CHAPTER ONE: ENTREPRENURSHIP

FUNDAMENTALS
 What Does Entrepreneurship Mean?
• Entrepreneurship:
• Is a process of creating something new with
value by devoting the necessary time and
effort, assuming the accompanying financial,
psychic and social risks and receiving the
resulting rewards.
• This definition stresses four basic aspects of
being an entrepreneur:
 Cont…nd
– First it involves the creation process – creating
something new of value
– Second, it requires the devotion of the necessary
time and effort
– Third, it involves the rewards of being an
entrepreneur (independence, personal
satisfaction and monetary reward for profit
entrepreneurs)
– The final aspect of entrepreneurship is taking
risks in a very calculated fashion:
What is an entrepreneur?

Entrepreneurs – People
who risk their time,
money, and other
resources to start and
manage a business.
 What is Entrepreneurial Opportunity
• Entrepreneurial Opportunity: is situation in
which a person can develop a new business
idea that has potential to generate profit.
What is an entrepreneur? Cont…nd
• One 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 them.

• Entrepreneurs do things that are not generally

done in the ordinary course of business
 Cont…nd
• Some usually think an entrepreneur as:
– One who is highly responsive to change,
sees opportunities that others may not see
and mobilize resources to make new things
– Others feel that entrepreneurs are born, not
made but experience has shown that
entrepreneurship can be taught
 Cont…nd
– Is an innovator or developer who
• recognizes opportunities,
• converts those opportunities into
workable/marketable ideas
• add value through time, money or skills
• Assumes the risks of the competitive
market place to implement those ideas
• Realize the rewards from those efforts
 Cont…nd
• To an economist, an entrepreneur is one who
brings resources- labor, material and other
assets into combinations that make their value
greater than before
• To a psychologist, such a person is typically
driven by certain forces – the need to obtain
or attain something, to experiment, to
accomplish perhaps to escape the authority of
others.
 Cont…nd

• To one business man, an entrepreneur appears as a

threat, an aggressive competitor,
• where as to another business man the same
entrepreneur may be a supporter, a source of supply,
a customer or someone who creates wealth for
others as well as find better ways to utilize resources,
reduce waste and generate jobs.
 The Myths of Entrepreneurship
• Throughout the years many myths have
arisen about entrepreneurship.

• These myths are the result of a lack of

research in entrepreneurship.
 Twelve of the major myths

• Twelve of the major myths and realities are:

• MYTH 1: Entrepreneurs Are Born, Not Made
 Reality: Like all disciplines, entrepreneurship has models,
processes, and case studies that allow the topic to be studied
and the traits acquired.
(No one is born to be an entrepreneur rather it is the function
of the environment, life experiences and personal choices)
• MYTH 2: Entrepreneurs Are Doers, Not Thinkers
 Reality: The emphasis today on the creation of clear and
complete business plans is an indication that “thinking”
entrepreneurs are as important as “doing” entrepreneurs.
 Cont…nd
• MYTH 3 : Entrepreneurs are gamblers
 Reality: Entrepreneurs are not gamblers and
do not take high risks in the usual sense.
• MYTH 4 : Entrepreneurs Are Either Inventors
or Innovators
 Reality: A contemporary understanding of
entrepreneurship covers more than just
invention or innovation.
 Cont…nd
• MYTH 5: Entrepreneurs Are Academic and Social
Misfits
 Reality: No longer a misfit, the entrepreneur is now
viewed as a professional.
• MYTH 6: Entrepreneurs are power and money
seekers
 Reality: While many entrepreneurs might be driven
by this way, most successful and growth-minded
entrepreneurs are motivated in just the opposite
way
 Cont…nd
• MYTH 7: Entrepreneurs Must Fit the “Profile”
 Reality: Today we realize that a standard
entrepreneur profile is hard to compile.
• MYTH 8: All You Need Is Money to Be an
Entrepreneur
 Reality: It is true but there are other problems
such as managerial incompetence, lack of
financial understanding, poor planning, and the
like.
 Cont…nd
• MYTH 9: All You Need Is Luck to Be an
Entrepreneur
 Reality: What appears to be lucky really is
preparation, determination, desire, knowledge,
and innovativeness.
• MYTH 10: Ignorance Is Bliss for an
Entrepreneur
 Reality: Careful planning - not ignorance of it -
is the mark of an accomplished entrepreneur.
 Cont…nd
• MYTH 11: Entrepreneurs Strike Success on Their
First Venture
 Reality: In fact, failure can teach many lessons to
those willing to learn and often leads to future
successes.
• MYTH 12: Five Years Marks the Failure of Most
New Ventures
 Reality: A venture can fail at any time and for a
variety of reasons. Five years does not mark the
critical point.
 Benefits of Entrepreneurship
The opportunity to:
• Create your own destiny
• Make a difference
• Reach your full potential
• Reap impressive profits
• Contribute to society and to be recognized for
your efforts
• Do what you enjoy and to have fun at it
 Drawbacks of Entrepreneurship
• Uncertainty of income
• Risk of losing your entire investment
• Lower quality of life until the business gets
established
• Long hours and hard work
Drawbacks of Entrepreneurship, Cont…nd

 High levels of stress

 Complete responsibility
 Discouragement
 What is Feeding the
Entrepreneurial Fire?
The rapid increase in entrepreneurs has been a result
of:
• Considering Entrepreneurs as heroes
• Entrepreneurial education
• Demographic and economic factors
• Shift to a service economy
• Technological advancements
• Independent lifestyle
• E-commerce and the World Wide Web
• International opportunities
Ten Deadly Mistakes of Entrepreneurship

Causes of small businesses failure include:

1. Lack of experience
2. Poor financial control
3. Weak marketing efforts
4. Failure to develop a strategic plan
 Ten Deadly Mistakes of
Entrepreneurship(Cont…nd)
6. Uncontrolled growth
7. Poor location
8. Improper inventory control
9. Incorrect pricing
10. Inability to make the “entrepreneurial
transition”
 Avoiding the Pitfalls of
Small Business Failure
• Know your business in depth
• Develop a solid business plan
• Manage financial resources
• Understand financial statements
• Learn to manage people effectively
• Keep in tune with yourself
 Why Business? What’s the motivation?

