TOPIC ONE: SMALL AND MEDIUM ENTERPRISES (SMEs).

Introduction
Definition of SMEs
The term “SMEs” stands for Small and Medium Enterprises. The commonly used factors in
defining the term are: total number of employees; total capital investment; and sales turnover.
The Organisation for Economic Co-operation and Development (OECD) defines SMEs as non-
subsidiary, independent firms that employ less than a given number of employees (between 250
and 500). As per the Small Industry Development Organization (SIDO) definition, SMEs in
Tanzania are mostly formal undertakings engaging up to 100 employees, with a capital
investment of up to TZS 800 million. To be listed on the Enterprise Growth Market (EGM)
segment of the Dar es Salaam Stock Exchange (DSE), SMEs must have net assets (issued and
paid up capital) of at least TZS200 million.

Classification of SMEs
For the purposes of the Tanzania’s SMEs Development Policy, SMEs are categorized as follows:
Table 1: Categories of SMEs in Tanzania

Category Employees Capital Investment

(Tshs.)
Micro enterprise 1–4 Up to 5 million
Small enterprise 5 – 49 Above 5 mil. to 200 million
Medium enterprise 50 – 99 Above 200mil.to 800 million
Large enterprise 100 + Above 800 million

N.B. In the event of an enterprise falling under more than one category, then the level of
investment will be the deciding factor.

Importance of SMEs
 Contributing to employment growth at a higher rate than larger firms.
 Income generated stimulate the growth in both urban and rural areas
 Leads to the utilization of local resources and affordable technology
 Facilitates the distribution of economic activities within the economy thus promoting
equitable distribution of resources
 Have great potential to complement large industries requirements
 Considered as an engine for growth and poverty reduction for the country through the
creation of jobs and incomes for the people
 Helps to strengthen the large industries (LIs).
 Provide various products in the market
 Contribute to the economic growth through paying taxes etc.
  Promote innovation

Importance of SMEs to the development of Tanzanian Economy

1) Generation of income
2) Contribution to poverty reduction
3) Foundation of private sector
4) Nursery for entrepreneurship
5) life blood of modern economies
6) Add value to agro-products
7) Employment creation

Common causes of small business’s failure:-

1) Bureaucracy and regulatory environment in adequate financial services for small
business sector.
2) Competition
3) Age of the firm;
4) Lack of managerial experience works.
5) Economic condition.
6) Wrong business location;
7) Insufficient starting capital
8) Technological advancement;
9) Changes in political environment and unsupportive government policy eg high tax,
curriculums do not emphasize on entrepreneurship.
10) Cross-cutting issues like diseases and HIV/AIDS.
11) Seasonality of some materials like agro-products which goes perpendicular with
climatic changes.
The ingredients for small business success
No matter what industry your business is in, no matter what products or services you sell, no
matter how small or large your business is, there are 13 ingredients to a successful business. Any
of these ingredients can make or break a business. If all 13 are in place, you will create a
powerhouse business that achieves its goals.
Nearly ALL businesses - small or large, privately-owned or publicly-traded - have one of more
of these ingredients weak or missing entirely. Large corporations spend hundreds of thousands or
even millions of dollars a year on consultants to strengthen any weak or missing areas of the
business.

1. Leadership and Management. Leadership is the power, the driving force behind any
business. Leadership includes such vital elements as purpose, vision, mission statement, and
planning - all of which set the course for the organization. Leadership also includes the
management philosophy, policies, procedures, planning, analysis and systems adopted to run an
organization. Leadership is important no matter the size of the organization. Small organizations
need excellent leadership and management just as much as larger companies. (Analytics falls
partly within this category, and partly in the Information Technology category.)
2. The product or service the organization sells and delivers. Does it do or provide what
people want? How does it compare with competitors’ products or services? What is the quality
level of the product or service? Are clients/customers happy with the product or service?
3. Personnel and Personnel Development. This includes all aspects of managing people, to
include hiring and retaining good people; having excellent training programs that develop and
enhance your people; managing your people to get maximum job performance and hard work
from each person; handling problem people; and knowing who to let go. What we call Personnel
Development goes far beyond the typical and usual HR stuff that most companies follow.
4. Organization and Structure. How is the company structured? Are all the people -
management, professional staff, and workers - organized into a united, efficient, well-oiled team
with everyone working toward the same company goals and purposes? How are jobs defined and
job descriptions developed? There is an exact science to this, an exact formula to produce the
optimum organization, structure and job definitions.
5. Operations. Operations means the actual actions, policies, procedures and “how to” the
business uses to create the product or service that is sold and delivered to clients or customers.
Operations is how the ingredients of Leadership and Management, Structure and Organization,
the Product or Service, and the Personnel are put together and used to create, sell and deliver the
product or service. Operations dictate the flows of the business - flows of the product or service,
flows of information, flows of people, etc. Operations define “Who does what to whom - and
how, where and when.”
6. Marketing. You can offer the best product or service in your industry. But if no one
knows about it, you will go bankrupt.
7. Quality Control. Quality Control divides into two parts. The first ensures that the product
or service being sold is of high quality. The second part ensures that the quality of the
organization's operations, personnel, systems, technologies and equipment are operating at high
standards. Successful businesses have systems and procedures in place to correct any
deficiencies as well as continually develop personnel and improve the quality of the entire
organization.

8. Customer/Client Service. After your customer or client has purchased your product or
service, there is a need for continuous communication with the client, or resolving a problem
with the product or service. Customer Service, along with product quality, determines if
customers give the company repeat business and refer other new customers - or not.

9. Communication. Good communication actually is a key part of all the other ingredients,
and is perhaps the most important individual ability needed for success. We split out
communication as a separate ingredient to success because of its importance. Communication
divides into (i) internal communications, within the organization, between the team members;
and (ii) between employees and customers/clients of the organization. It also means effective
interactions between management and the people being managed. Telephone Skills are a major
part of the communications ingredient in such businesses as medical or dental practices, law
firms, architectural firms, accounting firms, financial planners, chiropractors, consulting firms,
design companies and other professional businesses. For these types of businesses, phone skill is
actually one of the very most important elements of all in terms of revenues and profits - in
particular, handling incoming calls or leads from prospective clients/patients. We have found that
the skills, or lack of skills, of the people handling deficiencies as well as continually develop
personnel and improve the quality of the entire organization. Incoming calls can earn or cost a
business hundreds of thousands of dollars per year. KLH Growth Strategies offers an effective
phone training program that is guaranteed to generate remarkable increases in revenues.
10. Sales. You could have an excellent product or service. You can be doing effective
marketing which brings in a lot of potential customers or leads. But at some point, this potential
customer must make a decision, and that decision is whether to buy your product or service or go
elsewhere. Are your sales people trained well enough to close a high percentage of sales? Or are
they wasting leads and prospects? If your company has more than one sales person, is there a
sales manager? Is the sales manager fully trained, competent and skilled as a sales manager not
just as a sales person? If your company doesn’t have sales people, what is the sales process?
11. Accounting and Finance. Money provides the energy to keep an organization going. And
the most fundamental principle of accounting and business is to earn more money than is spent.
Good accounting procedures are also necessary because of all the numerous and complex state
and federal laws and regulations. Finance includes all the options for obtaining funding, as well
as managing revenues.12. Compliance and Legal. A business operates in a society full of
laws and regulations, which must be followed or penalties can result. And some industries
require far more compliance than others, such as securities trading, healthcare and banking. Also,
any business can get into situations where they need good, competent legal advice or counsel.

