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DOMESTIC AND INTERNATIONAL

ENTREPRENUERSHIP
CODE: BAB 07306
LECTURER: MS. BURRA
ROOM: B2-9

ASSESSMENT GUIDELINES

ENTREPRENUERSHIP- INDIVIDUAL ASSIGNMENTS (SCORE/10)

Each student must generate his/her own


creative and novel new idea for a business that
addresses a real problem or need in the
marketplace; the target market will be Dar es
salaam.
Your submitted idea should be original, not
something that already exists or something
developed and borrowed from someone else.
Your write-up should have 5 sections, each
section 250 words maximum.

ENTREPRENUERSHIP- INDIVIDUAL ASSIGNMENTS CONT.


Problem identification: clearly state the
problem or need that exists and why this problem
matters or is critical/important;
Novelty of the idea and fit with the
problem: this is where you clearly and concisely
explain why yours is a very novel solution that
truly solves the problem in the best way possible;
Value proposition: your statement of what your
organisation or business will provide as a product
or service and how youll deliver that value to the
customer through an ethical and legal approach

ENTREPRENUERSHIP- INDIVIDUAL ASSIGNMENTS CONT.


Market validation: this is where you show you went
out and interacted with customers in your target
market and adapted the concept so youre now sure it
fits with their actual needs; and
Feasibility: in which you concisely explain why its
feasible and legal that you can do what youre
proposing, including the required or essential
resources, technology, skills/education/training, and
knowledge of the path you need to take to get it
developed

ENTREPRENUERSHIP- INDIVIDUAL ASSIGNMENTS CONT.


Your assignment must be typed, should be
professional in writing and appearance and should not
exceed 250 words in each of the 5 sections of it.
Use Calibri , font size 12.
Please proofread it carefully and ensure you
demonstrate proper grammar, spelling, punctuation
and so forthyour written work creates an impression
of you and establishes your reputation with others so
you want it to be your best work.
Total marks will be calculated by (earned
score*10)/100, e.g an individual score of 70 will be
(70*10)/100 = 7

ENTREPRENUERSHIP- GROUP ASSIGNMENTS (SCORE/5) CONT.


Write a business plan for a new business of your choice
(not opening up a new branch of a franchise). The business
can be a profit or a social/non-profit enterprise. i.e., you
can start a new bar/caf/shop etc.
This assessment is directed at getting you to think about all
of the key steps in starting a business, including conducting
a piece of market research on your business idea.
It will be your job to manage your groups progress through
the development of the business plan. IT IS NOT
POSSIBLE TO WORK ON THIS PROJECT ON YOUR
OWN. Each group is required to submit a written group
business plan that includes all elements of a FULL business
plan.

ENTREPRENUERSHIP- GROUP ASSIGNMENTS CONT.


If you experience problems with your group, please
contact the lecturer as soon as possible.
Please focus attention to spelling, grammar, flow of
information, and the structure of sentences and
paragraphs.
Use APA referencing style (in text citations) for ALL of
your sources. In a business plan there are unlikely to
be a large number of academic references.
However, if you do gain material from the Internet,
newspapers, TV, videos/DVDs, statistics, company
reports, personal interviews etc., reference these as if
in an essay.

ENTREPRENUERSHIP- BUSINESS PLAN, OUTLINE AND


EVALUATION CATEGORY.
Cover Page and Table of Contents: The cover page should
include the name of the company, its address, its phone number,
the date, and contact information for the lead entrepreneur.
Executive Summary: The executive summary is a short
overview of the entire business plan; it provides a busy reader
with everything that needs to be known about the new ventures
distinctive nature
Industry Analysis: This section should begin by describing the
industry the new business will enter. It is important to focus
strictly on the businesss industry and not its industry and target
market simultaneously. The sections to include in this portion of
the plan include: Industry Size, Growth Rate and Sales
Projections, Industry Structure, Nature of Participants, Key
Success Factors, Industry Trends, and Long-Term Prospects

ENTREPRENUERSHIP- BUSINESS PLAN, OUTLINE AND


EVALUATION CATEGORY.
Company Description: This section begins with a brief
introduction of the company which provides an overview of the
company and reminds the reader of the reason it is starting. It
is very important. It demonstrates to your reader that you
know how to translate an idea into a business. The sections to
include in this portion of the plan include: Company History,
Mission Statement, Products and Services, Current Status,
Legal Status and Ownership, and Key Partnerships (if any).
Market Analysis: The market analysis breaks the industry
into segments and zeroes in on the specific segment (or target
market) to which the firm will try to appeal. The sections to
include in this portion of the plan include Market Segmentation
and Target Market Selection, Buyer Behaviour, and Competitor
Analysis.

ENTREPRENUERSHIP- BUSINESS PLAN, OUTLINE AND


EVALUATION CATEGORY.
Financial Analysis: This section begins the financial analysis of the
business, which is further fleshed out in the financial projections. It
addresses the basic logic of how profits are earned in the business and how
many units of a businesss product or service must be sold for the business
to break even and then start earning a profit.
Marketing Plan: The marketing plan focuses on how the business will
market and sell its product or service. It deals with the nuts and bolts of
marketing in terms of price, promotion, distribution, and sales. The sections
to include in this portion of the plan include Overall Marketing Strategy, 4Ps,
the Companys Sales Process or Cycle and Specific Sales Tactics.
Product (or Service) Design and Development Plan: If youre
developing a completely new product or service, you need to include a
section in your business plan that focuses on the status of your
development efforts. The sections to include in this portion of the plan
include: Development Status and Tasks, Challenges and Risks, and
Intellectual Property.

ENTREPRENUERSHIP- BUSINESS PLAN, OUTLINE AND


EVALUATION CATEGORY.
Operations Plan: The operations plan outlines how your business
will be run and how your product or service will be produced. The
sections to include in this portion of the plan include: General
Approach to Operations, Business Location, Facilities, and Equipment.
Management Team and Company Structure: Many investors and
others who read business plans look first at the executive summary
and then go directly to the management team section to assess the
strength of the people starting the firm. The sections to include in
this portion of the plan include: Management Team, Board of
Directors, Board of Advisors, and Company Structure. An
organisational chart, which is often included in this section of the
business plan, is a graphic representation of how authority and
responsibility are distributed within the company.

ENTREPRENUERSHIP- BUSINESS PLAN, OUTLINE AND


EVALUATION CATEGORY.
Overall Schedule: A schedule should be prepared that shows
the major events required to launch the business. The schedule
should be in the format of milestones critical to the businesss
success.
Financial Projections: The final section of a business plan
presents a firms pro forma (or projected) financial projections.
The sections to include in this portion of the plan include:
Sources and Uses of Funds Statement, Assumptions Sheet, Pro
Forma Income Statements, Pro Forms Balance Sheets, Pro
Forms Cash Flows, and Ratio Analysis.
Appendix: Any material that does not easily fit into the body
of a business plan should appear in an appendix
Total marks will be (earned score*5)/100 e.g a group scoring 60,
their marks will be (60*5)/100 = 3.

OTHER IMPORTANT INFORMATION


Penalties for Late Submissions: Any work submitted late
without the prior approval of your course coordinator and
without the appropriate evidence such as medical certificates,
proof of family illness, crisis or bereavement will be penalised.
Penalties for late submissions will apply at 3% of the total
available mark per day late. (i.e., One day late, the individual
case study will be marked out of 12, 2 days late out of 9 and so
on).
The penalty accrues immediately after the time that the
assignment is due. Day means 24 hours from the time due,
and includes weekend days. Any assignments handed in after
the marking of the assignments has been completed will
receive a zero mark.
Submission dates = dates of presentations

OTHER IMPORTANT INFORMATION


Applications for an extension must be made directly to
your course coordinator (H.O.D) as early as possible.
Applications need to:
Be made in advance of the due date (unless physically
impossible)
Be made in writing (hand written)
Be accompanied by appropriate evidence (health declaration
form/medical certificate, etc.)
Be accompanied by evidence of your work done to date.

ENTREPRENUERSHIP-PRESENTATION SCHEDULE
CLASS (TFC) DATE

TIME

CLASS
(TNC)

DATE

TIME

BACC II
BICT II

TUESDAY,6TH 7-9 AM
DEC 2016

BBA II A &
B

MONDAY,
5TH DEC
2016

7-9 PM

BBSE II
BMET II
BMK II

WEDNESDA
Y 7TH DEC
2016

7-9 AM

BBSE II
BICT II
BMK II

TUESDAY
6TH DEC
2016

5-7 PM

BPS I & II

THURSDAY
8TH DEC
2016

11-1 PM

BACC II

TUESDAY
6TH DEC
2016

7-9 PM

BBA II

WEDNESDA
Y 7TH DEC
2016

9-11 AM

BPS II B
BPS II A

THUR 8TH
DEC
FRID 2ND
DEC

7-9 PM
7-9 PM

ENTREPRENUERSHIP- TEST 1 SCHEDULE

To be done on the 3rd week of December


2016 (12th- 16th December 2016)
Smaller classes will be combined
Detailed schedule to be presented on 1st
week December 2016

DEFINITIONS AND FOLKLORES


The word entrepreneur originates from French connection
during the 17th century amongst businessmen
entreprendre meaning to undertake
Entrepreneurs were individuals who were assigned to undertake a
particular commercial project by someone with money to invest
Projects were overseas, risky, for both investors and navigating
entrepreneurs
The entire process had to end up with a project which could add
substantial value to the society (mostly wealth creation!)

CONT.
The intertwining notions of entrepreneur, investor and risk is
evident from the start.
Entrepreneurs are individuals who recognizes opportunities where
others see chaos or confusion
They are also individuals who recognizes opportunities where
others see chaos or confusion
Can you think of any more definitions?

ENTRE P RE NE U R S VS SM ALL B USINE SS OWNE R S


Entrepreneurs are innovative, profit-oriented and growth ridden
individuals. They can even go as far as selling their businesses if
theres a potential for large capital gains! (Risk takers!)
SBOs own and operate small businesses independently. Not
dominant in their fields and usually do not engage in many or new
innovative practices. They may never grow large and owners may
prefer a more stable and less aggressive approach to running
businesses

ENTREPRENEURSH IP
Simply defined as what an entrepreneur does!
Defines characteristics of seeking opportunities, taking risks beyond security and having the
tenacity to push an idea through to reality
It is also a mind-set that have revolutionized the way businesses are conducted at every level in
every country
Can be taught and learnt unlike many myths contrary to!

A dynamic process of vision, change, and creation.


Requires an application of energy and passion towards the creation and implementation
of new ideas and creative solutions.
Essential ingredients include:

The willingness to take calculated risksin terms of time, equity, or career.


The ability to formulate an effective venture team; the creative skill to marshal needed
resources.
The fundamental skills of building a solid business plan.
The vision to recognize opportunity where others see chaos, contradiction, and
confusion

COMMON FOLKLORES
Entrepreneurs are doers and not thinkers : modern day
entrenuership involves creation of clear and complete business
plans which is an indication of thinking ahead!
Entrepreneurs are born and not made : modern educational
institutions teach models, traits, processes, case studies which
generate knowledge to those aspiring entrepreneurs. It has now
become a discipline
Entrepreneurs are always investors : entrepreneurship
encompasses innovation, not necessarily investing!
Entrepreneurs are educational and social misfits : The world
has changed!
Can you think of more myths?

ENTREPRENEUR'S TASKS: SO WHAT


DOES AN ENTREPRENEUR DO?
Own organisations : Modern day market economies differentiate
ownership from running organisation
Ownership lies with those who invest in business and own its
stock
Running organisation is delegated to professional managers or
agents
If an entrepreneur actually owns a business then he/she is in fact
undertaking two roles at the same time

CONT.
Founding new organisations : a very common belief that
individuals who have established new businesses are
entrepreneurs
Entrepreneur is recognised as the person who undertakes the task
of bringing together the different elements of organisation (people,
property, productive resources)
Some buy into what has been established, develop them more
and extends them or absorbing them into existing organisations
Contrary to many managers who get on with what has been
already established and bring only incremental changes to them

CONT.
Bring innovation on into the market : very crucial to
entrepreneurial process
entrepreneurial adjective describing how the entrepreneur
undertakes what they do
Entrepreneurial process a process of creating or adding
value a result of a new project or venture
Entrepreneurs must do something new or else there will be no
point in entering a market
Innovating creating something new, product or technology,
new way of doing things? New way of delivering products? New
methods of informing the consumer about a product and
promoting it to them? New approaches to managing
relationships?
What is important is there has to be value added! Or else it is

CONT.
J.A Schumpeter, an Austrian radical economist developed
a process called Creative destruction in the 19th
century
He believed that once entrepreneurial monopoly was
established, a new generation monopolist entrepreneurs
will come along with new innovations which will supersede
previous ones
Entrepreneurs = self-interested individuals who sort short
term monopoly (dominance) based on some innovations
N:B : no matter how important innovation has been
stressed it still remains not unique to entrepreneurial
process. Managers also nowadays are encouraged to be
innovative

CONT.
Identifies market opportunities: opportunity is defined as a gap
in market where the potential to do something of value exists. It is the
other side of the coin of innovation!
New opportunities exists all the time but not necessarily presenting
themselves
If they are to be exploited they must be actively sought
out.(Wickham, 1988)
This is a key task of an entrepreneur!
Entrepreneurs should always scan the environment/business
landscape to identify gaps left by existing market player including
them. They should not stop at scanning but go as far as pursuing
these gaps with suitable innovations

C O N T.
Apply expertise: expertise comes in various forms e.g.: spotting
new opportunities, deciding how to allocate scarce resources in
situations where information is limited which makes them very
valuable to investors!
How distinct are entrepreneurial investment decisions apart
from acquired managerial skills via confidence, market knowledge,
decisiveness and leadership skills?
Can we separate the attributes?

CONT.
Provision of leadership : an indeed special skill!
Entrepreneurs can rarely drive innovations to markets.
They need support from various individuals: investors,
customers, suppliers etc people from both within and
outside organisations
If these are to pull in one direction for value to be created
the task of unifying these agents lies heavily on the
shoulders of entrepreneurs since they must be supported
and motivated as well as directed.
However, this factor is not unique to entrepreneurs, it is
rather a general management skill

TANZANIA-PRE INDEPENDENCE (BEF: 1961)


Totalitarian regime
Producer of raw materials
Strict colonial legislations to hinder participation in global
markets
Manufacturing, importing and exporting, banking and
insurance were mainly done by Caucasians.
Asians, most of who had been brought in to work as clerks
during railway construction projects in the early 1960s were
encouraged to operate as sub-wholesalers and retailers.
Arabs operated mainly as retailers.

CONT.
Africans participation in business was restricted to very small
firms, such as dukawalas (tiny shops).
Offspring of chiefs, the few Africans who went to colonial schools
received only elementary education to enable them to understand
clerical and other very low duties in the public and private sector.
Economic and social marginalization of Africans was part of a
deliberate colonial policy of disempowering the indigenous
population and hence making it easy to rule.
Africans were made to believe that they were naturally inferior
to other races and everything African was backward. Naturally,
this environment had a negative effect on development of
entrepreneurial values and competencies, including self-esteem, a
belief in the ability to make things happen, confidence, initiative,
aggressiveness, etc.

CONT.
However, the social and economic context created in various
parts of the country presented different opportunities for the
development of entrepreneurship.
For example, European missionaries and farmers settled in
some mountain areas of the country (Kilimanjaro, Tukuyu,
Bukoba, Songea etc), where they introduced Christianity,
education and commercial agriculture.
They also encouraged the local population to cultivate
commercial crops and to establish cooperatives. This
development not only inspired the local population and
exposed to new desires and opportunities, but it also led to
land shortages which forced them to think and act in nontraditional ways in pursuing of livelihoods and success.

POST INDEPENDENCE (1961-1985)


Tanganyikas first five-year development plan (1961-1966)
envisaged developing the economy by attracting foreign
direct investment (FDI). Towards the end of the five-year
period, it was apparent that the expected FDI was not
flowing in as expected.
There was also a concern that not much had been
achieved by way of redressing the legacy of the marginal
position of Africans in the economic field left by the
colonial government. The leadership started looking for
alternative development strategies.

CONT.
In 1967, the government officially adopted a radical
transformation to a socialist development strategy, through the
Arusha Declaration.
Activities categorized as constituting the commanding
heights of the economy, including banking, import-export,
insurance, large houses, farms, schools, hospitals, etc were
also nationalized.
The government invested heavily in the nationalized entities
as well as new ones.
Consistent with the socialist policy, private business
entrepreneurship was actively discouraged in favour of
government,
community-based
or
co-operative-owned
ventures.
Theoretically the socialist policy encouraged peoples

CONT.
Regulations were introduced to bar civil servants and leaders of
the ruling party from engaging in business activities. Since all
educated Africans were civil servants, this means that, business
activities were left to Asians and those indigenous people who had
no job opportunities, and these tended to be people who had no
substantial education.
However, in practice, the government embraced a centralized;
mainly top-down decision-making approach. It made a whole range
of decisions, from who should go to which school or college, where
one had to live, crops to be grown, their prices and where they
should be sold, salary levels, etc. a culture of dependency on the
state and unquestioning obedience took root in all walks of life.
This must have contributed to stifling development of
entrepreneurial values such as initiative, willingness to take risks,
need for achievement and related competencies.

