Fixed Cost In Break-Even Analysis Refers To The Cost That Entrepreneurial Approach to Resources

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Entrepreneurial Approach to Resources

Howard Stevenson and his colleagues at Harvard Business School define entrepreneurship as “the process of creating or seizing an opportunity and pursuing it regardless of currently controlled resources.“This approach, Stevenson maintains, has contributed significantly to the success of entrepreneurs. He states that entrepreneurs seek to use the minimum possible amount of all types of resources at each stage of the growth of their venture. These resources include human resources, financial resources, assets and a business plan. Instead of owning the resources that entrepreneurs need, they seek to control them, according to Stevenson.

Studies show that entrepreneurs with this approach to business significantly reduce risk when pursuing opportunities.

1. capital: Since the amount of capital required will be less, this will mitigate risk by reducing financial exposure and diluting the founder’s equity.

2. Flexibility: Entrepreneurs are in a better position to commit and cancel quickly when they don’t own a resource. The business agility gained in this way can be very beneficial to a firm as it allows them to react more quickly and make decisions quickly. In addition to this, the entrepreneurial approach to resources allows for strategic experimentation, meaning that ideas can be tried and tested without being tied to ownership of all the assets and resources in the business. For example, it is wise to raise capital gradually as the need arises, otherwise one may spend it too early on wrong decisions. Inflexibility also results from being permanently tied to a particular technology, software or management system.

3. Low sunk costs: The costs of closing down a firm or enterprise will also be lower if resource ownership is less. If the initial capital commitment is huge, abandoning such a project will also be very expensive.

4. Costs: Fixed costs will be lower, which will have a positive effect on profitability. Of course, in this case, variable costs can increase.

5. Reduced risk: In addition to the overall risk reduction, other risk events, such as the risk of resource obsolescence, are also lower. For example, biotech companies have used venture leasing as a way to supplement sources of equity financing.

It should not be misconstrued that this approach means that a firm cannot afford to buy resources. The fact is that not owning has its advantages and opportunities in the form of business flexibility and reduced risk. At the same time, however, these decisions are very complex and considerations such as the tax implications of leasing versus buying and other existing laws and regulations must be thoroughly and carefully considered.

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