1. Independence

• Not wanting to work for anyone else(avoiding un

reasonable boss, rigid rules of the bureaucracy,
poorly conceived performance mgt. systems)

• Desire to be one’s own boss

2. Financial success ( Promise of big return than being

salaried)
 Why Business? What’s the motivation?

3. Job satisfaction, achievement, opportunity to

apply ones own potential
4. Being in control- Entrepreneurs resent the
idea that some controls them and make
decisions for them.
 Entrepreneurs...Traits
Self-confident and optimistic
Able to take calculated risk
Respond positively to changes
Flexible and able to changes
Knowledgeable of markets
Able to get along well with others
Independent minded
Entrepreneurs Traits,Cont….nd
Energetic and diligent or attentive, or careful
or hardworking
Creative, need to achieve
Dynamic Leader
Responsive to suggestions
Take initiatives
Resourceful and persevering
Perceptive with foresight
Entrepreneurs Traits, Cont….nd

Responsive to criticism
Who have internal locus of control
In general entrepreneurs are risk bearers,
coordinators and organizers, gap fillers,
leaders, innovators or creative initiators.
 Skills Required By Entrepreneurs
• Strategic skills
• Management Skills
Planning
Organizing
Leading (activating)
Control
• Human Relations Skills
• Financial Skills
• Marketing Skills
 Entrepreneur Vs Manager
• E- innovator where as M- keeps on an
established business rules
• E- focuses on Opportunity where as M- focuses
on handling Problems
• E- Independent where as M- is under the
supervision of his/ her employer
• E- earns huge profit where as M- earns a fixed
salary with fixed time period
• E-takes calculated risks where as M- is less
tolerant of uncertainty
 Entrepreneurial Process

• The process has four distinct phases

identification and evaluation of the
opportunity

development of the business plan

determination of the required resources

management of the resulting enterprise

 Discussion Question
• The role and challenges of entrepreneurship
in economic development: the case in
Ethiopia.
 Role of Entrepreneurship in Economic
Development
Entrepreneurship plays an important role in
developing the economy by generating
wealth.
Job creation for people
With the new inventions and development in
the new technology a nation can use its
resources more effectively and efficiently
helps develop other entrepreneur businesses
because of the extra incentives that it can
provide to a new entrepreneur in the form of
capital, knowledge and technology
 Charms of being an entrepreneur
• Salary – can make a higher salary than he
could ever earn working for someone- enjoy
profits from your effort
• Security- can earn consistently a big salary for
many years running. S/He can accumulate
huge capital for the future so there is no fear
in the issue of job security.
• Asset building- if the company grows and
become more profitable, you can build huge
amount of assets.
 Cont…nd

• Independence – allows you independence and

freedom from boss and supervision- you are
your own boss
• Satisfaction/ fulfillment or sense of pride in
your business
• Flexibility in your work schedules
Barriers to entrepreneurship
Lack of viable (possible/practical) concept
Lack of market knowledge
Lack of seed capital
Lack of technical skill
Lack of business know how
Lack of motivation
Social stigma
Legal constraints
Monopoly/protection
 Entrepreneurship, Creativity and
Innovation

• Creativity - is “the ability to bring something

new into existence, but not emphasis on the
activity.
• Innovation - is the transformation of creative
ideas into useful applications, but creativity is
a prerequisite to innovation.
 Barriers to Creativity

1. Searching for the one “right” answer.

2. Focusing on being logical.

3. Blindly following the rules.

4. Constantly being practical.

5. Viewing play as frivolous.

 Barriers to Creativity, Cont…nd

6. Becoming overly specialized.

7. Avoiding ambiguity.
8. Fearing looking foolish.
9. Fearing mistakes and failure.
10. Believing that “I am not creative”.
 Role of Entrepreneurship in Economic
Development
• Entrepreneurs initiate and sustain the process
of economic development in the following
ways:
1. Capital formation
2. Improvement in per capital income
3. Generation of employment
4. Balanced regional development
5. Improvement in living standards
 Role of Entrepreneurship in Economic
Development ( Cont…nd)

6. Economic independence
7. Backward and forward linkage
8. Agents role ( Agents of change)
9. Role of innovation
10. Imitating role
 The Ethiopian case in entrepreneurship
development
• The development of MSE is the key
component of the Ethiopia’s industrial policy
direction that will contribute the industrial
development and economic transformation in
Ethiopia.
• The GTP emphasizes the need to provide
comprehensive supports to MSEs so as to
unleash their potential to create wealth and
jobs help substantially reduce poverty
 Specific Elements of the GTP
• Accelerated training of 10,000 trainers who
inturn will provide capacity building and impart
entrepreneurship
• Provision of technical and vocational skills to
support MSE development and growth of about
3 million entrepreneurs by the end of GTP period
• Plan to provide 15,000 hectares of land for
different small and medium scale development
projects
Specific Elements of the GTP, Cont…nd
• GOE effort will incorporate the development of working
premises and production facilities and
• The encouragement and provision of credit and marketing
support in an effort to dismantle constraints that inhibits
growth of SME in medium and large scale competitive
enterprises
• It targeted the informal sector ( comprises 50%-60%) of
the economic activity and disproportionally represented
by women and the uneducated poor and plays
substantially less than the formal sector and does not
support the tax base.
 Concepts of Business ethics and Social
Responsibility

• Ethics in simple term involves, learning what

is right or wrong
• It involves knowing what is right or wrong in a
business environment and doing what is right
with regard to effects of products or services
and in relationship with stakeholders
 Social responsibility
• Social responsibility is an aspect of business ethics

concerned with the need for business to try and serve their
local community and help its employees lead better life.

