Professional Documents
Culture Documents
COMPUTING CENTRE
TABLE OF CONTENTS
TABLE OF CONTENTS...............................................................................................................3
DCIT 05202: TECHNO-ENTREPRENEURSHIP AND INNOVATION....Error! Bookmark not
defined.
CHAPTER ONE: INTRODUCTION...........................................................................................4
1.3 1 Historical background.......................................................................................................5
1.3.2 Definition of Entrepreneur today......................................................................................7
1.3.3 Intrapreneurship................................................................................................................7
1.3.4 Is an entrepreneur born or made?.....................................................................................7
1.3.5 General Entreprising Tendencies/Traits [GETs]...............................................................8
1.3.6 How can GETs be developed?........................................................................................9
1.3.7 Types of skills required in Entrepreneruship....................................................................9
1.3.8: Comparison of Traditional Managers and Entrepreneurs..............................................10
1.3.9 Revision Questions for One................................................................................................10
4.5.2 Business consolidation process...............................................................................28
4.6.8 THE ORGANISATION PLAN......................................................................................35
4.6.9 OPERATIONAL (PRODUCTION) PLAN....................................................................36
- Describe your monthly labour requirements.............................................................................37
4.10 FINANCIAL PLAN.........................................................................................................38
5.2: Sources of Business Ideas.....................................................................................................vi
vi. Buy a Franchise or an Existing Business..............................................................................viii
5.3 Tips for Starting a Business that will succeed........................................................................ix
5.4. Assessing the Business Ideas.............................................................................................xi
The goal of Technology Entrepreneurship is to prepare students for the kinds of technicallylinked business challenges that are inherent to situations where the answer (a technical
innovation) is being developed in parallel with the problem (a market need).
There is little consensus on exactly how to define innovation. Whilst it is widely understood
and accepted that innovation is a major source of an organizations competitive advantage.
Actual definitions of innovation vary often so as to better meet the requirements or
characteristics of a particular study.
What is common in most definitions of innovation is a focus on novelty and newness and
that it creates profit or adds economic value to the organization responsible for it.
In the 1930s Joseph Schumpter put forward five types of innovation definitions:
i.
ii.
iii.
iv.
v.
Generally innovation definitions are derived from one or a combination of the following
parameters:
a. The generation of a new idea: This is where new ideas are formed from old
ideas, or new relationships / perspectives are formed between entities or
subjects
b. The invention of something new: A new product or service
c. The diffusion of new ideas: The transfer of new ideas to new geographic
locations
In the early 20th century, Joseph Schumpeter presented what has been credited as the most
significant meaning of the term 'entrepreneur'. He saw the essence of entrepreneurship as
innovative behavior. According to Schumpeter, the essence of entrepreneurship lies in the
perception and exploitation of new opportunities...it always has to do with bringing about a
different use of national resources in that they withdraw from their traditional employ and
subject them to new combinations (Schumpeter, 1934).
Religious
institution,
Corporate
Organization,
Government
agencies,
NGO,
Home/family/relationship etc.
Intrapreneurs are highly valued in todays world, because it calls for constant improvement,
aggressiveness, vision, ability to assess risks and quickly take action, etc
Existing businesses have the financial resources, business skills and the marketing and
distribution system to commercialize innovation successfully.
1.3.4 Is an entrepreneur born or made?
Entrepreneurship researchers point to two major contentions. There are those who argue that
entrepreneurship is a function of individual personality traits (born with). That there exists a
number of recognizable behaviors, and attributes that are commonly associated with the
enterprising person, and which may further distinguish between entrepreneurs and nonentrepreneurs or between successful entrepreneurs and unsuccessful enterpreneurs. These are
7
innovativeness, creativeness, proactive ness, need for achievement, risk taking independence.
Etc.
On the other hand, those in the second strand, argue that entrepreneurship is an
environmentally determined phenomenon (made). That the display of enterprising behaviors
and attitudes will be stimulated or otherwise, by different environments.
There is now an overwhelming literature, (including proponents of the trait approach) that
point to the common conclusion, and to which we also subscribe to, that entrepreneurship is not
a biological trait. More specifically, entrepreneurs can be developed and that even the much
advocated entrepreneurial traits and behaviors such as need for achievement and risk-taking can
be learnt. That the mix and degree of enterprising attributes will vary between persons, but
more importantly the enterprising behavior can be developed by exposure to stimuli and
therefore can be learned.
1.3.5 General Entreprising Tendencies/Traits [GETs]
Generally, an entrepreneur possess the following Traits/behaviors
i.
Creativity behavior
ii.
iii.
Innovative behavior
iv.
v.
vi.
Aggressive behaviour
vii.
Determined/Perseverance behavior
viii.
ix.
Pro-active behavior
x.
xi.
xii.
xiii.
Belief that rewards come with own effort and hard work brings its rewards
xiv.
Opportunistic behaviour
xv.
Networking behavior
xvi.
xvii.
(ii)
(iii)
See mistakes and failures as mere pit stops on the way to success
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
Experiment
(xv)
ii.
Risk taker
iii.
iii.
Innovative
iv.Marketing
iv.
Change oriented
v. Technology
v. Finance
v. Persistent
vi. Interpersonal
vi.
Accounting
vi.
Visionary leader
vii. Listening
vii.
Management
vii.
Ability to manage
viii.
viii.
Control
ix.
Negotiation
x. Management style
x. Venture launch
xi. Coaching
xi.
Ability to organize
Human relations
change
Management growth
ENTREPRENEURS
Independence, opportunity to
2. Activity
3. Risk
4. Status
direct involvement
Careful
Concerned about status symbols
5. Decision
symbols
Follow dreams with
6. Failure and
management positions
Tries to avoid mistakes and surprises
decisions
Deals with mistakes and
mistakes
failures
10
13. Suppose you are looking for a Manager to head your newly established business venture.
Describe at least 5 key criteria you would use to differentiate an entrepreneurial manager
you would like to employ, from a traditional manager.
14. a) List three categories/groups of skills required for an entrepreneur.
b) For any one category of skills of your choice, write short notes on any three specific skills.
15. With an example in each case, describe the following General Entrepreneurship Traits
(GETs)
i.
Proactive behaviour
ii.
iii.
Networking behaviour
iv.
Opportunistic behaviour
16. People are born with different levels of entrepreneurship traits. Describe at leas 5 ways by
which one can develop his/her General Entrepreneurship Traits.