13. IT (Information Technology). This includes computers, networks, software, platforms,

data management, security procedures - even written paper or any manual information flow.
Analytics falls partly into this category and partly into the Leadership and Management
component. (IT could also be the product or service a business developer and sells.)

GROUP ASSIGNMENT 1 (05 MARKS)

Explain the reasons for increase establishment of Small business in Tanzania
TOPIC TWO: INFORMAL BUSSINESS IN TANZANIA.
Informality
Informality is an economic phenomenon that has its roots in private commercial activities taking
place outside the legal and regulatory realm and thus beyond the reach of the government
(Tillman, 2014. Various terms and expressions are used to refer to the economic informality, all
of which try to capture the idea that a “large share of economic units and workers remain outside
the regulated economic activities and protected employment relationships” (Chen, 2005). Labels
used to describe informality include the 'hidden', and 'underground' economy (Fields, 1975),
irregular economy (Ferman and Ferman, 1975), extralegal economy (de Soto, 2000), informal
sector (Hart, 1973) and the informal economy (ILO, 2002).
Informality is explained as ‘all activities that largely operate outside the system of government
benefit and regulation’ (Muhanga 2017: 163).

TYPES OF INFORMAL BUSINESS

Djankov et al. (2002) classified the informal sector into:
(i) underground enterprises,
(ii) subsistence enterprises, and
(iii) Unofficial enterprises.

(i) Underground enterprises

Engage in criminal activities, e.g smuggling business. Feige (1990) proposes a different
classification of the “underground economy” in which he distinguishes four sub-forms:
 illegal enterprises comprising the production and distribution of illegal and
banned goods;
 unreported economy where much of the transactions are not recorded
(cash economy) and so not taxed;
 unrecorded economy where enterprises are not captured by the national
statistical accounting systems;
 the informal economy as economic activities “that bypass the costs of, and
are excluded from the protection of, laws and administrative rules”

(ii) Subsistence enterprises

Result from ‘coping strategies’ adopted by families to militate against external shocks
(unemployment etc).
(iii)Unofficial enterprises
 Are those that try to hide and actively avoid paying taxes or complying with rules and
regulations.
CHARACTERISTICS OF INFORMAL BUSINESS
 It does not have any written rules or agreements.
 It exists merely on verbal understanding.
 Unsafe and unhealthy working conditions
 Low levels of skills and productivity,
 Low or irregular incomes,
 Long working hours
 In most cases are not recognized, registered, regulated or protected under labour
legislation
 Lack of access to information, markets, finance, training and technology.
 It does not have fixed wages or fixed hours of work and mostly relies on daily earnings.
 In most cases, the work atmosphere is congested and unhygienic.
 The workers in this type of economy usually fail to come together and address their
problems through an association or a group. They have poor awareness levels regarding
social protection schemes, are unable to make savings and do not see the necessity of
insuring themselves
THE REASONS FOR THE EXISTING OF INFORMAL BUSINESS IN TANZANIA
The root causes of informality include elements related to the economic context, the legal,
regulatory and policy frameworks and to some micro level determinants such as
 Low level of education,
 Discrimination,
 Poverty
 Lack of access to economic resources, to property, to financial and other business
services and to markets.
 Flexibility and autonomy, especially for self-employed individuals.

THE CONSEQUENCES OF BUSINESS INFORMALITY.

(i) Formal firms face higher costs relative to informal firms as they pay taxes, fees, and higher
wages for their employees. Informal firms can thus usually offer lower prices, thereby
competing unfairly with formal businesses.
(ii) Unfair competition from informal firms can also slow down the process in which inefficient
firms 9can be replaced by more efficient competitors and negatively affect the incentives of
formal firms to innovate and adopt new technologies, as these innovations can be easily
stolen.
(iii) Since informal firms can use public goods, but do not pay for them, they lower their quality
and crowd out their use by formal firms.
(iv) Unbankable
(v) Inadequate acces to the economic resources(market)

(vi) Lack of documentation which leads to poor records

(vii) No legal protection Little or no job security

(viii) Odd working hours.

(ix) Difficult to make any savings due to low wages.

(x) A brief illness or injury or injury can mean no financial means to survive.

CHALLENGES FACING INFORMAL BUSINESS IN TANZANIA.

PROBLEMS FACING BUSINESSPERSONS IN THE INFORMAL SECTOR IN

TANZANIA.
The interviewed business-persons mentioned a number of problems that the face in running their
business. They are as follows:-
(i) Lack of permanent centres for doing businesses as a result of bother from the authorities
from time to time.
(ii) Loss of money and properties due to the absence of the established areas of doing
business, and when they are forced to move by the authorities or even due to lack of
security.
(iii)Lack of entrepreneurial skills result into inability to apply for a loan as a result of
shortage of capital and even if capital is obtained it is lost since the business-persons do
not have skills for its management. Absence of market for most of the commodities sold
 by the business-persons in the informal sector some of which are decaying over time as a
result of loss in business.
(iv) Market pressure results into low prices offered by the customers as a result of low profit
or even loss. Unstable weather conditions affects to large extent business-persons in the
informal sector especially those engaged in agricultural products business like vegetables,
cereals and so on.
(v) Taxes that are established by the authorities are too high compared to what they are able
and willing to offer as far as the scale of their business is concerned.
(vi) Lack of Access to Credit. Informal businesses might fail to grow due to lack of financing.
In general businesses grow out of investments made out of the entrepreneurs’ own funds,
investors’ funds or credit. In the case of the informal businesses those three options are
limited.
(vii) Policies Made Without Consultation. Many countries intend to implement
formalization reforms that were not the product of consultation with the stakeholders.
Consensus had not been built and the policies originate rejection at different levels.
(viii) Informal Businesses Not Ready For Formality. Businesses might require coaching
to be fully incorporated into the formal economy. Market customs, ways of doing
business, demands of customers, among others can be challenging to informal businesses.
They might not have the capability and resources to respond to the requirements of the
formal market in terms of time, quantity and quality.
(ix) Lack of Knowledge. In many places there is no knowledge of the advantages of formality
and of the steps necessary to become formal. Countries might undertake substantial and
beneficial reforms addressed at eliminating obstacles to become formal and at promoting
benefits. However, people might not know about that and might remain under informality
with the assumption that it is very difficult and costly to become formal.
(x) Unreliable Enforcement Mechanisms. Key to formalization is the enforcement
mechanisms for rights and contracts. When the formal sector does not present a sound
offer in this area, the economic agents in general and businesses in particular might see
another incentive to not formalize.

