Entrepreneurship For Engineer Module 2014

DEBRE TABOR UNIVERSITY
FACULTY OF TECHNOLOGY
DEPARTMENT OF MECHANICAL ENGINEERING
COURSE MODULE FOR ENTREPRENEURSHIP FOR ENGINEERS
Prepared by: Course Instructors
Debre Tabor, Ethiopia
February 2022
Entrepreurship for Engineers 2014 E.C.
UNIT ONE:
ENTREPRENEURSHIP AND ENTREPRENEURS
Course Description: This course deals with the basic concepts of Entrepreneurship and
innovation, it begins by defining the terms and briefly describing who entrepreneurs are; what
skills and attributes are required from them; the reasons to become an Entrepreneur with the
Entrepreneurial process are discussed. As an integral part of the process creativity and idea
generation along with some important decisions that an entrepreneur has to consider and downfalls
are included.
Delivery methods and assessments: Throughout the chapter active learning tools such as
interactive lecture, group discussions and independent learning will be used. In addition, both
formative and summative assessment techniques that included class activity, quiz, and assignment
will be employed.
1.1.Who is an Entrepreneur?
1. Entrepreneur is a person who owns, organizes, manages and runs an enterprise taking the risk of a
business or an enterprise.
2. Entrepreneur is a person who has the ability to see and evaluate business opportunities to gather
the necessary resources to take advantage of them, and to initiate appropriate action to ensure
success. (Meredith, 1982)
3. A person who creates a new business in the face of risk and uncertainty for the purpose of
achieving profit and growth by identifying opportunities and assembling the necessary resources to
capitalize on those opportunities.
What is the difference between Entrepreneurs and Intrapreneurs?
These individuals share most of the entrepreneurial skills and characteristics, even though the prior
are self-employed and the followers are employed workers in large organizations.
o Entrepreneurs: Entrepreneurs are people that notice opportunities and take the initiative to
mobilize resources to make new goods and services.
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o Intrapreneurs: Intrapreneurs also notice opportunities and take initiative to mobilize resources,
however they work in large companies and contribute to the innovation of the firm.
N.B: It is important to note that Intrapreneurs often become entrepreneurs.
1.2.Entrepreneurial Process
Entrepreneurial process contains three distinctive stages, the journey is depicted in the following
diagram. As it is shown, the first stage is income generation which out grows to self-employment
and finally Entrepreneurship.
Figure 1: The Entrepreneurial process
• Income generation: is the initial stage in the entrepreneurial process in which one tries to generate
surplus or profit. They are often taken on part- time or casual/informal.
• Self-employment: is the 2nd stage in the entrepreneurial process and refers to an individual’s
fulltime involvement in his own occupation.
• Entrepreneurship: is the terminal stage of the entrepreneurial process wherein after setting up a
venture one looks for diversification and growth.
1.3.Entrepreneurship and Innovation
What is Entrepreneurship?
Entrepreneurship is the process of creating something different with value by devoting the
necessary time and effort, assuming the accompanying financial, social risks and receiving the
resulting rewards of monetary and personal satisfaction and independence.
What is Innovation?
Innovation is shortly defined as a process of producing something new. And it can be

accomplished weather by adding new features to an existing product or by creating completely
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new product. Thus when an improvement is made on existing product it is called incremental
innovation. And when it is completely new it is referred as Disruptive innovation, i.e., ―Game
Changer‖.
According to Schampter’s classification there are five types of innovations; (1) New product or
substantial change in existing product, (2) New process, (3) New market, (4) New sources of
supply, and (5) Changes in industrial organization.
1.4.Entrepreneurial Skills and characteristics
There are certain skills and characteristics which are shared by many successful Entrepreneurs.
Successful entrepreneurs are characterized by these interapersonal and interpersonal skills, they are
summarized as follows.
Table 1: Entrepreneurial Skills and characteristics
Entrepreneurial Skills Entrepreneurial Characteristics

o Communication Skills o Desire for responsibility
Writing, Speaking & Listening o Preference for moderate risk
o Confidence in their ability to succeed
o Human Relations Skills o Desire for immediate feedback
o Mathematical Skills o High level of energy
o Problem Solving & Decision Making Skills o Future orientation – serial entrepreneurs
o Technical Skills o Skilled at organizing
o Basic Business Skills o Value achievement over money
What Entrepreneurial Mindset is desirable?
Some of the desirable attitudes and behaviors for the entrepreneurial mindset are;
1. Commitment and determination

2. Leadership
3. Opportunity obsession
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4. Tolerance of risk, ambiguity, and uncertainty

5. Motivation to excel
6. Creativity, self-reliance, and adaptability
1.5. Creativity and Idea Generation
Creativity: It can be defined as the ability to develop new ideas and to discover new ways of
looking at problems and opportunities; thinking new things.
What keeps us back from Creativity? There may be so many factors that can be considered as
barriers to Creativity, however, the following barriers are more common towards creative thinking;
o Searching for the one ―right‖ answer

o Focusing on ―being logical‖
o Blindly following the rules
o Constantly being practical
o Becoming overly specialized
o Avoiding ambiguity
o Fearing looking foolish
o Fearing mistakes and failure
o Believing that ―I’m not creative‖
What Creative Thinkers share in common?
In order to be creative and spur creativity they do always ask themselves, ―Is there a better way?‖. In
doing so they challenge custom, routine, and tradition. This is reinforced further by the realization of
there may be more than one ―right‖ answer. Moreover, their perspective towards mistakes and
problems is different from that of the majority; they see mistakes as pit stops on the way to success and
problems as springboards for new ideas. And, they relate seemingly unrelated ideas to a problem.
Questions to Spur the Imagination
Table 2: Some of the questions to spur the imagination
o Is there a substitute? o What else could you make from this?

o Can you rearrange the parts? o Are there other markets for it?
o What if you do just the opposite? o Can you reverse it?
o Can you combine ideas? o Can you rearrange it?
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o Can you put it to other uses?
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1.6. From Creativity to Entrepreneurship
Creativity is not the end rather it is the first step in the entrepreneur’s journey. As it is defined
earlier in this section it is a thinking stage, to be of value our thoughts have to be actually
implemented. Researchers believe that entrepreneurs succeed by thinking and doing new things
or old things in new ways. .
Therefore the thinking stage has to lead to the doing stage which is innovation
(doing/producing new things) and in tern it has to create value in the market place, i.e.,
Entrepreneurship. (it is summarized in figure 2)
Figure 2: From creativity to entrepreneurship.
1.6.1. Sources of Business Ideas
Business Idea: A business idea is the response of a person or persons, or an organization to

solving an identified problem or to meeting perceived needs in the environment (markets,
community, etc.).
Weather we see it or not, In our day to day life, our mind is bombarded by opportunities for a
business idea. In order to take an advantage from these opportunities we have to open our eyes
and even search for them. Where to search?, the most common places for new business ideas
are enumerated in the proceeding table.
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Table 3: Sources of Business ideas
o Hobbies/Personal Interests o Natural scarcities and pollution

o Personal Skills and Experience o Changes in Society
o Media (newspapers, magazines, TV, Internet)o Brainstorming
o Business Exhibitions o Being Creative
o Surveys o Ideas from overseas (Global) Potential
o Customer Complaints Imports
1.7. Reasons to Become an Entrepreneur
What are the reasons to become an Entrepreneur?
All in all there are two categories of reasons to become an Entrepreneur; they are called pull
factor and push factors.
Pull factors: they are those factors which attract a person to become entrepreneur. They
includes perception of advantages, spotting an opportunity, motivation and government
policies. If a person feels that he can earn better or overall gains in terms of money and spots
an opportunity then obviously he/she would be attracted. On the other hand encouraging
government policies that has different packages for entrepreneurs and also motivational
influences that are created by culture, community, family background, teachers and peers may
attract the individual towards entrepreneurship.
Figure 3: Factors influencing Entrepreneurship
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Push Factors: these factors are those factors which forces a person to choose and become
entrepreneur. These factors are job dissatisfaction, joblessness, lay off, retirement, relocation of
habitat, and boredom. Boredom is a common pushing factor for those who are from well to do
families. In which case with their army of servants to take care of home, they find an
opportunity to keep the boredom away and start ventures.
1.7.1. Advantages of Entrepreneurship
Beside those pulling factors the advantages of Entrepreneurship are reasonably attracting. We
can see its advantages with respect to for an Individual and for the Nation in large.
Advantages to an Individual: It gives the Opportunity to;
a) Create your own destiny;

b) Reach your full potential;
c) Reap impressive profits;
d) Contribute to society and to be recognized for your efforts;
e) Do what you enjoy and to have fun at doing it;
And, more importantly it provides you the Freedom to use own ideas – creativity and
Innovation.
Advantages to the Nation: It provides larger employment opportunities to citizens; it results

in wider distribution of wealth and Mobilizes local resources, skills and savings. And generally
it speeds up economic development by stimulating innovation and efficiency.
Wage Employment Vs Entrepreneurship
Based on their nature some comparisons can be made for wage Employment (working as an
employed worker in organizations) and Entrepreneurship (i.e., working as an owner of a
business venture). It is summarized as follows;
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Table 4: Wage employment Vs Entrepreneurship