17. People are born with different levels of entrepreneurship traits. With examples in each case,
describe how the following ways can assist you in developing your entrepreneurship traits
ii.
See mistakes and failures as mere pit stops on the way to success
iii.
iv.
v.
vi.
vii.
Experiment
18. Choose the appropriate statement from section II and match it to the correct/ corresponding
items in section I (CHAPTER 1 AND CHAPTER 2) (10 marks)
SECTION I
SECTION II
i: A person with external locus of control [
]
a. Psychodynamic model
b. Writing skills
ii. Is a technical skill needed by an entrepreneur [ ]
c. An Entrepreneurial Manager
d. Creative behavior
iii. Mwajuma, a bank manager, scrutinizes everything e. Is unlikely to become a successful
proposed by her Executive Director before accepting [
entrepreneur
]
f. A carefree Manager
iv. A person perceives a strong level of incongruency
g. Decision making skills
between his personal attributes and the role he holds in h. Is likely to become a successful
society and hence motivated to change. [ ]
entrepreneur
i. Observe and copy.
v. A trait possessed by any good entrepreneur [ ]
j. Social-marginality theory
k. Traditional Manager
l. Aggregative behavior
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CHAPTER TWO
INFLUENCES ON ENTREPRENEURIAL BEHAVIOUR
Entrepreneurial behavior is considered a function of the individual motivations, ability and
environmental influences. A number of theories have been proposed to explain these
phenomenons. These are:
i.
ii.
iii.
They like rapid feedback on their performance so that they can judge whether they are
improving or not.
They avoid what they perceive as very easy or very difficult tasks as they dislike succeeding
by chance.
12
They prefer striving to achieve targets which present both a challenge and are not beyond
their capabilities. This ensures worthwhile effort and results in feelings of accomplishment
and satisfaction.
2.1.2 Locus of control
-
Rotter (1966) proposed a model to measure 'locus of control' - the extent to which people
believe that they control their own destinies. People with an internal locus of control are
those individuals who believe themselves to be in control of their destinies.
In contrast, those with an external locus of control sense that, fate, in the form of events
outside their control or powerful people, has a dominating influence over their lives.
Individuals with a strong internal locus of control are, according to this model, more likely
to engage in entrepreneurship. The reasoning behind this model is that people who believe
that they control their destinies would be more willing to venture into the uncertainties and
challenges involved in running a business compared to those that believe that most of what
happens to them is outside their control.
The entrepreneur thus becomes a deviant, drifting from job to job unable to 'fit in' and
develops a non-conformist stand.
The refusal to accept authority structure and social norms results into an inability to
work smoothly with others which in turn leads to the setting up of an independent
economic unit as an act of " innovative rebelliousness".
2.1.4
-
Reuss (1970) suggested that "venture spirit and willingness to take risks" is the major
trait of entrepreneurship.
Bird (1989) suggests that characteristics that dispose people to orientation towards risk
taking include optimism; tolerance to ambiguity; high need to achieve; fearlessness;
impulsiveness; a decision cognitive style; beliefs about ones control; a personal history
in which risk was rewarded; and having family conditions that support risk taking, such
as a working spouse or a social supportive system.
2.1.5
-
Innovation
Many social scientists have singled out innovation as the true mark of an entrepreneur
(Schumpeter, 1934; Stevenson and Sahlman, 1989; Stanworth et al, 1989). This is in
line with the view of the entrepreneur as an agent of change, bringing about new
resource combinations.
Stanworth and Gray, (1991) draw a distinction among the terms innovation, creativity
and change.
i. To create is to bring in something into existence...so a craftsman may be very
creative.
ii. To innovate is to bring novelties (derived from Latin word novus for "new), so
it is likely to be concerned with broader processes of change within an
organization.
iii.
While all innovations are concerned with change, not all changes are
innovations (Stanworth and Gray, 1989). Hence, buying new equipment
would be a change, but not an innovation referring the 'organized tour' of
business.
entrepreneurship. Later, she asserted that "there appears to be very low correlation between the
assessment of the trait and actual behaviour" (Chell, 1986).
Several observers have questioned the rationale for predicting entrepreneur behavior
using the specific traits discussed above. They contend that some of the more obvious and
possibly decisive attributes have been left out. Lynn (1969) suggested that one of the underlying
personality traits of the entrepreneur could be anxiety or neuroticism. Ray (1993) has added
physical appearance and likeability. He goes on to argue that other theories may be better
placed to explain entrepreneurial behavior than personal traits. Among these he mentions sports
psychology and activation theory of tourism. Of the latter, he says that entrepreneurs may be
high activation people, who prefer unstructured tours, while managers, small business owners
and franchisees are the low-activation people, preferring the 'organized tour' of business.
2.2 Sociological explanations of entrepreneurial behavior
While psychological models attempt to explain behavior in terms of qualities within an
individual, sociological theories suggest that entrepreneur behavior is a function of the
individual's interaction with society. That is, entrepreneurs are 'made' by society. This section
explores four main sociological models.
2.2.1 The social marginality model
-
This model is based on two premises. The first premise is that the meaning of any
economic action (including starting a business) is the satisfaction of wants. It follows
then that there would be no economic action if there were no needs to be satisfied.
The other premise is that it is society that shapes the desires we observe. Our choices are
therefore fenced by social habits and conventions (Schumpeter, 1934). Stanworth and
Curran (1976) used the above reasoning to explain the process of entry into
entrepreneurship.
Stanworth and Curran (1976) suggest that individuals who perceive a strong level of
incongruency between their personal attributes and the role they hold in society (eg.
teachers, policemen, nurses, lawyers, etc) will be motivated to change or reconstruct
their social reality. This can take many forms. Some people may reconstruct their reality
by joining political parties, religious organisations, charities, etc. Others may change
careers. Self employment offers another possibility.
15
2.2.2
Inter-generational
inheritance
of
enterprise
culture
via
role
modeling
Several explanations can be offered to support this theory. A person who grows up
around a family that runs a business is likely to benefit from the skills, accumulated
experiences and connections of the existing firm.
She or he is also likely to have better access to advice, credit, established markets,
sources of inputs, etc. The fact that these will make it easier to start a business may be a
big encouragement to those associated with businessmen.
Birley (1984) has suggested that a strong grounding in the business and ownership ethic
at an early age is a useful and powerful driving force for children as they begin to
choose future careers.
