Scratch Strategy [For Start-ups and Entrepreneurs]
Creating a business from scratch is an attractive startup strategy for many entrepreneurs. It provides a significant opportunity to have own unique business for an entrepreneur, which would be a true extension of the entrepreneur’s personality.
Table of Contents
Advantages of Scratch Strategy
A new firm started from scratch by an entrepreneur is often referred to as a startup.
Researchers from a study on entrepreneurs haw identified the following reasons why entrepreneurs start new firms from scratch.
There are several advantages of starting a business from scratch rather than piquing other alternatives, such as franchising or buying strategy.
Escaping to something new
The entrepreneur starts from scratch as he/she attempts to escape from his or her previous type of job, which the individual feels did not offer prospects for sufficient rewards in terms of salary, challenging work, promotion opportunities, or other factors.
Putting the deal together
The individual aims to bundle the different aspects of the business into a deal from which each participant will gain.
Rolling over skills and contacts
The individuals who worked in a position that involved technical skills and expertise closely related to those needed in the new enterprise.
The venture offers goods and services that rely on the owner’s professional expertise and are most often generic.
The entrepreneur is one of the top people in a historic technical field. He brings in partners to help start the firm.
The venture enters an established market and competes through flexibility in adapting to customer needs based on the entrepreneur’s keen awareness of environmental changes.
Forming an Aggressive Service
The entrepreneur wants to create an aggressive service-oriented film, usually a consulting firm in a highly specialized area.
Pursuing the unique idea
The entrepreneur starts the venture from scratch because he/she wants to push into the market an idea for a product or service that is not being offered.
The product or service is not technically sophisticated or difficult to produce.
The entrepreneur wants to use extensive planning to acquire the skills and perform the tasks required in the new ventures.
The products or services are similar to those of competitors. Still, the firm provides a new twist, usually either a slightly different way to produce the product or service or slightly different customers to sell to.
Disadvantages of Scratch Strategy
The scratch strategy is not free from all kinds of demerits. It faces the following disadvantages:
Unproven product and operation
The venture under this strategy will have a new product and an operational system. It does not have any record or sue or viability lest.
So. there is always a chance of uncertainty r risk about the potentiality of successful operation and acceptance.
No history to show
The new venture will not have any history of operation that can be shown to suppliers, vendors, or bankers to convince them about the venture’s feasibility.
This seriously handicaps its potential to get debt services from others in the market. This also would be the reason for limited financial capacity that will hamper its operative capacity.
Risk of inadequate or improper planning
The success of every entrepreneurial venture depends on a systematic and effective plan and its execution.
Any type of inadequacy in this respect may be catastrophic to the success and survival of the new venture. The new firm Joes not have any managerial succession and is the subject of risk associated with improper planning.
Lack of knowledge of market reaction
The new venture that starts from scratch will not know how market forces will react. The firm can assess it with a market survey, but some hidden forces may be strong harriers in the way of the success of the business
Kinds of Scratch Strategy
3 basic types of ideas that develop into signup;
- ideas for new markets,
- new technologies, and
- new benefits.
They are discussed below:
Type A Ideas – Ideas for New Markets
Ideas for New Markets are concerned with providing customers with a product or service that does not exist in their market but already exists elsewhere.
Type B ideas – New Technologies
The type of idea involved with new or relatively new technology centered around providing customers with a new product.
USA firm Zalman Silber raised $6.2 million in 19994 to develop the New York Sky ride, a simulated helicopter tour of the Big Apple.
The high-tech appeal of the ride attracted about 19 percent of the 3.4 million tourists who visited the Empire Building in 21996, where the ride is located.
Type C Ideas – New Benefits
This type of idea represents new and improved ways of performing old functions, accounting for the largest number of startups. Most new ventures, especially in the service industry, are founded on “me too” strategies. They differentiate themselves through superior service or cheaper cost.