EASTERN TECHNICAL UNIVERSITY OF SIERRA LEONE

FACULTY OF BUSINESS AND ENTREPRENEURSHIP STUDIES

MODULE: ENTREPRENEURSHIP

TUTOR: MR. SAMUKA

1. Entrepreneurship and free enterprises

2. Small Businesses

3. Business planning

4. Product and Service concept

5. Marketing and New Venture Development

6. Organizing and Financing the New Venture

7. Managing Growth and Transaction

Contents Chapter 1:
Entrepreneurship and free enterprises

Definition

□ Entrepreneur/ship, just like management, has no single definition.

establishes his own business with the intention of making profits

 capital without taking active part in the leading role in
an enterprise.

organization growing. Continued…

□ To sum up in the light of the developments, there are four key elements of entrepreneurs. These are:

 Vision (identifying emerging opportunities)

 Innovation (creating new business or new ways of doing something)
 Risk bearing (taking risk and facing uncertainty)
 Organizing (collection and coordination of the necessary resources)

Entrepreneur & Entrepreneurship

Entrepreneurship, like an entrepreneur, has no single definition.

Entrepreneur is a person while entrepreneurship is a process.

□ Entrepreneurship is a process under taken by an entrepreneur to create incremental value and wealth
by discovering investment opportunities, organizing enterprises, undertaking risks and economic
uncertainty and there by contributing to economic growth.
Historical Perspective

□ During the ancient period the word entrepreneur was used to refer to a person managing large
commercial projects through the resources provided to him.

□ In the 17th Century a person who has signed a contractual agreement with the government to
provide stipulated products or to perform service was considered as entrepreneur.

□ In the 18th Century the first theory of entrepreneur has been developed by Richard Cantillon. He said
that an entrepreneur is a risk taker. If we consider the merchant, farmers and /or the professionals they
all operate at risk. For example, the merchants buy products at a known price and sell it at unknown
price and this shows that they are operating at risk. Continued…

□ The other development during the 18th Century is the differentiation of the entrepreneurial role from
capital providing role. The later role is the base for today’s venture capitalist.
□ In the late 19th and early 20th Century an entrepreneur was viewed from economic perspectives. The
entrepreneur organizes and operates an enterprise for personal gain.

□ In the middle of the 20th and early 21thCentury the notion of an entrepreneur as an inventor was
established.
Role of entrepreneurs within the economy

□ Capital formulations: - Entrepreneurs mobilize the idle saving of the public through the issue of
industrial securities.

□ Improvement in per capita income

□ Generation of employment

□ Improvement of the living standard

□ Economic independence

□ Balances regional development

□ Innovation: the commercial application of invention

□ Imitating role

Entrepreneurs, Invention and innovation

 Entrepreneurs
 Invention
 Innovation

Areas of Innovation

□ New product
□ New Services

□ New Production Techniques

□ New Way of Delivering the Product or Service to the Customer

□ New Operating Practices

□ New Means of Informing the Customer about the Product □ New Means of Managing Relationship
within the Organization

□ New Ways of Managing Relationships between Organizations

Chapter Two: Small Businesses

□ Small business is a business which is independently owned and operated, not dominated in its field of
operation and meets certain standard of number of employee and capital.

□ In general there are two approaches to define a small business; measures of the size and economic/
control criteria
Size criteria

□ Some of the criteria’s to measure the size are

 Number of employees: - for example in Ethiopian case it is Less than 30 employees (6-30).
 Investment paid up capital: - for Ethiopia it is 100,001- 1,500,000 (industry), and 50,001-500,000
birr (service).
 Volume of sales, production and deposits are also used to measure the size of business
 If there is ambiguity in the definition between the usage of man power and capital, it is
recommended to use the total paid up capital as a measurement criteria.

Economic/Control criteria

□ Market share: has no significant influence on the price of national quantities of goods sold to any
significant level.

□ Independence: independence means that an owner has control of the business himself.

□ Personalized management: It implies that the owner actively participates in all aspects of the
management of the business and in major decision making process.