Wage Employment Entrepreneurship
o Work for Others o Own Boss
o Follow Instructions o Make own plans
o Routine Job o Creative activity
o Earning is fixed, never negative o Can be negative sometimes, generally surplus
o Can choose from- o Relatively Creates Wealth, contributes to GDP
 Government service o Can choose from-
 Public Sector  Industry
 Private Sector  Trade or Service Enterprise
1.8. Decisions and Downfalls
Entrepreneurship is an attractive career choice. But many decisions have to be made before
launching and managing a new business, no matter its size. Among the questions that need to
be answered are:
o Does the individual truly want to be responsible for a business?

o What product or service should be the basis of the business?
o What is the market, and where should it be located?
o Is the potential of the business enough to provide a living wage for its employees and
the owner?
o How can a person raise the capital to get started?
o Should an individual work full or part time to start a new business? Should the person
start alone or with partners?
Answers to these questions are not empirically right or wrong. Rather, the answers will be
based on each entrepreneur’s judgment. An entrepreneur gathers as much information and
advice as possible before making these and other crucial decisions.
The entrepreneur’s challenge is to balance decisiveness with caution—to be a person of action

who does not procrastinate before seizing an opportunity—and at the same time, to be ready
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for an opportunity by having done all the preparatory work possible to reduce the risks of the
new endeavor.
Preparatory work includes evaluating the market opportunity, developing the product or
service, preparing a good business plan, figuring out how much capital is needed, and making
arrangements to obtain that capital.
Through careful analysis of entrepreneurs’ successes and failures, economists have identified
key factors for up-and-coming business owners to consider closely. Taking them into account
can reduce risk. In contrast, paying them no attention can precipitate the downfall of a new
enterprise.
Motivation: What is the incentive for starting a business? Is it money alone? True, many
entrepreneurs achieve great wealth. However, money is almost always tight in the startup and
early phases of a new business. Many entrepreneurs do not even take a salary until they can do
so and still leave the firm with a positive cash flow.
Strategy: What is the strategy for distinguishing the product or service? Is the plan to compete
solely on the basis of selling price? Price is important, but most economists agree that it is
extremely risky to compete on price alone. Large firms that produce huge quantities have the
advantage in lowering costs.
Realistic Vision: Is there a realistic vision of the enterprise’s potential? Insufficient operating
funds are the cause of many failed businesses. Entrepreneurs often underestimate start-up costs
and overestimate sales revenues in their business plans. Some analysts advise adding 50
percent to final cost estimates and reducing sales projections. Only then can the entrepreneur
examine cash flow projections and decide if he or she is ready to launch a new business.
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Unit Two:
Creation of New Venture/Technology Based New Ventures/
generation along with some important decisions that an entrepreneur has to consider and
downfalls are included.
formative and summative assessment techniques that included class activity, quiz, and
assignment will be employed.
2.1. Introduction
The nurturing of small firm formation and growth has become increasingly important to the
health of developed economies in general, and to the creation of new innovative industrial
sectors in particular.
All in all, Technology incubators, which play a role in accelerating the commercialization of
R&D outputs and the transfer of technology, have contributed to startups of high technology-
based enterprises in the newly industrializing economies of developing and developed
economies of the world. Countries are moving further into knowledge-based economic
development, of which technological venturing is a key factor for international comparative
advantage in industry. Strengthening and promoting technology based ventures through
incubation programmes for new technology based enterprises is necessary for them to survive
in a competitive society.
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2.2. Formation, development, and growth of technology-based new enterprises

How to form and develop Technology based ventures?
Although there are different ways to formulate the formation and development process
of a NTBF, there are four fundamental growth stages that most entrepreneurs should focus on:
Stage 1: Conception and development
The primary focus of the entrepreneur is on the product development, the securing of adequate
financial backing and the identification of market opportunities. Dominant problems of NTBF
at this point include construction of a product prototype and selling of the business idea to
investors. In this stage, there are many problems or barriers related to conception that reduce
the chance for new ventures. Barriers related to:
 Lack of opportunities
 Lack of well qualified entrepreneurs
 Lack of entrepreneurial culture
Developing the new idea includes writing a business plan that evaluates all aspects of the
economic viability of the business venture including a description and analysis of the business
prospects. The business plan is a document that serves simultaneously, like internal mechanism
of validation of the feasibility of the project and as later instrument to search for external
support (i.e. financial or technical support). In this stage the main difficulties that can arise are
related, fundamentally, to the lack of management experience due to the scientific or technical
profile of the entrepreneur (i.e. legislation, marketing, accounting, etc). Activities or programs
that can help overcoming these problems are related to:
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o Programs to advise and to guide the entrepreneur in the process of elaboration of the business
plan
o Programs to facilitate the participation of external experts in the process
o Access to adequate financial resources like pre-seed and seed capital
Stage 2: Commercialization
During the commercialization stage, the major focus of new ventures is on commercializing
the product itself. The dominant problems at this point include acquiring adequate facilities,
establishing a vendor network, and developing product support capability. All this ends at a
series of typical problems as the following ones:
Some of the programs carried out by the different administrations are oriented to:
o Simplify proceedings for the creation of a new company

o Accessibility to different resources (financial and facilities) and services in advantageous
conditions.
o Training entrepreneurs to enable them its new challenges
o Creating incubators which are organized in order to support and facilitate processes of
enterprise creation
Stage 3: Growth
The growth stage is characterized by high growth in both sales and employees. The major
problems of the firm at this stage are to produce, sell, and distribute the product in volume
while attaining profitability. Important barriers are related to the lack of financial resources to
maintain the rapid growth of the enterprise and difficulties in managing internally the effects of
the growth (manual managerial procedures are no longer suitable when the size of the company
increases). Programs to overcome abovementioned problems have to do with:
Training entrepreneurs in new managing techniques; special attention to internationalization.

Processes of clustering companies of the same industry in order to facilitate the interchange of
experiences and best practices Access to financial resources
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Stage 4: Stability
The growth rate of the firm slows to a level consistent with market growth. The major
problems of the firm at this point are to maintain growth momentum and market position.
Therefore the entrepreneur should focus on the introduction of second-generation product for
acquiring new opportunities and the expansion of the business into new geographic territories
and markets. Therefore the programs that can be carried out have to do with:
o Enhancing the innovative capacity of firms.

o Facilitating their internationalization
2.3. Technology transfer for business development

Technology transfer is the process by which existing knowledge, facilities or capabilities are
utilized and marketed to fulfill public and private needs. It is the process by which basic
science research and fundamental discoveries are developed into practical and commercially
relevant applications and products.
Drive for acquiring new technology
a. Cost: Technology can cut costs in many ways: reducing material, labor or distribution costs.
Example: material costs can be reduced by replacing lower cost material or by reducing the
material required to make a product.
b. Speed of delivery: The key competitive priority may be the speed of delivery, as measured by
lead time required to deliver a product. Example, Automated guidance vehicle(AGV),
Electronic Data Interchange(EDI)
c. Quality: Technologies help to improve the quality and reduce the production costs.
d. Flexibility and customization: The global market place of 1990s is characterized by short
product lifecycles, increased product veriety, and extensive customization. To retain and
increase market share in such competitive environment, firms have to be more flexible in their
operations.
e. Increased production volume
f. Higher living standards
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2.3.1. Steps in Technology Transfer
While each organization and each technology transfer is different, some of the key steps and
questions involved in moving new technologies to the marketplace are presented. It is clear that
any technology transfer process has three parallel components that need to be taken into
consideration.
 Science and Technology: The first relate to the science and technology component, which is
responsible for ensuring that a particular idea or invention is assessed for its technological
feasibility and translated into a marketable product for commercialization.
 Marketing: The marketing component covers the business angle, assessing the market
conditions and developing a business plan. It is also concerned with the business planning in
terms of developing a comprehensive marketing strategy - to ensure a clear market capture for
the new product.
 Financing: This is the third component that identifies and procures funds for seed capital,
expansion, market penetration etc. in order to make sure that the return-on-investments is good.
Each of the above components requires the inputs of different organizations in a market,
bringing to the process different resources and skills that will eventually lead to the success of
the technology and product being developed.
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2.4. Life Cycle Approach for Planning and Implementing a Technology Transfer
Project
Technology Transfer Problems Commonly Faced by SMEs
Problems faced by Small and Medium Enterprises (SMEs) in planning and managing technology
transfer may be classified into three categories namely;
1. Technology transfer process issues,
2. Corporate capability issues, and
3. Operating environment and National Innovation System (NIS) issues
1. Technology transfer process issues
Problems during the technology justification and selection stage
• Wrong selection of technology based on misjudgments when preparing a business case for a TT
project
• The cost of buying, installing, operating, and maintaining the technology is too high
• The technology selected is too complex for easy understanding and assimilation of the
transferee
• The technology needs considerable adaptation to suit local conditions
• Obsolescence of technology while the transfer is in progress