TOPIC THREE: SMEs PROMOTION INITIATIVES IN TANZANIA.

GOVERNMENT INITIATIVES IN PROMOTING SMES IN TANZANIA

1.FINANCIAL SERVICES

 Harmonization of financial policy e.g VICOBA,SACCOS

 municipal financial support
 introduction of mobile money as a base among financial transaction
2.BUSINESS DEVELOPMENT SERVICES

 Training proggrammes sponsored by government i.e SIDO

 business exbihitione.gsabasaba,nanenane
 business councils

3.INTERNATIONALIZATION

 Promotion of Tanzania made products in all Tanzania embassy

 participation of Tanzania in internation business exhibition
 harmonization of policies(export policies)
 AGOA

FINANCING OPTIONS FOR SMEs

The most common sources of finance available to SMEs in Tanzania are:

1: Owners’ Personal Savings

In most cases, this is the first point of call whenever a business requires an additional cash
infusion. Owners’ funding may take the form of a loan or an additional equity contribution from
shareholders/directors. The main distinction between the two is that it is expected that the loan
will be repaid by the business at a future date. Not only is this a cheaper source of funding (no
interest), but it is also an indication of personal commitment to the venture on the part of
entrepreneur(s). In practice, however, this option may be severely limited, as the entrepreneur
may have already invested a substantial portion of personal resources in the business.

2: Bank Loans
Bank loans remain the most commonly used source of credit for most SMEs. Bank borrowing
has the following common features:
• The borrower is expected to have a banking relationship with a lender;
• There is a contractual repayment date;
• There is payment of a specified rate of interest; and
• The debt may be “unsecured” or “secured” on the assets of the business. In the event of
default, the lender has the right to sell these assets to redeem the debt.

Bank lending may be in the form of:

(i) Bank Overdraft An overdraft simply allows a business to spend over the balance on its bank
current account. The facility is available for a specific time period, after which it has to be repaid
or renegotiated and rolled over. Technically, banks have the right to call in an overdraft at any
point in time. Generally, the rate of interest on overdraft accounts is much higher than for
equivalent sums borrowed on fixed loans.
(ii) Trade Finance
This particular facility is common with agricultural exports and crop finance. Banks facilitate
trade finance through the use of collateral managers, who verify that the money advanced is used
to purchase the intended crops during the harvest season when the prices are low and to
subsequently sell them during the off-season when prices are high. Trade finance is also used for
pre-financing of export commodities with confirmed orders from reputable importers. The
exporter is facilitated to purchase the export crop and repay the bank once the importer has
received and fully paid for the commodity. The collateral management company manages the
entire transaction chain, ensuring that the borrower purchases the crop and exports it and that the
lending bank is paid from the export proceeds.
(iii) Term Loans Banks tend to provide term debt only to solid, creditworthy companies. By
nature of their business, banks generally have not adequately supported SMEs’ medium- to long-
term capital needs due to several factors, including:
• Stringent collateral requirements and high interest rates;

• Lack of innovative and well-structured facilities to meet the unique demands of some of
SME activities, e.g., agriculture;
• Overdependence on (short-term sources) customer deposits for lending by commercial
banks, which reduces their appetite for long-term lending; and
• The view by some that Tanzania is still a relatively risky lending environment, and one
likely to intensify the risk of long term lending.

3: Government’s SMEs’ Credit Guarantee Scheme

The objective of Tanzania’s SMEs’ Credit Guarantee Scheme (SME-CGS) is to facilitate access
to credit by SMEs. The arrangement is in line with the National Policy on SMEs Development,
which is geared towards the promotion and support of SMEs in Tanzania. Specifically, the SME-
CGS aims at providing credit guarantees to participating financial institutions relating to short-
and medium-term financing, as well as cooperating with various stakeholders in promoting
SMEs in the area of entrepreneurial skills.

4: Asset Leasing
Paying cash up front to purchase equipment can be a significant drain on businesses’
working capital. Leasing an asset, however, gives businesses access to assets without
having to pay for them up front. Asset leasing is an agreement used to finance the use of
equipment or assets. A financing company or bank (“lessor”) makes an investment in
equipment for the benefit of its customer (“lessee”) with expectations to recover the full
cost of its investment in the asset through regular rental payments. Payments are
calculated in a manner that enables the finance company to recover the full cost of its
investment in the asset, plus a margin of profit or interest. Leasing offers various
advantages over other means of financing. The most important ones suitable for SMEs
are: • No collateral requirements – collateral/security is seldom required in leasing
because the leased asset serves as security for the finance advanced. The lessor retains
 legal ownership over the asset, and in the event of default, the lessor can repossess the
equipment;

• Leasing allows technological advancement and therefore offers a way to modernize

production and develop small businesses; and
• Low transaction cost – a lease can be concluded more quickly and simply than a bank
loan. The lessor is usually only interested in determining the ability of the leased goods to
generate sufficient cash flow to pay monthly rentals throughout the lease term.

5: Venture Capital Funds

Venture capital is another source of finance for SMEs facing expansion funding constraints.
Venture capital funds primarily collaborate with entrepreneurs by providing high-risk equity
financing for business opportunities that can be profitably harvested eventually. Venture capital
has been described as “the maternity ward and incubation center” for wealth creation. Unlike
banks, venture capitalists are not passive providers of capital but active coaches for the
entrepreneurs with whom they partner.
Venture capital firms seek to add value in several ways, by:
• Identifying and evaluating business opportunities, including management, entry, or
growth strategies;
• Monitoring and coaching company management;
• Providing technical and strategic input;
• Attracting additional capital, directors, management, suppliers, and other key
stakeholders and resources;
• Participating actively in managing companies; and
• Assisting in the development of new products or services. Venture capital firms usually
seek a high return on their investments to compensate for the various associated risks.

Factors to be considered by venture capitalists before investing in any business include:

• Significant growth potential of the business;
• Sustainability on a long-term basis;
• Good and well-researched business plans;

• Strong management teams;

• Length of investment to recoup profit; and
• Existence of an exit mechanism (e.g., an Initial Public Offer (IPO), merger, or
acquisition).
To the venture capitalist, the success of an investment is contingent upon being able to profitably
divest from (or harvest) the investment at a future date. Possible exit mechanisms include sale of
the shares to the entrepreneur, an over-the-counter sale to a third party, an IPO, and liquidation.
The availability of a proper, clear exit route, such as an IPO through the DSE, therefore becomes
an added attraction for venture capital financing.