Although sociological models seem to be more closely related to entrepreneur behavior than are
psychological characteristics, they have their own share of criticisms. The most notable
weakness of these models is that each tends to explain a certain group of entrepreneurs, leaving
out the rest. Another weakness is that they do not tell us why people exposed to the same social
situation will choose careers differently, with some selecting self employment.
16
Related to this is the possibility that it helps to see someone lesser than oneself establish the
credibility for an act; an employee may be convinced that if the owner manager can do it, he
should be able to do it equally or even better.
2.3. Socio-economic background factors
The entrepreneurship research literature mentions a number of socio-economic background
factors that are considered to influence propensity to start a business. These factors include age,
ethnicity, marital status, education and experience. This section reviews these factors.
2.3. Socio-economic background factors (demographic factors)
The entrepreneurship research literature mentions a number of socio-economic background
factors that are considered to influence propensity to start a business. These factors include age,
ethnicity, marital status, education and experience. This section reviews these factors.
2.3.1 Age
Given the usual demands of the process of starting a new business, one would expect the
middle aged person to be better placed than young or old one to successfully enter into
entrepreneurship. Young people may have the energy required to launch new ventures, but lack
the financial means to do so.
Older people have money, but lack the energy to start independent ventures and willingness to
change their lifestyles. Middle aged people have some money, and energy and are more willing
to change their lifestyles. However, many of them are likely to be 'forced' into some form of self
employment after retirement.
2.3.2 Ethnicity
Ethnic origin of a person is said to influence the choice between paid employment and self
semployment. Shapero (1982) argues that ethnic groups that have produced high numbers of
entrepreneurs are also displaced groups. This argument is based on the social marginality thesis,
which contends that marginal groups have a higher propensity of becoming self employed.
2.3.3 Marital status
Studies in the UK have shown that the self-employment rate is much lower for single persons
than for those in other categories. Marital status is closely related to age and stages of life;
married people are likely to be middle or old aged, while single people will mostly be younger.
17
Even when age is controlled for, the rate of self-employment remains lower for singles
(Burrows, 1991). This appears to be in line with the social development model, which
recognized the influence of social support system in one's propensity to become an
entrepreneur.
2.3.4 Education
Two conflicting hypotheses have been proposed regarding the role of education in the
entrepreneurial process. The first is that formal education can operate as an impediment to
entrepreneurship because, rather than develop creative free thinkers, it fosters conformity and
low tolerance for ambiguity, leading to thought and behavior processes that refuse to admit
tolerance, and social values that preclude "getting one's hands dirty" (Ronstadt, 1984).
The alternative argument is that education develops competencies required in an entrepreneurial
venture as it fosters creativity, curiosity, open mindedness and good interpersonal skills. As
well, technical education is important to careers and ventures using or creating advanced
technology (Bird, 1989).
2.3.5 Socio-economic background factors: conclusion
Social economic background factors are fairly good in explaining the entry into
entrepreneurship. They however have the weakness of being closely related, to such an extent
that it may sometimes be difficult to know which factors are most important in determining
behavior. The factors are the easiest to research as they are merely classification variable, which
are found even in secondary sources of information. Like all other individual characteristics,
they cannot fully explain differences in behavior between entrepreneurs and those in other
careers or between successful and unsuccessful entrepreneurs.
2.4 Environmental factors
So far, our discussion has focused around individual characteristics that impact on the
propensity to become self employed. However, persons with similar characteristics may engage
in different occupations, depending on the type of environment they face. This is why the there
are significant spatial variations in the rate of formation of small businesses in various parts of
the world as well as within different countries
18
Again, Storey (1994) notes that the evidence from empirical studies in UK on this
relationship is ambiguous. A positive relationship was found in studies in West Anglia,
but such association was not found either in East Midland or North East of England.
19
3.
i)
Locus of control
ii)
Psychodynamic model
iii)
iv)
incongruency between their personal attributes and the role they hold in society will be
motivated to change or reconstruct their social reality.
i)
ii)
21
The role of networks in fostering business performance and economic growth has been
widely acknowledged by entrepreneurship scholars in the recent years. Networks are deemed to
have the potential to address challenges related to Smallness, Newness and Isolation of the
enterprises.
to manage a business well is to manage its future; to manage its future is to manage
information; and to manage information is to network (Barker, 2000).
How do we define networks? There are many definitions, Including the views that:
i.
Networks are organisational relationships: In its simplest form, the term network is
used to refer to two or more organisations involved in long-term relationships
(Thorelli, 1986).
ii.
iii.
iv.
v.
In general terms, therefore: Accordingly, networking activities are those social and
economic processes through which individuals and organisations develop long-term
relationships with particular sets of stakeholders for the purpose of accessing
support and facilitating exchange.
i.
ii.
People with strong social support networks enjoy better physical and mental health
than those without such networks. Not only are people with good support networks
less likely to become ill, but when they do, they recover faster.
People with large personal networks tend to live longer than those with small
networks.
22
iii.
iv.
Building good working relationships is the main cause of success for managers who
take charge of a new situation
v.
Close relationships with customers save money. It costs three to five times as much
to get a new customer as it does to keep an existing one!
vi.
Strong partnerships with suppliers yield lower costs and higher quality products and
services
vii.
viii.
Managers with large personal networks get higher-paying positions than managers
with small networks
ix.
Managers with larger, well-diversified networks get promoted faster and at younger
ages compared with their peers with underdeveloped networks
x.
xi.
xii.
xiii.
xiv.
23
Personal
Group
Inside
Superiors
Peers
Subordinates
Team members
Outside
Customers
Suppliers
Investors
Union leaders
Directors
Government officials
Work units
Teams
Departments
Divisions
Subsidiaries
Offices
Organizations of:
Clients
Suppliers
Investors
Communities
Etc
Strive to have a clear understanding of what you intend to achieve from your
networking initiatives.
Strive to understand the expectations of the other parties you interact with:
- internal
- external
3.5.2 Mutual benefits
-
Task-related benefits
Relationship-related benefits
Inspiration-related benefits
A psychological/interpersonal contract
- a tacit, but agreed upon, set of mutual expectations concerning performance, roles, trust,
and influence.
24
3. For any business of your choice, discuss how can good networks promote the business.
4. The limited growth of business in Tanzania is at times associated with the lack of
supportive networks. Discuss.
