The approach of three new Chinese EV automakers demonstrates the value of legitimacy for venture building; these firms were able to reach volume production just two to four years after they were founded, compared to Tesla, who took 9 years. They raised nearly $7 billion in venture funding and all three were recently listed in the U.S. How did they do it? By implementing three actionable strategies to manage legitimacy to access the resources they need: leveraging existing sources of legitimacy, aligning actions with resource holders’ expectations, and redefining perceptions or assumptions held by resource holders.
To start and grow their firms, entrepreneurs need a lot of things from other people. They need funding from investors, skills and commitment from a founding team, approvals from regulators, collaboration from suppliers, and attention and demand from customers, among other things. But to unlock these, entrepreneurs must establish their legitimacy in the eyes of each of those resource-holders, or “audiences.” They have to show that they’re trustworthy, that they have a good product, and that they can take it to market. This effort is particularly challenging because each of these different audiences has its own criteria for what makes a venture legitimate.
In our research on legitimacy strategies, we looked at China’s high-growth and intensely competitive electric vehicle (EV) market (which also happens to be the world’s largest), where, a new group of entrants is challenging incumbent automakers, including Tesla. Three outsiders in particular — NIO, XPeng, and Li Auto — seem poised to emerge as local champions. All three were typical startups faced with significant liabilities of newness and lacking key resources. But these three firms were able to reach volume production just two to four years after they were founded, compared to Tesla, who took nine years. They raised nearly $7 billion in venture funding and all three were recently listed in the U.S. And while all three had connections to the auto industry, EV design and manufacturing was an entirely new venture for them.
How did they accomplish this? We found that successful entrepreneurs — new entrants in particular — implement three strategies to build legitimacy and access the resources they need: leverage existing sources of legitimacy, align actions with resource holders’ expectations, and define (or redefine) perceptions or assumptions held by resource holders.
Here’s how these strategies work.
Leveraging existing sources of legitimacy.
The first step taken by the founders of all three firms was to leverage their personal resources as a source of legitimacy to attract critical resources, including a core founding team and sufficient startup funding. Founder William Li of NIO leveraged the personal networks he had formed while building BitAuto, an internet portal for auto news, listings, transactions, and social communities for car buyers and drivers. Xiang Li, of Li Auto, leveraged relationships formed while building AutoHome, a similar site. Li also brought AutoHome’s existing top management team on board, further increasing investors’ confidence in the new firm. While the founders of NIO and Li Auto brought money and people to the table to build legitimacy, the original founders of XPeng brought experience; both had worked as lead researchers in EV control systems and autonomous driving in the state-owned manufacturer Guangzhou Auto Corporation (GAC). They leveraged that to attract Xiaopeng He, initially as an angel investor and then as co-founder and CEO. He leveraged his leadership experience, cash, and professional connections to Alibaba, which had acquired his previous internet browser company, to build the new company’s resources and access.
Aligning with requirements, norms and expectations.
In some cases, to project legitimacy and gain access to critical resources entrepreneurs must align their actions with the “rules of the game,” including formal regulations and informal but strong norms. For example, even if the leadership team has impressive credentials, investors typically expect them to have substantial “skin in the game.” The leaders of these three ventures aligned themselves with this expectation, each of them personally investing over $100 million in their ventures. Each firm also needed a license to manufacture automobiles. To meet that regulatory requirement and enter the market sooner, NIO and XPeng initially outsourced production to an existing auto manufacturer, while Li Auto acquired a manufacturer with the necessary license.
Redefining perceptions and assumptions.
Finally, all three founders have created a new paradigm for what an EV can be, and which differentiates them from other competitors, including Tesla. They have gone beyond Tesla’s vision of a “smart” EV — based on the operating systems, over-the-air software updates and driver assistance functions — to include platform-based connectivity among customers and online service providers. While Tesla’s smartphone app is integrated with the car’s navigation and functions, those of NIO, XPeng, and Li Auto are also a platform for their users to form friendships and share reviews, photos, experiences and news of upcoming events. NIO, for example, has over 200 thousand daily active users, and 50% of new customers are referred by existing customers. These online relationships are supported by each firm’s network of offline direct-sales and experience stores that are very different from typical 4S dealerships.