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Problems during the planning stage
• Transferor (seller) underestimates the problems in transferring the technology to a developing

country setting
• Transferor does not fully understand transferee needs
• Transferee managers are not involved in the planning which is carried out only by the transferor
• Too much attention is paid to the hardware to be purchased and not enough attention is paid to
skills and information acquisition
• The objectives of the transferor and transferee are not compatible
• Mechanisms chosen for implementing the transfer are not appropriate
Problems during negotiations
• Differences in negotiation approaches and strategies
• Lack of trust between the transferor and transferee
• Goal incompatibility during negotiations
• Inability to reach agreements on pricing, product, and marketing strategies
• Both parties try to achieve results in an unrealistically short period of time
Problems during technology transfer implementation
• Shortage of experienced technology transfer managers
• Lack of trust in transferor developed systems by the transferee
• Inability to achieve quality targets
• Delay in obtaining supplementary materials, needed for quick implementation, from the local
environment
• High cost and poor quality of locally available materials needed to implement the technology
transferred
• Inadequate tracking of the technology during implementation
• Cost overrun due to poor implementation
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2. Corporate capability issues
Problems due to inadequate skills
• Inability of the transferee to attract the required skills due to financial and industrial restrictions
• Lack of experience of the transferee’s workforce and absence of required skills at the industry
level
• Lack of training of transferee personnel
• Absence of incentive systems at the transferee firm for learning and assimilating new
technologies
• Language barriers that inhibit effective communication between transferor and transferee
personnel and restrict effective transmission and assimilation of relevant information
Problems due to ineffective management
• Lack of visible and committed top management support for the project
• Lack of top management guidance to decide the type of the technology to be acquired,
payment, incentives associated with the transfer, and the control of the flow of information.
• Differences in working methods and practices between the transferor and transferee managers
3. Operating environment and NIS issues
• Shrinking of local markets due to adverse changes in the economic levels of the country
• Poor physical infrastructure
• Inadequate supportive institutional infrastructure to provide support in terms of finance,

information, skill development, and technology brokering
• Inadequate mechanisms for intellectual property protection
• Lack of local suppliers who can deliver quality supplies and lack of policies to develop such
suppliers
• High dependency on foreign suppliers and imports
• Lack of good education and training institutions to upgrade skills
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• Ineffective legislation and incentives such as tax holidays, tariff adjustments, and industry parks
to promote technology transfer
• Bureaucratic delays at various levels of government in obtaining approvals and clearances for
finalizing technology transfer agreements
• Ineffective and sometimes excessive government intervention and regulation
• Foreign exchange restrictions
• Inability of new ventures to compete with former monopolies, often owned by government
2.5. Business Model Canvas
A Business Model Canvas concisely presents the essential building blocks of a Business idea.
There are 9 building blocks and are given in the following format.
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1. Customer Segments
The first block is customer segment, in this part the major task is to Identify & define the
different groups of people or organizations that the business aims to reach and serve. Hereby, a
conscious decision about which segments to serve and which segments to ignore is made.
Separating customer segments can be done by considering the following;
 If customers’ needs require and justify a distinct offer;

 If they are reached through different distribution channels;
 If they require different types of relationships;
 If they have substantially different profitability’s; and
 If they are willing to pay for different aspects of the offer
2. Value Proposition
After customer segments are identified then for each customer segment value will be proposed
through a bundle of products and services. And, these products should create value by either
solving a customer problem or satisfying a customer need.
The questions that should be answered are; (1) For what value is each customer segment truly
willing to pay? And (2) why customers will turn to your company over its competitors?
3. Distribution Channels
This section of the canvas describes how your company communicates with and reaches its
customer segments to deliver the value proposition. Thus the following three channels should
be defined;
i. Communication channels
ii. Distribution channels
iii. Sales channels
4. Customer Relations
It describes the types of relationships your company needs to establish and nurture/care with
specific customer segments. And the focus should be on: (1) Customer acquisition/finding, and
(2) Customer retention/maintaining
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5. Revenue streams
Revenue streams identify and quantify the cash your company can generate from each
customer segment through one or more revenue streams (sales pipelines).
Consider two different types of revenue streams:
 Transaction revenues (resulting from one-time customer payments)

 Recurring revenues (resulting from ongoing payments)
6. Key Resources
This section identify, describe and quantify the assets, e.g. Land, Buildings, Equipment,
Facilities, Systems and Technologies, that are required to deliver value proposition to each of
the identified customer segments.
7. Key Activities
Identify, define and describe the most important things (actions) your company must do to:
create and offer a value proposition; reach markets; maintain customer relationships; earn
revenues; make its business model work; and, operate successfully.
8. Key Partnerships
Identify and describes the network of suppliers and partners that make the business model
work. This includes, Strategic alliances between non-competitors; Co-operation: strategic
partnerships between competitors; and Buyer-supplier relationships to assure reliable supplies.
9. Cost Structure
The last component of business model canvas, cost structure, identify and quantify all costs
incurred to successfully operate the business model. Costs are categorized into Variable costs
and fixed costs.
Fixed costs: remain constant in total (not per unit) regardless of the volume of production or
sales, over a relevant range of production or sales. (e.g, Rent and salaries are typically fixed
costs)
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Variable costs: fluctuate in total (not per unit) as the volume of production or sales fluctuates.
(e.g., Direct labour costs, Direct material costs used in production, and sales commissions are
examples of variable costs)
Determine viability (feasibility) using:
Contribution per unit = (sales price per unit) – (manufacturing cost per unit)
Gross profit Margin = (No. of Units Sold) * (contribution per unit)
Net profit margin = (Gross profit margin) – (Overhead cost)
Overhead cost includes:
Indirect materials cost; Materials used to support the production process (Examples: lubricants
and cleaning supplies)
Indirect labor costs; Wages paid not directly involved in production work (Examples:
maintenance workers, janitors and guards)
N.B. Net profit margin > 0 is feasible
Assessment of business model
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Improvement of business model
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2.5. Promotion and Commercialization of technology-based innovation
The promotion of technology appears to be essential to the process of industrialization. Though

transfers of technology can temporarily be beneficial, potentialities of technology promotion
are believed to lie in a systematic utilization of research and development. Hence the
advancement of science based technology for the process of industrialization and can not be
over-emphasized.
Commercialization is one effective method of transferring technologies. Establishing a

technology's prospects for commercial success depends largely on five factors:
1. Technical Development: The time, materials, and personnel needed to reduce the
technology to practice and protect rights to the resulting product.
2. Regulatory Clearance: The testing needed to demonstrate the product's utility and
safety, and to meet federal regulatory requirements and to minimize or manage
associated risks.
3. Manufacturing Requirements: The facilities, people, and equipment needed to make the
product.
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4. Market Development: The plan for successful marketing of the product, created by
assessing perceived need for the product, size of potential market, expected sales,
advantages over competing products, and the cost of promoting the product.
5. Financial Feasibility: The development costs, costs to produce, operating

expenses in relation to sales potential, net profits, potential liabilities, and return on
investment.
With promotion and marketing activities targeting technology, the first priority in terms of
establishing and executing the marketing strategy is to examine what characteristics it has
compared to general marketing. To do this, the features of technology will be examined first.
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UNIT THREE
PROCESS OF BUSINESS DEVELOPMENT
3.1.Introduction
In a dynamic business scheme, one has to carefully assess and evaluate the basic business idea
and the business opportunities in terms of
 Its ability to generate quick returns
 Its ability to permit quick changes in the products/services
 Its ability to achieve the founders long term goals
3.2.Elements in Evaluating New Ventures
 Market Opportunity - most early stage venture investors look for companies addressing
large markets.
 Proprietary approach - is the intellectual property stand alone or platform IP e.g. can one
or more products addressing major markets be created from the IP that would form the basis of
new company and generate the revenue streams required to sustain the company?
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Development risk - what is the stage of development for the technology? Can the risks be
clearly identified and mitigated? Who – a new venture or an established venture – is most
committed to and most likely to bring the innovation to market? Does it require substantial
infrastructure and is anyone willing to pay to create that infrastructure for a new company?
Technology impact - what is the nature and outgrowth of the technology? Is this an upgrade to
an existing product on the market; is it a quantum leap in performance?
Proposed products - do the proposed products have a clear market need? Would someone buy
what you want to sell, and has this been validated?
 Financials - is the model articulated for how products will be sold, who will buy them, how
much revenue is projected and by when? Are the costs to first product known?
 Team - does the team have the requisite skills to move all aspects of the company forward?
Does the team have a track record of delivering on their promises?
 SWOT is a series of steps one has to consider in evaluating a business opportunity and
arriving at a decision on starting a business or not. It is an approach to think or reason out
systematically and analytically the important factors strengths, weakness, opportunities, and
threats.
Internal
STRENGTH WEAKNESS
External
OPPORTUNITIES THREATS
Helpful Harmful
Opportunity: refers to any factor that offer promise or potential for moving closer or more
quickly towards the firms goal
Threat: is any factor that may limit or impede the business in the pursuit of its goals
Strength: is an inherent capacity, which an organization can use to gain strategic advantage
over its competitors.
Weakness: is an inherent limitation or constraint, which creates a strategic disadvantage.
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3.3.Assessing the Feasibility of a New Venture
As the name implies, a feasibility study is an analysis of the viability of an idea. It focuses on
helping answer the essential question of ―should we proceed with the proposed project idea?
All activities of the study are directed toward helping answer this question. Entrepreneurs with
a business idea should conduct a feasibility study to determine the viability of their idea before
proceeding with the development of the business. Determining early-on that a business idea
will not work, saves time, money and heartache later. A feasible business venture is one where
the business will generate adequate cash-inflow and profits, withstand the risks it will
encounter, remain viable in the long-term and meet the goals of the founders. The venture can
be a new start-up business, the purchase of an existing business, an expansion of current
business operations or a new enterprise for an existing business.
3.3.1. Guidelines of business feasibility study
1. Description of the Business
 Outline the general business model (ie. how the business will make money).
 List the type and quality of product(s) or service(s) to be marketed Include the
technical processes, size, location, kind of inputs
 Specify the time horizon from the time the project is initiated until it is up and
running at capacity.
 Identify economic and social impact on local communities.
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 Identify environmental impact on the surrounding area.
S/N Aspect Elements

