What are the critical capital resources for an entrepreneur?

Discussion About Assessing Your Critical Capital Resources

Leadership, as we discussed in a previous Article, requires marshalling resources cooperatively toward a goal while simultaneously preserving and encouraging a strategic vision. To successfully execute a business plan, in order to translate the business concept into a reality, entrepreneurs have to surround themselves with the right mix of resources, which includes people, capital, and partners.

But they first need to assess the resources that the venture will require, and they are often required to do more with less. In fact, many successful entrepreneurs pursued their new business opportunities relentlessly, without becoming deterred by the limited resources that they initially controlled. Simply put, by definition, entrepreneurs are attempting to achieve goals that will require considerably more resources than they currently control. One of the key skills of entrepreneurial success lies in distinguishing between those resources that are absolutely critical and those that would be nice to have but are not so critical. The other skills are knowing how to get the resources, and knowing how to manage or allocate them.

Resources are scarce because people want more than they currently have or more than what other humans can produce. Henry Ford found that humans on an automotive assembly line have limits to their outputs. And the world itself has a limited supply of resources. Such resources that immediately come to mind are the natural resources that have not been modified by man—land, water, oil, metals, minerals, and wildlife. The central theme of new business venturing is one of understanding this scarcity because many start-ups fail due to circumstances relating to resources.

Because resources are scarce, entrepreneurs must make clear choices as to which resources they must obtain, and in what time period they are needed. There are five basic types of capital resources that are absolutely critical to the entrepreneurial process. They are human capital, opportunity capital, economic capital, financial capital, and entrepreneurial capital.

Critical Capital Resources for Entrepreneurs

Human Capital
Includes physical labor, one of the most important resources. Can be classified in a number of ways, direct or indirect labor, recurring/nonrecurring, designated/non-designated, exempt/nonexempt, wage/salary, blue collar/management, union/nonunion, executive management and other employees. It also includes the board of directors, professional service providers, and consultants on the advisory board.

Opportunity Capital
This is the lead-time before others see a problem. It is insight to the opportunity and particular know-how to solving a problem. Also called intangibles and goodwill, it is the first of two business assets that includes intellectual property like patents, trade secrets, trademarks, confidentiality agreements, exclusive customer relationships, technological know-how, knowledge capital, and relationship capital which is especially important for strategic partnerships and outsourcing. It could also include exclusive access to sources of financial capital, primary marketing research and business models, special leasing/rental agreements to a winning location, and can even include “social capital” or “social assets” which are special friendships, access to lead users, unique obligations, that provides access to or framework for the opportunity.

Economic Capital
The second of two business assets called tangibles. There are two types of tangibles fixed assets like land, physical building, manufacturing plant, office space and machinery, all called “property, plant, and equipment” (PP&E) in accounting terms. The second type is called current assets which includes inventory, materials, direct materials and subcontract materials, like components, parts, assemblies produced by a supplier or vendor in accordance with designs and specifications.

Financial Capital
This includes cash in the checking account, and cash equivalents like publicly traded stocks, U.S. bonds, sometimes accounts receivables from marquee customers, and personally secured loans made to the venture. Clearly, these financial resources are the most frequently needed.

Entrepreneurial Capital
This includes the collective domain expertise, the execution intelligence, the time and commitment, and combined intrinsic motivation of a venture team. It is assembled to assume the risk and begin a new business enterprise in a specific space to accomplish a specific thing. It is the entrepreneur, who quite often includes other entrepreneurs, that creates and drives value out of unique, and sometimes exclusive combinations, of the four other resources above. In other words, without entrepreneurs, the resources would not be gathered and allocated towards a common goal–without this last resource, the venture never takes place.

SOURCE: Roadmap To Entrepreneurial Success