• It requires that entrepreneur looks beyond making profits

alone but pays attention also to how to relate with the host
community of his venture and his employees in a way that
promotes good will.
 Social responsibility, Cont…nd

• Businesses helped to create many of the social

problems that exist today, so it should play a s
ignificant role in solving them, especially in the
area of pollution reduction and clean up.
Ethical Principles for Entrepreneurs
• Honesty
• Integrity
• Promise Keeping and Trustworthiness
• Loyalty
• Fairness
• Concern for others
• Respect for others
• Law abiding
Ethical Principles for Entrepreneurs, Cont…
nd
• Commitment to excellent
• Leadership
• Reputation and Morale
• Accountability
 Importance of Ethics in Business
• Provision of moral compass
• Ethics implicitly regulate area and details of
behaviour that lie beyond government control
• To meet stakeholders expectation
• Definition of the rights and duties between a
company and a significant others
• Enhancement of business performance
Importance of Ethics in Business, Cont…nd

• Others includes:
Building long term share holder value,
corporate financial stability and sustainability
Consumer and customer approval and loyalty
Promoting self regulation, deterring
government regulatory intervention; and
enhancing corporate reputation
 Discussion Point

• What major points do you remember from the

previous class and discussion made?
CHAPTER TWO

SMALL BUSINESS
FUNDAMENTALS
Concepts and definition of Small Business

• There are two approaches to define small

business.
1. Size criteria

2. Economic/control criteria.
 1. Size Criteria
• Size refers to the scale of operation
• Some of criteria used to measure size are:
 number of employees; (mostly used)
 volume, and value of sales turnover, asset
size…
 total capital investment,
 volume/value of production,
 and a combination of the stated factors.
 Cont…nd
• the following general criteria for defining a
small business are suggested by Small
Business Administration (SBA)
 Financing of the business is supplied by one
individual or a small group. Only in a rare
case would the business have more than 15 or
20 owners.
 Except for its marketing function, the firm’s
operations are geographically localized.
 Cont…nd

 Compared to the biggest firms in the industry,

the business is small.
 The number of employees in the business is
usually fewer than 100.
 Cont….nd
Ethiopia
•Micro enterprise: Investment paid up capital not
exceeding US$2300 (20,000)
•Small enterprise (SE):Investment paid up capital
US$2300-5747 (20,000 - 500,000)
Australia
• Manufacturing services : <100 employees
• Service: <20 employees
 Cont…nd
Germany
• SME : <500 employees
France
• SME: 10 -499 employees
China
• Depends on product group.
• Usually 100 employees: investment ceiling US
$8 million.
 Cont…nd
Indonesia
• SME
• <100 employees
Malaysia
• SME
• <175 full time workers & investment US $1
million
 Cont…nd
 Using capital as size criteria, Ministry of Trade
and Industry of Ethiopia adopted official
definition of Micro and Small Enterprises as
follows:
 Microenterprises are business enterprises found
in all sectors of the Ethiopian economy with a
paid-up capital (fixed assets) of not more than
Birr 20,000 but excluding high-tech consultancy
firms and other high-tech establishments.
 Cont…nd
• Small Enterprises are business enterprises
with a paid-up capital of not less than Birr
20,000 but not more than Birr 500,000, but
excluding high-tech consultancy firms and
other high-tech establishments.
 2. Economic/Control Criteria
All of these characteristics must be satisfied if the
business is to rank as a small business.
• Market share (Does not influence national prices)
• Independence (the owner has control of the business
him self)
• Personalized Management (The owner actively
participates in all aspects of management)
• Technology ( Small businesses are labor intensive)
• Geographical area of operation( The area of operation
of small firm is often local)
 Cont…nd
Generally, small business is a business that is:
 privately owned and operated,
 small number of employees, and
 relatively low volume of sales.
 privately owned companies, partnerships, sole
proprietorships, or cooperatives.
 Economic, Social & Political Contributions of
Small Business Enterprise
• Equitable distribution of wealth and
decentralization of economic power
Income dispersed more widely and its benefit is
derived by the large segments of the society (this is
due to wide spread ownership and decentralized
location of small scale enterprises)
 Encourage competitive spirit and generate the
impetus to self development
 Relations between workers and employers are
more harmonious
 Cont…nd
• More Employment creation capacity
 small scale enterprises are labor intensive and
thus create more employment with a given level of
capital.
 require less capital but generate more
employment.
• Removing Regional Imbalance- by inducing people
to set up small firms in rural areas to avoid migration
function involves specialization in specific areas and
results in greater profitability
 Cont…nd
• Export Promotion
Small-scale enterprises are opening up fresh
avenues in the export market in our world.
Ancillary Function -supply parts and accessories to bigger enterprises

How Big Companies Can Support Small

Businesses
 Discussion Question
1. Please list out and explain cause for SMEs
failures in Ethiopia
2. What measures should be taken on the part
of different stakeholders to mitigate the
challenges encountering SMEs in Ethiopia?
 Small Business Failure factors
(Why small businesses fail)
• Poor operations management – The manager
lacks the ability to operate a small business.
• Lack of experience – Many owners start
businesses in industries in which they have no
experience
• Poor financial management – Many owners
start with too little money and with little or no
understanding of financial spreadsheet
applications. Illegal loan too!
 Cont…nd
• Over-investing in fixed assets – Owners who over-
invest in fixed assets may find themselves with no
access to funds for working capital.
• Poor credit practices – Owners often sell on credit
to meet (or beat) the competition
 and find that they lack the additional working
capital required or the ability to collect receivables.
• Failure to plan – The lack of a strategic plan to
guide the business in the long run
 Cont…n d
• Unplanned and uncontrolled growth – Growth is
natural and healthy, but unplanned growth can be
fatal to a business.
• Inappropriate location – Owners who choose a
business location without proper
 analysis,
 investigation,
 and planning often fail.
 Too often, owners seek “cheap” sites and locate
themselves straight into failure.
 Problems faced by small scale enterprises

• Small scale enterprises quite often face distinctive

problems. These are:
Difficult in obtaining credit from commercial banks
because of their general inability to provide security.
Inability to offer liberal credit terms in the sale of
their products
Absence of management expertise
Difficulty in competing with imported products due
to high production cost
Problems faced by small scale enterprises
(Cont…nd)
Difficulty with competition from other local
entrepreneurs in the same line of business
Difficulties in obtaining industrial land in
towns and cities
Under capitalization
Difficulty in identifying appropriate technology
and technical assistance
Bureaucratic red tape and regulations
Problems in the Ethiopian small business

