Successful MBEs and Accessing Capital for Growth and Sustainability - Essay Sample

Introduction

The aim of this study is to explore methods and strategies that successful MBEs use in their businesses to access capital for growth, sustainability, and profitability for a minimum of 5 years. Strategies and techniques utilized in accessing capital for businesses profitability, sustainability and growth will be explored through a qualitative study method and design by studying MBEs located in the region of Alabama. Money is an essential resource for the sustainability of entrepreneurs, MBEs, small businesses growth, profitability and sustainability (Abe, Troilo, & Batsaikhan, 2015).

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The literature review consisted of a variety of current peer-reviewed scholarly studies relating to entrepreneurship theory. My review encompassed readings from government statistical reports, scholarly books and other databases that revolved around the entrepreneurship theory. Other databases incorporated in my review included Crossref.org, ABI/INFORM Complete, JSTOR, Academic Search Premier, Business Source Premier, and ProQuest. The review aligns with the problem statement, and research question and the content is 92.9% peer-reviewed which is essential to the completion of this study.

Utilizing the search terms in the databases allowed me to access over 318 articles related to the theme of this study. Most of the literature is dated between 2013 and 2019. To locate and analyze literature of the study my keyword searches included capital constraints, entrepreneurial finance, entrepreneurship, minority entrepreneurs, entrepreneur funding, entrepreneurship and economics, minority business sustainability, small business strategies, small business, minority business strategies, capital access for minority businesses, traditional lending practices, angel investors, guaranteed loans to small firms, guaranteed loans for minority businesses, venture capitalists, business tools, financial literacy, start-up funding, raising capital, minority businesses in Alabama, barriers to minority financing.

This literature review is arranged in systematized sections which include: (a) summary, (b) entrepreneurship, (c) entrepreneurial economic environment, (d) entrepreneurial funding (e) minority entrepreneurship, (f) entrepreneurial funding strategies, (g) entrepreneurial management strategies, (h) entrepreneurial financial literacy.

The purpose of this literature review is to form the background for the study and construct a framework for the specifics of the findings on minority business owners in the region of Alabama. My goal is to provide an exhaustive analysis of why minority businesses fail, and how they can succeed in accessing capital at start-up and continue sustaining themselves through a minimum of 5 years. I provided an exhaustive analysis of what strategies and techniques successful MBE owners utilize, and what essential practices are applied to access capital from inception through a period of 5 years or longer.

A summary of the strategy, technique, financial acumen, process, and implementation will be presented and analyzed to determine how successful MBE owners meet the challenges of accessing capital and maintaining a successful business for five years and beyond.

Summary

Van Ness and Seifert (2016) proposed that the lack of unified theories to describe the term "entrepreneurs", makes it hard to have a consensus among scholars to define the term under one definition. Some categories entrepreneurs include corporate entrepreneurs, entrepreneurs created by business enterprise, student, social and academic entrepreneurs. The entrepreneurship theory is explored in this literature review which deals with minority business entrepreneurs engaged in, or in pursuit of business ventures.

Minority business owners and small business owners are considered entrepreneurs, of which 13% are minority business owners. One out of seven small business owners experienced financial difficulties, and four out of the seven experience financial problems as a result of too much debt. There is a solid correlation discovered between the small business owner's financial strength and their behaviour regarding their financial statements. Only three out of fourteen companies surveyed studied evaluated their net profit ratios and return on investment. There is a distinct connection between a lack of financial literacy and financial difficulties (Dahmen & Rodriguez, 2014). Lack of capital is the most relevant constraint for small to medium enterprise's sustainability and growth (Abe, Troilo, & Batsaikhan, 2015).

An essential resource for MBEs and entrepreneurs to succeed is financial capital (Ahlstrom & Ding, 2014). According to Moreno (2016), entrepreneurship creates economic empowerment for women who are a significant group of minority business owners and entrepreneurs. The research revealed a substantial increase in the growth rate of MBE entrepreneurs; however, business failure among this group is shown to be still extensive, and bias continues to restrict access to capital (Miles, 2013).

The survival of small firms and MBE owners depend on their ability to participate in markets with larger companies. When smaller companies or on the trajectory of growth, it decreases the possibility of closures (Machado, 2016). The growth of MBEs is complex and requires further research into this phenomenon. Theories have been developed to explain the success and growth of larger companies, however further studies on understanding the growth of MBEs and entrepreneurs showing growth movement must be investigated further to develop a more contextual, social and comprehensive explanation of the phenomenon. Therefore, in this case, study, my focus is on the strategies and behaviours of MBE entrepreneurs who have had successful business operations for five years or longer with annual revenues of $500,000.00 or more and have successfully raised capital through traditional and non-traditional funding sources. Entrepreneurship is addressed in the next section of the literature review.