6: Capital Markets
The capital market is the medium through which a company can obtain its supply of long-term
investment funds. The capital market is an economic market, not a physical market, as it is fixed
neither in time nor place. It merely represents the aggregate activity of investors (all
organizations and individuals with surplus funds to invest) and issuers (all with available use for
those funds and the ability to pay the necessary rate of return to investors).

FACTORS CONSTRAINING ACCESS TO FINANCE BY SMES IN TANZANIA

 Lack of financial literacy,poor business consultancy

 Lack of corateral and bonds i.e big bond/massive bond

 Lack of business knowledge to prepare effective business proposal/plan

 Most financial institution value existing business rather than businesses starting from
scratch, it’s hard to have credit worthiness for a new business
 Many banks prefer to allocate their resources to large enterprises rather than to SMEs.
The reason is that large enterprises have a lower risk of default and their financial
statements are clear. However SMEs are riskier mainly from the point of view of lenders
and they do not have clear accounting information.
 Insufficient Use of Information Technology in SMEs: SMEs have been unable to
sufficiently utilize such opportunities. Most small enterprises do not have their own
websites
 Poor government support to Entrepreneurs

EXPLAIN THE CONSTITUTES OF BUSINESS DEVELOPMENT SERVICES

 Business consultancy services

 Assistance with market access
 Input supply
 Technology development transfer
 Training and technical services
 Infrastructure
 Professional services
 Policy advocacy services
TYPES OF BUSINESS DEVELOPMENT SERVICES PROVIDERS

 Private business i.e business consultancy company eg PASS

 Specialized government agenciese.g knowledge centres(institution)
 Local government development companiese.g district commercial
officer,provision of training,consultancy
 Business association
 Individual provider
 Hybrid companies

TOPIC FOUR: BUSINESS PLAN IN ESTABLISHING SMEs

CONCEPTS OF BUSINESS PLAN IN ESTABLISHING SMEs
Define business plan
A business plan is a written document that describes in detail how a business—usually
a startup—defines its objectives and how it is to go about achieving its goals. A business plan
lays out a written roadmap for the firm from marketing, financial, and operational standpoints.
Business plan is a written document describing the nature of the business, the sales and
marketing strategy, and the financial background, and containing a projected profit and loss
statement. Business Plan is a written document that describes the business idea and all the
relevant internal and external elements involved in launching a new venture.

A business plan is also like a map. A map shows a traveler:

 Where he is
 Where that traveler wants to go
 The distance and time that the traveler has to cover
 The obstacles on the route
 What is required to get there
 How to get there
If you are thinking of starting a business, you will also need some kind of a map, a business plan,
to show you what you need to set up your business, what the new business hopes to achieve in a
given period of time, the objectives that the business wants to attain and the activities that the
business must carry out to attain what it wants to achieve. The map will show you what obstacles
you will encounter, what boundaries will exist for the business and how you can develop a
strategy in order to avoid the obstacles

Benefits of business planning to SMEs

The business plan is a valuable document for the entrepreneur, potential investors and even for
the employees. The business plan is important to these people due to the following reasons:
1. It helps determine the viability of the venture in a target market.
2. It guides the entrepreneur in starting the enterprise.
3. The thinking involved in the preparation of the business plan makes the entrepreneur
aware of the issues that could impede the venture’s success.
 4. It serves as a guide to investors and thereby helps in obtaining finance.
5. Writing the business plan forces the founders to think about all aspects of the venture.
6. A clear business plan articulates the vision and goals of the founders.
7. A business plan communicates to all stakeholders. They can judge the venture’s future on
the basis of the business plan.
8. The business plan helps identify the important variables that will determine the success or
failure of the firm.
9. The business plan is used as a selling document to outsiders.

SIGNIFICANCE OF WRITING THE BUSINESS PLAN/PROJECT PROPOSAL

Business Plan is a formal documentation which contains the set of business goals which are
attainable for the business. It can be regarded as significant because of the following reasons:
Helps in Setting Objectives for Managers: A detailed business plan helps in setting short and
long range objectives for the business.

Specific objectives
1. Can be set and appropriate strategies can be built around within a limited time frame.
2. Managing Workforce: With business plans the managers have the luxury to pre-
determine the requirements of the organizations in terms of the total manpower required.
The rationale for hiring people should be there in the business plan.
3. Creating a New Business: A business plan is a must have document when an entrepreneur
is planning to have an entirely new business in place. What could be the right steps in
starting a business, what are the pre-requisites and what are the resources which need to
be arranged should be necessary part of a business plan.
4. Providing Credibility: A good business plan converts a good business into a credible,
understandable and attractive business.
5. Makes Prospects Familiar: The business world is dynamic and diverse at the same time.
A good business plan brings in familiarity for people who do not know much about the
business.
ROLES PLAYED BY BUSINESS PLAN TO SMEs
A good Business Plan can be useful to you in a number of ways. It can:
1. It highlight aspects of the business that need special consideration
2. It identify your core competencies (what you can do best) and weaknesses
3. It identify weaknesses and threats to the business
4. It open your eyes to new opportunities
5. It help you understand your competitors
6. It help you plan your operational setup better
7. It help you use your financial resources more efficiently and ultimately more profitably
8. It assist your management capabilities in relation to specific tasks and functions as well
as bring awareness to human resources and capacity needs
9. It provides economic/financial projections.
10. It enhances the monitoring and control of the business by following up the results
obtained and analyzing management indicators.
11. Introduces an analysis of the supply and demand.
12. Reflects the commercial strategy and the marketing policy.
13. Identifies the guidelines for the management of human resources.
 14. Analyzes the key factors of success and the risks of a business.

CHALLENGES OF BUSINESS PLAN IN SMES

Common challenges of writing a business plan

The challenges of writing a business plan vary. Do you have all the information about your
business that you need? Does your industry have strict guidelines that you must adhere to? To
help you prepare, we identified 10 of the most common issues you may face:

1. Getting started
2. Identifying cash flow and financial projections
3. Knowing your target market
4. Being concise
5. Making it interesting
6. Establishing workable goals
7. Being realistic about business growth
8. Proving that your idea is worth the risk
9. Finding the right amount of flexibility
10. Creating a strategy that you can implement

Crafting a business plan around these 10 challenges can prepare your business – and anyone who
joins it – for a prosperous future.

How to overcome the challenges of writing a business plan

Although you won’t accurately predict everything for your business, you can take preemptive
steps to reduce the number of complications that may arise. For example, familiarize yourself
with the business plan process by researching business plans and identifying how others
successfully executed their plans.

You can use these plans as a basis; however, Rick Cottrell, CEO and founder of BizResults.com,
recommends taking it one step further: Talk to small business owners and others who have
experience.

“The business owner should talk to an accountant, banker, and those who deal with these plans
on a daily basis and learn how others have done it,” Cottrell said. “They can join startup and
investment groups, and speak to peers and others who are getting ready to launch a business, and
gain insights from them. They can seek out capital innovation clubs in their area and get
additional expertise.”