• Constraints Facing the Sectors in Ethiopia

The main constraints identified were:-
Lack of working space for production and
marketing.
Shortage of credit and finance
Regulatory problems (licensing, organizing,
illegal Business etc.)
Problems in the Ethiopian small business
( Cont….nd)
Poor production techniques.
Input access constraints
Lack of Information
Inadequate management and business skill
Absence of appropriate strategy
 Problems in the Ethiopian small business
( cont…nd)

Small-scale businesses have not been able to

contribute substantially to the economic development,

particularly because of the problems identified in the

previous slides.
• Lack of adequate finance and credit has always been
a major problem of the Ethiopian small business.
Problems in the Ethiopian small business
(Cont…nd)

Consequently, they approach traditional money

lenders who charge extra high rate of interest hence
small enterprise continue to be financially weak.
Small scale enterprises find it difficult to get raw
materials of good quality at reasonable prices in
the field of production.
Problems in the Ethiopian small business
(Cont...nd)

Furthermore, the techniques of production,

which the enterprises have adopted, are
usually outdated.

Because of their poor financial position they

are not able to buy new equipment,
consequently their productivity suffers.
 Solutions…
Small business owner can avoid some of the
common pitfalls that lead to business failure
by:
 Knowing the business in depth
 Developing a solid business plan
 Managing financial resources
 Understanding financial statements
 Learning to manage people effectively…
 Rationale of SME
• Employment argument:
– Small scale industries are more labor intensive
than large and medium scale
– employment generating capacity of small sector is
eight to ten times
• Equality argument
– Ownership of small scale industries is wide spread
– Provide more employment opportunities to the
unemployed
 Rationale of SME, Cont…nd
• Decentralization Argument
– Big industries are concentrated only on urban
areas bus small industries can be located in rural
and semi urban areas to use local resource and to
meet the local demand
– Hence it promote balanced regional development
• Latent resource argument
– Small industries are capable in mapping up and
latent and unused resources
 Importance of Small Business
• Supporting large and giant industries
 Distribution function
 Supply function
• Sources of innovation
• Stimulating economic competition
• Creating employment opportunities-
• Freedom of opportunity
 Characteristics of small business
• The same manager/proprietor handles all
functions of the enterprise
• The manager/ proprietor finds it difficult to
borrow short term or long term loans
• The industry meets only the immediate needs
of local community
• The establishment is generally week, poorly
equipped
• The rate of failure is high
• The level of education of the proprietor is very
low
Competitive Strength of Small Business

Knowledge of customers and market

Product specialization
Geographic specialization
Flexibility in management
 Why do you want to start a business?
• Most people set up a business for one reason
– to make a profit. But there are a great many
other reasons such as:
– To provide a service to the community
– To improve the living standard of your family
– To provide employment for your family
– For status
– To be your own boss
– For a change
– For contact with people
– For pleasure
 Steps in setting up a business venture
• There are four preliminary steps that should
be taken before deciding to start or buy a
business:
1. Development of sound business ideas,
2. Market research,
3. Financial planning and
4. Deciding whether to have co-owners.
 Discussion Point

• What major points do you remember from

the previous class and discussion made?
 CHAPTER THREE
IDENTIFYING BUSINESS
OPPORTUNITIES
Identifying Business Opportunities
• In a real life situation, the key problem faced by a
would – be entrepreneur is how to identify business
opportunities
• Let us tell ourselves the truth.
• It is not an easy task to identify a business opportunity
given the proliferation of business in Ethiopia.
• There is still a lot of room for new entrepreneurs only if
they can be able to see clearly the opportunities that
exist in the various sectors of the economy
Identifying Business Opportunities(Cont…
nd)
In identifying business opportunities, we need to
establish the following:
Population figures
Demographic data like sex of the population etc.
Trends in demography
Political and regulatory trends
Economic trends
Classification of goods
Identifying Business Opportunities(Cont…
nd)
• In selecting the specific business opportunity
to tap unto, the following guidelines are
advocated.
• Write out a list of goods and services usually
demanded by a given segment of the
population you are targeting.
• Divide the goods and services into essential
and non-essential goods and services.
 Cont…nd
• Divide goods and services into durable and
non-durable goods.
• Based on your division, choose business in the
essential goods and services segment.
• Also choose business in the area of non-
durable goods and services since the goods
are frequently demanded.
 Recognizing Opportunities
& Generating Ideas
Personal characteristics for opportunity recognition
 Prior experience in an industry
 Entrepreneurial alertness/6th sense
 Social networks
 Creativity
 Sources of Ideas For Business Ventures

Some people find ideas for new business

ventures while reading newspaper or
magazines.

Others discover ideas while they are pursuing

a hobby or when they are attending a
merchandise show or a craft and hobby show.
 Sources of Ideas For Business Ventures ( Cont…nd)