1 Market Feasibility Enterprise Description
Enterprise competitiveness
Market potential
Sales projection
Access to market outlets
2 Technical feasibility Determine facility needs
Suitability of production technology
Availability and suitability of site
Raw materials
Other inputs (4Ms)
3 Financial feasibility Estimate the total capital requirement
Estimate equity and credit needs
Budget, expected costs and return for various
alternatives
4 Organizational/Managerial Business structure (i.e., legal form)
feasibility Business founders
5 Study conclusion The study conclusions contain the information you
will use for deciding whether to proceed with
creating the business.
3.4.Business plan development
A business plan is a comprehensive set of guidelines for a new venture. A business plan is also
called a feasibility plan that encompasses the full range of business planning activities, but it
seldom requires the depth of research or detail expected for an establishment enterprise. A
business plan would present your basic business idea and all related operating, marketing,
financial and managerial considerations.
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3.4.1. The Purpose of Business Plan
One of the most important steps in establishing any new business is the constructions of a
business plan. Any business plan has the following purposes.
1. It can help the owner/manager crystallize and focus his/her idea. Thinking about a proposed
business becomes more rigorous as rough ideas must be crystallized and quantified on paper.
2. It can help the owner/manager set objectives and give him a yardstick against which to
monitor performance.
3. It can also as a vehicle to attract any external finance needed by the business.
4. It can convince investors that the owner/manager has identified high growth opportunities.
5. It entails taking a long-term view of the business and its environment.
6. It emphasizes the strengths and recognizes the weaknesses of the proposed venture.
7. The plan can uncover weakness or alert the entrepreneur to sources of possible danger.
8. Setting objectives and budgets: having a clear financial vision will believable budgets is a
basic requirement of everyone involved in a plan.
9. Calculating how much money is needed: a detailed cash flow with assumptions is vital
ingredient to precisely quantify earlier the likely funds required.
3.4.2. When Business Plans are produced?
1. At the startup of a new business: After the concept stage of initial ideas and feasibility
study, a new business startup many go through a more detailed planning stage of which the
main output is the business plan.
2. Business purchase: Buying an existing business does not neglect the need for an initial
business plan. Which tests the sensitivity of changes to key business variables.
3. Ongoing: Ongoing review of progress, against the objectives of either a startup or small
business purchase, is important in a dynamic environment.
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4. Major decisions: Even if planning is not carried out on a regular basis, it is usually
investigated at a time of major change.
3.4.3. The Format of a Business Plan
 Executive summary: clearly identified concept and purpose, concise and comprehensive
answers to basic questions like who, what, when, where, and how questions compiled one to
two pages long to generate enthusiasm on the overall plan
 Business Description: relevant history and background of the business area, name of the
business and trading name, proposed date for commencement of trading /beginning of a plan,
its legal identity like company/partnership/sole-trade/cooperative details of share or capital
structure, location-address-registered and operational and brief details of premises.
 The nature of the business /Industry Analysis:
 Product(s)or service(s)-Description and applications, key suppliers, planned developments

of product or service
 Market and customers – Definition of overall market, definition of target market,

classification of customers, trend in market place, market size and growth, customer
characteristics, entry barriers, technological factors, seasonality, economic influences,
regulatory issues . An analysis of the current situations of the market place, the competitions,
the business concept and the people involved. It will include any historical background
relevant to the positions to date.
 Competition- description of current and future competitors; strength and weakness of major
competitors, profiles of primary competitors, competitors' products/services & market share,
distinct competitive advantage
 Marketing and Sales, determine pricing, distribution, promotion policies and sales
forecasts
 Future Direction (where do we intend going?) qualitative expression of the objectives,

quantifiable targets will clarify and measure progress towards the
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 Operations: Product development, development costs and risks, manufacturing (if

applicable), production processes description, production equipment requirements, quality
assurance, product / service delivery systems, additional facilities requirements
 Management and Organization: Outline of background experience, skills and knowledge

of management team, identify the organizational chart , identify future requirement , gaps in
skills and experience and how they will be filled - future recruitment intentions
 Financial Analysis and Projections: Determine funding requirement startup capital,
working capital, asset capital, and timing of funds required, and security offered. State
assumptions (start date, commissions, tax rates, average inventory, sales forecasts, etc.),
financial statements (balance sheet, income statement, and cash flow statement), break even
analysis, and state financial sources
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UNIT FOUR:
BUSINESS STRUCTURE AND LEGAL OWNERSHIP
4.1 Introduction
Though it is difficult to know precisely when and how business began, it is certain
that the form of business ownership are as old as business itself. Those forms have
been modified over the course of time to keep pace with business needs and the
custom of society.
Various legal forms of business organizations are available to organize small

businesses. The most common forms currently in wide use by small business are:
 Sole proprietorship
 Partnership
 Corporations and
 Cooperatives
Each form of ownership has a characteristic internal structure, legal status, size and field to
which it is best suited, with its own advantages and disadvantages.
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4.2 Sole proprietorship
It is an individual or single ownership. The sole proprietorship is a form of

business organization in which an individual introduces his capital, use of his own
skill and intelligence in the management of its affairs and is solely responsible for
the results of its operation.
In the eye of the law, there is no distinction between the business and the
individual’s private affair, meaning that the law recognizes the individual and the
business as being one and the same.
Advantages of Sole proprietorship Disadvantages

Ease and low cost of formation and Limited resource and size
dissolution Limited managerial skill
Direct motivation and personal care Unlimited liability
Freedom and promptness of action Uncertain future/death of the owner terminate
Business Secrecy the business/
Social desirability Difficulty in hiring and keeping high
Single Tax achievement employees
Few fringe benefits
4.3 Partnership
The association of two or more persons to carry as co-owners of a business where

the relationship is based on agreement is called partnership. This form of a
business requires the existence of two or more persons entering into a contractual
relationship. This contract, which is an agreement between the parties, is known as
a memorandum of association or article of partners’ deed.
i. Kinds of Partners
I. A general partner : Assumes unlimited liability and is usually active in managing the
business. Most partners are general partners.
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II. A limited or special partner : Assumes limited liability, risking only his /her investment
in the business. Limited partners may not be active in management, and their names are
not used in the name of the business.
III. A secret partner: Takes an active role in managing a partnership but whose
identities are unknown to the public. i.e the general public does not know of this
person’s partnership status.
IV. A silent partner : As opposed to a secret partner, a silent partner, his identities and
involvement, is known to the general public, but is inactive in managing the
partnership business.
V. A dormant or sleeping partner: Is nether known to the general public nor active in
management
VI. Nominal partners: Are not actually involved in a partnership but lend their names to it
for public relations purposes but invest no money in the firm and play no role in its
management. These are not partners but who claim they are or allow others to think of
them as partners. Such individuals may assume some of the responsibilities of general
partners.
Advantages of Partnership Disadvantages
 Ease of starting  Unlimited liability

