Business Creation

Business creation involves the implementation of a new combination of production factors. This can include a new product, service or process. This activity increases a region’s gross domestic product by adding jobs and increasing earnings. It also adds to the tax base, allowing a country to invest more in public projects. Business entrepreneurs also drive social change by reducing dependence on traditional methods and systems. They often break tradition with unique inventions that reduce the need for costly upgrades or render outdated equipment obsolete. These entrepreneurs provide jobs and increase incomes for the communities they serve.

Entrepreneurs can be found in all industries, from restaurants to high-technology manufacturing companies. Many new businesses struggle to make it through the Survival Stage. They may fail to gain enough customer acceptance to reach profitability or they may run out of capital and have to close. Others, such as mom-and-pop stores or small manufacturing businesses that cannot compete with larger producers, remain in the Survival Stage for some time, earning marginal returns on invested capital and energy (see endpoint 2 on Exhibit 4).

Creating a business requires planning, making key financial decisions, and completing a series of legal activities. Market research is an important part of this process, as it determines whether there is a clientele for the proposed products or services and helps determine how the business can survive. It also assists in the development of a business plan, which is necessary to set up the new enterprise. The next step is establishing the legal structure of the business. This could be a sole proprietorship, where the owner is both the investor and operator; or a partnership, where the owners share the profits and liabilities of the company.