• Newspapers
• Business Opportunities
• Business Services
• Newspaper Articles
• Magazines
• Trade Publications
• Hobbies
• Merchandise Shows
• Trade Shows
• Craft and Hobby Shows
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS
• CONDUCTING SURVEYS
 One way to stimulate ideas for new business
ventures is to find out what consumers need
and want. You can obtain this information from
surveys.
 A survey involves asking a number of people a
series of questions and then summarizing their
answers.
 Surveys can be either informal or formal.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• BRAINSTORMING
 Brainstorming is a technique used to solve a
problem by generating as many ideas as possible.
 You can get practice in brainstorming by getting
together with two or three people. One person
should be the leader and another recorder.
 The recorder’s job is to list the ideas as they are
stated.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• Brainstorming begins with a question from the
leader.
• Someone in the group suggests an answer,
and then everyone else changes it or adds to
it.
• Each idea leads to one or more ideas. The
result is a chain reaction of ideas.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• Follow these rules in the brainstorming group:
• 1. Don’t criticize another person’s ideas. Group members
will tend to talk less if this happens. This means fewer ideas
will be expressed.
• 2. Encourage freewheeling. The wilder the ideas, the
better. It is easier to tame down a wild ideas than it is to
think up another one.
• 3. Try for quantity. The larger the number of ideas, the
better the chance of getting good ones.
• 4. Combine and improve. Sometimes two or three ideas
can be joined to form still another idea.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• Even though brainstorming is used most often in groups, you
can also use it alone. Follow these rules for individual
brainstorming:
1. Don’t judge your own ideas until you have finished the list.
Never erase or scratch out an idea.
2. Do some freewheeling. Don’t be afraid to write down some
unbelievable ideas.
3. Try for quantity. Remember, by writing down many ideas,
you increase your chances of getting good ideas.
4. Combine and improve. Write down all ideas that come to
mind. Then add to the list by combining and improving ideas.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• Making Observations
• An idea for a new enterprise may come from
observing your own needs and wants or by
observing the needs or wants of the people
around you.
• Sharpen your observation skills, and you will
improve your chances of finding new enterprise
ideas.
• You can do this by the following actions:
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
1.Watch trends, particularly those in food,
clothing, and leisure-time activities
2.Observe faults or shortcomings in existing
products, services, or businesses
3.Look for new associations among objects,
processes, and ideas.
4.Observe that some things that used to be
done very well are not done any more.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• KEEPING A NOTEBOOK OF IDEAS
• Ideas for new business ventures can come to
you at any time.
• They often come at times when you least
expect them, such as while you are eating
lunch, riding in a car, or watching television.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)

• At the moment an idea appears it may seem

that it would be impossible to forget it.
• Yet in a very short time it becomes blurred or
is forgotten.
• Be prepared to catch ideas while they are alive
and fresh in your mind.
 METHODS OF GENERATING NEW
ENTERPRISE IDEAS(Cont…nd)
• Plan to spend time at least once each month or review
your notebook of ideas and to answer these questions:
1. What are the advantages or benefits of each
enterprise idea?
2. What are the disadvantages or drawbacks of each
idea?
3. Does the great idea you had a few weeks ago still seem
great?
4. Do the ideas have anything in common? For example,
are several ideas related to computer or electronics?
CHAPTER FOUR: Feasibility Plan and
Business Planning
Discussion Question (Forum)

What is a business plan and why it’s

relevant? Who needs to have a business
plan?
 Business Planning
• The unprepared mind cannot see the out
stretched hand of opportunity ( Alexander
Flaming)
• Then the would be entrepreneurs must decide
to develop a business plan whether to:
– Create a new venture
– Buy an existing business
– Buy a franchise
 Cont…nd

• In starting a new venture, the pivotal step is to

prepare a business plan, which calls for
entrepreneurs to anticipate:
– The potential market for products and services

– The potential costs of satisfying the market

– The potential pitfalls in organizing operation

– The easily signals of progress or setbacks

 Business Plan
• What is a business plan
– Is a written document that details the proposed
venture
– Is the roadmap of an entrepreneur for a successful
enterprise, telling the entrepreneurs how best to
get from A to Z
– Is a map and compass for a business
– Is a plan that works for a business to look ahead,
focus on key points, allocate resources and
prepare for problems and opportunities
 Cont…n d
• It must describe current status, expected
needs and projected results of the new
business
• Every aspect of the venture needs to be
covered in the plan
– The project, marketing, R&D, manufacturing and
timetables
 Who needs a business plan?

• Those who are

– Running a business
– Applying for a business loan
– Looking for business investment, new products
and etc
 Cont…nd
• Feasibility Plan
– Here under the entrepreneur should
analyze the viability of the plan based on
the following factors:
• Market
• Technical
• Economic and financial
• Social
• Political
 Benefits of the business plan

1. Reduces firefighting
2. Justifies your plans and actions
3. Test your ideas on paper
4. Indicates your ability and commitment
 Benefits of the business plan
(Cont…nd)
• Specifically to the entrepreneurs
– Permission from the local legal authority or
chamber of commerce to set up the business
– Convince funding institutions to provide finance
– Convince business partners to supply material or
services
– Force the entrepreneur to view the venture
critically and objectively by considering the time,
effort and discipline need to put together to a
formal business plan
 Cont…nd
• To develop and examine operating strategies
and expected results for outside evaluators -
since all aspects of the business venture must
be addressed in the plan
• Quantifies objectives, providing measurable
benchmarks for comparing forecasts with
actual results
 Cont…nd
• Specifically for financial sources
– Identifies critical risks and crucial events with a
discussion of contingency plans
– A clear and concise document that contains the
necessary information for a thorough business and
financial evaluation
– The ventures ability to pay back debt and
adequate return on equity
– Details of the market potential and plans for
securing a share of the market
 Developing a business plan
• Out line of the business plan
– Executive summary
– Business description
– Marketing plan
– Production plan
– Management plan
– Competitive analysis
– Financial plan
 Cont…nd
• Executive summary
– Brief description of the project
– Brief profile of the entrepreneur
– Project’s contribution to the economy
• Business description
– Type of business
– Products and services offered
– Ownership of the business
– Profitability consideration
 Market Analysis
• This is an examination of the primary target
market for your product or service, including
– geographic location,
– demographics,
– your target market's needs and
– how these needs are being met currently.
 Market Analysis ( cont…d)
• The competitive analysis section can be the
most difficult section to compile when writing
a business plan. Before you can analyze your
competitors, you have to investigate them.
• You need to know:
– What markets or market segments your competitors serve;
– What benefits your competition offers;
– Why customers buy from them;
– And as much as possible about their products and/or
services, pricing, and promotion.
 Market Analysis ( cont…d)
• This is a detailed explanation of your sales
strategy, pricing plan, proposed advertising
and promotion activities, and product or
service's benefits.
• The Marketing Plan section explains how
you're going to get your customers to buy
your products and/or services.
 Market Analysis ( cont.d)
• The marketing plan, then, will include sections
detailing your:
– Products and/or Services and your Unique Selling
Proposition
– Pricing Strategy
– Sales/Distribution Plan
– Advertising and Promotions Plan
 Operating Plan