 Increased source of capital (less risk  Risk of implied authority:
for creditors)  Lack of harmony:
 Combined managerial skill:  Lack of continuity/instability/: If any
 Definite legal status: one of the general partners dies, the
 Personal supervision partnership ends.
 Motivation of important employees  Investment withdrawals difficulty
(The prospect of becoming) /frozen-investment/:
 Reduced risk
 Tax advantage over a corporation
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4.4 Corporation
It is also known as Joint Stock Company. A corporation is an artificial person authorized and
recognized by law, with distinctive name, a common seal, comprising of transferable shares of
fixed values, carrying limited liability and having a perpetual or continued or uninterrupted
succession life.
i. Characteristics of Corporation
1. Separate legal entity: It has the right to manage its own affairs. Shareholders cannot be liable
for the acts of the corporation.
2. Limited liability: Since the corporation has separate legal entity its debts
are its own.
3. Transferability of shares: It is easy to transfer ownership in a corporation.
4. Perpetual existence: Death, insanity, retirement and withdrawal of
shareholders will not affect the company.
5. Common seal: A corporation has a common seal with the name of the
company engraved on it.
6. Separation of ownership from management: All shareholders, large in
numbers, do not have the opportunity of managing the day-to-day activity of
the corporation.
7. Supervision: A company is created by the legal process of incorporation.
8. Written Constitution: On the creation of a company, the promoters must
file certain documents with the Registrar of Companies. These include the
Article of Association and the Memorandum of Association.
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Advantages of a Corporation Disadvantages
 Financial strength  Difficulty of formation-It is time consuming

 Limited liability and cumbersome
 Scope of expansion ==>Corporations  Lack of owner’s personal interest-These
have greater potential than sole forms of organizations are managed by
proprietorship or partnerships directors, hired officials, and employees
 Managerial efficiency: Corporations  Delay in decision-making
enjoy the advantage of efficient  Oligarchy and fraudulent management-
management by hiring specialist’s skilled Although in theory it is said democratic
persons to become members principles are followed in the management of
of the board of directors to manage the the companies.
corporation  Lack of secrecy- Large companies suffer
 Ease in transferring ownership from lack of secrecy in their
 Legal entity status: A corporation can financial affairs.
purchase property, make contracts, sue  Double taxation-First the corporation then
and be sued in the corporate name. shareholders pay taxes on the dividends
(income) they receive.
4.5. Cooperatives
Proprietorship, Partnerships, and corporations are by far the most popular forms of business
organizations. There is yet another form of organization that is small in number but which
serves a very useful purpose. This particular type of business is called a cooperative (co-op)
and is somewhat like a corporation.
It is an organization owned by members/customers who pay an annual membership fee and

share in any profits (if it is profit making organization). Owners, managers, workers, and
customers are all the same people.
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A cooperative is an enterprise owned and controlled by all those who work in it. It has to adopt
the following principles:
 Members have an equal vote in decisions

 Membership is open to everyone who fulfills specified conditions (e.g. Number of hour
worked)
 Assets controlled and usually owned jointly by members
 Profit shared equally between members with limited interest payment on loans made by
members;
 Members benefit from participation, not investment
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UNIT FIVE:
OPERATIONS OF BUSINESS STARTUPS
5.1. Introduction
Business operations are those activities involved in the running of a business for the purpose of
producing value for the stakeholder. The outcome of business operations is the harvesting of
value from assets owned by a business. Generally business operations lay their foundation on
management functions.
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5.2. Strategic Planning

Everyone who starts an entrepreneurial venture wants to be successful. However, success does
not happen overnight, and it is not guaranteed. A major theme throughout the series of business
operations is making the right decisions for your business. Planning in general is the process of
determining specified objectives and how to accomplish them. It is the process by which
managers set objectives, assess the future and develop courses of action to accomplish these
objectives. It is the process by which managers set objectives, assess the future and develop
courses of action to accomplish these objectives. Planning is deciding in advance i. What to do
it, ii. How to do it, iii. When to do it and iv. Who is to do it
A sound plan should:
 Serve as a framework for decisions or for securing support/approval.
 Provide a basis for more detailed planning.
 Explain the business to others in order to inform, motivate & involve.
 Assist benchmarking & performance monitoring.
 Stimulate change and become building block for next plan.
A strategic plan should not be confused with a business plan. The former is likely to be a (very)
short document whereas a business plan is usually a much more substantial and detailed
document. A strategic plan can provide the foundation and frame work for a business plan. A
strategic plan is not the same thing as an operational plan. The former should be visionary,
conceptual and directional in contrast to an operational plan.
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The firm’s mission
5.3. Business physical operations

Business operations include the location of your business and the processes, resources, and
other tools you will need to transform inputs (raw materials, labor, and capital) into outputs
(goods or services). To maximize your outputs for profitability, you must organize your inputs.
While some businesses have unique physical operational needs, there are basic areas for all
business owners to consider. The operational decisions you make can improve the efficiency
(and profit line) of your end product.
Location and Facility
Which of the following physical operations do you need to consider for your business?
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Should I lease or buy my physical facility? Should I build a new facility or buy an existing
one? Where should I locate my business to reach the greatest number of customers and to
provide efficient access to employees and vendors?
Factors such as visibility, traffic flow, parking, and tenant compatibility are also important.
You will need to consider many factors such as square footage, layout, utilities, storage, etc.
Location may be critical even if you are planning a home-based business.
 Operational / Production Equipment and Maintenance
 Should I lease or buy my office equipment?
 If I do lease, should I lease all of the equipment or only certain pieces? Along with the
equipment, how Should I manage the maintenance?
 Which is more cost effective – buying or leasing?
 What are the advantages and disadvantages of each?
 Employees
 If I need employees, how many and in what job functions?
 Should I hire the employees full-time, part-time, or on an ―as needed‖ basis?
 Do I need a sales force?
 What are the advantages and disadvantages of the various options?
 Professional Assistance
Even if you determine that you don’t need employees, you may sometimes need outside
expertise to help you meet your business goals. With a small business, especially a new
business, many of the basic day-to-day operations can become overwhelming and sometimes
keep you from focusing on the bigger picture. Think about the most cost-effective way to use
your time and talents.
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When full-time and even part-time assistance is prohibitive, you can still build an infrastructure
of professionals to assist you – with the advantage of not having fixed overhead. These
professionals can help you with setting up your payroll service, processing tax payments, as
well as other important functions in your business.
When considering professional assistance, identify the key operational functions you will need
in your business.
 Do you need help with accounting and bookkeeping?
 Have you identified an attorney to work with?
 Business Regulations and Guidelines
There are laws and regulatory requirements that affect every aspect of your business venture.
While it might be frustrating to deal with the many regulations, most exist for the protection of
your business venture.
 Business Formation
 Business Registration: To register to conduct business in a state
 Sales Tax License: If you sell retail products and your state imposes sales tax on these
products, you are responsible for obtaining a sales tax license.
 Permits and Licenses: Will your business require zoning, health permits, or environmental
approvals to operate? The regulatory requirements depend on the structure of the business, the
location, and/or the product or service you are offering.
 Taxes
The legal structure of the business, along with the product or service you offer, determines
what taxes you must pay and how you pay them. Among these taxes is income tax, self-
employment tax, employment tax, sales tax, and excise tax.
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Income Tax: All businesses file an annual income tax return with the federal – and possibly
with the state(s) where the business operates.
Employment Tax (Payroll Taxes): Any employee should pay a certain percent of any earned
income up to an annual limit.
Self-Employment Tax: If you are self-employed, you will be responsible for paying the full
extent of all employment taxes.
Sales Tax Reports and Payments: If your business sells retail products and your state
imposes sales tax on products, then you are responsible for collecting and paying that tax. The
tax is computed on the product’s sale price. The sales tax you collect must be forwarded to the
state, either on a monthly or quarterly basis, depending on the volume of your sales. Eg. VAT
Excise Tax: If you manufacture or sell certain products, operate certain types of businesses, or
use certain types of equipment, facilities, or products, you may be required to pay excise taxes.
5.4. Marketing Operations
Market is a group of potential customers having needs to satisfy, ability to buy & willingness
to pay in order to satisfy these needs. It is a social & managerial process by which individuals
& groups obtain what they need & want through creating & exchanging products & value with
others.
The definition of marketing further implies that marketing starts early before production &
continues after selling.
The main concepts of marketing include:
a. Marketing activities are integrated

b. Organizations are market oriented
c. Marketing focuses on selected markets
d. Customer satisfaction is the core of marketing
e. Marketing is greater than selling
f. Marketing starts early before production & continues after selling.
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5.4.1. The Marketing Mix

The basic task of marketing involves the identification of the needs of the customer and then
the manufacturing and marketing of a product or service that satisfies this need . .In order to do
this a marketing organization has to concentrate on four important aspects known as the 4P’s
of marketing.
The marketing manager has to combine these 4 P’s in such a way that the combination
provides satisfaction to the customer and profit to the manufacturer. When these elements (4
P’s) are combined together they are called as ―The Marketing Mix‖.
The marketing mix of an organization is made up of four elements namely PRODUCT,