If you research how to write a business plan and still don’t feel comfortable writing one, you can
always hire a consultant to help you with the process.
“It is simply a time-consuming process that cannot be rushed,” Cottrell added. “Millions of
dollars can be at stake and, in many cases, requires a high level of expertise that either needs to
be learned or executed in conjunction with an experienced business consultant.”

1. Building A Framework

The toughest challenge for me on the first business was getting my vision "on paper." I had such
good ideas! So I built an outline using my "rule of three"—three core description points for the
business, then three reasons why it was different, then three core reasons why it made sense to
get into the business or invest. Below each of those reasons, list three supporting reasons, and so
on.

2. Having A Capital Financing Plan

A business plan that is reasonable and can be implemented involves many factors including
management team, market assessment, competition, competitive differentiation and product
development strategy. However, the biggest area that needs to be addressed is your capital
financing plan. Ensure the financing, timing and source of funds is consistent with the needs to
execute the plan.

3. Being Concise

One of my biggest challenges was "how to keep it short and simple" when I have so much to say.
I believe that the more concise and focused your plan is, the more likely for you to achieve your
goals. In addition, having a realistic set of goals that align with your plan is a must!

4. Overcoming Your Fear

For most people starting their first business, the biggest challenge seems to be fear. They plan
out everything, they see the ideal market, but also lack the experience. So they often listen to
friends and family who don't have their own business and know how risky it is. And then they
get cold feet! If you are 70% sure, just go for it. It'll never be 100%, and by that time it's usually
too late.

5. Being Ready To Pivot

A challenge we faced was not accounting for changes in the market, specifically consumer
sentiment. When building technology, one needs to be flexible and adapt to customer needs.
Luckily with the team we had, we were able to make on-the-fly adjustments to tackle the ever-
changing landscape.

6. Setting The Right First Target

I built my first business plan alongside a number of other early-stage entrepreneurs with the
initial objective of getting to $1 million in annual revenue. I built our business plan around
getting to $5 million in revenue and so I built the foundation needed for a larger enterprise. As a
result, I found getting past the $1 million threshold was much easier.

7. Trying To Be Realistic

When anyone is starting a business they are going into it because they think it's going to be great,
and they think they're going to be making a ton of money, and that clients will just rush through
the doors. You've got to be realistic. You've got to think about everything that could go wrong
and prepare. You don't want to end up in a hole because you haven't accounted for any potential
hiccups.

8. Getting People To Care

Before I founded my digital agency, I was an IT guy. My most-liked Facebook photo of 2016
was a picture of my wife, and it only got about 30 likes! Essentially, my biggest problem was
getting people to care. At that point I started to get envious of entrepreneurs around me, but also
observed what was working for them. Now, using social media as a marketing platform is what I
do professionally!

9. Talking With The Right Mentor

There's much written that describes "the art of the start." However, oftentimes many of the
authors haven't actually done what they have preached. Or if they have, they did it many years
ago, making their experience irrelevant to today. It wouldn't make sense to ask Bill Gates how to
raise an angel round. Find a mentor that's a little ahead of you to provide relevant, actionable
help.

10. Accepting That You Don't Know Everything

We did not understand the details of how the insurance industry worked and what the real drivers
and levers were for decision-making by the industry professionals. We immediately sought
leading experts currently operating in the industry to become early advisors or angel investors.
Additionally, I went out and got licensed in the industry to understand what the operators go
through.

11. Determining The Customer Demand

The biggest challenge while developing our first business was to determine consumer demand.
The right steps were to define the problem, run multiple market surveys, consolidate the results
of both primary and secondary data, and then seize the opportunity. It’s very simple—if you
cannot validate the need of your product through real data, your product will not reach the right
customers.

12. Trying to Reeducate the Marketplace

Let the market place educate you. Every time I've tried to reeducate the marketplace, I've failed.
No matter how cool or neat the product or idea was, it's just too expensive. The marketplace does
the talking and you provide what it demands!

13. Embracing Integrative Thinking

The emotional attachment with one's entrepreneurial idea is a strength and a weakness. The
strength enables one to put in sweat, blood and whatever it takes to create a successful enterprise.
The weakness stems from not being able to see things from customers' and investors'
perspectives. Falling in love with the problem allows one to explore different ways to a solution
by soaking in those perspectives.

TOPIC FIVE: BUSSINESS PLANNING PROCESS.

The questions to consider in writing an effective business plan
One reason people are sometimes intimidated by the prospect of writing a business plan is
simple: They don't have a clue what a plan should contain. But to be useful and effective, all
business plans should provide answers to these ten questions.

BUSINESS DESCRIPTION
 What is the name of your business?
 What type of business is it?
 Where will your business be located?
 Is your business full-time, part-time, seasonal, etc.?
 What is your business structure? (Sole Proprietorship, Partnership, Corporation,
SCorporation or Limited Liability Company?)
 What is the status of your business? (Startup, expansion, etc.)
 What makes your business unique and likely to be successful?
 What factors will lead to the growth of your business?
PRODUCT SERVICE DESCRIPTION
 What is your product/service? What are the features?
 What is unique (special qualities) about your product/service?
 How does your product/service satisfy your customer’s needs?
 What are the benefits and added value of your product?
MARKETING PLAN
Target Market:
 Who are your potential customers?
 Where do they live?
 How old are they?
 Are they male or female?
 What is the size of your target market?
 Is your target market stable, growing or shrinking?
 What are the local and/or national trends in your industry?
Analysis of Competition:
 Who are your five nearest competitors?
 What are each of their strengths and weaknesses?
  Who are their customers?
 Why do their customers shop there?
 How much do your competitors charge?
 Is their business steady, increasing or decreasing and why?
 How will your business be different/better?
Position:
 x How will your business be positioned against your competition? (Better service? Lower
price? Special niche?)
Packaging:
 For a product business: How will your product be presented? A bag with your business
name and logo? A box? (Attach if available)
 For a service business: What will your marketing material look like - business cards,
logo, website, etc.? (Attach if available)
Location:
 Where will your business be located?
 What factors will influence your choice of location?
 What features will your location have?
 How will your building contribute to your marketing strategy?
 What are the features of your building layout?
Pricing:
 What is/are the price(s) of your product(s) and/or service(s)?
 Why will your customers pay your prices?
 If your price is higher than your competition: What special advantage do you offer to
justify the higher price?
 If your price is lower than your competition: Is your price profitable?
Promotion:
 How will you attract customers/clients?
 How will you promote sales?
 How will you retain your customers/clients?
 How will you expand your market base?
 How will/does your promotion/advertising reach your target market?
Physical Distribution:
 How will you get your product to your customers?
 Will they come to your business or will you deliver your product?
 What are the cost and benefits of your distribution plan?
 Who are your suppliers and why?
OPERATIONAL/MANAGEMENT PLAN:
 Who will manage the business?
 What is the management’s experience and qualifications?
 Will you have employees now? Later?
 How many employees will you need and what will they do?
 Will your employees be full or part-time?
 Will you pay salaries or hourly wages?
 Will you provide fringe benefits?
 Who will train your employees?
 How will you manage your finances?
  How will you manage your record keeping?
 What professional resources will you use? (accountant, attorney, other)
 What legal form of ownership will you choose and why?
 What licenses and permits will you need?
 What regulations impact your business?
FINANCIAL PLAN:
 What is your total estimated income for your initial year of operation? By month? By
quarter?
 What will it cost to open your business and sustain it for twelve months?
 What will be your monthly cash flow during the first year? (cash flow projections
chart/spreadsheet for 1st year)
 What will be your personal monthly financial needs?
 What is your break-even point?
 What sales volume will your business need in order to make a profit during the first three
years?
 What will be your projected Assets, Liabilities and Net Worth (balance sheet) on the day
before you expect to open your business?
 What will be the value of your equipment?
 What is your financing strategy?
 What are your potential funding sources?
 How will you use the money you receive from lenders or investors?
 How will your loan be secured?
 What will you use the proceeds from your requested loan for?