• A description of your business' physical

location, facilities and equipment, kinds
of employees needed, inventory
requirements and suppliers, and any
other applicable operating details, such
as a description of the manufacturing
process.
 Cont…nd
• You need to do two things for your
readers in the operating section of the
business plan:
– show what you've done so far to get your
business off the ground (and that you
know what else needs to be done) and
– demonstrate that you understand the
manufacturing or delivery process of
producing your product or service.
 Cont…nd
• You need to do two things for your
readers in the operating section of the
business plan:
– show what you've done so far to get your
business off the ground (and that you
know what else needs to be done) and
– demonstrate that you understand the
manufacturing or delivery process of
producing your product or service.
 Management plan
• An outline of your business' legal
structure and management
resources, including your
– Internal management team,
– External management resources, and
– Human resources needs.
 Management Plan ( Cont…nd)
• The Management Plan section describes your
management team and staff and how your
business ownership is structured.
• People reading your business plan will be
looking to see not only who's on your
management team but also how the skills of
your management and staff will contribute to
the bottom line
 Competitive analysis
• Identification of competitive strength
 Financial Plan
• Basically, the financial plan section of
the business plan consists of three
financial statements:
– The income statement
– The cash flow projection and
– The balance sheet,
and a brief explanation/analysis of
these three.
 Financial plan (Cont…nd)
• First, you need to gather together some
of the financial data you'll need to
prepare these financial statements for
your business plan by examining your
expenses.
• Think of your business expenses as
broken into two categories:
– Your start up expenses and
– Your operating expenses.
 Financial plan, Cont…nd
• All the costs of getting your business up and running go
into the start up expenses category.
• These expenses may include:
– Business registration fees
– Business licensing and permits
– Starting inventory
– Rent deposits
– Down payments on property
– Down payments on equipment
– Utility set up fees.
• This is just a sampling of start up expenses; your own list
will probably expand as soon as you start writing them
down.
 Financial Plan, Cont…nd
• Operating expenses are the costs of keeping your business
running.
• Think of these as the things you're going to have to pay each
month. Your list of operating expenses may include:
– Salaries (yours and staff salaries)
– Rent or mortgage payments
– Telecommunications utilities
– Raw materials storage
– Distribution
– Promotion
– Loan payments
– Office supplies
– Maintenance.
 Financial Plan Cont…nd
• Multiply this number by 6, and you have a six-
month estimate of your operating expenses.
Then add this to the total of your start up
expenses list, and you'll have a ballpark figure
for your complete start up costs.
The Executive Summary of the Business Plan

• The purpose of the executive summary of the

business plan is to provide your readers with
an overview of the business plan.
• Think of it as an introduction to your business.
 The Executive Summary of the Business
Plan
• Therefore, your business plan’s executive
summary will include summaries of:
– A description of your company, including your products
and/or services
– Your mission statement
– Your business’s management
– The market and your customer
– Marketing and Sales
– Your competition
– Your business’s operations
– Financial projections and plans
 The Executive Summary of the Business
Plan
• Tips for Writing the Business Plan’s Executive
Summary
• Focus on providing a summary.
• The business plan itself will provide the details and
whether bank managers or investors, the readers of
your business plan don’t want to have their time
wasted.
• Keep your language strong and positive. Don’t weaken
the executive summary of your business plan with weak
language. Instead of writing, “…might be in an excellent
position to win government contracts”, write “…will be
in an excellent position...”
 TOP TEN DON'TS

• Don't be optimistic (on the high side) in

estimating future sales.
• Don't be optimistic (on the low side) in
estimating future costs.
• Don't disregard or discount weaknesses in
your plan. Spell them out.
 TOP TEN DON'TS (Cont…nd)

• Don't stress long-term projections. Better to

focus on projections for your first year.
• Don't depend entirely on the uniqueness of
your business or the success of an invention.
• Do not project yourself as someone you're
not. Be brutally realistic.
 TOP TEN DON'TS (Cont…nd)

• Do not be everything to everybody. Highly

focused specialists usually do best.
• Don't proceed without adequate financial and
accounting know-how.
• Don't base your business plan on a wonderful
concept. Test it first.
• Never, never, never skip the step of preparing
a business plan before starting.
 CHAPTER FIVE

WAYS OF GOING IN TO BUSINESS

 Ways of Starting a Business
• There are two main ways of starting in small
business
1. The most common method used is starting
from scratch
2. The next most common is buying an existing
business as a going concern.
Ways of Starting a Business(Cont…nd)
• Three less common methods are:
 to inherit a business (usually as a going
concern);
 to restructure or restart a failed business;
 and for employees (usually senior managers)
to buy a firm from its owner(s).
Advantages and disadvantages of starting
from the scratch
• Advantages:
• You do not have to pay for good will (as you do
when buying a business as a going concern).
• You can avoid the ‘unseen’ problems of many
firms for sale, such as poor location, and poor
reputation among customers, suppliers or
employees.
 Advantages, Cont…nd
• You have more freedom to use your own ideas
in creating
the kind of business you want
your product or service,
your choice of location,
your staff and your methods.
 Advantages and disadvantages of starting
from the scratch(Cont…nd)
• Disadvantages:
Some intending owners cannot handle the
greater uncertainty about how to put it all
together and where it will become a viable
enterprise.
It is usually quicker, and can be easier, to
purchase an existing firm than setting up a
new firm from scratch.
 Advantages and disadvantages of starting
from the scratch(Cont…nd)
• Disadvantages:
Positive cash flow (where cash receipts exceed
cash payments) usually takes much longer
than when one buys an existing business.
It is often harder to persuade a financier to
lend to, or invest in, new business with no
proven track record than to do so for an
existing business, even with new
management.
 Buying an Existing Business

• If you buy an existing business as a going concern

(which means that it is in working order) you will
usually purchase or take over the firm’s:
Physical facilities(such as premises, equipment and
furniture)
Inventories of various kinds
Customers and amounts owned by them
Contractual rights and legal rights ( such as patents)
Employees, and
Good will.
 Advantages of buying an existing business

• Compared with starting ‘from scratch’ buying a

business has the following advantages:
You might have less trouble obtaining finance,
particularly if the existing business has
profitable history and a promising future.
It is generally quicker and easier to buy a
business as a total package than to put one
together by starting from scratch.
Advantages of buying an existing business,
Cont…nd

• Total cost is agreed and certain, whereas when

you start from scratch, startup costs and
capital needs for the first six months or so are
often hard to estimate and usually more than
expected.
 Disadvantages of buying an existing
business
• Among the more various disadvantages and
dangers are:
There is always the risk of buying a ‘lemon ‘in a poor

location.