5. Describe any four benefits of effective networking for a Business Manager
Input
Transformation
(Adding value)
Distribution
of output
Exchange
Transaction
25
Resources are introduced into the business at the input stage, the requirement for them
depending on the type and quantity of goods or services to be produced and the methods of
producing them. Resources needed by established enterprises include land or premises,
investment capital and working capital, technology and equipment, materials or goods for
resale, and labour. The transformation process is the core production or service activity and is
supported by others such as purchasing raw materials and selling finished goods. Business
enterprises are generally classified according to their core activity, such as extraction,
agriculture, manufacture, or business services. Output from the core transformation process is
distributed to sales points and exchanged at a price for money. The exchange process includes
market development, product promotion, retail and wholesale selling. All business activities can
be related to these basic processes.
b.
When deciding a strategy to grow a business, a plan is useful for showing the
financial targets, the actions to be taken to attain them, the costs that will be
incurred, and how they will be paid.
c.
when cash is needed to pay bills becoming due, and to assure that the budget is not
exceeded and cash is always available
d.
When seeking financial assistance at any time from formal sources such as banks
and from equity investors such as partners and venture capitalists. Then a plan is
useful for demonstrating the viability of the business idea.
Remember
Borrowing money is expensive. Before you decide to borrow, check that your finances are
under tight control and there is no wastage of resources in any area of the business. Good cost
control can reduce your need for working capital, the amount of funds tied up in day to day
activities, and this may make the difference between having to borrow or not.
Wastage can result from:
i. Buying in poor quality materials
ii. Mistreating or mishandling materials
iii. Poor product designs that use more material than is necessary
iv. Stocks too high tying up funds
v. Stocks too low, stock outs causing excessive down-time
vi. Old stocks that dont move
vii. Poor stock control
viii. High level of production defects
ix. Poor production layout
x. Excessive staffing
4.5: Business development process
There are three types of enterprise development - business start-up, business consolidation and
business growth - each of which is a distinct stage in the process of developing a business:
4.5.1 Business start-up process
The business start-up process extends from the conception of an idea to putting it into practice
and evaluating its potential empirically:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
*Planning for start-up can only begin after the feasibility of the business idea has been
confirmed and after the level of entry into the market has been decided. This will depend on the
funds available for the start-up
4.5.2 Business consolidation process
Business consolidation can take place at any time after a period of development and change, the
aim being to stabilise an enterprise within its current markets:
(i)
Review profitability
27
(ii)
(iii)
(iv)
(v)
(vi)
*Planning can only start after these reviews have been completed.
4.5.3 Business growth process
Business growth is of two types. Type 1 growth is an increase in sales derived from a more
productive use of existing resources and more effective exploitation of markets. Type 2 growth
is increased sales derived from an increase in production capacity and/or product range derived
from investment. The steps in the process are:
(i)
Review the current performance of the business (in the market, in its
production/service operations, in meeting financial targets
(ii)
Analyse the current capacity of the business to support growth (resource base,
experience base, control base, ideas base management/leadership base)*
(iii)
Develop a growth project
(iv)
Start and complete the project
(v)
Monitor and evaluate the results
*Planning for growth can only start after current performance and capacity have been
analysed and potential weaknesses addressed. A pre-growth consolidation project to deal
with weaknesses may be necessary.
4.6 An outline of a Business Plan
i.
Cover Sheet
ii.
Executive Summary
iii.
Table of Contents
iv.
Statement of Purpose
v.
Company History
vi.
Business Description
vii.
Products and Services
viii. Market Analysis
Industry analysis
Customer analysis
Competitor
Pricing strategy
Sales/Marketing Strategy
ix.
x.
xi.
xii.
Organizational Plan/Management
Operational Plan
Financial Plan
Appendices
iv.
v.
vi.
vii.
viii.
ix.
Address
Telephone number
Fax Number
Email Address
Web Address (URL)
Submission date
$10,000 in equipment
role in sustaining the business as the client base grows, and will allow the business to become
self-sufficient by the beginning of year two.
Mission Statement
Basic product description
Names of principals (owners, Management) and brief background on each
Legalities: business type
Company location
Number of employees
Customer highlights
Your niche and unique qualities
Strategic alliances
Awards and merits
Company milestones (business formation, opening date, hiring employees, revenue
levels/ growth)
xii.
1-3 year plan future milestones to reach (sales goals, hiring employees)
Sample: Company History
MAAKA Child Care strives to become the most-well known and reputable service provider in
the Tegeta Area, Dar es Salaam Tanzania, with a targeted focus on safety, enrichment, and
comfort. The Company was founded based on a growing trend: quality child care is a key issue
for working parents, and has now become a top priority for Dar es Salaam region.
The business is owned and operated by its co-founders, Masawe Associates and Kalimanzira
and Sons ltd. Each has had extensive experience working with children prior to opening this
project, in both a teaching and managing capacity. Since opening in March of 2005, MAAKA
Child Care has reached the following milestones:
Incorporated andregistered as a child care centre in Dar es Salaam and became licensed
in March, 2006
What is the size of the industry in your proposed community? (Give the total
number of firms in the industry)
-
Describe the key characteristics of the industry to which your proposed business belongs
What are the sizes of firms in the industry? (Indicate small, medium or large)
What technology generally used do your competitors indicate the following:
e.g Labour-intensive or capital-intensive; Modern or outdated.
What is the average number of employees in other firms?
How competitive is the industry? E.g. Very or not very
What is the general level of sales/profitability for firms operating in the
industry?
What seasonal factors are experienced in the industry? Describe the industrial
trends and prospects
What are the trends and prospects of sales in the industry? (Indicate signs of
growth, stability or decline)
What are the trends and prospects of technological development in the industry?
What are the competitive trends in the industry? (Example, product innovations)
4.6.7.2 Customer analysis
Who are your potential customers? Classify them individual customers , corporate
customers
What are the most relevant characteristics of your customers? Consider: age, income, sex
education, occupation, and religion or ethnic group where
applicable)
How will customers judge your products or services? (Consider performance, economy,
convenience, comfort, safety or durability of each product or service)
When will customers purchase your products(s) or service (s)? (Consider: time, day of
week, month)
Can you estimate the number of potential customers (firms consumers) that need your
products or services?
Where are your potential competitors in relation to your proposed business location?
Where are your potential competitors in relation to your proposed business location?