CONT.
The break-up of East African Community in 1977 coincided with
a combination of other unfortunate events heralding a long
economic crisis in Tanzania.
The events included the international oil crisis of the early 1970s
and a costly war between Tanzania and Uganda in 1978/79.
The economic crisis was manifested by a serious shortage of
foreign exchange and consumer products, industrial capacity
under-utilization, inflation and decline in real purchasing power
among wage earners, forcing them to undertake petty business
activities to supplement their meagre earnings.
Similarly, real crop prices dropped compelling peasants and their
dependants to diversify income sources by engaging in small
ventures within the rural areas or in urban centres.

CON T.
The response of the citizen to the crisis demonstrated that
even the socialist policy had not completely subdued the
entrepreneurial agility of the society.
Tanzanians from all walks of the life responded to the challenge
by establishing makeshift backyard factories, smuggling goods
from neighbouring countries or hoarding whatever little was
available from the local industries and selling the same at
exorbitant prices.
Others established informal agricultural activities, animal
husbandry, retail and other projects to supplement the
dwindling formal incomes and take advantage of the failure of
state companies to meet the basic needs.
However, this second economy met strong resistance from
the state which only saw its dysfunctional role.

C O N T.
The informal private business activities were seen as being in
conflict with countrys resolve to build an egalitarian society, as
it created a class which owned no allegiance to the goals of the
society (Maliyamkono and Bagachwa, 1990).
In 1983, the government implemented a ruthless campaign
against economic saboteurs, confiscating property and
arresting business operators of different kinds.
As Maliyamkono and Bagachwa (1990) noted, the dysfunctional
approach to the second economy failed to distinguish elements
within the second economy which constituted potential assets
and those which were socially and economically detrimental to
the development of healthy economy.
The crackdown on economic players in 1983 delayed the social
and political legitimization of entrepreneurial activities in
Tanzania.

1986 TO DATE: POST LIBERAL TANZANIA


The economic crisis that began in the mid-1970s intensified in the early
1980s, forcing the government to liberalize trade and start implementing a
radical transformation programme with the urging and support of the World
Bank and the International Monetary Fund (IMF) from 1986.
The Economic Restructuring Programme involved liberalization of virtually
all sectors of the economy and privatizing and nationalizing employment in
the public sector. Under the ERP, the government gradually changed its
economic policy from reliance on state-run enterprises to promotion of
foreign investment and local entrepreneurship.
The private sector is now seen as the engine of economic growth and the
role of government has been redefined to focus on facilitation rather than
direct ownership and operation of enterprises.

CONT.

The reforms did not fully ease the problem of low salaries. On the
contrary, the retrenchments, freezing of employment, privatization of
state enterprises and disengagement of the government from some
activities led to substantial job losses and limited openings for school
and college graduates.
Their most pronounced effect has been a substantial net increase in
the number of people whose only means of survival is selfemployment. Most of those who cannot find jobs as well as salaried
workers have, out of necessity, started micro and informal
businesses to enable them to eke out a living.
Aware of its limitation to help out in the situation, the government
started encouraging workers to do so. For example, in 1992, the
government deliberately reduced the working week by half a day to
give employees more time to engage in income generating projects
to supplement their official incomes. This played a significant role in
enhancing the legitimacy of entrepreneurship activities.

CONT.
Since the mid-1990s, entrepreneurship as a career has been
acquiring increasing legitimization.
The proportion of individuals consciously choosing self-employment,
even among the highly educated, has been increasing. For example,
while a 1991 survey of the informal sector (URT, 1991) did not record
any University graduate, a 1995 study (URT, 1995) recorded 1582
graduates in the sector.
In a 1997 survey of University of Dar es Salaam (UDSM) students by
the Faculty of Commerce and Management (FCM,1998), 81% of
students indicated that they were interested in setting up their own
enterprises. In a tracer study of the FCM Alumni (Kaijage, 2000)
entrepreneurship was rated second (next only to computer-related
courses) among aspects that were very important but not
significantly covered in the BCom programme.

REVISION QUESTIONS
What are the recent trends of entrepreneurship in
Tanzania?
Essential entrepreneurial components of Tanzania
economy?
Identify
government
and
non-governmental
organisations or agencies responsible for promoting
(and which have promoted) entrepreneurship in
Tanzania.
What incentives are being offered by the government of
Tanzania to encourage new ventures?
What are the barriers to entrepreneurship in Tanzania?
Why and how do people become entrepreneurs?
Why is entrepreneurship beneficial to an economy?

PERSONAL TRAITS OF ENTREPRENEURS


Creativity: the spark that drives the development of new products or services or ways
to do business. It is the push for innovation and improvement. It is continuous learning,
questioning, and thinking outside of prescribed formulas.
Dedication: what motivates the entrepreneur to work hard, 12 hours a day or more,
even seven days a week, especially in the beginning, to get the endeavour off the
ground. Planning and ideas must be joined by hard work to succeed. Dedication makes
it happen.
Determination: the extremely strong desire to achieve success. It includes
persistence and the ability to bounce back after rough times. It persuades the
entrepreneur to make the 10th phone call, after nine have yielded nothing. For the true
entrepreneur, money is not the motivation. Success is the motivator; money is the
reward.
Flexibility: the ability to move quickly in response to changing market needs. It is
being true to a dream while also being mindful of market realities.

PERSONAL TRAITS OF ENTREPRENEURS


Leadership: the ability to create rules and to set goals. It is the capacity to
follow through to see that rules are followed and goals are accomplished.
Passion: what gets entrepreneurs started and keeps them there. It gives
entrepreneurs the ability to convince others to believe in their vision. It cant
substitute for planning, but it will help them to stay focused and to get others
to look at their plans.
Self-confidence: thorough planning which reduces uncertainty and the level
of risk. It also comes from expertise. Self-confidence gives the entrepreneur
the ability to listen without being easily swayed or intimidated.
Smarts: consists of common sense joined with knowledge or experience
in a related business or endeavour. The former gives a person good instincts,
the latter, expertise. Many people have smarts they dont recognize. A
person who successfully keeps a household on a budget has organizational
and financial skills. Employment, education, and life experiences all
contribute to smarts.

ASPECTS OF ENTREPRENEURSHIP
Venture
Financing
Corporate
Entrepreneurship

Entrepreneurial
Cognition

Global
Entrepreneurial
Movement

Social
Entrepreneurship

Trends in
Entrepreneurship
Research

Women
and Minority
Entrepreneurs

Entrepreneurial
Education
Family
Businesses

AN INTEGRATIVE MODEL OF ENTREPRENEURIAL


INPUTS AND OUTCOMES

Source: Michael H. Morris, P. Lewis, and Donald L. Sexton, Reconceptualizing Entrepreneurship:


An Input-Output Perspective, SAM Advanced Management Journal 59, no.1 (Winter 1994): 2131.

THEORIES OF ENTREPRENEURSHIP
Richard Cantillon (17th century)
Views entrepreneur as an economic agent that
combines means of production
Jean Baptiste Say (17th Century)
Made an improvement to Cantillons theory by adding
that entrepreneur formulates ventures team to carry
through production
Frank Knights theory (17th century)
Introduced risk taking and associated it with
entrepreneurs
Entrepreneurs accepts risks for rewards

THEORIES CONT.
Alfred Marshal (18th century)
Recognized four factors of production as land, labour, capital and organization
Entrepreneurs were the leaders that would combine these factors to produce
through good market knowledge, industry knowledge, leadership skills, ability
to forecast demand and supply changes and act on the risks
Success of entrepreneurs were not based on skills possession but economic
conditions which they were operating
Max Webers Sociological theory
religion is the major driver of entrepreneurship stressed
spirit of capitalism highlights economic freedom and private enterprise.
Capitalism thrives under the protestant work ethic that harps on these values.
The right combination of discipline and an adventurous free-spirit define the
successful entrepreneur.

SOCIOLOGICAL THEORY CONT.


Social Marginality model
Individuals who perceive strong incongruence between their personal
attributes and the role they hold in the society will be motivated to
change or reconstruct their social reality
One mechanism of doing so is becoming self-employed while others
change career or employers
Marginal men were individuals who are less integrated in their
society. They were free from restrictions imposed by the system
hence were more likely to develop entrepreneurial traits
Ethnicity
Ethnic origin of a person is said to influence the choice between paid
employment and self-employment as well as performance in selfemployment

ETHNICITY CONT.
E.g. Igbos in Nigeria, Kikuyus in Kenya, Chinese at home country,
Indians etc
Intergenerational Inheritance of enterprise culture (role
modelling)
Theory argues that entrepreneurial practise is largely inherited
Offspring's are more likely to engage in entrepreneurial activities if
parents were entrepreneurial
Strong grounding in business and ownership ethic at an early age is a
useful driving force for children as they choose their future carriers
Mark Cassons Theory (19th century)
Conducive economic conditions promotes entrepreneurial activities
Demand for entrepreneurship comes as a result for demand for
change

THEORIES CONT.
Joseph Schumpeter Innovation theory (19th century)
Innovation, foresight , creativity
Ignored risk taking and capitalized on innovation
Applicable to large scale firms and small firms owners were
considered as imitators
Israel Kirtzners Theory of Entrepreneurship (19th century)
Learning and alertness
Alertness ability to perceive new economic opportunities that prior
economic actor has yet recognized
Arbitrage opportunities on the market
Harvey Leibensteins Theory of Entrepreneurship (19th century)
Entrepreneurs = gap fillers

L E I B E N S T E I N S T H E O R Y O F E N T R E P R E N E U R S H I P C O N T.

recognizing market trends


develop new goods or processes in demands but not in supply
determining profitable activities
ability to connect different markets and make up for market failures and
deficiencies
David McClellands Theory of Achievement & Motivation (19 th century)
N-ach, n-pow, n-aff
High n-ach = high need for success = high need to become entrepreneurial
Peter Druckers Theory of Entrepreneurship (19 th century)
Innovation, resources and entrepreneurial behaviour
increase in value or satisfaction to the customer from the resource utilisation
creation of new values
combination of existing materials or resources in a new productive
combination

THEORIES CONT.
Psychological theories of entrepreneurship
Attitudes and psychological attributes differentiate entrepreneurs
from non-entreprenuers and successful ones from non-successful
entrepreneurs
Theories include: N-Ach theorem (McClelland), Locus of control (Rotter,
1954), psychodynamic model by Kets de Vries and risk taking
propensity.
Locus of Control theorem
Degree to which one believe that he/she is in control of ones destiny
Internals believe that what happens to them is a result of their
internal efforts whether good or bad
Externals believe whatever happens to them is a result of external
factors (factors beyond ones control) whether good or bad

PSYCHOLOGICAL THEORY CONT.


People with troubled pasts (e.g. from abused relationships, broken families,
low self-esteemed, low self confidence, refugees)
Risk taking propensity
Based on risk taking ability of an individual
Individuals who accepts risks are more likely of being self employed than
those who arent.
Eaglys Biological Theory of Entrepreneurship (19 th century)
Cultural or biological differences between men and women
Men are more of risk takers than women
Management theories
Managements are resource-constrained however, some individual still
pursue opportunities regardless

MANAGEMENT THEORIES CONT.


A framework can be developed that addresses the degree of
entrepreneurship in firm's management practices along several
different dimensions.
A companys management practices range along a spectrum from
highly entrepreneurial to highly administrative.
Promoter characterizes the entrepreneurial side of the spectrum
(pursue and exploit opportunities regardless of resources)
Trustee characterizes the administrative side (efficiently use the
resources currently controlled)

TYPES OF ENTREPRENEURS
Innovative entrepreneur
Introduces something new in the society
Imitative entrepreneurs
Observe an existing system and replicate it in a better manner. They could
improve on an existing product, production process, technology and through
their vision create something similar but better.
Fabians
Very careful and cautious in adopting any changes. Apart from this, they are
lazy and shy away from innovations
Drone
Entrepreneurs that are resistant to change. They are considered as old
school. They prefer to stick to their traditional or orthodox methods of
production and systems.
Nascent entrepreneurs
Those planning to start new ventures

TYPES CONT.
Singular entrepreneurs
Run single businesses
Novice Entrepreneurs
Already running singly owned business but are still actively learning about
the business
Opportunist entrepreneur
Interested in maximising their returns from short term deals
Craftsmen
Make a living by privately selling what they produced
Growth oriented entrepreneurs
Pursue opportunities to maximise potential of their venture

TYPES CONT.
Income oriented
Securing steady income
Expansion oriented
Take risks of expanding business and face the challenge of
changing their role from crafts operators to managers of
craftsmen
Intraprenuers
Administrative
entrepreneurs
(operating
firms
in
entrepreneurial manner
Independence oriented entrepreneurs
They work for themselves

LANDAUS APPROACH
High

Gambler

True Entrepreneur

Risk
Bearing

Consolidator

Dreamer

Low

Low

Innovativeness

High

CLASSICAL APPROACH

Craftsmen
Income oriented
Expansion oriented
Opportunist Entrepreneurs
Growth-oriented Independence-oriented

WEBSTERS APPROACH
The Cantillon Entrepreneur (classic type)
brings people, money and materials
together to create an entirely new
organisation
The Industry Maker goes beyond merely
creating a new firm; their innovation is such
important that a whole industry is created on
the back of it
Administrative Entrepreneur
(Intraprenuers) a manager who operates
within an established firm but does so in an
entrepreneurial manner

REVISION QUESTIONS
1) Briefly discuss the evolution of
entrepreneurship.
2) Discuss any five myths associated with
entrepreneurship
3) Discuss the characteristics of
entrepreneur
4) Differentiate Websters classification of
entrepreneurs from classical approach.
5) Discuss any ten entrepreneurial types
of your choice

THE SOCIAL ENTEPRISE THEOREM


introduced in 1994 by John Elkingtonthe founder of a British
consultancy called SustainAbility.
The elements of the triple bottom line are referred to as "people,
profits and planet.
His argument was that companies should be preparing three
different (and quite separate) bottom lines. One is the traditional
measure of corporate profitthe bottom line of the profit and
loss account. The second is the bottom line of a company's
people accounta measure in some shape or form of how
socially responsible an organisation has been throughout its
operations. The third is the bottom line of the company's
planet accounta measure of how environmentally
responsible it has been.

It aims to measure the financial, social and environmental


performance of the corporation over a period of time. Only
a company that produces a TBL is taking account of the full
cost involved in doing business.

THE SOCIAL ENTREPRENEUR


Practice of combining innovation, resourcefulness and
opportunity to address critical social and
environmental challenges.
Focus on transforming systems and practices that are
the root causes of poverty, marginalization,
environmental deterioration and accompanying loss of
human dignity.
May set up for-profit or not-for-profit organizations,
and in either case, their primary objective is to create
sustainable systems change.

PEOPLE ON THE BOTTOM LINE

Adding the "people" element of social responsibility to


corporate bottom lines shifts the focus to the fair
treatment of employees and off-site labor, as well as
enacting favourable practices in the communities
where companies conduct business.
For example, Mars Chocolate North Americas
Sustainable Cocoa Initiative requires its cocoa farmers
to be certified by fair trade organizations to ensure
they follow a code of conduct that includes fair
treatment to those providing labor. In exchange for
certification, Mars provides productivity technology
and buys cocoa at premium prices.

ENVIRONMENTAL RESPONSIBILITY
The bottom line referred to as the "planet" represents
the implementation of sustainable practices and the
reduction of environmental impact.
These measures range in scope from green initiatives
such as recycling programs within corporations to
companies dedicated to manufacturing products using
only sustainable materials.
For example, using recycled plastic bottles and
industrial waste to make items that pollute the planet
instead of using standard materials such as wood,
steel and cement.

ENVIRONMENTAL AWARENESS
Key Steps in an Environmental Strategy
1. Eliminate the concept of waste.
2. Restore accountability.
3. Make prices reflect costs.
4. Promote diversity.
5. Make conservation profitable.
6. Insist on accountability of nations.