What sets you apart from the competition?

If you've invented something unlike anything the world has ever seen before, congratulations.
You're in rare company. If you're like most businesses, you compete in a marketplace with other
players. To succeed, you have to give customers good reasons to choose you over your
competitors. An effective business plan should spell out those reasons and develop strategies to
make the most of them. To get started, find out all you can about your competitors and their
strengths and weaknesses. Then consider how the business you're planning stacks up. Typically,
businesses compete on the basis of price, quality, service, and features.
What are your strengths and weaknesses?
This question may well be the most important one you ponder as you develop your business
plan. Most people have a vague sense of what they do well and what they could do better. If
you're part of an organization, you can recognize some of its strengths and weaknesses. But
there's a lot that people don't face up to. The process of writing a business plan gives you an
opportunity to be far more honest and thorough in your assessment. A formal SWOT analysis
grid can allow you to measure your strengths and weaknesses against the opportunities and
threats in your business environment.
What are the biggest challenges you face?
Every business faces challenges, especially in competitive markets or with technological change.
Your business plan should describe in detail the particular challenges you face and how you plan
to overcome them. The challenges can be part of the business environment you compete in — a
crowded field of competitors or regulatory uncertainties, for example. But some of the
challenges you face are also likely to be related specifically to your company, such as hiring and
holding on to skilled employees, for instance, or responding quickly to changes in the
marketplace.
How will you measure success?
The simple answer to this question is money. Make enough money, and any business is a
success. But in fact, for most enterprises, the answer is more complex. The most obvious
example is a not-for-profit company. Consider a nonprofit community orchestra. Its success is
measured in terms of filling seats for its concerts and providing local musicians a chance to play.
Or consider a food bank. It spells success in terms of reaching as many people in need and giving
them nutritious food as possible.

CONTENTS/ELEMENTS OF BUSINESS PLAN /PROJECT PROPOSAL

The content of business plan depends upon the objectives and goals set for the business
undertaking. A business plan should include the following elements
1.Title Page and Table of Contents: A business plan is a professional document and should
contain a title page with the company’s name, logo, and address as well as the name and contact
information of the company’s founders. Many entrepreneurs also include the copy number of the
plan and the date on which it was issued on the title page.
2.Executive Summary/Management Summary: It will usually contain a brief statement of the
problem or proposal covered in the major documents,background information, concise analysis
and main conclusions. It isintended as an aid to decision making by managers. Executive
summaryshould be concise a maximum of two pages and should summarize all of the relevant
points of the business venture.
3.Business Description, Vision & Mission Statement: Business description summarizes the
key technology, concept, or strategy on which the businessis based. The mission statement
clearly states the company’s long- termmission. In the mission statement the use words should be
such that which would help direct the growth of the company. For example McDonald’s mission
statement reads like this- “To provide the fast food customer foodprepared in the same high-
quality manner would world-wide that hasconsistent taste, serving time, and price in a low-key
décor and friendlyatmosphere.
4.Business and Industry Profile: In industry analysis future outlook and trends of the industry
needs to be looked into. A proper analysis of thecompetitors in the market and industry should
also be carried out properly and the results should reflect in the business plan drafted.
5.Description of the Company’s Product or Service: The business plan should include the
overall description of what the company is going to offer to its customers in terms of
product/services on offer. Product/service detail should be written in a terminology-free style so
that it is easy for others to understand.
6.Market Analysis: The most important section in the business plan, the market analysis section
should include conclusive information of how thecompany will react to changes in the market,
generate sales, and explainwhy the company should be invested in. The market analysis section
shouldinclude:
(a) Market opportunity
(b) Competition analysis
(c) Marketing strategy
(d) Market research
(e) Sales forecasts
7.Management Team: The management team section should share in detail the management
team, as investors usually invest in people not their ideas.
Included within this section should be:
(a)Management Talent and Skills
(b)Organizational chart
(c)Policy and strategy for employees
(d)Board of Directors and Advisory Board
8.Managerial and Structural Aspects: In this the entrepreneur needs to decide which kind of
organization structure should be adopted. Further, the authority responsibility relationship also
needs to be planned out. It is also necessary for the organization to specify the type of business
process being followed.
9.Technical Analysis: In technical analysis the results of the technical feasibility carried out
earlier is drafted. In this generally the requirementsof the plant and machinery, plant capacity
utilization, location of the plantetc. is analyzed and drafted.
10.Production Analysis: In this a comprehensive budgetary proposal with sub-budgets for all
necessary elements is drafted. In addition to this the quality control system of the organization
and inventory control systemsdetail should be there in the business plan.
11.Financial Plan: In this the source of capital whether it be fixed or working capital is
elaborated. Secondly, the capital structure in a broad basedmanner should also be a part of the
financial plan. Thirdly, schemes andstrategies to ensure financial control and financial discipline
needs to bedrafted firsthand. Other details such as agreements or Memorandum ofUndertakings
(MOU) with banks, financial institutions, underwriters etc.should also be a part pf the financial
plan.
12.Human Resource Plan: The manpower planning and the need of human resource for the
organization should be analyzed and assessed. Businesswould do well to draft the procedures for
recruitment, selection, placement,career advancement plans, training and development
programmes, systemof personnel compensation etc. in the business plan to draw in clarity about
the priorities of the business.
A QUALITY OF WELL WRITTEN BUSINESS PLAN
1. It fits the business need
We simply can’t look at business plans as generic. You have to start with whether or not the plan
achieved its business purpose. Some plans exist to get investment. Some are supposed to support
loan applications. Those are specialty uses, which apply to some business situations, while
almost all businesses ought to develop management-oriented business plans that exist to help run
the company, not to be presented to outsiders. So point one, what makes a good business plan, is
that it fits the business need. Does it achieve the business objective?
2. It is realistic. It can be implemented.
The second measure of good or bad in a business plan is realism. You don’t get points for ideas
that can’t be implemented. For example, a brilliantly written, beautifully formatted, and
excellently researched business plan for a product that can’t be built is not a good business plan.
The plan that requires millions of dollars of investment but doesn’t have a management team that
can get that investment is not a good plan. A plan that ignores a fatal flaw is not a good plan.
3. It is specific. You can track results against plan.
Every business plan ought to include tasks, deadlines, dates, forecasts, budgets, and metrics. It’s
measurable. Ask yourself, as you evaluate a business plan: how will we know later if we
followed the plan? How will we track actual results and compare them against the plan? How
will we know if we are on plan or not? While blue-sky strategy is great (or might be, maybe),
good planning depends more on what, when, who, and how much.
4. It clearly defines responsibilities for implementation
You have to be able to identify a single person will be responsible for every significant task and
function. A task that doesn’t have an owner isn’t likely to be implemented. You can go through a
business plan and look to see whether or not you can recognize a specific person responsible for
implementation at every point.
5. It clearly identifies assumptions
This is very important because business plans are always wrong. They’re done by humans, who
are guessing the future, and humans guess wrong. So business plans must clearly show
assumptions up front because changed assumptions ought to lead to revised plans. You identify
assumptions and keep them visible during the following planning process.
6. It is communicated to the people who have to run it
At this point we leave the discussion of the plan itself, as if it were a stand-alone entity, and get
into how the plan is managed. The first five points here are about the plan. You can deal with
them as the plan develops. This and the following two are about the management of the plan. I
know that’s kind of tough, because it means that a plan that isn’t managed isn’t a good plan. But
I can live with that.
So a good plan is communicated. Up above, where I suggest that the qualities of writing and
editing are not essential for all plans, and I reference cryptic bullet points that only the team
understands: I stick with that here. If only the team understands them it, it can still be a good
plan; but it has to be communicated to that team.