How will the location of your competitors affect your business? (State the advantages and
disadvantages of your location in relation to theirs)
What size are your competitors? Are they small medium, or large in relation to you
business? (Consider assets, sales volumes, number of employees, and number of brands
What are the advantages and disadvantages of the size of your business compared with
competitors?
Compare your proposed products or services with those of your competitors How do your
products or services compare with those offered by your competitors? For each area of
comparison, give an assessment (very low), (low), (moderate), (high) and (very high).
(Consider performance, quality, reputation, after-sales service, and other areas specific to
your business)
What competitive advantages (s) will your products or services have over those of your
Competitors?
Describe the overall strengths and weakness of you potential competitors For each area of
comparison allocate score on a scale from; very low, low, moderate, high. (Consider
benefits to customers, technology, location, management, and distribution channels, and
other areas specific to your business)
With reference to your competitors overall strengths and weaknesses, in what ways will it
be easy/difficult to compete with them?
What criteria will you use for deciding who gets credit?
When will you consider giving customers a discount?
Will you provide an after-sales service? If so, what will it cost you?
If you intend to sell directly to customers, how will you recruit, retain, and
remunerate your Sales force?
If you intend to use distributors or agents, how will you select and motivate
them?
Which geographical areas will you sales arrangements cover?
-
Describe the methods you will use to advertises your products or services to your customers
Which advertising media will you use?
Describe the kind of image you would like your business and products or service
to have.
How often will you advertise and how much will each advertisement cost?
How will you measure the effectiveness of your advertisements?
Describe the methods you will employ to promote your products or services
What promotional incentives will you use?
Which promotional methods will you employ on a regular basis? (Consider
using trade shows, sponsorship or competitions)
How much will each method of promotion cost?
How will you measure the effectiveness of your promotional campaigns?
4.6.8.1 Organization
What type and numbers of members will be in the organisation?
Directors
Managers
Employee types
4.6.8.2 Management Team
Will you manage the business yourself?
What exactly are your duties and responsibilities?
How much monthly salary will you draw from the business?
Describe the duties and responsibilities of your proposed management team.
What will be the exact duties and responsibilities of each member of your proposed
Management team? (Indicate their salaries, in relation to the duties and
responsibilities)
o What performance incentives will you provide to members of the management team?
o
o
o
o
o
4.6.8.3 Employees
Transformation
(Adding value)
Input
Distribution
of output
Exchange
Transaction
Personal funds
Family/ friend loans and gifts
Angel investor
Venture capital
Grants
Personal loan
Business loan
37
Y1
Y2
Y3
38
Interest on loans
Leasing/hire purchase expenses
Depreciation
Other
Total expenses and overheads
D
NET PROFIT BEFORE TAX
C-D=E
Provision for tax
F
Net profit after tax
E-F=G
Major items shown by the balance sheet are assets and liabilities. Specifically, it shows
i.
Current assets ( cash, bank deposits, Inventory, finished goods, debtors, etc)
ii.
Fixed Assets ( Premises, Plant and equipment, vehicles, furniture and fittings, etc)
iii. Current liabilities ( trade creditors, tax and insurance, hire purchase creditors, etc)
iv.
At start-up
Year 1
Year 2
C-D=E
39
Represented by:
Capital introduced
Long term borrowing
Profit brought from P & L account
TOTAL CAPITAL EMPLOYED
ii.
iii.
Receivables is income from the collection of money owed to the business resulting
from sales.
iv.
Other income is income from investments, interest on loans that have been extended,
and the liquidation of any assets.
v.
Total income is the sum of total cash, cash sales, receivables and other income.
vi.
vii.
viii.
Overhead is all fixed and variable expenses required for the operations of the
business.
ix.
Marketing/sales is all salaries, commissions and other direct costs associated with
x.
Taxes are all taxes, except payroll, paid to the appropriate government institutions.
xi.
Loan payments are the total of all payments made to reduce any long-term debts.
xii.
Total expenses are the sum of material, direct labor, overhead expenses, marketing,
sales, R&D, G&A, taxes, capital and loan payments.
40
41
UDEC
FEB
MAR
APR
JUN
JUL
AUG
SEP
OCT
Revenue
Cash sales
Credit sales collected
Capital introduction
Other income
Total revenue A
Direct costs
Materials or stocks
Labour
Promotion
Sales wages and
Commissions
Transport
Total direct costs B
General overheads
General marketing
General
Administration
Communication
Office consumables
Establishment
Expenses
Rent
Water
Electricity
Repairs/decoration
Insurance
Interest on loans
Leasing/hire purchase
Capital assets
Vehicle costs
Owners drawings
Total O/H Costs
C
Other payments
Repayment of loans
VAT
Income tax
Total other payments D
TOTAL PAYMENTS
B+C+D=E
Monthly surplus/deficit AE=F
Opening cash
Cumulative surplus/deficit
NOV
DEC
TT
v.
a.
b.
c.
d.
e.
vi. Which one of the following is one of the functions of a cash flow
statement?
a. to show amount of cash at bank
b. to show sales and expenses at a certain time
c. to show the financial position of a business at a certain time
[a]
d. C and D are correct
e. None of the above
vii.Which of the following information does not appear on the income
statement?
a. Sales
b. Capital
c. gross profit
[b ]
d. expenses
e. None of the above
viii.
[d ]
xi. Which of the following is not a liability item on the balance sheet?
a. Bank loan
[c ]
b. Hired machinery
c. Equity
d. Personal loan
e. None of the above
2. Briefly outline any five components of customer analysis of the business plan
document
3. Describe briefly the main importance of having a well written executive summary of
the Business Plan document
4. Describe briefly the main importance of having a well written table of contents of
the Business Plan document
5. Briefly outline any five components of market
document
iii
Once the business undertaking has identified its customer tend to be, important values
it holds, type of products/services it produces renders, and entrepreneur, it should
know the part of the environment it needs to monitor to achieve her goals. Business
entity has to monitor the external macro environmental forces. When these macro
environmental forces are supportive to the business ideas, they are categorized as
opportunities. But when they are potentially hindering the implementation of the
business ideas, they categorized as threats. Examples of external environment
factors/forces are:
OPPORTUNITIES
A: Political forces i. Presence of stable political stability
THREAT S
Presence of unstable political
stability
Absence of favorable
legislation
iii. Presence of good government
employment legislation
Presence of poor government
policies
policies
iv
B:
policies
iii. Presence of fair competition laws
policies
Absence of fair competition
and policies
OPPORTUNITIES
Economic i. It is relatively easy to access fund
forces
THREAT S
Unavailability of capital to
prices
Energy costs are very high and
supply erratic and unreliable
C:
Natural/environme
ntal forces
volcanoes
D: Demographic i. Huge total population is a potential
forces
market
ii. Favorable population distribution
unfavorable population
distribution
unfavorable population density
unfavorable age group
distribution
unfavorable birth and death rate
unfavorable life expectancy at
birth
Sn
1
2
3
4.
