth and less risky process.