Entrepreneurs often ignore the importance of managing the perception of legitimacy when they build a new firm, enter a new industry, or launch a new product. Without legitimacy, entrepreneurs have to enter meetings with cold, unfriendly investors for funding or regulators for approvals, waste many dollars and efforts to acquire users, and struggle with opportunistic co-founders or mediocre suppliers. Such efforts are unlikely to be effective nor efficient. Entrepreneurs without legitimacy with key audiences may keep bootstrapping for years, and only a small number of lucky ones will be able to finally take off.
The approach of these three new Chinese EV makers demonstrates not only the value of legitimacy for venture building, but also all three effective legitimacy-gaining strategies: leveraging existing sources of legitimacy, aligning actions with expectations and requirements, and redefining perceptions of what is “normal” and legitimate. These examples show that entrepreneurs should see legitimacy-building as a key part of the venture-building process, essential to increasing the effectiveness of their resource-seeking and growth acceleration.
4 Tips for Starting an Industrial Business
The industrial sector is a broad category that covers businesses involved in the manufacturing, production, and distribution of goods. Small industrial companies are growing across the country and there are many opportunities for entrepreneurs to get involved in this sector.
As with any type of business, there are certain things you need to do to set yourself up for success. Here are four tips for starting an industrial business:
1. Do Your Research
Market research means figuring out who your target customers are and what they want or need. There are a number of different ways to do this, but some of the most common include surveys, interviews, focus groups, and observation.
Surveys can give you a good overview of customer opinions while interviews or focus groups can help you to delve deeper into specific issues. Observing potential customers in their natural environment can also be helpful in understanding their behavior and needs.
2. Choose the Right Niche
When it comes to starting an industrial business, one of the most important decisions you’ll make is choosing the right niche. There are a number of factors to consider when making this choice, and it’s important to do your research before settling on a particular industry.
First, you’ll need to identify the needs of your potential customer base, such as the products or services they need. Once you have a good understanding of the market, you can then start to narrow down your options. Consider the competition in each niche and decide which one offers the best opportunity for success. When making your final decision, it’s essential to choose a niche that you’re passionate about.
3. Create a Business Plan
In today’s competitive marketplace, it’s more important than ever to choose the right niche for your industrial business. When you specialize in a specific industry or type of product, you can better meet the needs of your target market and stand out from the competition. How do you know what niche is right for your business? Here are a few things to consider:
First, think about your strengths. What does your company do better than anyone else? What unique skills or experience do you bring to the table? Use these strengths to narrow down your focus and choose a niche that you’re passionate about.
Next, consider your target market. Who are you trying to reach with your products or services? What needs do they have that you can address? When you choose a target market and understand their needs, you’ll be better able to choose a niche that meets their demands.
Finally, don’t be afraid to experiment. Trying new things is essential for any business, so don’t be afraid to test out different niches to see what works best for you. By keeping these tips in mind, you can be sure to choose the right niche for your industrial business.
4. Optimize Your Processes
Through industrial control engineering, you will be able to identify opportunities for improvement and design solutions that achieve the desired results. In many cases, these solutions involve the use of automation and other advanced technologies.
By optimizing industrial business processes, industrial control engineers can help to improve efficiency and increase productivity. In addition, they can also help to improve safety conditions by reducing the potential for accidents. As industries continue to grow and become more complex, the demand for qualified industrial control engineers is likely to increase.
With an increased demand for industrial operations and manufacturing, there has never been a better time to start an industrial business. By following these four tips, you can be sure to set your business up for success.
How to Find the Right Business Coach — and Avoid the Wrong One
At its best, business coaching can connect you with a mentor and supporter who helps you generate ideas, make plans and execute on them.
But at its worst, a business coaching offer can cost you time, energy and money — without much to show for it.
Here’s what to expect from a business coach, how to find a coach that suits you and how to spot red flags.
What a business coach can do
Business coaches draw on their professional experience to help you set and achieve your own business goals.
“I’m here to help you, and I’m here to raise your level of knowledge in whatever way I can,” says Gary Robinson, who chairs the Memphis, Tennessee, chapter of SCORE. SCORE offers free business mentoring for entrepreneurs nationwide.
Some ways a business coach or mentor might do this include:
Offering feedback on your ideas and suggesting new ones.
Giving you templates and other tools that help you make plans.
Connecting you with resources in your region or your industry.
Giving you deadlines and holding you accountable to them.
Some business coaches may also offer coursework or group training sessions on particular topics, like sales.