DISTINGUISHING THE SOCIAL ENTREPRENUER FROM


COMMERCIAL/TRADITIONAL ENTREPRENUER
FACTORS

Interaction with wider


social environment

CLASSIC
ENTREPRENUER
Maximise personal wealth
Commercial
Traditional business
hierarchy taking
leadership role
Focused on competition
and maximising return to
entrepreneur/investors
Relationship with investors
considered critical,
relationship with
customers seen as means
to an end
Aspires to no wider social
legitimacy

Ethical reflections

Self-interested not

Personal Motivation
Sector of activity
Organisation form
created
Strategies adopted

Relationship with
stakeholders

SOCIAL ENTREPRENUER
Maximise social value
Not-for profit
Non-traditional,
emphasizes egalitarian
Avoids competition,
focused on creating and
delivering value
Stake holders defined over
wide and broadly defined
groups

Seeks broad based social


legitimacy with wide group
of parties
Altruistic at expense of self

NATURE OF SOCIAL ENTREPRISE


Environment

Pollution control
Restoration or protection of environment
Conservation of natural resources
Recycling efforts

Energy

Conservation of energy in production and marketing


operations
Efforts to increase the energy efficiency of products Other
energy-saving programs (for example, company-sponsored car
pools)

Fair Business
Practices

Employment and advancement of women and minorities


Employment and advancement of disadvantaged individuals
(disabled, Vietnam veterans, ex-offenders, former drug addicts,
mentally retarded, and hardcore unemployed)
Support for minority-owned businesses

NATURE OF SOCIAL ENTREPRISE


Human Resources

Promotion of employee health and safety


Employee training and development
Remedial education programs for disadvantaged employees
Alcohol and drug counseling programs
Career counseling
Child day-care facilities for working parents
Employee physical fitness and stress management programs

Community
Involvement

Donations of cash, products, services, or employee time


Sponsorship of public health projects
Support of education and the arts
Support of community recreation programs
Cooperation in community projects (recycling centers, disaster
assistance, and urban renewal)

Products

Enhancement of product safety


Sponsorship of product safety education programs
Reduction of polluting potential of products
Improvement in nutritional value of products
Improvement in packaging and labeling

LEGAL FORMS OF BUSINESS IN TANZANIA


Registered companies (private and public);
Branch offices of companies registered outside Tanzania;
Partnerships;
Sole proprietorships;
Associations, Societies and Non-governmental organisations.
Registered Companies (Private and Public)
Companies are registered as limited liability companies and are regulated by the
Companies Act, 2002. Tanzanias legal system is based on English law and practice.
Limited companies may be public or private.
A private company is prohibited from inviting the general public to subscribe for its
shares and it cannot have more than 50 members excluding persons in
employment of the company.
A public company may offer its shares to the general public. There is no maximum
number of members and its shares are freely transferable. It may be able to raise
capital by listing its shares on the stock exchange.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


The process of registering a company in Tanzania may take up to four weeks and
includes: Reservation and approval of a name by the Registrar of Companies.
The company name reservation lasts 30 days and can be renewed for a similar
period.
The associated cost is Shs. 50,000 per each name submitted for reservation.
Preparation of the Memorandum of Association (setting out amongst other things
the object of the company and its authorised and issued capital) and Articles of
Association (setting out the procedures governing the operations of the company).
A private company will require at least 2 subscribers, while a public company will
require at least 7.
Completion of various forms including Statement of Nominal Capital, Particulars
of Directors and Shareholders, Situation of Registered Office and Certificate of a
Lawyer involved in the Formation of the Company.
In addition to the above, a public company is required to complete Consent to Act
as Directors, List of Persons who have Consented to Act as Directors and the
Statement in Lieu of Prospectus forms.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Stamping of the Memorandum of Association and Articles of
Association and the Statement of Nominal Capital at the Lands
Office together with payment of stamp duty on Nominal Capital.
Stamp duty payable is 1% of the capital (subject to a maximum
of Shs. 300,000) plus a fixed fee of Shs 5,000 for the stamping of
each copy of the Memorandum and Articles of Association and
filing fees of Shs. 51,200 for statutory forms 14(a) and 14(b).
Issue of a Certificate of Incorporation by the Registrar of
Companies. The Companies Act also allows for the formation of a
company limited by guarantee and not having a share capital.
These are normally used for the formation of charitable
foundations and not-for-profit entities. There are special
requirements for the formation of such companies, and the period
of formation may take up to 1 month.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Types of Companies: three types of companies can be identified
Limited by shares Limited by guarantee An
unlimited company.
A company is said to be limited by shares, if the liability of its
members is limited by the memorandum to the amount, if any
unpaid on the shares respectively held by them.
A company is said to be limited by guarantee if the memorandum
to such amount as the members may respectively thereby
undertake to contribute to the assets of the company in the
event of its being wound up.
A company is said to be unlimited when the members do not
have any limit on the liability of its members.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Branch Office of an Overseas Company
A company incorporated outside Tanzania may carry on business in Tanzania through a
branch. In order to establish a branch, the following documents and details must be
submitted to the Registrar of Companies before establishing such a branch:
Statutory Form 434, duly filled and signed by the directors of the entity;
A certified copy of the Charter, Statutes or Memorandum and Articles of the company, or
other instruments defining the constitution of the company;
A list of the directors and the secretary of the company;
A certified copy of the last audited accounts of the company in the country of its
incorporation;
A statement of all existing charges entered into by the company affecting properties in
country of its incorporation;
Names and residential and postal addresses of one or more persons resident in Tanzania
authorised to accept, on behalf of the company, service of notices required to be served on
the company;
Full address of the registered or principal office of the company in its home country; and
Full address of place of business of the branch in Tanzania. The filing fees payable is US$
1,100. Once the process is complete, the Registrar will issue a Certificate of Compliance. The
process may take up to 4 weeks. Companies that may want to have representative or liaison
offices are required to register using the above process.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


A partnership is a legal form of business with two or more owners.
Partners legally share a business assets, liabilities, and profits according to the
terms of a partnership agreement.
The law does not require a written partnership agreement, also known as the
articles of partnership, but it is wise to work with an attorney to develop an
agreement that documents the status, rights and responsibilities of each partner.
The partnership agreement is a document that states all of the terms of
operating the partnership for the protection of each partner involved.
Banks often want to review the partnership agreement before lending the business
money. A partnership agreement can include any legal terms the partners desire.
Types of partnership include:
a) General partnership
b) Limited partnership
c) Limited Liability partnership (LLP) and;
d) Master Limited partnership (MLP)

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


General partnership: This is a partnership in which all owners share in
operating the business and in assuming liability for the business debts.
Limited partnership: This is a partnership with one or more general partners
and one or more limited partners. Limited partnership is one in which certain
partners are liable only for the amount of their investment. The purpose of a
limited partnership is to allow one or more individuals to provide capital on
which a return is expected. In case of liquidation, the limited partners only lose
the capital.
Master Limited Partnership (MLP): This is a newer form of partnership
which looks much like a corporation in that it acts like a corporation and is
traded on the stock exchanges like a corporation but it is taxed like a
partnership and thus avoids the corporate income tax.
Limited Liability Partnership (LLP): LLP limited partners risk losing their
personal assets to only their own acts and omissions of people under their
supervision. This newer type of partnership was created to limit the
disadvantage of unlimited liability.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Types of partners
The following types of partners are organized:
1) General partner: A general partner is an owner (partner) who has unlimited
liability and is active in managing the firm.
2) Limited partner: A limited partner is an owner who invests money in the
business but does not have any management responsibility or liability for losses
beyond the investment.
3) Silent partners: These are partners who are known by the public as owners
of the business, but they may take no active role in marketing the business.
4) Secret partners: These are partners who take active role in the
management of the company but they are unknown to the outsiders as
partners.
5) Sleeping partners: These are also known as dormant partners, they are
neither known as partners by the public nor do they participate in managing the
company. They only share from the profit /loss of the business to the tune of
capital contributed.
6) Nominal partners: These kinds of partners are publicly known that they are
partners although they have no investment in the business and therefore have

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Partnership cont.:
The law relating to partnerships is largely contained in the Law of
Contract Act, Chapter 345. A partnership may be formed by any kind of
agreement. This need not be formal but is usually in writing and is called
Partnership Deed.
The relevant applicable law is Law of Contract Ordinance Cap. 433.
Whether the partnership trades under the names of the partners or by a
separate name, the business name(s) to be used by the partnership must
be registered under the Business Names (Registration) Ordinance.
A Partnership is required to file the statement of particulars form with the
Registrar of Companies together with a filing fee of Shs 6,000.
The form has to be signed by all the partners. Partnership agreements
must be filed with the Registrar at Business Registrations and Licensing
Agency (BRELA). The Registrar will then issue a Certificate of Registration
and an extract certifying the name(s) of the partnership and the names
of partners. The process may take up to two weeks.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Sole Proprietorship
Designed for a business owned and managed by one individual, has
no legal distinction between the sole proprietor status as an
individual and his or her status as a business owner.
A sole proprietor is personally liable for all debts incurred. Whether
a proprietor trades under his personal name or any other name, the
business name used by the proprietor have to be registered under
the Business Names (Registration) Ordinance (Cap. 213).
The proprietor is required to file the Statement of Particulars
form with the Registrar of Companies together with a filing fee of
Shs 6,000. The Registrar will then issue a Certificate of
Registration and an extract certifying the name of the
business and the name of the proprietor. The process may take
up to two weeks.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Associations, Societies and Non-Governmental Organisations
Societies, which include NGOs, charitable organisations etc. are
usually formed for the purposes of trade associations, not-for-profit
organisations and similar organisations. They are regulated under the
Non Governmental Organisations Act, 2002, as amended in 2005.
These registrations fall under the Ministry of Community
Development, Gender and Children and registrations are done on
completing all the statutory forms, presentation of the constitution
and a list of founding members and Directors with their personal
details.
The board of directors and founding members must include at least
two Tanzanian nationals. The proposed entity must submit the
application and the notification of registered office and postal address
of the society together with the society constitution in duplicate
accompanied by a registration fee.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


These fees vary based on the geographical level at which the NGO
is registered. The fees are Shs. 41,500 for registration at district
level, Shs. 56,500 for registration at regional level, Shs. 66,500 for
registration at national level and US$ 267 for registration of an
international NGO.
The annual fees payable are Shs. 50,000 for a local NGO and US$
60 for an international NGO. The application is considered by the
Registrar of NGOs normally within three months after the receipt
of application.
Upon registering the entity, the Registrar shall issue to the society
a certificate of registration in the prescribed form. Every NGO
must submit an activity report to the registrar each calendar year.
Failure to do so can result in de-registration of the NGO by the
Registrar.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Tax Identification Number and VAT Registration
All businesses are required to obtain a Tax Identification Number
(TIN). This is the tax registration document. An application for a TIN
is to be made to the Tanzania Revenue Authority in the region
where the business intends to be established.
Such application can only be done after completing the company
registration formalities and obtaining the Certificate of
Incorporation/Registration. On some occasions, the proprietor or
partners or directors may be called to the TRA office where the
registering officer wishes to interview the applicant company and
its directors.
The application form must be accompanied by the first provisional
tax return for the year during which the registration is applied for.
This form is officially called statement of estimated tax payable or
SETP.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Doing Business in Tanzania When undertaking the TIN
registration online, the taxpayer is required to endorse the tax
obligations in the systems which are applicable to it.
These include corporation tax, PAYE, income tax, withholding tax,
etc. Where the taxpayer is required to register for Value Added
Tax (VAT), such registration can be done by submitting relevant
application form, but only after obtaining TIN certificate and
requires some additional documents, namely, proof of availability
of business premises, photographs and copies of passports of
directors / partners and business license from local or central
government body responsible for the business sector
All employees and directors/partners/sole proprietor are also
required to have an individual TIN. This needs to be done in the
same manner as the applications for business entities.

LEGAL FORMS OF BUSINESS IN TANZANIA CONT.


Co-operative
A form of business ownership which involves a collective ownership of a
production, storage, transportation or marketing organisation is what is
referred to as a co-operative.
Some individuals dislike the notions of having owners, managers, workers
and buyers as separate parties with separate goals for business
organisation. They envision a situation whereby people will co-operate
with one another as an association and share the wealth more evenly. This
is what necessitates the form of business ownership referred to as
cooperatives.
Types of Co-operatives:
Consumer/producer co-operative, Workers co-operative, Finance cooperatives
Co-operatives allow small businesses to obtain quantity discounts on
purchases, reducing costs and enabling the co-operative to pass on the
savings to its members.

INTELLECTUAL PROPERTY
Trademarks, copyright, patents, trade secrets etc
TRADE AND SERVICE MARKS
A Trade or Service Mark is a distinctive sign; be it a name, signature, drawing
or anything, which is used to distinguish similar goods or Services of various
manufacturers or of such services providers.
Trade or Service Marks besides serving the owner or Services providers or
products manufacturers to market their products or Services, they on the
other hand help the consumers to identify, choose and finally purchase a
product or service because of its quality as it has been displayed by the Trade
or Service Mark owner over the years.
THE BENEFITS OF REGISTRATION OF A TRADE OR SERVICE MARK
Registration of a mark gives an exclusive right to the use of that Mark by its
proprietor or licensee also known as registered user, assignee and any other
beneficiaries. This exclusive right is extended for the first/initial period of
seven years and renewable for ten years consecutively.
A person using an unregistered mark will most likely infringe a registered
mark and is at a risk of facing legal action which in the final analysis can make
him/her bankrupt due to heavy penalties imposed against him/her. So, the

TRADE AND SERVICE MARKS


Application for registration of a trade mark/service mark is made by filling in and filing form TM/SM
2 accompanied by form TM/SM 3. The forms are available on BRELA website or from Trade and
Service Mark Agents.
The application forms together with about 8 loose representations of a mark are submitted to the
Registrar. Upon receipt and payment of the application fees, examination is conducted, whereby if
the Registrar accepts the mark the same is allowed to proceed to advertisement on the Journal
published by the Registrar on monthly basis.
If within sixty days of advertisement the Registrar does not receive any objection on the
advertised Mark, he proceeds to issue the certificate of Registration upon payment of registration
fee.
POST REGISTRATION MATTERS ON TRADE AND SERVICE MARKS
It has to be renewed after seven years. Any renewal thereafter lasts for ten years and then
renewed consecutively
Where the owner of the mark decides to assign it to someone else, this matter has to be
communicated to the Registrar for registration and endorsement.
Any change of name or address ought to be communicated to the Registrar. The same case applies
to Mergers, Registered users (also known as licensing) and any other change in particulars
registered.
Make sure the mark conforms to laid down procedures stipulated by the Trade and Service Mark
Act, Cap326 [R.E.] 2002 and its Trade and Service Mark Regulations of 2000.
Conduct search to make sure there is no similar or conflicting mark on record.
Make sure the mark is distinctive, easy to read and acceptable with clear meaning which does not
corrupt public morals

PATENTS
A Patent is a legal right granted by the Government to an inventor for an
invention. An invention is a solution to a technical problem existing in a
particular field of technology.
The entire contents of a patent description of an invention that form the basis
for an application for Patent right is referred to as a patent document.
WHAT ARE THE PRIMARY CONTENTS OF A PATENT DOCUMENT?
A patent document contains:
The title of an invention
General description of the invention
The claim(s)
An Abstract
Technical Drawings (if any)
The term of grant of a patent application is twenty (20) years counted from its
filing date. After the expiry of 20 years a patent falls into the public domain
upon which anyone who is interested can use it freely.

PATENTS CONT.
WHERE AND TO WHOM POWERS TO GRANT PATENTS ARE VESTED?
A Patent application is filed with the Competent Authority designated as
such by the relevant Sovereign State. It is usually a Government department
or an Agency as the case may be. In other words powers to grant patents
are vested upon the Registrar of Patents or such name as preferred by the
Government of the respective Sovereign State.
In Tanzania application for Patent rights is done through filing form No. P. 2
accompanied by a patent document in triplicate and submitted to the
Registrar of Patents with Business Registrations and Licensing Agency
(BRELA).
Criteria for patent grant namely:
Novelty an invention must be new to be patentable
Inventive Step an invention is patentable if it is beyond obvious
Industrial Applicability an invention shall be capable of being industrially
workable to be patented.
An Applicant for patent rights may be a natural or legal person who shall file
such an application with the Registrar of Patents with BRELA.

REVISION QUESTIONS
1. Define the following terms:
a. Entrepreneur
b. Entrepreneurship
c. Creative Destruction
d. Social Entrepreneur
e. Business Plan
2. List the advantages and dis advantages of the following:
f.

Sole Proprietor

g. Partnership
h. Corporative
i.

Company

3. List the contents of a partnership deed.


4. List the individuals disqualified from creating a company.
5. Differentiate social entrepreneur from traditional entrepreneur.
6. Discuss the various sources of ideas.