7. It gets people committed

Here too it’s about the process surrounding the plan, more than the plan itself. The plan has to
have the specifics in point 3 and responsibilities as in point 4, but the management has to take
them to the team and get the team committed.
8. It is kept alive by follow up and planning process
Sadly, you can have all seven of the above points, and if you drop the ball — the plan in the
drawer syndrome — then the plan still isn’t a good plan. It has to bring the planning process with
it, meaning regular review and course correction. No business plan is good if it’s static and
inflexible. Planning isn’t about predicting the future once a year and then following that
predicted future no matter what. Planning is steering and management. It takes a process of
regular review and course correction.

TOPIC SEVEN: BUSINESS GROWTH AND DEVELOPMENT IN SMEs.

What is business growth?
Business Growth is a stage where the business reaches the point for expansion and seeks
additional options to generate more profit. Business growth is a function of the business
lifecycle, industry growth trends, and the owners desire for equity value creation. OR
A growing business is one that is expanding in one or more ways. There is no single metric used
to measure growth. Instead, several data points can be highlighted to show a company is
growing. These include:
INDICATORS OF BUSINESS GROWTH
Here are some growth metrics businesses can focus on:
 Revenue – Revenue shows how much money a company is bringing in.
 Higher profits – Higher profits are generally a sign everything is going well.
However, businesses will still have to look at factors like the number of customers
being onboarded or leads coming in to ensure future success.
 Higher sales/Sales growth – Increases in sales usually suggest a company is growing.
Business owners should be wary if a short-term sales increase has been brought about
by factors such as heavy discounts or if the increase in sales causes the company to be
in danger of overtrading.
 Increased number of customers/More customers –More customers are a sign of
growth. However, it can be an issue if customer acquisition costs are high and
customer retention is poor.
 Customer satisfaction leading to customer loyalty, if there is reduced number of
complaints may show that there is growth in business.
 Good business reputation and good customer reviews this happens when
publics/customers speak well of your business and recommends it to family/relatives
and friends it indicates small business growth.

TYPES OF BUSINESS GROWTH.

1. Organic Business Growth
Organic business growth is the most basic but most effective means of growth for a business.
Organic growth focuses on producing more products, services, and space for business success.
Businesses who are focusing on organic growth may buy a larger storefront or expand shifts to
manufacture more product. Businesses focused on growing organically need to literally expand
to accommodate their needs.
Organic growth is a solid business growth strategy for new businesses and also businesses who
have tapped into a new market and face shortage of product. Additional space or production meet
a growing need among consumers and prevent shortage. Organic business growth is an
unsustainable growth strategy but one that ultimately sets a business up for future success.
 2. Strategic Business Growth
Strategic business growth focuses on the long term growth of a business. Businesses who should
focus on strategic growth have reached the epoch of their organic business growth stage and
need to find additional markets. A strategic growth strategy may be to reach a previously
untapped market through advertising or create additional products to add to inventory. Strategic
business growth requires the money generated by organic growth because businesses won't
experience that same the watershed business acceleration. Instead, it will be a gradual increase in
sales.
Strategic growth is an essential stage for businesses that have plateaued. The strategic business
growth strategy allows businesses to focus on long-term plans and use stored capital to attain
those goals. Strategic growth is difficult for new businesses or businesses who are producing less
product than is in demand. Ultimately, strategic business growth is a great strategy to tap when
looking at long term business planning.
3. Partnership/Merger/Acquisition
For some businesses, acquiring, merging, or creating a partnership with another business can
present some unique benefits and opportunities for market expansion. This strategy of business
growth is the riskiest but also with the most potential success. A well laid merger or acquisition
can help a business enter a new market, manufacture more product, and gain the customer
loyalty cultivated by another brand.
4. Internal Business Growth
Internal business growth is both the easiest and hardest way to promote business growth. Rather
than looking outward to production, this business growth strategy uses current resources and
determines how they can be used better. Internal growth would include a business implementing
lean systems or automated workforce management systems. This growth is often the hardest
because rather than simply expanding into another market or trying to expand a product line,
businesses must change how they conduct business, a process that can be scary to employees and
managers.
In times between strategic and organic growth, internal business growth is a great way to
maximize resources without a significant outlay of capital. In fact, internal growth should allow a
business to continue production using less resources, recouping any costs spent maximizing
processes. Internal business growth is a practical business growth strategy during any "lull" in
outward growth.
THE INDICATORS OF BUSINESS GROWTH.

There are qualitative and quantitative growth indicators of businesses. Both are necessary and
should be considered to ensure the sustainable growth of your business.
Qualitative growth indicators are indicators that cannot be quantified, i.e., these are the type of
growth indicators that are not measured in numbers. Customer satisfaction, customer loyalty,
good business reputation, good customers’ reviews, etc. are some of the key qualitative growth
indicators of businesses. These metrics are very crucial as they help measure how well the
business is doing and the business’ growth potential. Positive, honest reviews from your
customers help recognize how well your business is doing. The levels of loyalty maintained by
your customers towards your business as well as the satisfaction your customers derive from
your products/services are important metrics for your business’ growth.