Working with a coach should help you identify opportunities you hadn’t seen before or develop new strategies for pursuing those opportunities, says Sophia Sunwoo, who coaches women and nonbinary entrepreneurs through Ascent Strategy, her New York City-based firm.
“[Coaches] don’t necessarily have to have all the answers,” Sunwoo says. “But they are the people that know how to maneuver and create a bunch of different thinking paths for their clients.”
What a business coach can’t do
A business coach isn’t the same as a consultant, whom you would hire to perform a specific task. A coach or mentor could look over your business plan, for example, but they wouldn’t write it for you.
“If you were to hire me as a consultant, you would expect me to roll up my sleeves and pitch in and work with you to get things done, and you would pay me for that,” Robinson says. Coaches, on the other hand, “try to show you how to do things so that you can do them [yourself].”
Business coaches are also not therapists, Sunwoo says. Entrepreneurship can be emotionally and mentally taxing, but it’s important that coaches refer clients to mental health professionals when necessary.
Business coaching red flags
If a business coaching opportunity “promises guaranteed income, large returns, or a ‘proven system,’ it’s likely a scam,” the Federal Trade Commission warned in a December 2020 notice.
In 2018, the FTC took legal action against My Online Business Education and Digital Altitude, which purported to help entrepreneurs start online businesses. The FTC alleged these companies charged participants more and more money to work through their programs, with few customers earning the promised returns.
In both cases, these operations paid settlements, and the FTC issued refunds to tens of thousands of their customers in 2021 and 2022.
To avoid offers like these, the FTC recommends that you:
Be wary of anyone who tries to upsell you right away or pressures you to make a quick decision.
Search for reviews of the person or organization online.
Research your coach’s background to see if they’ve accomplished as much as they say.
Sunwoo says to also be skeptical of one-size-fits-all solutions. A coach should customize their advice to your personality and skill set, not ask you to conform to theirs.
“The moment that a business coach pushes you to do something that is really not compatible with your personality or your beliefs or values,” Sunwoo says, “that’s a huge problem.”
How to find the right coach — maybe for free
Here’s how to find a coach that will be as helpful as possible.
Determine whether you need advice or to hire someone. A coach isn’t the right fit for every business owner. If you need hands-on help organizing your business finances, for instance, you may need a bookkeeping service or accountant. And take legal questions to an attorney.
Seek out the right expertise. A good coach should be aware of what they don’t know. If they’re not a good fit for your needs — whether that’s expertise in a particular industry or a specialized skill set, like marketing — they might be able to refer you to someone who’s a better fit.
Consider free options. There may be some in your city or region:
SCORE offers free in-person and virtual mentoring in all 50 states, plus Guam, Puerto Rico and other U.S. territories.
See if your city has a Small Business Development Center, Veterans Business Outreach Center or a Women’s Business Center. All are funded by the U.S. Small Business Administration and offer free training and advising for entrepreneurs.
Do an online search for city- or state-specific programs. Philadelphia, for example, offers a business coaching program designed for entrepreneurs who want to qualify for particular business loan programs. Business incubators often offer courses or coaching.
Make sure your coach is invested in you. They should take the time to learn about you, your business and its unique needs, then leverage their own experiences and creativity to help you.
“I’m on your team now,” Robinson says of his clients. “Let’s do this together and make this a success.”
Are There SBA Loans for the Self-Employed?
Many of the same SBA loans are available to both self-employed people and more formally structured businesses, such as limited liability companies and corporations. However, self-employed individuals, like sole proprietors and independent contractors, might face a higher barrier to entry for having limited credit history, inconsistent revenue or no collateral. If they can’t qualify for an SBA loan, other business financing options are available.
Who qualifies as self-employed?
Sole proprietors, independent contractors and partnerships all fall under the self-employed category. In these cases, there is no legal distinction between the business owner and the business itself. Sole proprietors, for example, are solely responsible for their business’s gains and losses, while LLCs and corporations are legally distinct from their owners. This distinction helps protect the owners’ personal assets if their business runs into legal or financial issues.
Are self-employed SBA loans hard to get?
While a sole proprietorship is much easier to set up than an LLC or corporation, lenders may be more hesitant to finance them for a few reasons:
Self-employed business owners are legally responsible, as individuals, for any debt and liabilities that their businesses take on. If someone sues their business, for instance, their personal assets — not just their business — could be at stake. This makes it riskier for lenders to finance them.