CREATIVE THINKING
The terms creativity and innovation are often used to mean the
same thing, but each has a unique connotation. Creativity is the
ability to bring something new into existence.
This emphasizes the ability, not the activity, of bringing
something new into existence
According to Holt (1992), the creative process comprises the following five
stages
1. Idea germination: Exactly how an idea is germinated is a mystery; it is
not something that can be examined under the microscope. For most
entrepreneurs, ideas begin with interest in a subject or curiosity about
finding a solution to a particular problem.
2. Preparation: Once a seed of curiosity has taken form as a focused idea,
creative people embark on a conscious search for answers. If it is a problem
they are trying to solve, then they begin an intellectual journey, seeking
information about the problem and how others have tried to resolve it.
Inventors will set up laboratory experiments, designers will begin
engineering new product ideas, and marketers will study consumer buying
behaviour.

CREATIVE THINKING
3. Incubation: The idea, once seeded and given substance through
preparation, is put on a back burner, the subconscious mind is allowed time
to assimilate information. Incubation is a stage of mulling it over. When an
individual has consciously worked to resolve a problem without success,
allowing it to incubate in the subconscious will often lead to a resolution.
4. Illumination: Illumination occurs when the idea surfaces as a realistic
creation. This stage is critical for entrepreneurs because ideas, by
themselves, have little meaning. Reaching the illumination stage separates
daydreamers and tinkerers from creative people who find a way to
transmute values.
5. Verification: An idea once illuminated in the mind of an individual still has
little meaning until verified as realistic and useful. Thus, verification is the
development stage of refining knowledge into application.

CREATIVE THINKING CONT.


According to Adams (2005), the following are critical to individual creativity:
1) Knowledge: The T-shape mind with a breadth of understanding across
multiple disciplines and one or two areas of in-depth expertise.
2) Thinking: a strong ability to generate novel ideas by combining previously
disparate elements. This synergistic thinking must be combined with
analytical and practical thinking.
3) Personal motivation: the appropriate levels of intrinsic motivation and
passion for ones work combined with appropriate synergistic motivators
and self-confidence.
4) Environment: a non-threatening, non-controlling climate conducive to
idea combination and recombination such as intersection.
5) An explicit decision to be creative along with a meta-cognitive
awareness of the creative process can go a long way in enhancing longterm creative results.

INNOVATION TYPES
Forms of Innovations
According to Hamel (1997) in Dess and Lumpkin (2005), innovations come in different
forms:
i.

Technological innovativeness primarily comprises research and engineering


efforts aimed at developing new products and processes.

ii.

Products-market innovativeness consists of market research, products design,


and innovations in advertising and promotion.

iii. Administrative innovativeness is concerned with novelty in management


systems, control techniques, and organisational structure.
Innovation can also be classified in terms of whether it is incremental, modular,
architectural or radical (Henderson and Clark, 1990 in Hager, 2006):
iv. Incremental Innovation: This comprises relatively small modifications to preexisting solutions (Scheepers, 2007). In the view of Henderson and Clark (1990) in
Hager (2006), this type of innovation improves and extends an established design.
Improvement takes place in individual components, but the basic core design
concepts and the linkage between them remain the same. An example is faster
spinning hard drives.
v.

Modular Innovation: This kind of innovation changes the core design of one or
more components but does not change the entire product architecture. This type
of innovation requires new knowledge for one or more components, but the

TYP ES O F I NNOVATI O N C O NT.


iii. Radical Innovation: This type of innovation brings about a new dominant design
and consequently, a new set of core design concepts embodied in components that are
linked together in a new architecture (Hager, 2006). Radical innovation leads to new
solutions that address customer needs
iv. Disruptive Innovation: Gets a great deal of attention, particularly in the press,
because markets appear as if from nowhere, creating massive new sources of wealth. It
tends to have its roots in technological discontinuities, such as the one that enabled
Motorolas rise to prominence with the first generation of cell phones.
v. Application Innovation: Takes existing technologies into new markets to serve
new purposes.
vi. Product Innovation: Takes established offers in established markets to the next
level, as when Intel releases a new processor or Toyota a new car. The focus can be on
performance increase, cost reduction, usability improvement or any other product
enhancement.
vii. Process Innovation: Makes processes for established offers in established
markets more effective or efficient. Examples include Dells streamlining of its PC
supply chain and order fulfilment systems.
viii. Experiential Innovation: Makes surface modifications that improve customers
experience of established products or processes. These can take the form of delighters
(Youve got mail!), satisfiers (superior line management at Disneyland), or reassures
(package tracking from FedEx).

CREATIVE THINKING CONT.


Marketing Innovation: Improves customer-touching processes by marketing
communications or consumer transactions
ix.

x. Business Model Innovation: Reframes an established value proposition to the


customer or a companys established role in the value chain or both. Examples include
IBMs shift to on demand computing, and Apples expansion into consumer retailing.
xi. Structural Innovation: Capitalizes on disruption to restructure industry relationships.
Innovators like banks, for example, that have used the deregulation of financial services to
consumers under one umbrella
xii. Architectural Innovation: The essence of this type of innovation is the
reconfiguration of an established system to link together components and parts in a new
way (Henderson and Clark, 1990 in Hager, 2006). According to the authors, architectural
innovation does not mean that the components remain unchanged but they are changed
in a manner that there are new ways of linkage between the components.
The change is so small that the core concept behind the changed component is the same,
and the associated scientific and engineering knowledge remain the same.
An example is the technologies where architectural innovations reduced the size of the
hard drives from 14-inches diameter disks to diameter of 3.5-inches, and from 2.5-inches
to 1.8-inches.

INITIATING NEW VENTURES


New-New Approaches VS New-Old Approaches
New-New Approaches: New ideas are a result of R&D efforts done by
individuals within organisations e.g.: creation of GPS, Smartphones, central
lightings etc
Ways of Bringing in new products in the market: List annoying
experiences or hazards faced by usage of certain products/services during a
period of time (Peoples personal experiences)
New-old Approach: Also known as Piggy-backing on someone elses
ideas by either improving a product or offering a service in an area in which it
is not currently available
Types of opportunities available:
New Products: offers customers new products which provides new means
of satisfying needs or solve a problem. A new product may be based on
existing technology or it might exploit new technological possibilities. It may
also be a chance to add value to existing products by using appropriate
branding technology

TYPES OF OPPORTUNITIES CONT.


New services: offers customers an act which satisfies particular need or solve
particular problem
New means of production: a new way of producing existing products which give
an opportunity to deliver an extra additional value to customers via low cost
production.
New distribution route: A new way of getting products to the customers through
more convenient, less time consuming routes.
Improved service: enhancing value of a product to customers by offering additional
service elements with it
Relationship building: trusting relationships between producers and customers
Methods of spotting opportunities
Heuristics: serving to find out two types: analysis heuristics and synthesis
heuristics
Analysis heuristics: cognitive strategies that entrepreneurs adopt in order to gain
and integrate new information about the world, understand patterns or identify gaps
(opportunity spotting)
Synthesis: cognitive strategy to bring ideas developed from analysis back together
again in new and creative way (innovation)

OPPORTUNITY SPOT TING METHODS CONT.


Problem analysis
Customer proposals
Creative groups
Market mapping: positioning your product
Features stretching: identify principal features of a product then identify
what happens when you change certain aspects of it
Features blending
The combined approach
Screening and selecting opportunities
How large is the opportunity? (how large is the market? Competitors? Total
sales?
What investments will be necessary if the opportunity is to be exploited
properly? (immediate capital requirements? Does the business have access
to the capital required? If opportunity is large, does business have sufficient
capacity to expand? HR?)
What is the likely return? ( estimated profits, over what period?)
What are the risks?

WHAT IS ETHICAL BEHAVIOUR?


Ethics
standards or moral values that dictate what is right and wrong
culturally based
formed upon societys expectations
vary by person and by situation
Everyone develops their own code of ethics

A set of principles outlining a behavioral code


May outline obligations and appropriate moral actions for both
the individual and the organization
Ethics does not just apply to business
It may be difficult for individuals or groups in society to agree
upon what is right and wrong

LEGAL VS. ETHICAL


The law provides boundaries for defining what activities are illegal
The law, however, does not necessarily outline what is ethical.
Many businesses develop their own codes of ethics or conduct
These codes outline what employees are to do in order to carry out what
the company sees as the right thing to do in various circumstances

THE ETHICS CHECK


1.

Is it legal?

2.

Is it balanced/fair/win-win?

3.

How will it make you feel about yourself?


- will it make you feel proud?
- would you feel good if your decision was published in the local
newspaper?
- would you feel good if your family knew about it?

OUTLINE FOR A CODE OF ETHICS


Over all, a code of ethics should be a formal statement of a businesss
values concerning ethics and social issues. It commonly speaks to
acceptable norms of behavior, guided by six areas of concern:
1. Honesty: to be truthful in all your endeavors; to be honest and
forthright with one another and with customers, communities, suppliers,
and other stakeholders.
2. Integrity: to say what you mean, to deliver what you promise, and to
stand up for what is right.
3. Respect: to treat others with dignity and fairness, appreciating the
diversity of the people you deal with and their uniqueness.
4. Trust: to build confidence through teamwork and open, candid
communication.
5. Responsibility: to speak up without fear of retribution and report
concerns in the workplace and elsewhere, including violations of laws,
regulations, and company policies.
6. Citizenship: to obey all laws of the countries where you do business

BEING SOCIALLY RESPONSIBLE


It is not enough to be ethical, or do the right thing anymore
(thankfully)
Businesses are now expected to act in a socially
responsible manner they need to be good citizens as well
as give back to the societies (including global) in which
they exist.
Can you think of a company that is socially responsible?
One that is not?
There are financial benefits to being a socially
responsible company or organization. What might some
be?

INFLUENCES ON ETHICAL BEHAVIOUR


Family

Experiences
Personal Code of
Ethics
Peer
Group

MANAGERIAL ETHICS
Ethical behaviour conforms to individual beliefs and social
norms
Behaviour toward employees
Firing, hiring, wages, privacy, etc.
Some decisions not illegal but still unethical

Behavior toward the organization


Conflict of interest, confidentiality, honesty

Behavior toward other economic agents


Customers, competitors, shareholders, suppliers, unions

ASSESSING ETHICAL BEHAVIOR


Gather the
relevant factual
information
Analyze the facts
to determine the
most appropriate
moral values

Make an ethical
judgment based on
the rightness or
wrongness of the
proposed activity
or policy

ASSESSING ETHICAL BEHAVIOUR


Utility - optimize
Rights individual rights
Justice - fair
Caring responsibilities to others
newspaper test

COMPANY PRACTICES & BUSINESS ETHICS


Firms are creating ethical codes to guide employee decisions
Top management support is essential
Company policies are expanding to encompass
e-mail and other forms of communication
Ethics Programs educating employees

WRITTEN CODES OF ETHICS: IMPORTANCE


Increase public confidence in a firm or its industry
Help stem the tide of government regulation
Improve internal operations by providing consistent standards
of both ethical and legal conduct
Help managers respond to problems that arise as a result of
unethical or illegal behavior

CORE PRINCIPLES AND ORGANIZATIONAL VALUES

Organizational Objectives
Changed Infrequently

Strategies and Practices


Revised Frequently

Core Principles
Organizational Values
Unchanging

SOCIAL RESPONSIBILITY
A businesss collective code of ethics towards its
stakeholders
the environment
its customers
its employees
its investors
its suppliers
its community

AREAS OF SOCIAL RESPONSIBILITY


Responsibili
ty Towards
Environmen
t
Responsibili
ty Towards
Customers

Social
Responsibilit
y

Responsibili
ty
Towards
Investors

Responsibili
ty Towards
Employees

ENVIRONMENTAL RESPONSIBILITY ISSUES


Air Pollution
Water Pollution
Land Pollution
Toxic Waste Disposal
Recycling
Biomass

AIR POLLUTION
Climate change, global warming & greenhouse gases
Created by chemical emissions in product manufacturing
& the operation of motor vehicles
Legislation has been directed to controlling or eliminating
polluting practices

WATER POLLUTION
Water contamination due to years of releasing toxic chemicals into
lakes, rivers, and streams
Chief offenders are businesses such as pulp and paper plants, and
municipalities who dump raw sewage
Practices are being curbed by legislation, education, and affordable
new technology

LAND POLLUTION
Contamination of grounds and soil due to dumping of toxic
waste and mishandling of landfills
Key issues today include curbing polluting practices and
restoring contaminated lands
New developments include
emphasis on recycling
biomass turning waste into energy
new forms of solid waste disposal
changes in forestry practices

CUSTOMER RESPONSIBILITY ISSUES


Rights of Consumers
Unfair Pricing
Ethics in Advertising

CONSUMER RIGHTS ISSUES


Consumerism

Consumers rights

social movement
that seeks to
protect and expand
the rights of
consumers in their
dealings with
businesses

right to safe products


right to be informed
right to be heard
right to choose what they
buy
The right to be educated
about purchases
The right to courteous
service

UNFAIR PRICING ISSUES


Illegal pricing practices may occur due to the intentional (illegal)
limiting of competition
Collusion
a group of companies conspiring to fix prices
results in inflated prices and a lack of competition
Price gouging during shortages

ETHICS IN ADVERTISING
Truth in Advertising Claims
Advertising of Counterfeit Brands
Stealth (Undercover) Advertising
Paying individuals to speak well of a product, but
not admit they are being paid to do so
Morally Objectionable Advertising

EMPLOYEE RESPONSIBILITY ISSUES


Human resource management issues
Provide equal opportunity for rewards and advancement
without discrimination
Social responsibility issues
Safe workplace, no abuse
Privacy issues
Drug testing and computer monitoring
Encouraging ethical behaviour
Whistle-blowers

ENCOURAGING ETHICAL EMPLOYEE


BEHAVIOUR
Top management support for ethical behaviour is critical
Whistle-blowers are employees who call attention to
unethical behaviour
the company should support its whistle blowers
rather than threatening them with dismissal or other
penalties
There is legislation to protect whistle-blowers

IRRESPONSIBILITY TOWARDS
INVESTORS
Improper Financial Management
Kiting Cheques
Insider Trading
Misrepresentation of Finances

IMPROPER FINANCIAL MANAGEMENT


Doing a poor job of managing the financial resources of a
company
payment of high salaries, lavish expense accounts, & other perks with
little control over how money is spent

May be legally unpunishable because no law has been broken


It may be difficult to replace management because unrest in
the firm may devalue its stock

CHEQUE KITING
Illegal practice of writing cheques against money that has not
yet arrived in the bank account
A creative cheque kiter can write cheques from account to
account with very little money to back it up
The assumption is that the money will arrive before the cheque
needs to clear
Becoming difficult to do with modern-day computerized banking

INSIDER TRADING
Using confidential (non-public) information to gain from the
sale of stock
Involves gaining knowledge of inside information about the
company prior to making the purchase
Can involve the collusion of investors buying and selling stock
at the appropriate time to make huge profits

MISREPRESENTING FINANCIAL
INFORMATION
Companies must conform to accounting guidelines called
Generally Accepted Accounting Principles (GAAP)
Failure to follow GAAP in order to inflate expected profit figures
can mislead investors

INTERNATIONAL ENTREPRENUERSHP

MEANING
International entrepreneurship is the process of an entrepreneur
conducting business activity across national boundaries. It may
consist of exporting, licensing, opening sales office in another country
etc.
International entrepreneurship is also defined as development of
international new ventures or start ups that from their inception
engage in international business, thus viewing their operation domain as
international from the initial stages of international operations.

IMPORTANCE OF INTERNATIONAL ENTREPRENEURSHIP TO


FIRMS
Increased sales and profit : when the entrepreneurs are
not able to earn profit or demand for their product decreases
in local market they can sell their products in foreign market
where life cycle of product is in favourable condition. E.g.
Apple earned more profits from international business than in
local market US in the year 1994. ( $ 390 million foreign
market ).
Lower manufacturing cost : if the company manufacturing
cost increases by manufacturing product in home country,
then a company can opt in for production process in host
country. On the contrary if the company is in no profit or no
loss situation then company can choose in any option. E.g. Mc
Donald's.

Advantage of cheap labour : quantity and quality of labour is one of the


major challenge for every business, if the labour is cheap in foreign
countries then company can outsource required labour if organization is
into foreign operations. E.g. increasing cost of labour in china has forced
companies to search in for other options for outsourcing company activity
to other countries were cost of labour is less.
Utilization of talent and managerial competence : when business are
not able to get required talented work force in country, they can get the
activity outsourced or hire host country employee which has given birth to
concept of expatriation.
Growth opportunity : entrepreneurs whose core business strategy is
expansion and diversification of business, international business is one of
the primary platform to achieve these objectives.