5
6
7
8
9
Strengths
Availability of distinctive competences
Adequate internal financial resources
Availability good competitive skills
Availability of proprietary technology
Presence clear strategic direction
Presence of managerial depth and
talents
Resilience to competitive pressure
Access to economies of scale
Presence of competitive advantage
Weakness
Absence of distinctive competences
Inadequate internal financial resources
Absence of competitive skills
Lack of proprietary technology
No clear strategic direction
Lack of managerial depth and talents
Vulnerable to competitive pressure
Lack of access to economies of scale
Presence of competitive disadvantage
vi
If you read or watch the news regularly with the conscious intent of finding business
ideas, you'll be amazed at how many business opportunities your brain generates.
Keeping up with current events will help you identify market trends, new fads, industry
news - and sometimes just new ideas that have business possibilities.
iii. Invent a new product or service.
Think back 30 years ago. Was there a huge demand for anti-virus software, Internet
Service Providers, or desktop computers? No! The key to coming up with business ideas
for a new product or service is to identify a market need that's not being met..
Look around and ask yourself, "How could this situation be improved?" Ask people about
additional services that they'd like to see. Focus on a particular target market and
brainstorm business ideas for services that that group would be interested in.
iv. Add value to an existing product.
The difference between raw wood and finished lumber is a good example of putting a
product through an additional process which increases its value, but additional processes
are not the only way value can be added. You might also add services, or combine the
product with other products. For instance, a local farm which sells produce also offers a
vegetable delivery service; for a fee, consumers can have a box of fresh vegetables
delivered to their door each week.
What business ideas can you develop along these lines? Focus on what products you
might buy and what you might do to them or with them to create a profitable business.
industry that doesn't leave room for a wild blueberry market. But one entrepreneur
realized that there is a high demand for products such as these in Japan - and those same
wild blueberries are now being harvested and shipped. Finding out about other cultures
and investigating other market opportunities is an excellent way to find business ideas.
vi. Buy a Franchise or an Existing Business
Many times, the fastest and easiest way to start a business is to simply buy an existing
business or franchise. Franchises are attractive because theyve already proven successful
and you are simply buying into their system. Existing businesses are attractive because
you can pick and choose the right business and most of the legwork has already been
done.
vii. Get on the bandwagon.
Sometimes markets surge for no apparent reason; masses of people suddenly "want"
something, and the resulting demand can't be immediately met. For example, during the
SARS epidemic, there was an insatiable demand for facial masks in several countries and many entrepreneurs capitalized on this business idea.
A "bandwagon effect" is also created by larger social trends. There is much more of a
demand for home-care services for the elderly than is currently being supplied. And the
trend for pets to be treated as family members continues, creating demand for all kinds of
pet-related services that didn't exist even ten years ago.
viii
ii. Start your business while you're still employed/ (other foundations/base)
How long can most people live without money? Not long. And it may be a long time
before your new business actually makes any profits. Being employed while you're
starting a business means money in your pocket while you're going through the starting a
business process.
iii. Don't do it alone.
You need a support system while you're starting a business (and afterwards). A family
member or friend that you can bounce ideas off and who will listen sympathetically to the
latest business start up crisis is invaluable. Even better, find a mentor or, if you qualify,
apply for a business start up program such as The Self-Employment Program. When
you're starting a business experienced guidance is the best support sytem of all.
iv. Get clients or customers first.
Don't wait until you've officially started your business to line these up, because your
business can't survive without them. Do the networking. Make the contacts. Sell or even
give away your products or services. You can't start marketing too soon. (See Attracting
New Business on a Shoestring Budget and Just Do These Two Things to Get More
Clients for tips.)
v. Write a business plan.
The main reason for doing a business plan first when you're thinking of starting a
business is that it can help you avoid sinking your time and money into starting a
business that will not succeed.
Remember, you don't have to work through a full scale business plan for each new
business idea you come up with; my Quick-Start Business Plan, for instance, will let you
test the potential of your business idea much more quickly.
vi. Do the research.
You'll do a lot of research writing a business plan, but that's just a start. When you're
ix
starting a business, you need to become an expert on your industry, products and services,
if you're not already. Joining related industry or professional associations before you start
your business is a great idea.
vii. Get professional help.
On the other hand, just because you're starting a business, doesn't mean you have to be an
expert on everything. If you're not an accountant or bookkeeper, hire one (or both).(These
Tips for Finding a Good Accountant may be useful.) If you need to write up a contract,
and you're not a lawyer, hire one. You will waste more time and possibly money in the
long run trying to do things yourself that you are not qualifed to do.
viii. Get the money lined up.
Save up if you have to. Approach potential investors and lenders. Figure our your
financial fall-back plan. Don't expect to start a business and then walk into a bank and get
money. Traditional lenders don't like new ideas and don't like businesses without proven
track records.
ix. Be professional from the get-go.
Everything about you and the way you do business needs to let people know that you are
a professional running a serious business. That means getting all the accoutrements such
as professional business cards, a business phone and a business email address, and
treating people in a professional, courteous manner.
x. Get the legal and tax issues right the first time.
It's much more difficult and expensive to unsnarl a mess afterwards. Will you have to
have Workers' Compensation Insurance or deal with payroll taxes? How will the form of
business you choose affect your income tax situation? Learn what your legal and tax
responsibilities are before you start your business and operate accordingly.
Following the advice on starting a business above will make starting a business both a
smoother, less stressful process and go a long way towards ensuring the busines you start
lasts and thrives.
Score (1-10)
Personal fit
??
Degree of risk
??
Funding needed
??
Ease of start-up
??
Short-term potential
??
Level; of preparation
??
Competitive threats
??
Etc. etc.
??