With slow-paying customers, obsolete equipment,

unskilled or indifferent employees and/or poor credit

ratings among suppliers.

 Disadvantages, Cont…nd

There can be problems with valuing good will

as a fair measure of the firm’s ability to make
sales and earn profits, because of its image or
reputation among its customers.
 Disadvantages, Cont….nd
• There is a need to value fairly the physical facilities
and assets being purchased as part of the going
concern.
• Debtors with a book value of $ 18.000 might not
really be worth that amount. If they are not, what
will they be worth to the buyer?
• There is a risk that, despite all investigations, the
business is going downhill for reasons that cannot
be remedied (such as a baby wear shop for sale in a
suburb of mainly retired older people).
 Disadvantages, Cont…nd
• There is the problem of reaching a negotiated
selling price, and payment arrangements
which are acceptable to both buyer and seller.
To avoid these difficulties you should engage a
professional adviser.
• The costs of using a business broker and an
accountant to carry out the necessary
investigations can be heavy.
 How you buy an existing business

• How you buy an existing business

• When you set out to buy an existing small
business, most of the considerations relating
to how to start from scratch still apply.
• In particular, questions about
the firm’s competitive advantage,
likely market share and viability of market
share will need carefully study
 How you buy an existing business, Cont…
nd

• there is little point in buying into a firm which

is suffering from a severe case of ‘hardening of
the markets’ (a condition in which a firm
operates with a seriously declining market
share).
How you buy an existing business(Cont…nd)

Also , for a purchase to take place it is

essential that the intending buyer arranges:
Independent and expert checks on the value
of every item to be included in the purchase,
including good will
Verification of the actual existence, and proof
of ownership, of every such item
 How you buy an existing business(Cont…
nd)

• Close scrutiny of financial reports, taxation

returns and assessments, and trading figures
up to the current month.
• Calculation of the firm’s past financial
performance
 How you buy an existing business(Cont…
nd)
• Independent assessments of the financial
health of the business from suppliers and the
bank, and sales/marketing performance from
customers.
• Careful scrutiny of all legal obligations (for
example, lease conditions)
• Having the seller terminate all employment
contracts to allow the buyer freedom to avoid
past obligations to all staff
 How you buy an existing business(Cont…
nd)

• A check on the seller’s rights to start another

business in direct competition with this one.
• Franchising

• There are widespread indications of a growing

boom in franchising in many parts of the world
and very real advantages in taking this path.
 Franchising ( Cont…nd)

• The basis of franchising is that the owner or

supplier of a product, service, process or trade
name (the franchisor) enters into agreement
with a business (the franchisee) to give that
business the right to sell the product or
service or use the process or trade name.
 Franchising ( Cont…nd)

• The franchise agreement outlines the rights

and obligations of all parties and, in particular,
gives the franchisee a specified right to
operate in a particular trading area.
• the franchisee agrees to pay a sum of money
which may include an initial ( up-front ) fee,
royalties on sales, and a charge for shared
advertising and promotion campaigns.
 Franchising (Cont…nd)

• Depending on their agreement, the franchisor

might also provide
 Startup assistance,
 Technical training and
 On-going management advice.
 Advantages and Disadvantages

• For franchisees, the advantages are:

• The franchisee gets the backing and support
of the franchisor,
• Proven products and services lead to more
rapid sales growth.
• The probability of survival is higher, since
many basic and fatal errors are avoided.
Advantages For franchisees ( Cont…nd)

• Cost savings can be made if stock and materials are

available through bulk buying by the franchisor.
• Access to startup finance is easier because of the
link with a nationally known franchisor.
• Technical and management training and guidance
are available
 Advantages for Franchisors
• For franchisors the advantages are:

• Businesses grow rapidly (by attracting more

franchisees) at lower cost and less risk, than if they
expanded by starting their own branches.
• The franchise agreement provides a measure of
control over the quality and efficiency of franchised
operations
 Disadvantages for the franchisee
• For the franchisee there are several
disadvantages:
There is a risk that the franchisor might fail.
Close outside control over your business and
lack of real independence might prevent you
from using your own initiative and ideas or
(the franchisor makes the ‘rules’) and impose
rigid rules and conditions
Disadvantages for the franchisee(Cont…
nd)

Franchise costs might be heavy, especially as

the royally fee is a percentage of sales and will
increase as your sales efforts are successful.
The product might be a poor seller-for
example, a fad whose day is gone.
 How to enter a franchise arrangement?