PRICE, PROMOTION and PLACE. Each of these four elements or sub mixes has a number
of elements. The complete set of marketing mix, sub mixes and elements are given below:
5.4.1.1 THE PRODUCT MIX
A product definition is taken as any physical, tangible, and functional characteristics of a good
or service. Sketchily a product can be defined as anything, which comprises of benefits in
forms of physical, service, and symbolic attributes to maximize buyers’ want satisfaction.
The product mix includes:
 Product planning and development: Product planning is the entire process of deciding
what type of product to produce for which target audience. Product planning includes three
major types of decisions:
1. Development and introduction of new products
2. Modifications of existing products in keeping with the changing tastes and preferences of the
target customers and
3. Elimination of unprofitable or obsolete products
 Branding: A brand is a name, term, symbol, sign, design or combination of these, used to
identify the products of a firm and differentiate them from those of competitors. It can be of
three forms
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 Brand name: the part of a brand, which consists of word, letters and/or numbers, which can
be vocalized. Eg. OMO
 Brand mark: the part of a brand that can be recognized but is not utterable. It can appear in
the form of symbol, design, distinctive coloring or lettering.
 Trademark: a brand or part of a brand that has been given legal protection so that the
owner has exclusive rights to its use. After companies identify their trademark, they entail a
term ™ or ®.
Importance of a brand
1. The brand makes it easier for the seller to process orders and track down problems.
2. The seller’s brand name and trademark provide legal protection of unique product features.
3. Branding gives the seller the opportunity to attract a loyal profitable set of customers and
helps to increase the control and share of the market.
4. Branding helps the seller to segment markets and expand the product mix.
5. Good brand help to build the corporate image because it advertises the quality and size of
the company.
6. Brands make it easy for customers to identify products or services.
7. Brands also assure purchasers that they are getting comparable quantity when they reorder.
Requirements of a good brand
Among the desirable qualities for a brand following are very important. A good brand should:
1. Be easy to pronounce, recognize and remember
2. Be distinctive.
3. Suggest something about the product’s benefits or characteristics
4. Suggest about the product qualities such as action or use.
5. Be large enough to be applicable to new products that may be added to the product line.
6. Have a possibility of registration and legal protection.
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 Trade Name: Trade name is the name of the business organization. A trade name may also
be used as a brand name. In such a case it performs a dual function. It gives identification to
the product as well as the manufacturer
 Packaging: Packaging is a marketing process concerned with the design and production of
the container or wrapper for a product. The container or wrapper is called the package. In
recent times packaging has become a potential marketing tool. Packaging is closely related to
labeling and branding because label often appears on the package and the brand typically on
the label.
Importance of packaging
There are three reasons for packaging.
1. Packaging serves several safety and utilitarian purposes. It protects a product on its route
from the producer to the final consumer. Compared with bulk items, packaged goods are
generally more convenient, cleaner, and less susceptible to losses such as evaporation, spilling
and spoilage.
2. Packaging may implement a company’s marketing program. The packaging is an important

method of communication with the customer by identifying the brand and providing
ingredients and directions, which represent an image of the brand.
3. Well-packaged products may increase profit possibilities in that it stimulates customers to

pay more just to get the special package.
Besides, an increase in ease of handling or reduction in damages or losses again increases

profit by cutting marketing costs.
 Labeling: Label is part of a product that carries verbal information about the product of the
seller. The essence of label is expository by nature because it expresses some features of the
product such as ingredients, weight measure, use, warning, performance, etc. and sometimes it
also includes advertising messages.
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Typically, there are three kinds of labels.
 Brand label: simply the brand alone applied to the product or to the package.
 Grade label: a label, which identifies the quality with, a letter, number or word.
 Descriptive label: it gives objective information about the use, construction, care,
performance or other features of the product.
5.4.1.2. The price Mix
Price is the amount of money consumers have to pay to obtain the product. Price has
operated as the major determinant of user choice traditionally. Although non-price factors have
become more important in recent decades price still remains one of the most important element
determining market share and profitability.
Four common methods of pricing
a. Cost plus pricing/ Mark Up pricing/ This method places at such a level that the total cost
of the product is recovered. simple arithmetic, and a fixed percentage of profit is added to the
unit cost.
b. Skimming pricing: a company favors setting high prices to ―skim‖ the market. Pricing
above the market - is known as skimming pricing. The following conditions should be
satisfied
 A sufficient number of buyers have a high current demand.
 The unit costs of producing a small volume are not so high that they cancel the advantage of
charging high price.
 The high initial prices do not attract more competition to the market.
 The high price communicates the image of a superior product.
c. Penetration pricing: Setting lower prices for winning large number of consumers Pricing
below the market – is also known as penetration pricing
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d. Premium pricing-Pricing with the market – also known as premium pricing. It is also
known as Follow- he-leader pricing. Using the price of the leading company.
5.4.1.3. The Place Mix
Place (Physical distribution): Includes company activities that make the product available to
target consumers.
Physical distribution includes:
 Channels of distribution
 Transportation
 Warehousing/ storing goods/
The purpose of distribution is to move the right amount of the right products using the
right channel to the right place to the right time.
The marketing (or distribution) channels refer to the activities, parties and channel structure
required to transfer a product from its point of production to its point of consumption by the
end customer.
Channel levels
Channel levels refer to the group of channel members to which a set of distribution tasks has
been allocated.
The most typically mentioned dimension of channel structure is channel length that is, the
number of flows of intermediaries in the channel. Accordingly, the following figure portrays
channel structure for consumer’s goods.
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Figure: channel structure
Zero-level channels (M C)
This is a direct channel where a producer uses no intermediaries. Manufacturers of heavy

installations like airplanes, ships, or generators may use such channels where buyers need a lot
of services from manufacturers. It is not commonly used in consumers market.
One-level channel (MRC)
Under this channel an intermediary is used. Therefore, it is an indirect channel of distribution.
Two-level channel (MWRC)
This is the traditional channel of distribution, which is most commonly used in consumer
goods market
Three-level channel (MAWRC)
This is the longest channel of distribution where several levels of intermediaries are involved.
It is common in import and export trade.
5.4.1.4 The Promotion Mix
It is sometimes known as marketing communication. Means activities that communicate the

merits of the product & persuade target customers to buy it.
Promotional objectives:
- Informing the product
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- Increasing sales
- Stabilizing sales / profit
- Positioning the product
- Building public image
The promotional mix consists of four major tools
 Advertising: such as informative Ad, Persuasive Ad and Reminder Ad

 Personal selling: Oral presentation in conversation with one / more consumers for the
purpose of making sale
 Sales promotion: Includes: gifts, games, sampling, coupons, and window displays.
 Publicity: Any information about the organization, its personnel or its products that
appears in any medium on a non - paid basis.
5.4.2. Market Segmentation

Market segment is a group of individuals or organizations within a market that share one or
more common characteristics. The process of dividing a market in to segments is called market
segmentation.
1. Geographic segmentation: Geographic segmentation is dividing of an overall market into

homogeneous groups on the basis of population location.
2. Demographic segmentation: Demographic segmentation is dividing an overall market into

homogeneous groups based upon population characteristics such as age, sex and income level.
3. Psycho graphic segmentation: Psycho graphic segmentation utilizes behavioral profiles

developed from analyses of the activities, opinions, interest and lifestyles of consumers. This
method uses variables: Personality, Attributes, Motives and Lifestyles
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4. Behavioral segmentation: Behavioral segmentation focuses on product usage rates. This

method uses variables like Volume usage, End use, Benefit, Expectations, Brand loyalty and
Price sensitivity.
5.5. Business Financial Operations

Finance is required to assemble inputs. Proper financing of business is essential for success in
both small and large enterprises.
Financial planning is the process of formulating policies and strategies relating to the
procurement, investment and administration of funds for an enterprise.
 How much money is needed?
 Where the money comes from?
 When should the money be available?
These three questions are concerned respectively with the estimation of financial needs,
sources of finance, and the time of raising funds.
5.5.1. Characteristics of small business finance

A. High proportion of working funds: large proportion of total funds are required in the
form of liquid assets.
B. High gearing: generally, the ownership funds of the small-scale entrepreneur are
limits. He has to depend on a great extent on borrowed funds.
C. Personal control: the entrepreneur wants to control the enterprise.
D. Low credit standing: the credit worthiness of a new small entrepreneur is generally
low.
E. Poor documentation: a small-scale entrepreneur is rarely familiar with legal
formalities involved in financing the business.
5.5.2. Source of Finance