Expansion of domestic market : international business causes domestic


market to expand beyond national boundaries. When the domestic market
has been fully tapped than company can go in for expansion of business to
market their products in international market. E.g. Sony
Globalization of customers : it refers to a situation when customers in
home country prefer purchasing foreign brand products than from domestic
companies have to go in for internationalization of business to keep in pace
with competition to attract customers. Tata international began to operate in
international market after entry of foreign competitors in Indian market like
ford.
Globalization of competitors : international business increases the
opportunity not only for the survival and growth but also motivates
companies to face competition from global entrants in market, which in turn
leads to growth of market, pursuing global scale efficiencies etc.
Pay offs of international business : international business improves
image of the company in domestic market and attracts more customers in
domestic market due to internationalization of business. E.g Ranbaxy

IMPORTANCE OF INTERNATIONAL ENTREPRENEURSHIP CONT.

International entrepreneurship is beneficial when sales of a company is


declining in domestic market, they can sell products in international
market considering demand for product in other country market
customers.
Entrepreneur can sell their products in foreign market which have
reached the maturity stage of their life cycle in domestic markets
and earn profit by their sales.
Companies which are incurring high level of fixed costs can lower their
manufacturing costs by spreading these fixed costs over long number
of units by selling their products in global market.

Entrepreneur
can
improve
their
competitiveness and enhance reputation.

entrepreneurial

Entrepreneur in the process of satisfying foreign customers have to produce


products as per their quality expectation by which entrepreneur will not only
produce quality product in international market but also in national
market.
Internationalization of business will teach entrepreneurs how to cultivate habit
of customer relation management ( CRM )
Being global will make the entrepreneur sensitive towards their customers
domestic, adopt more respectful attitude towards foreign habits and customers.
Entrepreneurs can hire motivated, multi lingual employees, learn constantly
about the foreign markets. They will think globally and start developing an
outlook from a global prospective.

DIFFERENCE BETWEEN INTERNATIONAL AND DOMESTIC


ENTREPRENEURSHIP
Factors to consider when going international.
Economic systems : when an entrepreneur is operating in national level he
is required to understand economic conditions within his/her country, but at
international level he should be having information about economic systems
of countries he/she is running business which includes currency rate, phase
of business cycle etc.
Stage of economic development : when entrepreneur is operating at
domestic level he should focus on development state of domestic country
whilst when he is operating on international scale he has to view country
from developed, developing and underdeveloped perspective and
accordingly plan business strategies in these economies.

Cultural sensitivity : entrepreneur operating at national level should


understand cultural issues persisting in home country and at international
level he has to understand and manage cultural diversity of customers as
well as employees in company.
Technological environment : even though technology is advanced at
larger scale , still there are technological variations persisting in various
countries depending on time of implementation, updation of technology etc
which has to be analyzed by entrepreneur and accordingly plan in business
operations.
Government policy : entrepreneur going in for internationalization of
business have to study domestic as well as international policy, as restriction
laid in home country for export of goods affect trade of entrepreneur and
restriction in host country on entering of new entrepreneurs in their company.
Political and legal environment : politics and laws play a critical role in
international business as well as domestic business. Entrepreneur should be
aware about political and legal environment in the domestic as well as
international market.

STAGES OF ECONOMIC DEVELOPMENT


1.TRADITIONAL SOCIETY : every economy begins with traditional society
which is characterised with low per capita income and low degree of
technical know how
Features :
Country are more or less dependent of agriculture for development in
country.
People in country believe more in family and caste system which leads to
problem of lack of mobility of labour which hinders employee growth in
country.
Political power in society remains concentrated with dominant social groups
in society.
Science and technology develop at very slow phase in economy.

2. PRE CONDITIONS OF TAKE OFF :


In this stage of economy conditions are created conductive of growth. In
this stage entrepreneurs start thinking in terms of modernization,
capital formation, and profit oriented ventures.
Features :
Less dependence on agriculture
People start giving importance to national and international
developments then merely confining them to social issues.
Part of government revenue is imparted towards infrastructure
development in country.
Decline in birth rate
Citizens of country give more importance on developing personal skills
in order to face competition in country.
Focus towards foreign trade

3. TAKE OFF STAGE :


In this stage economy is no more dependent on other countries and is self
sustaining in this stage. Economy can progress without any external support
from other countries.
Features :
Development of various sectors like
takes place in the country.

primary, secondary and tertiary sector

Social framework improves as citizens than being bonded with family focus on
moving to places for career growth and development.
Political stability in country indirectly leads to growth in industrial sector in
country creating favourable condition for trade in country.
Reinvestment of profit
Increase in demand for products by consumers in market.
Technical development

4. SELF SUSTAINED STAGE : this stage can be defined as stage in which an


economy demonstrates the capacity to move beyond the original industries
which provides the take off and to apply efficiency over its worldwide range
of resources.
Features :
rise in the rate of investment in the country
Conditions of employment improve and reduces dependency on agriculture.
Modern techniques are used during the process of production in country.
New political as well as social institution are established in country.
Dependency on other countries are considerably reduced.

5. STAGE OF ECONOMIC AFFLUENCE :


In this stage there is considerable increase in production and
Consumption of comforts and luxuries become a common feature.
Features :

income.

More power : country in this stage starts spending more on military forces.
Welfare state : standard of living in country increases as result of development
of facilities in country.
Increase in consumption : consumption level increases in this stage as
consumers other then daily consumption products prefers purchasing durable
products.

ENTREPRENEURIAL ENTRY INTO NEW BUSINESS


Exporting : means selling goods made in one country to another country.
Exporting normally involves the sale and shipping of products manufactured in
one country to the customer located in another country.
Direct exporting : implies where company takes full responsibility for
making its goods available in the target market by selling directly to end
users normally through its own agents.
Turn key projects : Turnkeyrefers to something that is ready for immediate
use, generally used in the sale or supply of goods or services. It is a contract
under which a firm agrees to fully design, construct and equip a
manufacturing/ business/ service facility and turn the project over to the
purchaser when it is ready for operation for a remuneration.

Indirect exporting : when the exporting company does not posses the necessary
infrastructure to involve itself in direct exporting, indirect exporting takes place. It takes
place when the export company sells its to intermediaries who in turn sell the same
products to the end users in foreign markets.
Licensing : involves an entrepreneur who is a manufacturer ( licensor ) giving a foreign
manufacturer ( licensee ) the right to use patent, trade mark, technology, production
process, or product in return for the payment of royalty.
Management
contractis an arrangement under which operational control of
anenterpriseis vested by contract in a separate enterprise which performs the necessary
managerial functions in return for a fee. Management contracts involve not just selling a
method of doing things (as withfranchisingorlicensing) but also doing them. A
management contract involves a wide range of functions, such as technical operation of a
production facility, management of personnel, accounting, marketing services and training.
Foreign direct investment(FDI) is direct investment into one country by a company in
production located in another country either by buying a company in the country or by
expanding operations of an existing business in the country

Minority interest : a company having interest or ownership of less then


50 percent in another company is known as minority interest. A significant
but non-controlling ownershipof less than 50% ofa company's voting
sharesby eitheran investor or another company.
Majority interest : majority interest is an ownership interest greater than
fifty percent (50%) of the voting interest in a business enterprise.
Joint venture(JV) is a business agreement in which parties agree to
develop, for a finite time, a new entity and newassetsby
contributingequity. They exercise control over theenterpriseand
consequently share revenues, expenses and assets.
A joint venture takes place when two parties come together to take on one
project. In a joint venture, both parties are equally invested in the project in
terms of money, time, and effort to build on the original concept.

Mergers : The combining of two or more companies, generally by offering the


stockholders of one company securities in the acquiring company in exchange
for the surrender of their stock .
Mergers and acquisitions refers to the aspect of corporate strategy,
corporate finance andmanagementdealing with the buying, selling, dividing
and combining of differentcompaniesand similarentitiesthat can help an
enterprise grow rapidly in its sector.
Horizontal merger : Horizontal merger occurs when a firm is being taken
over by, or merged with, another firm which is in the same industry and in the
same stage of production as the merged firm, e.g. a car manufacturer merging
with another car manufacturer / A horizontal merger is when two companies
competing in the same market merge or join together. E.G amalgamation of
Daimler-Benz and Chrysler

Vertical merger : is the combination of two or more firms in successive


stages of production that often involve buyer and seller relationship. This
form of merger stabilize supply and production and offer more control of these
critical areas. ( merger between Mc Donald's and Philips petroleum )
Product extension merger:. A product extension merger takes place between two
business organizations that deal in products that are related to each other and operate in
the same market. The product extension merger allows the merging companies to group
together their products and get access to a bigger set of consumers. This ensures that
they earn higher profits.
Market extension merger : A market extension merger takes place
between two companies that deal in the same products but in separate
markets. The main purpose of the market extension merger is to make sure
that the merging companies can get access to a bigger market and that
ensures a bigger client base.
Diversified activity merger : this is a conglomerate merger involving
consolidation of two unrelated firms.

BARRIERS TO INTERNATIONAL TRADE


Attitude of entrepreneur : when an entrepreneur has negative mindset that
foreign market is unknown to him and he might find it difficult to set up his
business in new country will prove to be a major barrier for international trade.
Lack of information : as entrepreneur is new entrant in international market
he is unaware about the market conditions in host country and taste and
preference of customers which may lead to issues in terms of acceptance and
locating product in market.
Human resource : presence of labour unions, hostile management unions
relations, strike, increase coat of labour in foreign country may prove it difficult
for entrepreneur to establish business in foreign market.
Cultural barriers : as entrepreneur is new entrant in host country he may not
be aware about language, education, tradition, religion, values of citizens which
will make it difficult for the entrepreneur to understand mind-set, taste and
preference of customer in market.

Lack of network influences : network with established business companies


makes it easy for the entrepreneur in new market but if the entrepreneur has
no contacts in foreign country then it will be difficult for entrepreneur from
initial stage of getting required permission to establishing business in country.
Financing problems : as international business involves huge risk financial
institutions may be reluctant in terms of providing required finance to
entrepreneurs.
Tariff barriers : tariff means duty levied by the government on imports.
Imposing tariff raises the price of imported goods making them less attractive
to consumers and protects makers of comparable domestic products and
services.
Non tariff barriers : are the obstacles to imports other than tariffs such as
testing, certification, or bureaucratic hurdles that have effect of restricting
imports. These are administrative measures that are imposed by a domestic
government to discriminate against foreign goods and in favour of home
goods.

Technical barriers : basically refers to before a country's goods enters into


foreign market it has to go through certain test for authentication. In US
before food products from others is marketed in US it will be tested for
checking bacteria content in food item for safety of general public, which is
good for safety of host country but may prove to be a major barrier to home
country exporting product.
Political barrier : in few country their exist abundant opportunity for
business but political scenario in country will be instable such as
kidnappings, bombings, violent against business and employees which
proves to be major question mark in terms of future success of business.

BUSINESS ENVIRONMENT
The concept business has been defined in different ways
by various authors.
It has been viewed as an economic system in which goods
and services are exchanged for one another for money, on
the basis of their perceived worth (BusinessDictionary.com,
2010).
A business is also conceived as a legally recognized
organization.
It is also referred to as: enterprise, business enterprise,
commercial enterprise, company, firm, profession or trade
operated for the purpose of earning a profit by providing
goods or services, or both to consumers, businesses and
governmental entities (Sullivan and Sheffrin, 2003;
AllBusiness.com., 2010).

ENVIRONMENT
The concept environment literally means the surroundings, internal,
intermediate and external objects, influences or circumstances under which
someone or something exists (Kazmi, 1999).
The environment within which something exists exhibits certain
characteristics which have been identified by Kazmi (1999) to be:
complexity, dynamism, multifaceted and far-reaching impact. These are
apart from the simple and stable environmental conditions.
Characteristics
Multifaceted: The business environment is many-sided. It can be viewed
from many angles by the parties involved. Hence, an occurrence that is
viewed as strength to an organization may be perceived as a weakness by
another.
Far-reaching impact: The happenings in the business environment can
have enormous impact on the organization. It could have the ripple effect.
This is because the business environment can be conceived as a system,
specifically an open system made up of different components that interact
and interrelate with one another.

CONT.
Stable Condition: This environment is highly predictable, thus
permitting a great deal of standardization (work process, skills and
output) to take place within the organization.
Simple Condition: This environment is one where knowledge can
be broken down into easily comprehended components (Minzberg,
1979).
Dynamism: The business environment is not static. It is dynamic
and as such changes continuously. This is because of the interactions
of the various factors that make up the business environment.
Complexity: The business environment is not simple; it is complex
by virtue of the various components that comprise it and the
interactions and interrelationships among these factors.

Dimensions of Environment
SPECTACLES Social, Political, Economic, Cultural, Technological, Aesthetic,
Customer, Legal, Environmental and Sectorial
PEETS Political,
demographical

Economic,

Ecological,

Technological

SLEPT Social, Legal, Economical, Political and Technological

Components of business environment


Internal Factors
Intermediate factors
External factors

and

Socio

INTERNAL BUSINESS ENVIRONMENT

The internal environmental factors refer to those factors over which


the entrepreneur has control, at least in the short run; this is why it
is also called the controllable environment of the business.
The internal environment of the business is made up of all those
physical and social factors within the boundaries of the business,
which impart strengths or cause weaknesses of a strategic nature
and are taken directly into consideration in the decision-making
behaviour of the business.
Strengths are inherent capacities, which a business can use to gain
strategic advantage over its competitors; they are the internal strong points
of the business such as: its core skills, competencies and expertise.
While weaknesses are inherent limitations or constraints, which
create strategic disadvantages, they are the internal factors that are lacking
in the business. A successful entrepreneur will find ways of overcoming the
weaknesses and convert them into strengths (Ifechukwu, 1986; Kazmi,
1999; Business-Plan, 2010).

INTERNAL ENVIRONMENT CONT.


The internal environment of the business is made up of microenvironmental factors such as: organizational goals and objectives,
specific technologies utilized by component units of the
organization, the size, types and quality of personnel, its
administrative units, and the nature of the organizations
product/service (Ifechukwu, 1986).
The nature of a business internal environment is also determined by the
organizational resources, organizational behaviour, strengths, weaknesses,
synergistic relationships and distinctive competence (Kazmi, 1999).
Intermediate Environmental Factors
Intermediate determinants of entrepreneurship ideally represent issues or
factors in the borderlines between strictly internal and external factors
affecting entrepreneurship.
Generally they include the customers and the suppliers who are the links
between the organization and the purely external environmental factors.
They also include various support systems, both private and public e.g.
legal firms and public relations agencies.

EXTERNAL BUSINESS ENVIRONMENT

The external environmental factors refer to those factors over which


the entrepreneur has no control but have tremendous impact on the
survival of the business; this is why it is also called the uncontrollable
environment of the business.
Within the external environment of the business are all the factors which
provide opportunities or pose threats to it.
Opportunities are favourable conditions in the business environment, which
enable it to consolidate and strengthen its position.
They are the likely benefits to the business resulting from changes in the
external environment while threats are unfavourable conditions in the
business environment, which create a risk for, or cause damage to, the
business; they are the possible pitfalls or dangers resulting from changes in
the external environment.
A successful entrepreneur will grab opportunities as they emerge and avoid
threats or even look for ways of converting threats into opportunities
(Kazmi, 1999; Business-Plan, 2010).

EXTERNAL ENVIRONMENTAL FACTORS EX AMPLES

Demographic factors: These include the market i.e. consumer


populations. It deals with their composition in terms of sex, age,
income, marital status, educational levels etc.
Political/Legal Factors: this is made up of laws, government
agencies and pressure groups that affect the business. Technological
Factors: This deals with knowledge of how to accomplish tasks and
goals, and innovations (Herbert, 1973).
Natural Environment: This deals with all the gifts of nature or
natural resources of the nation that serve as input for the business.
Socio-Cultural Factors: These deal with the people, their norms,
values anAd beliefs as they affect the business.
Economic Factors: These deal with the Macro level factors relating
to means of production and wealth distribution. It also includes the
forces of supply and demand, buying power, willingness to spend,
consumer expenditure levels, and the intensity of competitive
behaviour.

CONT.
Competitive Environment: These are those firms that market
products that are similar to, or can be substituted for, a business
product(s) in the same geographical area. The four general types of
competitive structure are monopoly, oligopoly, monopolistic
competition, and perfect competition.
Other Factors: The other factors making up the external business
environment are:
(1) Suppliers, which are other firms and individuals that provide the
input resources needed by the organization to produce goods and/or
services.
(2) Intermediaries, who are independent businesses that perform all the
activities necessary to direct the flow of goods and services from
manufacturers/marketers to ultimate consumers/customers. They
include wholesalers, retailers, agents and distributors, and
(3) Customers who constitute a portion of the target market of the
business; they are the ones the business strives to satisfy.