Total
xx
Before scoring individual ideas, run through the criteria and set what you feel should be
minimum desirable scores for each. The resultant total could be used as your overall
minimum threshold. If some ideas don't achieve satisfactory scores, drop them and look
for better ones.
Once your short-list has been developed, you will need to start devoting substantial time
to assessment, research, development and planning. For a start, you could pursue the
following tasks:
5.6 Common reasons for business failures
When you're starting a new business, the last thing you want to focus on is failure. But if
you address the common reasons for failure up front, you'll be much less likely to fall
victim to them yourself. Here are the top 7 reasons why businesses fail and tips for
avoiding them.
i. You start your business for the wrong reasons.
Would the sole reason you would be starting your own business be that you would want
xi
to make a lot of money? Do you think that if you had your own business that you'd have
more time with your family? Or maybe that you wouldn't have to be answerable to
anyone else? If so, you'd better think again. On the other hand, if you start your business
for these reasons, you'll have a better chance at entrepreneurial success:
You have a passion and love for what you'll be doing, and strongly believe -based on educated study and investigation -- that your product or service would
fulfill a real need in the marketplace.
You are physically fit and possess the needed mental stamina to withstand
potential challenges. Often overlooked, less-than-robust health has been
responsible for more than a few bankruptcies.
You have drive, determination, patience and a positive attitude. When others
throw in the towel, you are more determined than ever.
Failures don't defeat you. You learn from your mistakes, and use these lessons to
succeed the next time around. Head, SBA economist, noted that studies of
successful business owners showed they attributed much of their success to
"building on earlier failures;" on using failures as a "learning process."
You thrive on independence, and are skilled at taking charge when a creative or
intelligent solution is needed. This is especially important when under strict time
constraints.
You like -- if not love -- your fellow man, and show this in your honesty, integrity,
and interactions with others. You get along with and can deal with all different
types of individuals.
xii
Neglect of a business can also be its downfall. Care must be taken to regularly study,
organize, plan and control all activities of its operations. This includes the continuing
study of market research and customer data, an area which may be more prone to
disregard once a business has been established.
A successful manager is also a good leader who creates a work climate that encourages
productivity. He or she has a skill at hiring competent people, training them and is able to
delegate. A good leader is also skilled at strategic thinking, able to make a vision a reality,
and able to confront change, make transitions, and envision new possibilities for the
future.
iii. Insufficient Capital
A common fatal mistake for many failed businesses is having insufficient operating
funds. Business owners underestimate how much money is needed and they are forced to
close before they even have had a fair chance to succeed. They also may have an
unrealistic expectation of incoming revenues from sales.
It is imperative to ascertain how much money your business will require; not only the
costs of starting, but the costs of staying in business. It is important to take into
consideration that many businesses take a year or two to get going. This means you will
need enough funds to cover all costs until sales can eventually pay for these costs. This
business startup calculator will help you predict how much money you'll need to launch
your business.
iv. Location, Location, Location
Your college professor was right -- location is critical to the success of your business.
Whereas a good location may enable a struggling business to ultimately survive and
thrive, a bad location could spell disaster to even the best-managed enterprise.
Some factors to consider:
Location of competitors
v. Lack of Planning
Anyone who has ever been in charge of a successful major event knows that were it not
for their careful, methodical, strategic planning -- and hard work -- success would not
have followed. The same could be said of most business successes.
It is critical for all businesses to have a business plan. Many small businesses fail because
of fundamental shortcomings in their business planning. It must be realistic and based on
accurate, current information and educated projections for the future.
Components may include:
Financial: capital equipment and supply list, balance sheet, income statement and
cash flow analysis, sales and expense forecast
Analysis of competition
vi. Overexpansion
A leading cause of business failure, overexpansion often happens when business owners
confuse success with how fast they can expand their business. A focus on slow and steady
growth is optimum. Many a bankruptcy has been caused by rapidly expanding
companies.
xiv
At the same time, you do not want to repress growth. Once you have an established solid
customer base and a good cash flow, let your success help you set the right measured
pace. Some indications that an expansion may be warranted include the inability to fill
customer needs in a timely basis, and employees having difficulty keeping up with
production demands.
If expansion is warranted after careful review, research and analysis, identify what and
who you need to add in order for your business to grow. Then with the right systems and
people in place, you can focus on the growth of your business, not on doing everything in
it yourself.
vii. No Website
Simply put, if you have a business today, you need a website. In the U.S. alone, the
number of internet users (approximately 77 percent of the population) and e-commerce
sales ($165.4 billion in 2010, according to the US Department of Commerce) continue to
rise and are expected to increase with each passing year.
At the very least, every business should have a professional looking and well-designed
website that enables users to easily find out about their business and how to avail
themselves of their products and services. Later, additional ways to generate revenue on
the website can be added; i.e., selling ad space, drop-shipping products, or recommending
affiliate products.
Remember, if you don't have a website, you'll most likely be losing business to those that
do. And make sure that website makes your business look good, not bad -- you want to
increase revenues, not decrease them.
When it comes to the success of any new business, you -- the business owner -- are
ultimately the "secret" to your success. For many successful business owners, failure was
never an option. Armed with drive, determination, and a positive mindset, these
individuals view any setback as only an opportunity to learn and grow. Most self-made
millionaires possess average intelligence. What sets them apart is their openness to new
knowledge and their willingness to learn whatever it takes to succeed.
xv
CHAPTER SIX:
FORMS OF BUSINESS OWNERSHIPS
6.1 The Sole Proprietorship
A sole proprietorship is a business that is owned and operated by one person.
The individuals have a right to all of the profits and bear all of the liability
for debts and obligations of the business.
The individuals also has unlimited liability i.e. his/her business and
personal assets stand behind the operation. If the company cannot meets
its financial obligations the owner can be forced to sell the family house,
and whatever assets there are in order to satisfy the creditors.
To establish a sole proprietorship, a person needs merely to obtain whatever local and
state licences are necessary to begin operations .If the proprietor should choose a
fictitious or assumed name ,he/she must also file a certificate of assumed business
name with the country . Because of its ease of formation, the sole proprietorship is the
most widely used legal form of organization.
6.1.1 Advantage of Sole Proprietorship
i.
Easy to form - There is less formality and fever restrictions associated with
established a sole proprietorship than with any other legal form .The proprietor
needs little or no governmental approval ,and it usually is less expensive than
a partnership or corporation.
ii.