□ Technology: small business is generally labor intensive

□ Geographical area of operation: the area of operation of a small business is often local
 Economic, social and political aspects of small business enterprises in Sierra
Leone

□ Socialistic idea (the equality argument )

□ Less capital and more labor
□ Removing regional imbalances (the decentralization arguments)

□ Creating self-employment opportunities

□Ancillary functions
□ Export promotion
□ Supply of critical raw materials Small business failure factors

Small business failure factor

□ Management incompetence
□ Poor financial control
□ Lack of adequate capital
□ Over investment in fixed asset
□ Failure to plan current as well as future operation
□ Failure to adopt proper inventory control system
□ Improper Attitude (The entrepreneur may not respect time, employees and may have lazy lifestyle
and dictatorial style of work)
□ Inadequate marketing plan
□ Incorrect market identification
□ Poor distribution channel
□ Weak marketing communication or promotion

How to avoid the pitfalls/difficulties of a small business

□ Know your business in depth:

□ Have a Good Relation with Stake Holders

□ Prepare business plan

□ Managing financial resources

□ Understanding financial statement

□ Learn to manage people effectively

□ Keep in tune with yourself

□ Take up short professional courses in management (entrepreneurship):

□ Be sensitive to your customers

Setting up a small business

□ The first and for most step in starting a small business is to find out a suitable business idea and give a
practical shape to the idea.

□ To think of a goal for the business in the long run rather than to look for the immediate tomorrow is
called Basic Business Idea.

□ The basic business idea is to meet the broadest needs of the customers and has a long life perhaps
from 5-50 years.

□ The basic business idea facilitates choice of product under an overall plan.

□ The product line consists of different families of products.

□ The product range on the other hand includes different

sizes of the product within the product line.

□ In order to establish a business venture with an entrepreneurial system an entrepreneur needs to take
the following steps

1. Search for business idea

2. Process the idea

3. Select the best idea

 Strength

Opportunity

Weakness

Threat

What a project an entrepreneur should have?

□ The project an entrepreneur chooses should be based on SWOT analysis. Project classifications

□ Quantifiable and Non-Quantifiable projects

□ Sectorial projects :-under this the following projects can be mentioned

Agricultural sector

Power sector

Industry and mining

Social service sector Transport and communication Continued…

□ Techno-economic project

Factor intensity oriented classification (labor vs capital intensive)

Causation oriented classification Magnitude oriented classification

Financial institution classification

 New project
 Expansion project
 Modernization project
 Diversification project
Characteristics of small scale industry

□ Closely held

□ Personal character

□ Limited scale of operation □ Indigenous resources □ Labor intensive

□ Local area of operation

□ Simple organization

Chapter Three: Business planning

□ A business plan is a written document prepared by the individual entrepreneur or partners that
describes the goals and objectives of the business along with steps necessary to achieve those goals.

□ Business plan is also defined as a written summary of the entrepreneur’s proposed venture, its
operational and financial details, its marketing opportunities & strategy, and its manager’s skills and
abilities.

Purpose

When business plans are produced

□ At star-up of new business

□ Buyout stage/business purchase
□ Ongoing review stage
□ Major decision Purpose

Who is going to prepare business plans?

□ Managers:

□ Owners:

□ Lenders:
Purpose

Why business plans

□ Managers: - Clarifying ideas and finding strength, weakness, opportunity & threats.

□ Owners:- Assessing feasibility & viability of business, setting objective & budgets:

□ Lenders: - Evaluate risk us. Benefits, appraise quality of management

Scope of Business plan

Business plan includes information on the following aspects:

Economic/Market aspects: Economic justification like market size, market growth, market share.

Technical aspects: Details on technology needed, equipment and match their sources

Financial aspects: Total investment, cost of capital, ROI, source of capital, enterprise contribution

Production aspects: product, its design, standard of quality, usage, production aspect like production
process, schedule, technology.

Managerial aspects: Qualification & experience, commitment & planning

Formats of a business plan

□ Executive summary
□ Company History
□ Business Profile
□ Business Strategy
□ Description of the firm’s product
□ marketing strategy
□ Competitors Analysis
□ Officers’ owners’ Resumes
□ Plan of operation
□ Financial data
□ Loan Proposal
Common Mistakes in Business Plan Preparation

□ Single-Purpose use
□ One- person commitment
□ Being neglect
□ Unworkable document
□ Unbalanced application
□ Disillusionment
□ Too- action Oriented
□ No Performance Standard
□ Poor progress Control
□ Early consumption

Common Mistakes in Business Plan Preparation

□ Single-Purpose use
□ One- person commitment
□ Being neglect
□ Unworkable document
□ Unbalanced application
□ Disillusionment
□ Too- action Oriented
□ No Performance Standard
□ Poor progress Control
□ Early consumption

Chapter Four: Marketing and New Venture Development

□ Marketing Research: is the systematic gathering, recording and analyzing of data about problems
related to the marketing of goods and services.