Sole proprietorships and independent contracting businesses may have lower revenue or less collateral to offer since they’re often a business of one. This could make it more difficult for them to prove that they can pay back the loan, plus interest. And it may require more paperwork.
Some banks set lending minimums that surpass what a self-employed business owner is looking for, either because the business owner doesn’t need that much funding or doesn’t qualify for it.
Since there is no legal distinction between the self-employed business owner and their business, they may lack business credit history. To establish business credit, you’ll want to register the business, obtain an employer identification number and open a separate business bank account and credit card to keep your business and personal finances separate.
SBA loans for the self-employed
SBA microloan: Best for small loans and more lenient requirements
Applying for an SBA microloan is a great option for self-employed business owners, especially if they’ve been turned down by traditional banks and don’t need more than $50,000 in funding. In fact, the average SBA microloan is around $13,000, according to the SBA. SBA microloans are administered by nonprofit, community-based organizations that can also help train applicants in business practices and management. And because the loans are small, the application process may be easier — applicants may have limited credit history and typically don’t need as high of a credit score as they do for an SBA 7(a) loan.
SBA 7(a) small loan: May not require collateral
Funds from the SBA’s most popular 7(a) lending program can be used for a variety of business-related purposes, such as working capital or purchasing equipment. While the maximum SBA 7(a) loan amount is $5 million, SBA 7(a) small loan amounts don’t exceed $350,000. And if the 7(a) small loan is for $25,000 or less, the SBA doesn’t require lenders to take collateral.
SBA Express loan: Best for quicker application process
SBA Express loans are a type of 7(a) loan for businesses that need quick financing and no more than $500,000. The SBA responds to these loan applications within 36 hours as opposed to the standard five to 10 days, which may speed up the process for borrowers working with non-SBA-delegated lenders. Additionally, borrowers might not have to fill out as much paperwork — the SBA only requires Form 1919. Beyond that, lenders use their own forms and procedures.
SBA loan alternatives
Self-employed business owners turned down for SBA or traditional bank loans may be able to qualify for financing with an online lender. These lenders offer options such as term loans and lines of credit, and they often process applications faster and have more lenient requirements. However, applicants should expect to pay significantly more in interest than they would with an SBA loan.
Business credit cards
Not only can business credit cards help build your business credit history and pay for everyday business purchases, but they can also help finance larger purchases (within your approved credit limit). And if you qualify for a credit card with a 0% introductory APR offer, you’ll have multiple months to pay off the balance interest-free. Just make sure you’re able to pay off your purchase before the intro offer ends and a variable APR sets in.
Wornel and Kellen Simpson Announce their Initiative: “Being Brilliant On The Basics”
Jonathan P. Groth, Founder, and Owner of the Groth Law Firm, Interviewed on the Influential Entrepreneurs Podcast
Elephant in the Room: The “Colorado Real Estate Leaders” Podcast Builds Community in the Midst of the Hard Market
The Moment These 7 Entrepreneurs Turned Their Hobby Into a Business
How to Scale Your Sales Team Quickly
Tips for scaling up your Etsy business
News7 days ago
Pamela Rachil, Mobile Home Broker and Owner of Florida’s Best Mobile Home Sales, Interviewed on the Influential Entrepreneurs Podcast
News7 days ago
Kyle Stout, Founder of Elevate & Scale, a Leading Email Marketing Agency, Interviewed on the Influential Entrepreneurs Podcast
News4 days ago
Raleigh Pain Center Dr. Jeffrey Roistacher Interviewed on Optimal Health about ReliefNow™ Laser Methods©
News4 days ago
Sam Barnes, Real Estate Agent with The Barnes Home Group at eXp, Interviewed on Colorado Real Estate Leaders Podcast
News7 days ago
Randy Kaufman, Senior Mortgage Loan Originator, and Certified Military Specialist Interviewed on Colorado Real Estate Leaders Podcast
News5 days ago
Dr. Emily Letran Knighted and Featured on Fox TV Discussing High Performance Lifestyles
News4 days ago
Washington, Pennsylvania Pain Center Dr. Stefan Getzik Interviewed on Optimal Health about Class IV Laser Therapy
News4 days ago
Henry Kaminski, Jr, The Brand Doctor, Founder of Unique Designz, Announces Launch of New Coaching Program: The EYS Group “Elevate Your Self”