Financing is obtaining money from various sources. The various sources of finance may be
broadly be classified as follows:
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1) Internal sources (Equity capital): Owners capital or owners’ equity represent the
personal investment of the owner or owners in a business, and it is sometimes called
risk capital because these investors assume the primary risk of losing their funds if the
business fails.
Source of equity capital:
1. Personal savings: The first place entrepreneurs should take for start up money is in their
own pockets. It is the least expensive source of funds available.
2. Friends and relatives: After emptying their own pockets, entrepreneurs should turn to
friends and
relatives who might be willing to invest in the business venture.
3. Angels:
These private investors (or angels) are wealthy individuals, often entrepreneurs themselves,
who invest in business startups in exchange for equity stakes in the companies.
4. Partners:
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An entrepreneur can choose to take on a partner to expand the capital foundation of the
proposed business. Before entering into any partnership arrangement (Consider; impact on
Control and sharing profits with partners).
5. Venture capital companies: Venture capital companies are private, for profit organizations
that purchases equity positions in young businesses they believe have high growth and high
profit potential. Venture capitalists look for the following features: (1) Competent
management, (2) Competitive edge (factor so set apart from competitors), (3) Growth industry,
and (4) Intangible factors (they are intuitive, intangible factors the venture capitalists detect by
gut feeling.)
6. Public stock sale (going public)
In some cases, entrepreneurs can go public by selling shares of stock in their corporation to
outside investors. This is an effective method of raising large amounts of capital, but it can be
an expensive and timeconsuming process filled with regulatory nightmares.
2) External source (Debt capital): Borrowed capital or debt capital is the external
financing that a small business owner has borrowed and must repay with interest. Small
enterprises have few choices than large firm for obtaining debt financing.
N.B: Also unlike equity financing, debt financing does not require an entrepreneur to
dilute his/her ownership interest in the company.
1. Commercial banks: Commercial banks are by far the most frequently used source of short
term finance by the entrepreneur. Long term loans, with the purchased asset or the project
itself serving as collaterals for the loan banks tend to be conservative in their lending
practices. Banks provide unsecured and secured loans.
 An unsecured loan is a loan in which collateral is not requested.
 Secured loans are those with security pledged to the bank as assurance that the loan will
be paid. There are many types of security a bank will consider, such as a guarantor
another credit worthy person or company that agrees to pay the loan in the event the
form of tangible assets pledged as collateral.
Bank lending decision
55
Due to previous bad loan decisions banks are more cautious in lending money since they
cannot afford to incur more bad loans. Most bankers refer to the five Cs of credit in making
lending decision.
i. Capital: a small business must have a stable capital base before a bank will grant a
loan.
ii. Capacity: A synonym for capacity is cash flow. (ability to repay, financial obligation)
iii. Collateral: collateral includes any assets the owner pledges to the bank as security for
repayment of the loan.
iv. Character: before approving a loan to a small business, the banker must be satisfied
with the owner’s character. (such as honesty, competence, polish determine,
willingness to negotiate with the bank)
v. Conditions: the conditions surrounding a loan request also affect the owner’s chance of
receiving funds. (such as potential growth in the market, competition, location, of
ownership, and loan purpose.)
The higher a small business scores on these five Cs, the greater its chance will be of receiving a
loan.
2. Trade credit: it is credit given by suppliers who sell goods on account. This credit is
reflected on the entrepreneur’s balance sheet as account payable and in most cases it must be
paid in 30 to 90 or more days interest free because of its ready availability, trade credit is an
extremely important source of financing to most entrepreneurs.
3. Equipment suppliers: Most equipment vendors encourage business owners to purchase their
equipment by offering to finance the purchase. This method of financing is similar to trade
credit but with slightly different terms. (usually several years).
4. Commercial finance companies: when denied a bank loan, small business owner often
looks to a commercial finance company for the same type of loan. Because commercial
finance companies depend on collateral (receivables, inventory and equipment) to recover
most of their losses, they do not require the complete financial projections of future
operations that most banks do.
5. Credit Unions: Credit unions are non-profit financial cooperatives that promote savings and
provide credit to their members, are best known for extending loans.
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6. Insurance Companies: For many small businesses, life insurance companies can be an
important source of business capital.
7. Bonds: A bond is long-term contract in which the issuer, who is the borrower, agrees to
make principal and interest payments on specific dates to the holder of the bond.
5.6. Accounting Operations

Maintenance of accurate and up-to-date accounts and records is as essential for a small-scale
firm as for large firms. Proper financial and accounting records make it possible for the owner
to exercise effective control of funds and overall performance of his business.
Accounts also help to know the financial position of the business at any time and at the end of
the fiscal year.
5.6.1. Business Transaction and Accounting Equation

1. Business transaction
A business transaction is the occurrence of an event or of a condition that must be recorded.

The payment of a monthly telephone bill, the purchase of merchandise on credit and the
acquisition of land and a building are examples of business transactions.
2. The accounting equation
Assets are the properties owned by a business enterprise or anything of value owned by a
business enterprise. The rights or claims to the properties are referred to as equities. There are
two types of equities, Creditor’s equities and Owner’s equity.
The two types of equities yields the accounting equation:
Assets = equities
Assets = Creditor’s equities + Owner’s equity
Assets = Liabilities + Capital
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5.6.2. Classification of accounts

Accounts in the ledger are customarily listed in the order in which they appear in the financial
statements and are classified according to common characteristics. Balance sheet accounts are
classified as assets, liabilities, or owner’s equity. Income statement accounts are classified as
revenue or expense.
Account: The form used to record additions and deductions for each individual asset, liability,
owner’s equity, revenue and expense.
Ledger: A group of related accounts that comprise a complete unit, such as all of the accounts
of a specified business enterprise.
Financial statements: After the effect of the individual transactions has been determined, the
essential information is communicated to users. The account statements that communicate this
information are called financial statements.
Assets: any physical thing (tangible) or right (intangible) that has a monetary value is an asset.
Liabilities: are debts owned to outsiders (creditors) and are classified into current liabilities
and long-term liabilities. Liabilities are frequently described on the balance sheet by titles that
include the word ―Payable‖.
Owner equity: is the residual claim against the assets of the business after the total liabilities
are deducted.
Capital: is the owner’s equity in a sole proprietorship (and partnership)
Capital stock: represents the investment of the stockholders.
Expense: costs that have been consumed in the process of producing revenue are expired costs
or expenses. It resulted in a decrease in capital.
5.6.3. Preparation of financial statements

The financial statements prepared for sole proprietorship, partnership and corporation are
almost the same. The major difference is in the capital section of the balance sheet.
A. Preparation of the income statement (profit or loss statement)
58
Income statement: a summary of the revenue and the expenses of a business entity for a
specific period of time, such as a month or a year.
The excess of the revenue over the expenses incurred in earning revenue is called net income
or net profit.
B. Preparation of the statement of owner’s equity: Statement of owner’s equity is a

summary of the changes in the owner’s equity of a business entity that have occurred
during a specific period of time such as a month or a year.
C. Preparation of balance sheet
Balance sheet: is a list of the assets, liabilities and owner’s equity of a business entity as of a
specific date, usually at the close of the last day of a month or year.
59
D. Statement of cash flows
It is a summary of the cash receipts and cash payments of a business entity for a specific period
of time, such as a month or a year. It is customary to report cash flows (cash receipts and cash
payments) in three sections: 1. Operating activities 2. Investing activities, and 3. Financing
activities
60
UNIT SIX:
INTRODUCTION TO RISK AND INSURANCE IN BUSINESS

ENTERPRISES
6.1. The concept of business risk
Risk exists whenever the future is unknown. Because the adverse effects of risk have
plagued mankind since the beginning of time, individuals, groups and societies have developed
various methods for managing risk. Since no one knows the future exactly, everyone is a
risk manager for himself.
What is Risk?
Risk is an uncertain event or condition that, if it occurs, has a positive or a negative effect
on a business objective. A risk has a cause and, if it occurs, a consequence. But usually it
has bad/negative connotation.
Business risks can be classified into two broad categories:
 Market risk and
 Pure risk
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1. Market risk is the uncertainty associated with an investment decision. An entrepreneur who
invests in a new business hopes for a gain but realizes that the eventual outcome may be a loss.
2. Pure risk is used to describe a situation where only loss or no loss can occur there is no
potential gain. Example: Owner of an automobile faces the risk of a collusion loss.
Normally only pure risks are insurable. But Not all pure risks are insurable. Insurance is not
concerned with the protection of individuals against those losses arising out of speculative
risks.
A speculative risk exists when there is a chance of gain as well as a chance of loss. i.e. there is
a possibility of loss and gain.
6.2. Classifying Risk by Type of Asset
Risk may be grouped according to the type of asset-Physical or human-needing protection.