□ It is the function which links the consumer [customer] and public to the marketer through
information-information used to identify and define marketing opportunities and problems; generate,
define, and evaluate marketing actions; monitor marketing performance; and improve understanding of
marketing as a process.

Characteristics of a marketing research

□ Marketing research should be systematic

□ Marketing research is a process

□ Data may be available from difference sources

□ Marketing research may be applied to any aspect of marketing that requires information to aid
decision making.

□ Research findings and their implementation must be communicated to the appropriate decision
matter.

In conducting marketing research, scientific methods should be followed. The scientific method requires
objectivity, accuracy, and thoroughness.

The Scope of Marketing Research

□ Market Research

□ Sales analysis/Research

□ Consumer Research

□ Advertising Research

The Marketing Research Process

□ Problem definition

□ Examination of primary & secondary data □ Analysis of data

□ Making Recommendation

□ Implementation of findings
Marketing Intelligence

□ Marketing intelligence is the systematic collection and analysis of publicly available information about
competitors and developments in the marketplace.

□ Techniques range from quizzing the company’s own employees and benchmarking competitors’
products to researching internet, lurking around industry tradeshows, and even routing through rivals’
trash bins.

Competitive Analysis

□ Competitive analysis is a widely used approach for developing strategies in many industries.

□ According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of
five forces:

1. Rivalry among competing firms

2. Potential entry of new competitors

3. Potential development of substitute products

4. Bargaining power of suppliers

5. Bargaining power of consumers

Marketing Strategies

□ Marketing strategy refers to the marketing logic by which the company hopes to create customer
value and achieve profitable relationships.

□ Companies know that they cannot profitably serve all consumers in a given market.

□ Thus, each company must divide up the total market, choose the best segment, and design strategies
for profitably serving chosen segments. This process involves market segmentation, target marketing,
differentiation (actually differentiating the market offering to create superior customer value), and
positioning.
Diversification Strategies

□ In search of growth, a firm has four options:

1. Market Penetration: the firm can stay with its base product or service, and its existing market

2. Product Development: the firm can develop related or new products for its existing market.

3. Market Development: the firm can develop related or new markets for its existing products.

4. Entry in to new Market: the firm might try to move into related or new markets with related or new
products.

International Markets

□ International marketing is important because of the economic theory of comparative advantage.

□ This theory states that each country has natural advantages over others in the production of certain
goods, and therefore specialization and the trading of surpluses will benefit everybody.

Reasons for Internationalization

□ Small or saturated domestic markets

□ Economies of scale

□ International production

□ Customer relationships

□ Market diversification

□ International competitiveness
 Chapter five: Organizing and Financing the New Venture

When establishing an entrepreneurial team people should look for

□ Those who share the same values and vision for the company

□ Those who have complementary skills

□ Those who have integrity

□ Those who can manage the risks of a small business

The following are common errors in team building

□ Not considering experience and qualification of each member

□ Putting together a team whose members have different goals

□ Using only insiders in the board of directors

□ Using family members as attorney and accountant

□ Giving the management team all stock in lieu of salary

Sources of Finance

□ Trade credit (Open-book credit & Promissory notes)

□ Loans (Secured Loans & Unsecured Loans)

□ Commercial paper

-term financing □ Long-term loans

□ Lease

□ Bonds
Sources of Finance

□ Stock (Preferred & Common stock) □ Retained earnings

□ Sale of assets

Venture capital

Venture capitalists may be investment bankers when they invest capital, make loans, and give
management advice intended to assist the company to achieve significant growth.

nies financed by venture capitalists convert from closely held corporations to public
corporations during the course of their growth.

Government program

□ In USA Small Business Administration loans are available to smaller businesses.

Chapter 6: Managing Growth and Transaction

Preparing for the Launch of the Venture

□ Hiring New Employees

□ Creating Awareness of the New Venture Managing Early Growth of Venture

□ Motivating and leading the team □ Financial Control

□ Managing Cash Flow

□ Managing Assets

□ Managing Costs and Profits □ Taxes New Venture Expansion Strategies

□ Mergers & acquisitions □ Licensing

□ Franchising