EFFECTIVE TOOLS FOR INSUDTRY/BUSINESS


ANALYSIS
S.W.O.T (STRENGTH, WEAKNESS, OPPORTUNITIES,
THREATS) analysis
PORTERS FIVE FORCES
Bargaining power of suppliers
Bargaining power of buyers
Threats to new entrants
Threats of substitute products
Competitive rivalry

SWOT ANALYSIS
Assess the internal environment of the business by critically looking
at the internal factors in terms of the 5s, namely: Skills, Strategy,
Staff, Structure, Systems and Shared Values (Dibb, Simkin,
Pride, & Ferrell, 1991; Aluko, Odugbesan, Gbadamosi & Osuagwu,
1998; Business-Plan, 2010).
To do this effectively the entrepreneur needs to ask him/herself and
answer questions pertaining to the 5s (five s) in terms of their
strengths and weaknesses by developing questionnaires to ask
questions pertaining to major internal environmental factors such as:
Skills: What skills do the organizational members possess?
What are the distinctive competencies of the organization?
Strategy: Does your business have a clear vision and mission?
Are your business objectives/goals derived from its mission?
Does your business have plans?
Do you follow the laid down plans of the business as scheduled?

CONT.
What skills do the organizational members possess?
Does your business have clear strategies to operationalize its
policies?
What are the distinctive competencies of the organization?
Staff: Does the business have qualified staff for the relevant
positions? Are the staff rightly placed?
Does the business have adequate number of personnel to man the
various positions?
Structure: Does the business have an organizational structure or
organogram? What type of organization structure does your business
adopt?
Are there clear lines of reporting and communication?
Systems: Does your organization have a system?
What kind of systems (e.g. MIS, Accounting, Quality Control, and
Inventory) does your business have in place? (Business-Plan, 2010).

CONT.

If the answers to these questions are positive/or the factors


are present, then you record them as strengths
if the answers are negative/ the factors are absent, then you
record them as weaknesses.
After this, each factor is rated as to whether it is a major
strength, minor strength, neutral factor, minor weakness, or
major weakness (Business-Plan, 2010).

OPPORTUNITIES AND THREATS ANALYSIS


This involves scanning the external environment of the business in order to
identify the Opportunities and Threats.
The entrepreneur can assess the external environment of the business by
critically looking at the opportunities and threats emanating from changes in
the major external environmental factors.
For instance opportunities in the technological environment could be
availability of advanced technology, developments in Information Technology
like the advent of the GSM;
opportunities in the Political/Legal environment could be favourable
government policies, tax holidays;
opportunity in the Demographic environment could be great market demand;
opportunities in the Economic environment could be growing export market
increased consumer spending and growing industry.

CONT.

Positive seasonal influences are an opportunity in the natural


environment; opportunities in the other environment could be
change in consumers taste in favour of your product and
Intermediaries cooperation.
Examples of threats in some external environmental factors can
come from direct competitors, indirect competitors, consumers,
substitute products or services and suppliers, customers brand
switching and innovations by competitors (DixonOgbechi, 2003;
Business-Plan, 2010).
The entrepreneur can classify the overall attractiveness of a business
once he/she has conducted a thorough opportunities and threats
analysis.
To this effect, threats could be classified according to their
seriousness and probability of occurrence.
To evaluate its opportunities, the business needs to operate a reliable
Management Information System (MIS).

CONT.
The information obtained will enable the entrepreneur know
if the business is ideal (i.e. it is high in major opportunities
and low in major threats);
is speculative (i.e. it is high in both major opportunities and
threats);
mature business (i.e. it is low in major opportunities and
threats) and troubled (i.e. it is low in opportunities and high
in threats).
An effective opportunity and threat analysis is advantageous
to the entrepreneur; it will enable the entrepreneur make
decisions on whether the business should limit itself to those
opportunities where it now possesses the required strengths
or should consider better opportunities where it might have
to acquire or develop certain strengths (Dibb et al., 1991;
Aluko et al, 1998; Dixon-Ogbechi, 2003; Business-Plan, 2010)

THE ROLES OF VISION, MISSION AND OBJECTIVES IN


ENTREPRENEURSHIP DEVELOPMENT

Vision evokes pictures in the mind; it suggests a future orientation. Vision is vital
to human existence.
A form of non- specific guidance normally produced for an organization by its
CEO (Haggins & Vineze). It gives an imaginary picture of a preferred future which
the leader must carefully guide the organization to reach.
Vision is also a picture of your company in the future. It is your inspiration, the
framework for all your strategic planning and it is also articulating your dreams
and hopes for your business (Ward, 2010).
Vision again is short, succinct, and inspiring statement of what the organization
intends to become and achieve in the future, often stated in competitive terms.
Vision refers to the category of intentions that are broad, all-inclusive and
forward-thinking. It is the image that a business must have of its goals before it
sets out to reach them. It describes aspirations for the future, without specifying
the means that will be used to achieve these desired needs.
Vision can also be defined as the mental images or picture of a preferred future
either for the individual or for an organization; such future is in the realm of
imagination which the visioner must bring into reality with the support of others.

COMPONENTS OF VISION
Core ideology is described as enduring character of an organization-i.e. a
consistent identity that transcends product or market life cycle, technological
breakthroughs and the likes. It is what the organization stands for, the very
purpose for which the organization is created. The core ideology can be further
sub-divided into two namely:
Core value i.e. core tenet of the organization, guiding principles, what the
organization stands for. It is a state of belief that is very difficult or impossible to
change. It has to do with the foundation on which the business relationship both
to the society and the entire stakeholders is built. It is the extent of integrity the
organization is ready to maintain.
Core purpose: the reason for the organizations existence, a clear description of
the activities of the organization. Any organization or individual that misses its
purpose is not fit to live; the core purpose must be seen to be achieved. If the
purpose is to create an enduring financial system such organization must be seen
to fulfil such purpose.
Envisioned future. It is creative, looking to a future of greatness; it keeps the
organization as well as individual motivated even if the founders are no longer in
existence.

KEY ELEMENTS THAT MAKE A LEADER WITH VISION TO SUCCEED


Take personal responsibility for initiating change: The entrepreneur must
take personal responsibility to initiate the necessary change. People resist
change; most people see the negative effect of the change, but as an
entrepreneur, one must stay focused and take charge.
Create a vision and strategy for the organization. An entrepreneur is the
creator of its vision; it is usually first conceived within, and then expressed
in writing, the realization of which requires appropriate strategies to be put
in place for its implementation.
Trust and support others: The entrepreneur cannot realize his vision without
others. It is therefore necessary to ensure that the entrepreneur
communicate his/her vision in a very clear and unambiguous way to elicit
the support of others. Since the vision cannot be realized alone there is
need for trust so that none of the members of the organization work under
suspicious condition.
Open yourself for criticism and be ready to adjust. An entrepreneur must be
able to subject the vision to criticism so as to amend and make the vision
better. Humility to adjust where necessary is important.

VISIONING PROCESS
Initiate and provide constant vigilance: Vision must emanate from the
leader(s) within the organization and appropriate vigilance must be ensured
to bring the vision to reality.
Vision should be original because if copied from other persons, it may not
last particularly when challenges arise in the process of actualizing the
vision.
Set high goals but be realistic: Vision must be challenging in the sense that
it must call for attention such that it will be worth pursuing.
Vision must inspire the owner of the vision as well as those that will be
involved in actualizing the vision. Unrealistic goals will result in frustration;
hence vision must be realistic to the extent that those involved will believe
its accomplishment.
Seek significant early involvement by other members of the organization:
The sharing of vision with others give room for criticism so as to make the
vision better and robust. The inputs of others will allow a well conceived
vision. If resources have been committed before involving others it may
lead to waste; if the vision could be better actualized with minor
amendments

CONT.
Encourage widespread review and comments: Subject your vision to a
critical evaluation by others, allow both positive and negative comments
but be careful of destructive comments.
Keep communications flowing: Give room for both vertical and horizontal
communication. All the members of the organization or family members
must have something to offer.
No one is the absolute custodian of knowledge Allow time for the process to
work; do not be in a haste to quit your vision. Sleep over your vision before
you get started.
Demonstrate commitment, follow through: Vision is lonely; demonstrate
your commitment and encourage the commitment of the organization
members. You must lead others to follow your vision through.
If you abandon it no one can revive it but you. So do not quit your vision, a
quitter never wins and winners never quit. Maintain harmony of sub-units:
Ensure the different units of the organization work in harmony. No unit is
allowed to work at variance with one another, that is, it must be a unified
vision.

W AYS O F K E E P I N G V I S I O N A L I V E H O N O U R A N D L I V E T H E V I S I O N A S T H E O R G A N I Z A TI O N S C O N S T I T U T I O N .

The vision is not a document prepared and hung in the office. The culture
and value of the organization must take its root from the vision.

Encourage new members understanding and commitment through early


introduction. New members of the organization must be taught and
understand the aspiration of the organization.

Make it constantly visible.


Let the attitude of the leaders always reflect the organizational vision.
The decision making process must be in line with the organization vision, so
that all members of the organization are constantly aware that it is the
organizational vision that is directing the activities within the organization.
Create integrity through alignment and congruency decision making
patterns, personnel policies etc must be in line with the vision. Review the
vision periodically, revising as appropriate to reflect changing conditions.

EVALUATION OF VISION
The following are some of the evaluation criteria:

Foresight
Broadness of vision
Uniqueness of vision
Consensus of vision
Practicality of vision
Accessibility of vision

MISSION STATEMENT

Mission on the other hand is what an organization is and the reason for its
existence. A meaningful mission must specifically state the fundamental
and unique reason for its being and how it is different from other corporate
organizations.
Pearce II & Robinson Jr., (2004) defined mission as the fundamental, unique
purpose that sets a business apart from other firms of its type and identifies
the scope of its operations in product and market terms.
Mission gives specific direction and focus to the organization.

Thompson (1997) sees mission as the essential purpose of the


organization, concerning particularly why it is in existence, the nature of
business (es) it is in and the customers it seeks to serve and satisfy.
In defining the mission statement, the organization must take into account
five key elements namely:
History of the organization The current performance of the
organization The environment where it operates The resources
available and Distinctive competences

CHARACTERISTICS OF MISSION STATEMENT


Kazim (2004) identified seven characteristics of effective mission statement as
follows:
It should be visible: A mission should always aim high but it should not be an
impossible statement.
It should be realistic and achievable.
It should be precise: mission statement should not be too narrow to restrict
organization activities and it should not be too broad to make it meaningless giving
no direction.
It should be clear: Mission statement should be clearly stated to the extent that
it can lead the organization into definite action.
It should be motivating: Mission statement must be motivating to the employees
and society. It must delight the stakeholders to enable it achieve the embodiments
of the statements.
It should be distinctive: Mission statement should be unique to each organization
and differentiate it from similar organizations.
It should indicate major components of strategy: which are long-range,
decisions, plans, mission, goals, objectives, options, resources allocation, resource
utilization, process and advantages improvement It should indicate how objectives
are to be accomplished in terms of concrete specific targets defined for mission
derived goals (Adeleke, Ogundele & Oyenuga, 2008).

ORGANISATIONAL GOALS
Kazim (2004) defined goals as what an organization hopes to
accomplish in a future period of time. They represent a
future state or an outcome of the effort put in now.
A broad category of financial and non-financial issues are
addressed by the goals that an organization sets for itself.
Goals and objectives are often used interchangeably; the
major difference has to do with the fact that goals are
considered broader than objectives.
Goals can be stated in broad terms such as marketing goals,
financial goals, and production goals.
When these goals are broken down to reflect specific,
measurable and timing of their accomplishment, they then
become objectives.

ORGANISATIONAL OBJECTIVES
Objective is described in Olayiwola (2007) as specific intended results of
organization activities. Kazim (2004) sees objective as the ends that state
specifically how the goals shall be achieved.
Objectives are concrete and specific in contrast to goals which are
generalized; objectives make the goals operational. While goals may be
qualitative, objectives tend to be mainly quantitative in specification, thus
making objectives measurable and comparable.
IMPORTANCE
To provide directions for the organization.
It allows the organization to relate effectively and efficiently with its
environment
It aids decision making
It allows the organization to pursue its vision and mission
It allows resources to be effectively and efficiently allocated among
competing needs.
It provides the standard for performance evaluation.
To establish a basis for control.

CHARACTERISTICS OF GOOD OBJECTIVES


Clear and understandable by all the stakeholders
It should be concise, specific and direct
It must be measurable in quantitative or qualitative terms
It must have a time horizon which must be clearly stated
within which objective must be accomplished
It must be challenging and attainable
There must be harmony among different objectives
Prioritizing of objectives where resources available are
inadequate to pursue multiple objectives at the same time.

Steps towards
buying a business

ARE YOU CONSIDERING

BUYING OR ACQUIRING
AN EXISTING BUSINESS?

1. Making careful considerations

Before buying an existing business, you must weigh the pros and cons
of doing so.

A compelling reason for opting to buy an established business is the


presence of a track record and a reputation.

A good business history can increase the likelihood of a successful


operation and ensure that finance is easier to obtain.
There is less worry about making yourself known so finances can be
saved. This means that although you have little room to personalise
your business from the start, you will inherit, everything good (and
potentially bad) about the business.

If you do not already know the business beforehand, potential


disadvantages can be the inflation of the goodwill element and a
negative reputation inherited from the previous owner.

2. ASKING THE RIGHT QUESTIONS


When deciding to buy a business, start by asking what may seem obvious
questions. Answers to these will help you decide about taking the plunge and about
how to formulate your purchase agreement later on.

Why and what are the reasons for the business being sold?

What is the history and reputation of the business?

What are the industry trends and patterns?

Who are the customers?

Who are the suppliers?

Who are the competitors?

What are the running operational costs and overheads?

Who are the employees, how many are there and will they stay?

What are the profits?

What are the assets and liabilities?

When deciding to buy a business, start by asking what may seem obvious questions. Answers
to these will help you decide about taking the plunge and about how to formulate your
purchase agreement later on.

3. ACCOUNTING DUE DILIGENCE

An accounting due diligence is a thorough check to evaluate the


financial health of the target business.

Get certified financial statements which are correct and properly


represent the trading figures of the business.

Figures provided under a disclaimer are a tell-tale sign that the seller
or the accountant/auditor preparing them is either unwilling or unable
to vouch for their accuracy.

Below are examples of what you will need to know


about accounting due diligence:
A trading or profit and loss statement for the last two-three
years;
A balance sheet to identify assets and liabilities;
A list of plant, equipment, fixtures and fittings, which the
owner intends
to sell and a current valuation and proof of any applicable
warranties or
guarantees; and
Details of any stock sold with the business and how it will be
counted
and valued at settlement.

4. Legal due diligence

Depending on the size and complexity of the business in


question, a legal due diligence exercise often takes time
and covers several areas and aspects of the way the
business operates.

When conducted by lawyers, you will be able to understand


issues such as the following:
Ownership and shareholder issues;
Interpretation of the various contracts which have been signed by the
business, including contracts with suppliers, employees, loan
documentation, asset ownership and title, leases and licenses
negotiated and the existence of restraint clauses;
Whether there are charges, encumbrances or liens on any property,
assets or machinery;
Intellectual property issues;
Privacy obligations such as employee information, customer
information, trading partners/business associates information and
marketing files under the Privacy Act; and
Litigation history to see who the company has sued or who has sued it.

5. tax due diligence


Understanding

tax issues such as stamp duty and corporation


tax is vital. Your accountant will be able to advise you on the
seller's financial statements, the market value of the business
etc

He/she

may also advise on appropriate business structure


options, and to assist with budgets, cash flow forecasts, and
projected financial statements for you.

6. NEGOTIATION
After having conducted the due diligence steps mentioned
above, you will be able to enter into preliminary discussions
about issues such as price negotiation, valuation techniques,
obtaining any relevant government approvals, handling any
licensing issues, identifying key value preservation issues like
employee retention, transition planning and any other matters
that will be documented in the contract documentation stage.

7. Contract documentation
Details relating to any transaction for the sale or
purchase of a business should be documented
identifying the subject of transaction, the consideration
involved and the expected obligations of the parties.

Entering into a purchase agreement that addresses the


following is therefore crucial:
Identifying the assets to be acquired;
Price and payment modes including payment stages;
Conditions precedent to completion, e.g. third-party approvals, landlords'
consents to assignment of leases and release of bank security over assets;
Transferring employees;
Assignment of contracts of the business;
Dealing with debtors and creditors of the business after completion;
Arrangements for completion;
Post-completion restrictions on the seller;
Warranties and indemnities, providing for recourse by the buyer against the
seller
Limitations on the sellers liability, including time limits for making claims and
financial limits.