Specifically, there are property-oriented risks, personnel-oriented risks, and customer-oriented
risks.
1. Property risks
Property-oriented risks involve tangible and highly visible assets. Many property-oriented risks
are insurable; they include: Fire, Natural disasters, Burglary, Business swindles (or fraudulent
transactions) and Shoplifting
2. Personnel risks
Personnel-oriented losses occur through the actions of employees. The three primary types of
Personnel-oriented risks are:
 Employee dishonesty
 Competition from former employees
 Loss of key executives
62
3. Customer risks
Customers are the source of profit for small business, but they are also the source of an ever-
increasing amount of business risk. Much of these risks are: Onpremises injuries and Product
liability
A product liability suit may be filed when a customer becomes ill or sustains physical or
property damage from using a product made or sold by a firm.
6.3. Business Risk Management
The complexity of the business environment calls for or demand for a special attention to a
risk:
Some of the factors, which increase the complexity of the business environment, are:
- Inflation
- Growth of internal operation
- More complex technology
- Increasing government regulation
Risk management is the systematic process of planning for, identifying, analyzing, responding
to, and monitoring business risk.
The emphasis in the risk management concept is on reducing the cost of safeguarding against
risk by whatever means.
The process of business risk management
The basic functions of the risk management are:
 To recognize exposure to loss ( Risk identification)

 To estimate the frequency and size of loss, (Risk qualification, measurement)
 To decide the best and most economical method of handling the risk if loss. (risk
response development)
 Implementing the decision (risk response control)
63
Tools of Risk response
Risk can be handled through the following tools.
1. Avoidance
2. Retention/acceptance
3. Loss prevention and reduction
4. Combination or increasing the No of units exposed to the loss
5. Separation / Diversification
6. Neutralization
7. Transfer
1. Avoidance
One way to handle a particular pure risk is to avoid the property, person or activity with which
the risk is associated.
2. Retention /Acceptance
 It is the most common method of handling risk by the individual or the firm itself.
 Bearing all the risk by that person/organization.
Types of retention:
Planned/conscious/ active risk retention
o It is characterized by the recognition that the risk exists, and tacit agreement to assume the
losses involved.
o The decision to retain a risk actively is made because there are no alternatives more
attractive.
Unplanned/Unconscious/ Passive Retention
Passive risk retention takes place when the individual exposed to the risk does not recognize its
existence.
In this case, the person so exposed retains the financial consequence of the possible loss
without realizing that he does so.
64
3. Loss Prevention and Reduction Measures

 Prevention is defined as a measure taken before the misfortune occurs.
 Generally speaking, loss prevention programs intend to reduce the chance of
occurrence.
Example:
 Constricting a building with a fire resistance material / fireproofing.
 Constructing a building in a place where there is little danger.
 Regularly inspecting the machine / area
 The existence of automatic loss detection programs.
 Fire alarms
 Warning posters /NO SMOKING!! , DANGER ZONE!!/
Loss reduction measures try to minimize the severity of the loss once the peril happened/ after
the event occurs. For Example:
 Automatic sprinkler
 An immediate first aid
 Medical care and rehabilitation service
 Fire extinguisher
4. Separation /Diversification
Separation of the firm’s exposures to loss instead of concentrating them at one location where
they might all be involved in the same loss.
N.B. Don’t put all your eggs in one basket‖
5. Neutralization
Neutralization, which is very closely related to transfer. It is the process of balancing a chance
of loss against a chance of gain.
6. Transfer
 It is also called as shifting method.
65
 When a business organization cannot afford to cover the loss by itself, it may look
for/transfer institutions.
 Insurance is a means of shifting or transferring risk.
6.4. Business Insurance
Insurance is defined as protection against risks. Insurance enables those who suffer a loss or
accident to be compensated for the effects of their misfortune. The payments come from a fund
of money contributed by all the holders of individual insurance policies. The contribution is
known as the premium. Premiums are paid to insurers. Insurers are professional risk takers.
They know the probability of different types of risk happening. They can calculate the
premiums needed to create a fund large enough to cover likely loss payments.
There are two important factors arise when calculating the premium.
 Firstly, the general likelihood that a loss will occur.

 Secondly, whether the particular policyholder is above or below average in risk.
There are many risks associated with starting a business. To protect your business and yourself,
consider the following insurance options.
 Business Property Insurance
To decrease the risks involved with owning property, research available insurance polices
covering losses due to theft, fire, weather conditions, and other losses.
 Business Liability Insurance
Business liability insurance protects both your business and personal life from potential
financial ruin. Business liability insurance protects your business in the event of a lawsuit for
personal injury or property damage by not only covering the damages from the lawsuit but also
the legal costs.
 Worker’s Compensation Insurance
Under laws in most states, employers with more than a certain number of employees are liable
for most job-related accidents.
 Excess Liability Insurance

66
Deciding how much coverage is right for your business is a personal decision. If you feel you
need additional protection above and beyond your current liability limits, you can purchase
excess liability insurance, sometimes known as an umbrella policy.
 Employment Practices Liability Insurance
This is a relatively new form of liability insurance covering the business as well as
management. It provides protection for an employer against claims made by employees, former
employees, or potential employees by covering discrimination (age, sex, race, disability, etc.).
 Basic Principles for the a Sound Insurance Program
Basic principles in evaluating an insurance program include:
 Identifying insurable business risks

 Limiting coverage to major potential losses and
 Relating premium costs to probability of loss
 Requirements for obtaining insurance
Unfortunately not all risks are insurable. Insurers are not willing to accept all the risks that
others may wish to transfer to them. Some guides to evaluate transfer;
a) There must be a sufficiently large number of homogenous exposure units to make the
losses reasonably predictable.
b) The loss produced by the risk must be definite and measurable. The loss must have
financial measurement or financial implication.
c) The loss must be fortuitous or accidental. i.e. the loss must be the result of a
contingency, i.e., it must be something that may or may not happen.
d) The loss must not be catastrophic: All or most of the objects in the group should not
suffer loss at the same time because the insurance principle is based on a notion of
sharing losses.
e) The loss must be large loss. The risk to be insured against must be capable of producing
a large loss, which the insured could not pay without economic distress.
67
References
1. Kenji Uchino, Entrepreneurship for Engineers CRC Press Taylor & Francis Group, 2010
2. John D. Pervy W.H, How to start and run and succeed in your business 1983, 6th ed
3. Ken R. Blawatt Entrepreneurship: Process and management, 1998
4. Jeffdry A. Timmons, New Venture Creation, Entrepreneurship in the 1990’s, 3 rd ed. Irwin.
5. H.N. Broom , Small business management. 1983, 6th ed.
6. Justin G. Longenecker and Carlos W. Moore, Small Business Management, 8th ed., College
Division South Western Publishing Co Dallas, 1991.
7. Keith L.A Introduction to Business Enterprise
68

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DEBRE TABOR UNIVERSITY

DEPARTMENT OF MECHANICAL ENGINEERING

COURSE MODULE FOR ENTREPRENEURSHIP FOR ENGINEERS

Prepared by: Course Instructors

Debre Tabor, Ethiopia

What is the difference between Entrepreneurs and Intrapreneurs?

N.B: It is important to note that Intrapreneurs often become entrepreneurs.

Figure 1: The Entrepreneurial process

1.3.Entrepreneurship and Innovation

Innovation is shortly defined as a process of producing something new. And it can be

1.4.Entrepreneurial Skills and characteristics

Table 1: Entrepreneurial Skills and characteristics

Entrepreneurial Skills Entrepreneurial Characteristics

What Entrepreneurial Mindset is desirable?

1. Commitment and determination

4. Tolerance of risk, ambiguity, and uncertainty

1.5. Creativity and Idea Generation

o Searching for the one ―right‖ answer

o Is there a substitute? o What else could you make from this?

o Can you put it to other uses?

1.6. From Creativity to Entrepreneurship

Figure 2: From creativity to entrepreneurship.

1.6.1. Sources of Business Ideas

Business Idea: A business idea is the response of a person or persons, or an organization to

Table 3: Sources of Business ideas

o Hobbies/Personal Interests o Natural scarcities and pollution

1.7. Reasons to Become an Entrepreneur

What are the reasons to become an Entrepreneur?

Figure 3: Factors influencing Entrepreneurship

1.7.1. Advantages of Entrepreneurship

Advantages to an Individual: It gives the Opportunity to;

a) Create your own destiny;

Advantages to the Nation: It provides larger employment opportunities to citizens; it results

Wage Employment Vs Entrepreneurship

Table 4: Wage employment Vs Entrepreneurship

1.8. Decisions and Downfalls

o Does the individual truly want to be responsible for a business?

The entrepreneur’s challenge is to balance decisiveness with caution—to be a person of action

Creation of New Venture/Technology Based New Ventures/

2.2. Formation, development, and growth of technology-based new enterprises

Stage 1: Conception and development

 Lack of well qualified entrepreneurs

 Lack of entrepreneurial culture

o Simplify proceedings for the creation of a new company

Training entrepreneurs in new managing techniques; special attention to internationalization.

o Enhancing the innovative capacity of firms.

2.3. Technology transfer for business development

Drive for acquiring new technology

2.3.1. Steps in Technology Transfer

Technology Transfer Problems Commonly Faced by SMEs

1. Technology transfer process issues,

2. Corporate capability issues, and

3. Operating environment and National Innovation System (NIS) issues

1. Technology transfer process issues

Problems during the technology justification and selection stage

• The technology needs considerable adaptation to suit local conditions

• Obsolescence of technology while the transfer is in progress

Problems during the planning stage

• Transferor (seller) underestimates the problems in transferring the technology to a developing

• Transferor does not fully understand transferee needs

• The objectives of the transferor and transferee are not compatible

• Mechanisms chosen for implementing the transfer are not appropriate

Problems during negotiations