Entrepreneurship

According to Toma et al. (2014), entrepreneurship is an inventive human undertaking that assembles resources and generates productivity from one level to another higher level. Entrepreneurship encompasses discovering, evaluating and exploiting opportunities to introduce new products, services, systems, ways of organizing and markets. Furthermore, entrepreneurship is a vital pecuniary mechanism by which economic inefficiencies can be identified and reduced. Entrepreneurship is essential to how market economies work (Toma, Grigore & Marinescu, 2014). Entrepreneurship has been considered the foundation of economic development. Economic growth in a region depends on the level of entrepreneurial activity that's taking place within that area. Entrepreneurship is essential to economic growth as well as job creation, and it is a driving force within the economy (Ribeiro-Soriano & Mas-Verdu, 2015). Melwani (2018) suggested a positive effect is found in small firms when it measured entrepreneurship, growth and industry output. Many areas and communities are transformed by small business, and they play an essential role in economic growth and development (Ribeiro-Soriano & Mas-Verdu, 2015).

Entrepreneurs produce ways and means for growth, resources, and connections to occur across cultures, policy conditions, economic contexts and political circumstances that vary from one region to another (Melwani, 2018). According to Domurath and Patzelt (2015) by using social ties, entrepreneurs can move beyond local and regional opportunities to identify international business opportunities for development. Industrialization, employment creation, and poverty reduction are all accelerated by entrepreneurship (Melwani, 2018).

Entrepreneurial Economic Environment

An important element of the economic environment is entrepreneurship. Internal and external factors can significantly impact the context of entrepreneurs in the beginning stages of a start-up. Doran et al. (2018) suggested that economic growth is driven by entrepreneurship. Economic growth in countries such as the United States is positively higher and is impacted by entrepreneurial attitudes and activity. The creation of business, more employment, and local economic performance are much determined by entrepreneurial activity and start-up rates within a region (Delfman & Koster, 2016).

Understanding systems in environments where technology is continuously changing, allows firms to adapt to changing technology immediately so that customers remain satisfied, and the company remains competitive. Seo and Lee (2019) stated that the capacity to quickly create change in a changing environment is a normal process with larger firms. However, small to medium-sized start-ups are generally caught off guard by rapid changes which affect performance and opportunities. For continued growth and sustainability, entrepreneurs must be mindful of the types of products and services customers are more inclined to buy and adapt to rapidly changing technology in their respective business environments. Creating new products and services, utilizing innovative technologies and creating new job opportunities are all made possible by entrepreneurs, and they are vital to boosting economic growth (Kritikos, 2014).

Entrepreneurial Funding

Venture capital serves as a funding option for firms that are just starting, have problems receiving funding from traditional institutions and are considered too risky for investors, (Moon & Hwang, 2018). Small businesses can use alternative forms of finance such as micro-lending, crowdfunding, and peer-to-peer financing as an option to traditional lending sources (Bruton, Filatotchev, & Wright, 2013). Traditional lenders in the region of Alabama reported 57,298 loans under $100,000.00 approved and funded to MBEs in 2016, valued at $981.8 million (SBA, 2018). With the development of new financing sources such as crowdfunding, debt financing, angel investors and venture capital, there are more options for MBEs and entrepreneurs to secure funding for growth and sustainability. Having options to explore more opportunities from different sources other than traditional funding sources helps small businesses continue operating when faced with a lack of capital (Ratten and Ferreira, 2017).

For firms whose businesses are considered risky investments, venture capital is an option for traditional lending sources (Simic, 2017). One of the reasons for lack of capital is that businesses aren't satisfying the required investment criteria from the beginning phase of their business venture and small companies must meet the requirements to attract venture capitalists (Simic, 2017).

Crowdfunding is a productive option for raising capital for new business venture proposals (Barbi & Bigelli, 2015). A study by Mollick and Kuppuswam (2014) on successful crowdfunding projects via Kickstarter's crowdfunding design found that over 90 per cent of these projects continued as current ventures, 32 per cent reported annual revenues of over $100,000 and typically created an average of 2.2 new jobs per successful project. Crowdfunding is a funding vehicle that provides access to capital for companies that need to commercialize and distribute innovative ideas, as well as a source of capital for small businesses and minorities. This digital platform enables individuals and like-minded groups to make investments in companies for specific areas of interest (Mollick & Robb, 2016). Crowdfunding can also predict and increase venture capital investment activity. However, how it affects the opportunity for venture capital is still elusive, and it does not predict the amount of capital that venture capital investors are willin...