The approach and obstacles to raising capital and managing future change can make or break a new company that is trying to compete for market share in the sports beverage industry. According to a recent monthly labor report, most new businesses have the best chance of surviving during the first two years (Knaup, 2005).
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Future Outlook and Raising Capital in the Sports Drink Market
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The competitive and lucrative sports drink market has in the past been dominated by two main players, Gatorade and Powerade. Together they have long held over two thirds of the market share. However, the future outlook shows that the market is starting to include a wider variety of sports drinks that are targeting a broader range of personal needs. LJ Enterprises will utilize more than one avenue in raising capital. This will help to ensure the new company is funded well from the start in order to give it the best chance to succeed. 1. Discuss the future outlook and industry trends related to the new venture.
Future Outlook and Industry Trends The future outlook for the sports drink industry involves many new companies entering the market and offering different types of non traditional sports drinks. Gatorade has been leading the market for years but has yet to really come out with a new product. They have pushed different marketing campaigns and tried to repackage their product a bit, but the formula and product remain fundamentally the same. This is where new companies are able to gain ground against the bigger and more established market leaders.
One new trend in the industry is to target a specific segment of the market such as kids or athletes. The now discontinued product Gatorade Tiger was one way the market leader and our competitor tried to innovate and take advantage of this trend. This product was heavily marketed to the endurance athlete and team sports. Powerade is now targeting the kid segment of the market with their product called Powerade Play for kids. This product contains 20% of the Daily Value (DV) of four B vitamins, 100% DV of vitamin C, 20% DV of zinc, a trademarked electrolyte system and 25% less sugar (Spano, 2005).
Another industry trend being seen involves the concept of ‘nutrient timing“. This involves drinking certain nutrients around the time of physical exertion or exercise to allow for shorter recovery time and for specific needs such as strength training or endurance. So far, this practice has focused mainly on carbohydrates and protein but in the future the trend will be nutrient timing for non-nutrients. The most well known sports drink currently involving nutrient-timing are protein based recovery drinks or Ready-to-Drink beverages.
LJ Enterprises new product offering, Sore-B-Gone will be a perfect fit for this emerging market trend. 2. Discuss the legal or concerns related to the venture idea Legal Services and Industry Concerns In most cases the entrepreneur will need to protect his or her intellectual property. The practice of acquiring patents, trademarks, copyrights, and trade secrets will ensure this property is protected by the courts and through the services of an attorney. An attorney can be specialized in one area such as patents or real estate.
It is important for the attorney and the client to develop a good working relationship. This can help to give the entrepreneur much needed confidence and help to ease some of the risk launching a new venture. One if the first things a new company will want to do after hiring the services of an attorney is to have a conversation about patents. Most of the work will be done by the lawyer who will work to secure a patent for the new company. In doing this, the entrepreneur gains exclusivity regarding his or her invention for a limited amount of time.
The time that the invention or product will be patented depends on which type of patent is acquired. A Utility patent will grant the owner protection for twenty years from other people or businesses making, using, or selling the invention that has been patented. This type of patent usually involves a process such as the mixture of ingredients. It is this type of patent that LJ Enterprises will seek in order to protect its intellectual property, such as our drink mixture. Another type of patent is called a design patent. This one has a term of fourteen years and involves the appearance of an object.
For example, if a company wanted to protect a product or container configuration, this would be the type of patent that would be needed. It will be very important for any company looking to sell internationally to file for an international patent. This will protect the company from unforeseen laws or taxes involving the many different countries. 3. Discuss the approach and obstacles to raising capital for the new venture. Approaches to Raising Capital In the beginning stages of starting a new business venture, the entrepreneur will face many difficult tasks.
One of these tasks will be deciding how to raise the necessary funds in order to get their product or idea off the ground. The best course may involve one or many sources depending on the business needs and initial capital already available. One easy and logical first step would be to ask friends and family. In most cases this group is excited about their relatives or friends taking on a new venture with the chance of making a lot of money. However, this approach can damage relationships if certain expectations are not met and/or investments are not paid back as promised.
Another problem is that the capital borrowed is often small and not enough to cover all the initial costs. Another more effective approach is through Angel investors. This group has more money available to give the new business but one of the downsides is they may want a stake in ownership, stock options, or some other kind of compensation up front. This will not be an ideal option for the owner who wants full ownership of the company. Yet another option is the standard bank loan. The two key elements to obtaining this type of loan is the business owner’s personal credit history and having a soild bsuiness plan. It is the ntention of LJ Enterprises to first enlist the help of a wealthy uncle with very deep pockets. This initial investment from Uncle Taylor will be around $30,000.
A decent sum of money but not enough to do all the things the company initially wants to do. The company will also need to try and secure a small business loan from a bank. We will ask for $50,000 in order to cover all the start up costs and to help out with daily living expenses while getting the product launched. Obstacles to Raising Capital One of the major setbacks to getting capital for a new business venture is the huge risk involved with such an undertaking.
However, this risk can be somewhat averted if the business owner can create a good pitch to lenders and managing the money effectively once the loan is secured. Another obstacle to raising capital is not asking for enough money in the first place. In a 2004 U. S. Bank study of reasons for small business failures, 79 percent cited "starting out with too little money" as one of the causes of their collapse (Sugars, 2007) . Other barriers to getting the amount of capital needed are failure to get the proper legal documents, poor cash flow management, having too many lenders, and focusing too much on the idea and not enough on management.
LJ enterprises has considered all of these factors and intends to due the following to increase its chances of being properly funded. First off, we intend to limit our lenders to only two. Secondly, an accountant will be hired to manage the cash flow and overall record keeping. Lastly, the services of an attorney will be utilized from the beginning so that no important legal documents are missed. The company hopes to maximize the chances of gaining its initial capital by following these guidelines. Conclusion Currently one of the most important trends in the sports beverage market is the concept of nutrient timing.
It is for this reason that we feel our product, Sore-B-Gone, is being introduced at the right time. It is vitally important to the health and future on the company that the services of an attorney are obtained right from the start. An attorney can not only assist but increase the changes of the new venture obtaining much needed initial capital
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