Your legal advisers will also be able to advice you on any


ancillary documents needed to complete your purchase, such
as:

Assignments of goodwill and intellectual property rights;


Novation of key contracts;
New
service
contracts/employment
agreements
employees;
Transfers of any freehold premises;
Assignments of any leasehold premises; and
Board and shareholder approvals (if necessary).

for

8. completion & beyond

As a buyer, you become the beneficial owner of any individual asset of the
target business only after all necessary formalities for completing the
transfer of that asset have been complied with.

Although many assets may transfer upon completion, you may need to take
the risk that some may not transfer until sometime afterwards, or at all.

The purchase agreement drafted by your legal adviser will be able identify
those matters required to be dealt with or waived at completion, including
payment of any part of the price then due.
Be aware that a number of matters also need to be attended to postcompletion, including:

The payment of any stamp duty, land tax etc;


Formal assignments or novation of any contracts of the business not dealt
with at completion; and
Notices of change of ownership of the business to its customers, suppliers
and to relevant regulatory bodies.

FRANCHISING

DEFINITION
A franchise operation is a contractual relationship between
the franchisor and franchisee in which the franchisor offers or
is obliged to maintain a continuing interest in the business of
the franchisee in such areas as know-how and training;
wherein the franchisee operates under a common trade
name, format and/or procedure owned or controlled by the
franchisor, and in which the franchisee has or will make a
substantial capital investment in his business from his own
resources.

NEED FOR FRANCHISING

Legal and commercial arrangement concerning the successful


business of a franchisor

Use of franchisors trade name, format, system and/or


procedure under license

Means to raise capital and expand quickly

Assistance to franchisee Marketing, management, advertising,


store design, standards specifications

Payment by franchisee by way of royalty, licensee fee or other


means

Model for Multiplication, Synergising Profitability For both

KEY ATTRIBUTES OF A FRANCHISEE

Is an entrepreneur / Owns the Business

Invests money, time & emotions into managing operations

Return on investment a key driver

Trust

WHY BUY A FRANCHISE?


Group Advertising power
Owning your business & making day to day decisions guided by
franchisors experience
Benefit of identification of trademarks, proprietary information, patents &
designs
Systematic training from experts
Lower risk of failure and/or loss of investments
Being a part of uniform operations throughout the country
Assistance in financial & accounting matters from the franchisor, as well
as ongoing support
Enhancement of management abilities

TYPES OF FRANCHISE
1. Product distribution franchise
2. Business format franchise
3. Management franchise

PRODUCT DISTRIBUTION FRANCHISE


A product distribution franchise model is very much like a
supplier-dealer relationship.
Typically, the franchisee merely sells the franchisors
products. However, this type of franchise will also include
some form of integration of the business activities.
e.g.: Coca-Cola, Suzuki-Maruti,

BUSINESS FORMAT FRANCHISE


In a business format franchise, the integration of the
business is more complete.
The franchisee not only distributes the franchisors products
and services under the franchisors trade mark, but also
implements the franchisors format and procedure of
conducting the business
e.g. : McDonalds, KFC, Subways

MANAGEMENT FRANCHISE
A form of service agreement.
The franchisee provides the management expertise, format
and/or procedure for conducting the business.
e.g.; Marriott Hotels, Hilton Hotels, UPS stores

KEY DIMENSIONS OF FRANCHISING

Financial

Marketing

License Agreements

Territory Management

Systems & Communications

Engagement

Conflict Resolution

Principles of Continuity

FINANCE
Financial Model: Win-Win And not that of squeezing the
franchisee profits Risk vs. reward balance
Cost of Franchise: Uniform and consistent across
franchisees Initial fee Royalty fee / Management fee
Capital required

MARKETING
Branding Centralised, Local Marketing Standard designs /
messages
Understanding Customer needs & environmental trends
Technology Customer needs, requirements Customer profile
Competition (familiar, unfamiliar) Feedback from Franchisees
Inputs from independent sources
Advertising and Branding
Trademark Usage
Product / Price: Being competitive Meeting customer needs
Introduction of new products and phasing out of existing products

SYSTEMS AND COMMUNICATIONS


MIS: Franchisee & franchisor
Systems & Processes:
For managing the franchise outlet
Support
Physical Monitoring
Communications Communicate actively Document
communications, meetings, decisions

LICENSE AGREEMENTS
Contains details of the relationship like:
IPRs
Fee to be paid: Initial and ongoing
Duration of the Agreement
What Franchisor is expected to do
What Franchisee is expected to do
What none is expected to do
What is that we exist for
What are the conditions under which we would not continue
with this relationship

ENGAGEMENT
Training of Franchisee & their Employees
Ongoing support
Franchisee Meets
Recognition & Awards for Franchisees & their Employees
Do not treat Franchisee & their Employees as subordinates:
Strong tendency among front end executives of the
franchisor to do so.

CONFLICT RESOLUTION
Three levels of conflicts: Operational Resolve at field
level Policy matters Resolve at corporate level Major
disputes Address at appropriate level
Transactional conflicts are likely to arise. Resolve them
proactively Dont let them come in the way of long term
relationship
Remedy non-conformances speedily Corrective actions
matching with the degree of non-compliance.

WAY FORWARD
Win-Win relationship
Business sense to each other
Alignment of Values & Business Ethics

BUSINESS PLAN

DEFINITION

A business plan is a picture of your longer-term objectives,


estimates and forecasts.

A written document that details your proposed venture. It


describes current status, expected needs and projected
results of the new business

It should not be something that ties you down but rather


something that helps you make decisions. Your forecasts and
objectives are likely to change as things develop and your
business plan is where you get down your best estimate given
the current state of information.

CONT.
Enterprises use plan in two main ways:
Firstly to help you to track progress and provide guidance for decision-making
and secondly to help you raise money. From a funders perspective your plan will
need to demonstrate that their investment of money will have a significant
impact, that there is a good market for your product or service and that you are
able to manage the enterprise.

In order to do this, you must bring out what is exciting about the enterprise,
combined with a thoroughly prepared presentation of the back-up figures and
research. It is quite possible that you will want to have different versions of your
plan available one for yourselves and others for funders or external partners.

CONTENTS OF BUSINESS PLAN

COVER PAGE
The cover page should include:

the name of the company

its address

its phone number

the date, and contact information for the lead


entrepreneur.

EXECUTIVE SUMMARY
This is an overall summary of your plan. Ideally it should be
around one page long. It should give a reader a general feel
for your organisation overall objectives, brief description of
activities, services or products, what resources are required
and where they will come from and who will benefit. It should
make them want to read more. Write this bit last

BUSINESS DESCRIPTION
General description
Industry background
Goals & Potentials of business, milestones if any
Uniqueness of product or service

MARKETING
RESEARCH & ANAYSIS
Target Market
Market size & trends
Competition
Estimated market share
MARKETING PLAN
Market strategy- sales & distribution
Pricing
Advertising & promotions

OPERATIONS
Identify location : advantages
Specific Operational procedures
Personnel needs & uses
Proximity to suppliers

MANAGEMENT
Management team- key personnel
Legal structures- stock agreements, employment
agreements, ownership
Board of directors

FINANCIAL FORECAST
P & L statement
Balance sheet
Cash flow statement
Accounting ratios

CRITICAL RISKS
Potential problems
Obstacles & risks
Alternative course of action

HARVEST STRATEGY
Liquidity event ( IPOs or sale?)
Continuity of business
Identify successor

MILESTONE SCHEDULE
Timing & objectives
Deadlines & milestones
Relationship of events

EXAMPLE OF AFANOUS
BUSINESS PLAN

EXECUTIVE SUMMARY
The Company
Afanous java and Bakery (AJB) is a start-up coffee and bakery retail
establishment located in Oyster bay, DSM. AJB expects to catch the
interest of a regular loyal customer base with its broad variety of
coffee and fresh pastry products. The company plans to build a
strong market position in oyster bay's area, due to the partners'
industry experience and mild competitive climate in the area.
AJB aims to offer its products at a competitive price to meet the
demand of the middle-to higher-income local market area residents
and Diplomats.

CONT.
AJB is incorporated in DSM by BRELA on .., certificate no... It is
equally owned and managed by its two partners: Mr. Yaovi Mawulolo
Afanou and Ms. Joan Marco Urio. Mr. Afanou has extensive experience
in sales, marketing, and management and was vice president of
marketing with Serena Group of hotels T ltd . Ms. Joan Marco brings
experience in the area of finance and administration, including a stint
as chief financial officer with both Commercial Bank Of Africa and the
Tanzania Coffee board.
The company intends to hire two full-time pastry bakers and six parttime baristas to handle customer service and day to day operations.

CONT.
AJB offers a broad range of coffee and espresso products, all from
high quality Columbian grown imported coffee beans. AJB caters
to all of its customers by providing each customer coffee and
espresso products made to suit the customer, down to the
smallest detail.
The bakery provides freshly prepared bakery and pastry products
at all times during business operations. Six to eight moderate
batches of bakery and pastry products are prepared during the
day to assure fresh baked goods are always available.

CONT.
The retail coffee industry in the Tanzania has recently experienced rapid
growth. The nature of customer base who are mostly foreign nationals
diplomats & international guests and cool oceanic climate in Oyster bay
area stimulates consumption of hot beverages throughout the year.
AJB wants to establish a large regular customer base and will therefore
concentrate its business and marketing on local residents, which will be
the dominant target market. This will establish a healthy, consistent
revenue

base

demographic

to

ensure

dynamics

in

stability

of

the

oyster

bay

is

business.
expected

In

addition,

to

comprise

approximately 35% of the revenues. High visibility and competitive


products and service are critical to capture this segment of the market.

FINANCIAL CONSIDERATIONS
AJB expects to raise of its own capital of . and to
borrow guaranteed by the AKIBA bank as a ten-year loan.
This provides the bulk of the current financing required.
AJB anticipates sales of about in the first year,.. in the
second year, and .. in the third year of the plan. AJB should
break even by the fourth month of its operation as it steadily
increases its sales. Profits for this time period are expected to
be approximately .. in year 1, by year 2, and .by
year 3. The company does not anticipate any cash flow
problems.

VISION
To b e e s t a b l i s h e d a n d b e c o m e a t r u s t e d p e r f e c t
c o ff e e b u s i n e s s p a r t n e r a n d l e a d e r f o r l o c a l a n d
i n t e rn a t i o n a l g u e s t s .

MISSION
To p r o v i d e p e r f e c t , d e l i c i o u s c o ff e e
products and excellent, reliable services to
our customers

CORE VALUES
Honesty, Integrity, Reliability,
Excellence
To b e o p e n m i n d e d , t o l i s t e n , t o c a r e
and to be pro-active
To b e i n n o v a t i v e a n d r e a s o n a b l e

OBJECTIVES

Become selected as the "Best New Coffee Bar in the area" by the local
restaurant guide.

Turn in profits from the first month of operations.

Maintain a 65% gross profit margin.

Keep cost under 35% of revenue

Success of our objectives will depend upon:


a) Store design that will be both visually attractive to customers and designed
for fast and efficient operations.
b) Employee on-job training to insure the best coffee preparation techniques.
c) Marketing strategies aimed to build a solid base of loyal customers, as well
as maximizing the sales of high margin products, such as espresso drinks.

COMPANY SUMMARY
AJB P.LTD, a Tanzania limited liability company, sells coffee,
other beverages and snacks in its 50 square meter floor
area premium coffee bar located along Chole road.AJBs
major investors are Mrs. Patra Gandhi and Mr. James Polk
who cumulatively own over 70% of the company. The startup loss of the company is assumed in the amount of ...

COMPANY OWNERSHIP
Company Ownership
AJB is incorporated in DSM city through BRELA. It is equally
owned by its two partners.
Start-up Summary
AJB is a start-up company. Financing will come from the
partners' capital and a ten -year Akiba loan. The following
tables illustrate the company's projected initial start-up costs.

START-UP EXPENSES (EST. VALUES)


Item
Legal & permits
Logo Design
Initiated web design
Insurance
Payroll
Computer & supporting
equipment's
Training
Rent/Security Deposit
Pre-opening Marketing
Espresso machines & coffee
grinders
Cash
Premise renovations

Est. cost (in TSh.)

START-UP ASSETS (EST. VALUES)


Item
Cash in Bank
Starting inventory
Other Current Assets
Bars Furniture
Espresso machines
Espresso coffee grinders
Gourmet Air pot Coffee Brewer
Commercial Blender
Refrigerators
Dishwasher
Cash registers
Credit card machine
Total

Est. cost (in TSh.)

RECURRING COSTS (EST. VALUES)


Item
Rent
Utilities
Payroll
Inventory
Waste disposal collection fee
marketing
Miscellaneous
Total

Est. cost (in TSh.) monthly

START UP FUNDING

START-UP FUNDING

Start-up Expenses to Fund


Start-up Assets to Fund
TOTAL FUNDING REQUIRED
Assets
Non-cash Assets from Start-up
Cash Requirements from Start-up
Additional Cash Raised
Cash Balance on Starting Date
TOTAL ASSETS
Liabilities and Capital
Liabilities
Current Borrowing
Long-term Liabilities
Accounts Payable (Outstanding Bills)
Other Current Liabilities (interest-free)
TOTAL LIABILITIES
Capital

PRODUCTS
AJB offers a broad range of coffee and espresso products, all
from high quality Columbian grown imported coffee beans.
AJB caters to all of its customers by providing each customer
coffee and espresso products made to suit the customer,
down to the smallest detail.
The bakery provides freshly prepared bakery and pastry
products at all times during business operations. Six to eight
moderate batches of bakery and pastry products are prepared
during the day to assure fresh baked goods are always
available.

MARKET ANALYSIS
Market Analysis Summary
AJB's focus is on meeting the demand of a regular local resident customer base, as well as a
significant level of diplomats from nearby residencies and passers and international guests.
Market Segmentation
AJB focuses on the middle- and upper-income markets.These marketsegmentsconsume
the majority of coffee and espresso products.
Local Residents
AJB wants to establish a large regularcustomer base. This will establish a healthy,
consistent revenue base to ensure stability of the business.
International diplomats
Diplomats and international guests comprises approximately 35% of the revenues.High
visibility and competitive products and service are critical to capture this segment of the
market.
Market Analysis
The chart and table below outline the total market potential of the above described
customer segments.
Target Market Segment Strategy
The dominant target market for AJB is a regular stream of local residents. Personal and
expedient customer service at a competitive price is key to maintaining the local market
share of this target market.

MARKET AND SERVICE NEEDS


Market Needs
Because Oyster Bay has a cool climate; it is well planned and
attractive; it is the centre of diplomats residency; has safe
environment and its availability of well built infrastructures and
communication links ,hot coffee products are very much in
demand.Much of the day's activity occurs in the morning hours before
ten a.m. and evening past four pm with a relatively steady flow for the
remainder of the day.
Service Business Analysis
The retail coffee industry in the Tanzania has recently experienced
rapid growth due to change in customers habits, exposure and
income levels. Coffee drinkersin Dar es Salaam are fussy about the
quality of beverages offered at the numerous coffee bars across the
region. Despite low competition in the immediate area, AJB will
position itself as a place where customers can enjoy a cup of delicious
coffee with a fresh pastry in a relaxing environment.

COMPETITION & BUYING PATTERNS

Competition in the local area is somewhat sparse and does not provide nearly the level of product
quality and customer service as AJB.Local customers are looking for a high quality product in a
relaxing atmosphere.They desire a unique, classy experience.

Leadingcompetitorspurchase and roast high quality, whole-bean coffees and, along with Italian-style
espresso beverages, cold-blended beverages, a variety of pastries and confections, coffee-related
accessories and equipment, and a line of premium teas, sell these items primarily through companyoperated retail stores. In addition to sales through company-operated retail stores, leading
competitors sell coffee and tea products through other channels of distribution (specialty operations).

Larger chainsvary theirproduct mix depending upon the size of each store andits location. Larger
stores carry a broad selection ofwhole bean coffees in various sizes and types of packaging, as well
as an assortment of coffee- and espresso-making equipment and accessories such as coffee grinders,
coffee makers, espresso machines, coffee filters, storage containers, travel tumblers and mugs.
Smallerstores and kiosks typically sell a full line of coffee beverages, a more limited selection of
whole-bean coffees, and a few accessories such as travel tumblers and logo mugs.
Technologically savvy competitorsmake freshcoffee and coffee-related products conveniently
available via mail order and online.