Sole ownership of profits - The proprietor is not required to share profits with
anyone.
iii. Decisionmaking and control vested in one owner .the are no co-owners or
partners who must consulted in the running of the operations
iv.
v.
vi. Freedom corporate business taxes - Proprietors are fixed as individual taxpayers
and not as businesses.
i.
Limited capital - In a sole proprietorship business, the owner arranges for the
required capital for the business. It is difficult for a single individual to raise
a huge amount of capital. The owners own funds as well as borrowed funds
sometimes become insufficient to meet the requirement of the businesss
growth and expansion. Venture capitalists and banks generally do not lend
money to sole proprietorships.
ii.
Unlimited liability - In case the sole proprietor fails to pay the expenses
arising out of business activities, his personal properties may have to be used
to pay for those. This generally discourages the sole proprietor from taking
risks. He thinks cautiously while deciding to start or expand the business
activities.
Limited size - There is a limit beyond which it becomes difficult for a sole
proprietor to expand the business activities. It is not possible for a single
person to supervise and manage the affairs of the business if it grows beyond
a certain limit.
v.
xvii
There are two main types of partnerships: general partnerships, where all
the
partners share the profits and losses of the business; and limited
partnerships,
where the limited partners are not involved in the daily operations and
are
only
responsible for losses up to the amount they contributed to the business.
Partners are not considered employees of the business. Because of this,
partners
are not eligible for employment insurance if the business fails
Each partner contributes
Property
Money
Labour, and or
Skills
6.2.1
Advantages of Partnership
i.
Partnership allows two or more people to work together and bring different
skills and resources to the business.
ii.
iii. If the partnership suffers a loss but the partners have other employment
income, the loss can be used to reduce their taxable income, thereby
lowering the income tax payable by the partner.
6.2.2
Disadvantages of Partnership
i.
The partnership is not considered to be separate from its owners; the partners
are personally responsible for liabilities of the partnership. If the business
fails, the partners will be personally responsible to pay all of the debts and
obligations of the partnership
ii.
Each partner is an agent for the business and for the other partners; each
partner is personally responsible for the actions of the other partners. If one
of the partners makes a bad business decision, or acts negligently which
results in the partnership owing a debt, all of the other partners are personally
responsible to pay it back.
xviii
iii. A partnership is based on the individual partners, and it is not a separate legal
entity, if one of the partners dies, the partnership ends. This means that the
remaining partners have to re-establish the partnership
6.2.3
iv.
v.
Partnership agreements
A partnership agreement establishes rules about how the business is going to be run.
It usually includes such things as who the partners are, what bank the business will
use, how the profits or losses of the business are to be divided among the partners,
what the capital contribution of each partner will be, what the role and
responsibilities of each partner will be, and how the partnership can be dissolved.
Establishing these business details at the beginning of a business relationship can
help avoid disagreements in the future.
A standard partnership agreement contains the following information:
i.
ii.
Division of expenditure
v.
Employee management
6.3.
a.
General Partner - A person who joins with at least one other to own and
operate a business for profit -- and who (unlike a corporation's owners), is
personally liable for all the business's debts and obligations. A general
partner's actions can legally bind the entire business
b.
c.
Secret Partner - someone who is active in the business but not known or
disclosed
d.
e.
f.
g.
Sub Partner - A person who is not member of the partnership but who
contacts with one of the partner to participate in the interest of that in the
firms operation.
h.
Corporations
As a result, the corporation is responsible for its own debts, assets, and lawsuits.
The legal responsibility of the shareholders, directors, officers and employees of the
corporation is limited, which means that, with few exceptions, these people cannot
be held personally responsible for the debts and obligations of the corporation.
This is the reason that one of the words Limited, Incorporated, Corporation, or one
of their abbreviations must be included in the full legal name of the corporation.
These words give notice to the public that the business is a corporation and
therefore its owners, directors, officers and employees have limited liability.
xx
Advantages of Corporations
i.
The advantage of limited personal liability for the people who own and run
the corporation. This means that the shareholders of the corporation cannot
be held responsible for the debts and obligations of the corporation unless
they provided a personal guarantee. By comparison, in a sole proprietorship
or a partnership, the owner or partner is personally liable for all of the
obligations of the business. This means that the owner's personal assets,
including their home, car, and personal savings can be taken to pay for the
debts of the business.
ii.
iii. The corporate form of business makes it easier for a business to grow and
expand. Through the issuance of shares, corporations may be able to access
the money they will need for expansion. This makes the corporate form of
business more suitable for large business ventures than sole proprietorships
or partnerships.
6.3.2
iv.
v.
A corporation may appear more stable and sophisticated to the public. This
may help you acquire new business
Disadvantages of Corporations
i.
First, you will have to file two tax returns, one for the business and one for
your personal income. Unlike sole proprietorships and partnerships, any
losses from the corporation cannot be deducted from the personal income of
the owner.
ii.
Second, the registration and set up fees for a corporation are higher than the
set up fees for a sole proprietorship or a partnership. Incorporating a business
is also a more complicated process than starting a sole proprietorship or
xxi
Include Patents, copyrights and trademarks, as well as trade secrets and related rights.
These rights are usually collectively called "intellectual property" or IP.
6.4.1.1 Patents
A patent is a legal right to keep others from making, using or selling an invention. This
legal right is granted by a government for a limited period of time.
Types of Patents
i.
Patents of Invention
xxii
Such patents are commonly referred to as simply "patents," but they are referred to
as Patents of Invention in this article to differentiate them from the other types of
patent discussed below.
Patents of Invention protect new technology and how new technology works.
For example, if you make an improvement to an internal combustion engine, a
computer, or a can opener, you would most likely seek a Patent of Invention.
Patents of Invention can protect such diverse things as articles of manufacture, new
chemical compounds and methods of making things.
ii.
Design Patents
xxiii
6.4.1.2 Copyright
- Copyright is a form of intellectual property that gives the author of an original work
exclusive right for a certain time period in relation to that work, including its publication,
distribution and adaptation, after which time the work is said to enter the public domain.
ii.
SM
(for an unregistered service mark, that is, a mark used to promote or brand
services); and
The term trademark is also used informally to refer to any distinguishing attribute
by which an individual is readily identified, such as the well known characteristics
of celebrities. When a trademark is used in relation to services rather than products,
it may sometimes be called a service mark, particularly in the United States.
xxv