• In particular following are worth checking very

carefully:
The credibility of the franchiser
The acceptability to you of specific clauses in the
agreement about matters such as cancellation,
transfer or renewal of the franchise, the grounds
for terminating the franchise and so forth
Prospects for increasing sales of the products or
service
 Inheriting a Business
• If inheriting an ongoing business through the
death of a relative or friend, the beneficiary
clearly has no choice about what kind of firm
he or she is entering,
• and might lack experience in business
management or have no interest in learning.
• A further problem would arise if the business
were badly run down
 Management Buy-Out
• A method of getting into business which is
attracting much interest in recent years is when
the employees of a firm purchase that firm from
its owner(s).
• This can be done at any time, but is more
common if the owner is planning to retire or has
put the business up for sale for any other reason.
• Seek professional and independent advice, no
matter how you plan to start out
 CHAPTER SIX
PRODUCT AND PRODUCT PROTECTION
TECHNIQUES
 What is Product?
• A product is anything that can be offered to a
market to satisfy a want or need of users.
• Products that are marketed can be classified
into physical goods and services.
• A service is any act or performance that one
party can offer to another that is essentially
intangible
• Its production may or may not be tied to a
physical product.
 Nature and Classification of Services
• There are five categories of product offer:
1. Pure tangible good:-offer consists primarily of
a tangible good such as soap, sugar or salt. No
service will accompany the product.
2. Major Tangible good with accompanying
minor service
3. Hybrid: the offer consists of equal parts of
goods and services
 Nature and Classification of Services
( Cont….nd)

4. Major Service with accompanying minor

goods .
5. Pure service: the offer consists primarily of a
service such as psychotherapy, massages and
beauty salon
 NEW PRODUCT DEVELOPMENT PROCESS

1.Idea Generation from:

customers,
the company's R&D department,

Competitors and other firms,

focus groups, employees, salespeople,

Ethnographic discovery methods (searching for

user patterns and habits)
 1. Idea Generation (Cont…nd)

Formal idea generation techniques:, focus

group, brainstorming, and problem analysis

Technologies

External Consulting companies

Suppliers

Environmental Pressures
 2. Idea Screening
 To eliminate unsound concepts prior to devoting
resources to them.
 The screeners must ask (consider) the following
factors:
Will the customer in the target market benefit
from the product?
Technically feasible?
profitable at the target price?
2. Idea Screening (Cont…nd)
A demonstrated need in the marketplace.
A regulatory need or legal requirement.
(e.g. Emission controls, Safety regulations,
Environmental regulations)
The capabilities of the organization
Developing, commercializing and
marketing the product do not conflict with
other company objectives.
 3. Business Analysis

 Specifying;
i.features of product and the
ii.marketing strategy
iii.necessary financial projections.
 3. Business Analysis, Cont…nd
 Estimate likely selling price based upon
competition and customer feedback
 Estimate sales volume based upon size of
market
 Estimate profitability and breakeven point
 Effect of the new product on existing
products
 Possibility of finding copyright or patent on
the product
 4. Development

Turning the idea on paper into a prototype

Designing the product
Manufacturing and
Testing (laboratory and consumer tests)
 5. Market Testing
 Exposing actual products to prospective consumers under
realistic purchase situations.
Test the product (and its packaging) in typical usage situations

Conduct focus group customer interviews or introduce at trade

show

Make adjustments where necessary

Produce an initial run of the product and sell it in a test market

area to determine customer acceptance

 6. Commercialization
 positioning and launching a new product in
full scale production and sales.
 This step includes;
Launch the product
Produce and place advertisements and other
promotions
Fill the distribution pipeline with product
Critical path analysis is most useful at this stage
 New product development is:

 A proactive process
 Ongoing process (continuous development),
especially in large industry leaders
 Usually performed by cross-functional teams
 Better performed using a flexible approach
 Unique Features Of Services
• Four I’s of services:
I.) Intangibility-cannot be held, touched or seen
before the purchase decision.
Suggestion: make them tangible or show the
benefits.
II.) Inconsistency-quality of services vary
depending on the people who provide them,
the time and the environment in which they
are given etc.
Suggestion: standandardization and training
Unique Features Of Services(Cont…nd)

III.) Inseparability: Has two dimensions.

1). Inseparability of production and

consumption.

2). The service provider and the consumer

are not, in most cases, separated.
 Unique Features Of Services(Cont…nd

IV.) Inventory: perish ability of goods and inventory

carrying costs create a problem to handle goods. But
in services inventory carrying costs are more
subjective and are related to idle production capacity.
(salary and other benefits)
Suggestion to minimize idle production capacity: part-
time and commission.
 Marketing of Services
• The seven P’s of Services:

 the 4 P’s of goods: i.) Product (service),

 ii) Price, iii) Promotion,

 iv) place (distribution) PLUS

v.) People-services depend on people. (employees+

customers)

-internal marketing more critical

 Cont….nd
vi.) Physical evidence-environment in which the service is given.

vii.) Process-procedures, mechanisms and flow of activities by which

the service is created and delivered. Not only “what” is created
but also “how” it is created matters.

Solution: Capacity management with out compromising quality.

off-peak pricing (changing prices at different times of the day or

days of the week) plays important role in capacity management.
 PRODUCT PROTECTION
1. Patent

• is a set of exclusive rights granted by a state to

an inventor or his assignee for a fixed period
of time in exchange for a disclosure of an
invention.
 Cont….nd

• But a patent is given for products that must be new,

inventive and useful or industrially applicable.
• The exclusive right granted to a patentee in most
countries is the right to prevent or exclude others
from making, using, selling, offering to sell or
importing the invention
 Rationale for Use of Patents
 There are four primary incentives embodied
in the patent system:
I. to invent in the first place;
II. to disclose the invention once made;
III. to invest the sums necessary to experiment,
produce and market the invention
IV. and to design around and improve upon
earlier patents.
 2.Trademark (™ and ®)
 is type of intellectual property, typically a name,
word, phrase, logo, symbol, design, image, or a
combination of these elements that distinguishes
one co’s products from others’.
 The owner of a registered trademark may
commence legal proceedings for trademark
infringement to prevent unauthorized use of that
trademark.
 When a trademark is used in relation to services
rather than products, it may sometimes be called a
service mark
Benefits of Trademark Registration
• Constructive nationwide notice of the
trademark owner’s claim
• Evidence of ownership of the trademark
• Jurisdiction of federal courts may be invoked
• Registration can be used as a basis for
obtaining registration in foreign countries
 3.Copyright

 is a legal concept, enacted by governments, giving

the creator of an original work of authorship
exclusive rights to control its distribution, usually
for 50 years after the author's death, after which
the work enters the public domain.
 It is given for poems, theses, plays, other
literary works, movies, dances,
musical compositions, audio recordings, drawings,
sculptures, photographs, software, radio and
television and broadcasts