Strategy and Implementation Summary


AJB will succeed by offering consumershigh quality coffee, espresso, and bakery
products with personal service at a competitive price.
Competitive Edge
AJB's competitive edge is the relativelylow level of competition in the local area in
this particular niche.
Sales Strategy
As the table show, AJBanticipates sales of about .in the first year, .in the
second year, and . in thethird year of the plan.
EXPECTED SALES (IN TSHS)
MONTHLY SALES
ITEM
(s)

EXPECTED COSTS OF OPERATIONS


ITEM
(S)

10

11

12

SALES FORECAST

SALES FORECAST
YEAR 1
Unit Sales
Espresso Drinks
Pastry Items
Other
TOTAL UNIT SALES
Unit Prices
Espresso Drinks
Pastry Items
Other
Sales
Espresso Drinks
Pastry Items
Other
TOTAL SALES
Direct Unit Costs
Espresso Drinks

YEAR 2

YEAR 3

MANAGEMENT & PERSONNEL SUMMARY

Names, cv & qualifications of managing team


Names and description of employees & respective duties. Also their expected
salaries or wages

PERSONNEL PLAN
YEAR 1

Managers

Pastry Bakers

Baristas

Other
TOTAL PEOPLE
Total Payroll

YEAR 2

YEAR 3

FINANCIAL PLAN
Financial Plan
AJB expects to raise ..of its own capital, and to borrow
guaranteed by AKIBA bank as a five-year loan.This provides
the bulk of the current financing required.
Break-even Analysis
AJB's Break-even Analysis is based on the average of the firstyearfigures for total sales by units and by operating
expenses. These are presented as per-unit revenue, per-unit
cost, and fixed costs.These conservative assumptions make
for a more accurate estimate of real risk. AJB should break
even by thefourth month of its operation as it
steadilyincreases its sales.

BREAK EVEN ANALYSIS


BREAK-EVEN ANALYSIS
Monthly Units Break-even
Monthly Revenue Break-even
Assumptions:
Average Per-Unit Revenue
Average Per-Unit Variable Cost
Estimated Monthly Fixed Cost

TRADING ACCOUNT
PRO FORMA PROFIT AND LOSS

YEAR 1
Sales
Direct Cost of Sales
Other
TOTAL COST OF SALES
Gross Margin
Gross Margin %
Expenses
Payroll
Sales and Marketing and Other Expenses
Depreciation
Utilities
Payroll Taxes
Other
Total Operating Expenses

YEAR 2

YEAR 3

Balance sheet
PRO FORMA BALANCE SHEET
YEAR 1
Assets
Current Assets
Cash
Other Current Assets
TOTAL CURRENT ASSETS
Long-term Assets
Long-term Assets
Accumulated Depreciation
TOTAL LONG-TERM ASSETS
TOTAL ASSETS
Liabilities and Capital
Current Liabilities
Accounts Payable
Current Borrowing
Other Current Liabilities

YEAR 2

YEAR 3

RATIO ANALYSIS

Sales Growth
Percent of Total Assets
Other Current Assets
Total Current Assets
Long-term Assets
TOTAL ASSETS
Current Liabilities
Long-term Liabilities
Total Liabilities
NET WORTH
Percent of Sales
Sales
Gross Margin
Selling, General & Administrative Expenses
Advertising Expenses
Profit Before Interest and Taxes

Main Ratios
Current
Quick
Total Debt to Total Assets
Pre-tax Return on Net Worth
Pre-tax Return on Assets
Additional Ratios
Net Profit Margin
Return on Equity
Activity Ratios
Accounts Payable Turnover
Payment Days
Total Asset Turnover
Debt Ratios
Debt to Net Worth
Current Liab. to Liab.
Liquidity Ratios

Additional Ratios

Assets to Sales

Current Debt/Total Assets

Acid Test

Sales/Net Worth

Dividend Payout

APPENDIX
Fit in any other left out necessary information such as tables,
diagrams

SOURCE OF FINANCING

THE IMPORTANCE OF GETTING


FINANCING OR FUNDING
The Nature of the Funding and Financing Process
Few people deal with the process of raising investment capital until they need to
raise capital for their own firm.
As a result, many entrepreneurs go about the task of raising capital haphazardly because
they lack experience in this area.

Why Most New Ventures Need Funding


There are three reasons most new ventures need to raise money during their
early life.
The three reasons are shown on the following slide.

WHY MOST NEW VENTURES


NEED FINANCING OR FUNDING

ALTERNATIVES FOR RAISING MONEY FOR A


NEW VENTURE

Personal Funds

Equity Capital

Debt Financing

Creative Sources

SOURCES OF PERSONAL FINANCING


1 OF 2

Personal Funds
The vast majority of founders contribute personal funds,
along with sweat equity, to their ventures.
Sweat equity represents the value of the time and effort that a
founder puts into a new venture.

Friends and Family


Friends and family are the second source of funds for many
new ventures.

SOURCES OF PERSONAL FINANCING


2 OF 2

Bootstrapping
A third source of seed money for a new venture is referred to
as bootstrapping.
Bootstrapping is finding ways to avoid the need for external
financing or funding through creativity, ingenuity, thriftiness,
cost-cutting, or any means necessary.
Many entrepreneurs bootstrap out of necessity.

EXAMPLES OF BOOTSTRAPPING
METHODS
Buying used instead of
new equipment.

Coordinate purchases
with other businesses.

Leasing equipment
instead of buying.

Obtaining payments in
advance from
customers.

Minimizing personal
expenses.

Avoiding unnecessary
Expenses.

Buying items cheaply but


prudently via options
such as eBay.

Sharing office space or


employees with other
Businesses.

Hiring interns.

PREPARING TO RAISE DEBT OR EQUITY


FINANCING
1 OF 3

PREPARING TO RAISE DEBT OF EQUITY


FINANCING
2 OF 3

Two Most Common Alternatives


Equity Funding
exchanging partial
ownership in a firm,
usually in the form of
stock, for funding.

Debt Financing
getting a loan.

PREPARING TO RAISE DEBT OR EQUITY


FINANCING
3 OF 3

Matching a New Ventures Characteristics with the Appropriate Form of


Financing or Funding

PREPARING AN ELEVATOR SPEECH


1 OF 2

Purpose

Elevator
Speech

An elevator speech is a brief,


carefully constructed statement
that outlines the merits of a
business opportunity.
There are many occasions when a
carefully constructed elevator
speech might come in handy.
Most elevator speeches are 45
seconds to 2 minutes long.

PREPARING AN ELEVATOR SPEECH


2 OF 2

Step 1

Describe the opportunity or problem


that needs to be solved.

20 seconds

Step 2

Describe how your product meets the


opportunity or solves the problem.

20 seconds

Step 3

Describe your qualifications.

10 seconds

Step 4

Describe your market.

10 seconds

Total

60 seconds

SOURCES OF EQUITY FUNDING

Venture Capital

Business Angels

Initial Public
Offerings

BUSINESS ANGELS
1 OF 2

Business Angels
Are individuals who invest their personal capital directly in start-ups.
The prototypical business angel is about 50 years old, has high income and
wealth, is well educated, has succeeded as an entrepreneur, and is interested
in the startup process.

BUSINESS ANGELS
2 OF 2

Business Angels (continued)


Business angels are valuable because of their willingness to make relatively
small investments.
Are looking for companies that have the potential to grow between 30% to 40% per
year.

Business angels are difficult to find.


Types:
Corporate, enthusiast, micromanagement, professional, entrepreneurial)

VENTURE CAPITAL
1 OF 3

Venture Capital
Is money that is invested by venture-capital firms in start-ups and small
businesses with exceptional growth potential.
Venture-capital firms are limited partnerships of money managers who raise
money in funds to invest in start-ups and growing firms.
The funds, or pool of money, are raised from wealthy individuals, pension
plans, university endowments, foreign investors, and similar sources.

VENTURE CAPITAL
2 OF 3

Venture Capital (continued)


Venture capital firms fund very few entrepreneurial firms in comparison to
business angels.
Many entrepreneurs get discouraged when they are repeatedly rejected for venture
capital funding, even though they may have an excellent business plan.
Venture capitalists are looking for the home run and so reject the majority of the
proposals they consider.
Still, for the firms that qualify, venture capital is a viable alternative for equity
funding.

VENTURE CAPITAL
3 OF 3

Venture Capital (continued)


An important part of obtaining venture-capital funding is going through the
due diligence process:
Venture capitalists invest money in start-ups in stages, meaning that not
all the money that is invested is disbursed at the same time.
Some venture capitalists also specialize in certain stages of funding.

INITIAL PUBLIC OFFERING


1 OF 3

Initial Public Offering


An initial public offering (IPO) is a companys first sale of stock to the
public. When a company goes public, its stock is traded on one of the
major stock exchanges.
An IPO is an important milestone for a firm. Typically, a firm is not able to
go public until it has demonstrated that it is viable and has a bright future.

INITIAL PUBLIC OFFERING


2 OF 3

Reasons that Motivate Firms to Go Public


Reason 1

Reason 2

way to raise equity


capital to fund current
and future operations.

Raises a firms public


profile, making it easier
to attract high-quality
customers and business
partners.

INITIAL PUBLIC OFFERING


3 OF 3

Reasons that Motivate Firms to Go Public


Reason 3

Reason 4

liquidity event that


provides a means for a
companys investors to
recoup their
investments.

Creates a form of
currency that can be
used to grow the
company via
acquisitions.

SOURCES OF DEBT FINANCING

Commercial
Banks

Guaranteed
Loans

COMMERCIAL BANKS

Banks
Historically, commercial banks have not been viewed as a practical sources
of financing for start-up firms.
This sentiment is not a knock against banks; it is just that banks are risk
adverse, and financing start-ups is a risky business.
Banks are interested in firms that have a strong cash flow, low leverage, audited
financials, good management, and a healthy balance sheet.

OTHER SOURCES OF DEBT


FINANCING
Friends and Family
Credit Cards
Should be used sparingly.

Peer-to-Peer Lending Networks


Organizations that Lend Money to Specific Groups

CREATIVE SOURCES OF
FINANCING OR FUNDING

Leasing

Small Business
Innovation
Research Grants

Other Grant Programs

Strategic Partners
10-280

CORPORATE
ENTREPRENUERSHIP

CORPORATE ENTREPRENEURSHIP
Concept is based on many definitions:
Generation, development and implementation of new ideas, or
behaviours in organisation setting in order to re-energize and
enhance the firms ability to acquire innovative skills
and
capabilities.
It may also be formal or informal set of activities aimed at
creating new businesses in established companies through
product and process innovations and market developments.
These activities may take place at corporate, functional or project
levels with the unifying objective of improving companys
competitive position and financial performance.
Other authors have emphasized two major components of
corporate entrepreneurship : new venture creation within existing
organizations and transformation of organizations through
strategic renewal.

INTRAPRENUER
Pinchot (1985), defined an Intraprenuer as an entrepreneur
who works within confines of an established organisation.
He/she would be responsible for the following duties:
a) developing and communicating organisational vision;
b) identifying new opportunities for the organisation;
c) generating innovative strategic options;
d) creating and offering an organisation-wide perspective;
e) facilitating
and
encouraging
change
within
the
organisation;
f) challenging existing ways of doing things and breaking
down bureaucracies.

SPECIFIC ROLES OF INTRAPRENUERS


Management of specific projects: projects such as new product developments,
exploiting new market opportunities or going international need specific type of
teams with distinctive flair!
Setting up of new business units: As ventures becomes larger and larger, new
and distinctive business functions and units come into existence. A specific or
particular part of business may operate best if it has a distinct character and a
degree of independence. Since setting up of these units is demanding,
intrapreneurial team are usually employed to manage the resourcing issues,
structural and external strategy issues
Re-invigorating the whole organisation: Success of entrepreneurial ventures
depends mainly on their flexibility and responsiveness to new and unmet
customer demands. Such flexibility can be lost as the business grows & its
attention is drawn to internal concerns. Re-introducing the inventive spirit back
can only be done by Intraprenuers
Re-inventing the business industry: By making a difference! Most successful
entrepreneurs do not just enter the market, they re-invent their industry by
introducing new technology, delivering new products or operating in a new and
more effective way

THE CHALLENGES TO INTRAPRENEURSHIP


Existing managers comfort: existing managers always feel
uneasy when Intraprenuers operate since it means them letting
off degree of control.
Decision making control: Since entrepreneurs seek better way
of doing things , they usually are dissatisfied with the status quo
having to operate within some sort of organisational decisionmaking framework. A balance must be created between allowing
Intraprenuers freedom to make their own choice and a need to
keep business on strategic path
Internal politics: Intraprenuers must question the existing order
and drive change within organisation. For many it creates a
challenge. Intraprenuers will most likely meet resistance both
active and passive
Rewards for Intraprenuers: Intraprenuers if are to be effective
must bring along some type and level of skills. Question is, can
the organisation really offer rewards? (economical, social and

NEED FOR CORPORATE ENTREPRENEURSHIP


Competitions: rapid growth of new and sophisticated rivals
possessing high-tech systems corporations must innovate or
become obsolete!

International competition
Downsizing of major corporations
Overall need for improvement in efficiency and productivity
Exodus of some other best and brightest people to
other corporations: A result of two reasons: rise of need
for status, publicity and economic development mostly
among young entrepreneurs; secondly, capital ventures has
grown into large industries capable of financing more and
new ventures than ever before enabling new entrepreneurs
to launch their ideas
Sense of distrust in traditional methods of corporate

C.E OBSTACLES/CHALLENGES
The obstacles to corporate entrepreneurship usually reflect ineffectiveness
of traditional management techniques as applied to innovation
development.
Trad.
E:gMgt
: practices

Adverse effects

Recommended actions

Compensating uniformly

Low motivation &


insufficient operations

Balance risk & rewards,


employ special
compensation

Plan for the log term

Non-viable goals are


locked in, high failure
costs

Envision a goal, set


interim milestones

Control against plan

Fact ignored should


replace assumptions

Change plan to reflect


new learning

Enforce standards
procedures to avoid
mistakes

Innovative solutions
blocked, funds misspent

Make ground rules specific


to each situation

Avoid moves that risk the


base business

Missed opportunities

Take small steps build


strength

THE CORPORATE ENTREPRENEURSHIP PROCESS

Strategic
Strategic
Renewal
Renewal

Innovation
Innovation

Corporate
Corporate Entrepreneurship
Entrepreneurship

Corporate
Corporate
Venturing
Venturing

TYPES OF CORPORATE INNOVATION


Radical Innovation
The launching of inaugural breakthroughs.
These innovations take experimentation and determined
vision, which are not necessarily managed but must be
recognized and nurtured.

Incremental Innovation
The systematic evolution of a product or service into newer
or larger markets.
Many times the incremental innovation will take over after
a radical innovation introduces a breakthrough.

RULES FOR AN INNOVATIVE


ENVIRONMENT
1.

Encourage action.

2.

Use informal meetings whenever possible.

3.

Tolerate failure and use it as a learning experience.

4.

Persist in getting an idea to market.

5.

Reward innovation for innovations sake.

6.

Plan the physical layout of the enterprise to encourage informal


communication.

7.

Expect clever bootlegging of ideassecretly working on new ideas on


company time as well as personal time.

8.

Put people on small teams for future-oriented projects.

9.

Encourage personnel to circumvent rigid procedures and bureaucratic red


tape.

10. Reward and promote innovative personnel.

CONCEPTUALIZING CORPORATE
ENTREPRENEURSHIP STRATEGY
Corporate Entrepreneurship Strategy
A vision-directed, organization-wide reliance on entrepreneurial
behavior that purposefully and continuously rejuvenates the
organization and shapes the scope of its operations through the
recognition and exploitation of entrepreneurial opportunity.
It requires the creation of congruence between the
entrepreneurial vision of the organizations leaders and the
entrepreneurial actions of those throughout the organization .

CRITICAL STEPS OF A CORPORATE ENTREPRENEURIAL


STRATEGY
Developing the vision
Encouraging innovation
Structuring for an intrapreneurial climate
Developing individual managers for corporate
entrepreneurship
Developing venture teams.

CORPORATE VENTURING

CORPORATE VENTURING
Reestablishing the drive to innovate:
Invest heavily in entrepreneurial activities that allow new ideas to
flourish in an innovative environment.
Provide nurturing and information-sharing activities.
Employee perception of an innovative environment is critical.

Corporate Venturing
Institutionalizing the process of embracing the goal of growth through
development of innovative products, processes, and technologies with
an emphasis on long-term prosperity.

DEVELOPING INDIVIDUAL MANAGERS


FOR CORPORATE ENTREPRENEURSHIP
1. The Breakthrough Experience
2. Breakthrough Thinking
3. Idea Acceleration Process
4. Barriers and Facilitators to Innovative Thinking
5. Sustaining Breakthrough Teams
6. The Breakthrough Plan

Preparing for Failure


Learning from Failure
Recognizing the importance of managing the grief process
that occurs from project failure.
Understanding how organizational routines and rituals are
likely to influence the grief recovery.
Ensuring that the organizations social support system can
encourage greater learning, foster motivational outcomes,
and increase coping self-efficacy in affected individuals.

SUCCESSFUL CORPORATE
ENTREPRENEURSHIP

Think big . . . really big.


Bring in the A-team.
Start small.
Establish unique measurement techniques.

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