Quantitative growth indicators are measured in numbers. The quantitative business growth
indicators are the most concentrated on due to their popularity. Sales growth, cost of production,
gross profit growth rate, customer retention rate, inventory level, labour turnover rate, improving
cash flow, operational performance and productivity, assets efficiency rate, etc. These variables
are some of the key quantitative business growth indicators. Rapid sales growth rate, falling or
declining cost of production, increasing gross profit margin, high customer retention rate are
indicators of a growing business.

Business owners should pay keen attention to these metrics as they help assess the growth rate of
their businesses. Frequent review of these metrics provides key insights on the relevant aspects
of the business that should be improved on. It also helps to highlight the unique selling points of
businesses.

LIMITATIONS OF SMALL BUSINESS GROWTH

The following are some of the factors which put a limit on the growth of a business:
1. Shortage of Labour or Capital:
If increased supplies of trained labour are not available, the growth of a business will be
automatically checked. In the same way, if fresh capital cannot be raised, expansion stops. But
these are not insurmountable obstacles.

2. Nature of the Market:

If demand is limited or fluctuating, it will be imprudent to increase the size of the business. The
nature of demand is the most important limiting factor. It almost settles the matter. If individual
tastes have to be satisfied, large-scale production is ruled out.

3. Managerial Capacity:
Another serious limitation comes from the capacity of the manager. A point is reached in the
expansion of a business beyond which it is not possible for the manager to control it efficiently.
There is a limit to what a man can successfully manage. Beyond that point, supervision will
become lax, materials will be wasted and machinery mishandled. Cost will overtake profits, and,
in the end, the profits may vanish. The limit is reached when the marginal revenue is equal to the
marginal cost.
4. Nature of the Industry:
In some industries, large-scale production is out of the question. They require close personal
supervision, e.g., jewellery-making and tailoring. Or, there are industries where there is not much
scope for the use of machinery and division of labour, e.g., agriculture, fruit and vegetable
gardening, etc. Bulky articles like bricks can only be made on a small scale, for it will not pay to
carry them over long distances

5. Operation of the Law of Diminishing Returns

It happens sometimes that the expansion of an industry leads to increasing costs, and the returns
are less than proportionate. It will not be wise in such cases to expand the business. These are
some of the factors which prevent the growth of a business beyond a certain limit
MODEL OF BUSINESS GROWTH.
Business Life Cycle
The business life cycle is the progression of a business in phases over time and is most
commonly divided into five stages: launch, growth, shake-out, maturity, and decline. The
cycle is shown on a graph with the horizontal axis as time and the vertical axis as dollars or
various financial metrics. In this article, we will use three financial metrics to describe the
status of each business life cycle phase, including sales, profit, and cash flow.
STAGES OF BUSINESS GROWTH
The four-stage theory splits growth into start-up, growth, maturity, and renewal/decline stages.

 In the startup phase, the company begins to find its place in the market. It needs to discover
if there is room for its product or service and, if there is, what it needs to do to be successful.
In this stage, companies generally have only a few employees who take on multiple roles.
Challenges faced by companies during this phase include keeping hold of employees and
making the best use of the limited cash available.
 When a company enters the growth stage it should have a solid business model and be
working towards strengthening its market position. As the company grows, people must be
hired to run the expanding sections of the business. The main challenge during this stage is
balancing the increase in expenses required for growth with the still limited funds available.
 During the maturity stage, the company should be relatively stable. It should have
procedures and teams in place that allow the business to run without too much input from the
owner. The business should have plenty of cash allowing it to invest in opportunities such as
new products or acquisitions. The main challenge is ensuring there is no complacency while
staying ahead of competitors looking to disrupt the market.
 The renewal/decline stage is when stable businesses begin to see a decline in revenue. While
it may not spell big trouble at first, at this point business owners should reinvest in the
business to recement its market position, or, if the owners don’t have the motivation to do so,
attempt to cash out before the situation worsens.
THE KEY FACTORS FACILITATING BUSINESS GROWTH.
1) Having a strong leadership team
Strong leadership has the ability to define a clear vision for the company. To be successful, the
vision needs to be well-planned out and explained in a way so people connect with it and are
motivated by it. This takes the total buy-in mentality. The second major factor is appropriate
involvement of leadership in leading and supporting projects that are strategic to the
organization. Strategy statements are simply ineffective without a leadership team that is capable
of driving the strategy home.
2) Hiring the right employees for your business
Is there still good quality employees out there that want to work? This is a struggle for many
people because finding people that want to work and excel at their position isn’t always the
easiest. Getting the right people in the right spots with a clear and defined understanding of their
priorities is vital. If a company has the right people, they will move faster and accomplish more
in the same amount of time. When hiring you’re going to want to make sure these employees fit
the culture of the business and are looking to grow with you. I always recommend being creative
with the questions you ask during interviews and make sure you ask them what their long term
goal is with you.
3) Disciplined approach to their business
They learn how to work on their business, not just in it. This involves planning and, more
importantly, aligning their people to execute the business’s growth plan. Again, this is where it
will help to hire those individuals that love working for you, trust in you and know they feel
valued. When employees know their self-worth based on you, it goes a long way in what you’re
going to get from them. Ultimately, involve your entire team and make them feel like they are a
part of the company!
4) Ability to strategically use tools
High-performing organizations looking for business growth give more emphasis than lower
performing companies to use technology to tools to impact the business in strategic ways.
Organizations that have developed a culture that figures out ways to deploy tools or technology,
not for technology’s sake, but to better serve their strategy will always succeed.
5) The wise use of trusted outside providers
To have a growth orientated business they need a systematic way of gathering and periodically
analyzing vital information about the business. Outside providers whom they trust can be
invaluable to performing this kind of review of their business. High-performing businesses have
learned to supplement their internal expertise by building trusted relationships with the
outsourced personnel, this allows them to cost-effectively buy the amount of expertise they need
when they need it.

TOPIC EIGHT: STRATEGIES FOR MANAGING BUSINESS GROWTH.

TOPIC NINE: GENDER IN INTERPRENEURSHIPS.

THE CONCEPT OF WOMEN ENTREPRENUERSHIP

According to the general concept, women entrepreneur may be defined as a women or a group of
women who initiate, organize and operate a business enterprise. The Government defined a
women entrepreneurship as “an enterprise owned and controlled by a women having a minimum
financial interest of 51% of the capital and giving at least 51% of the employment generated in
the enterprise to women”.

REASONS FOR THE SLOW GROWTH OF WOMEN ENTREPRENEURSHIP

In spite of the initiatives taken by the government, the growth of women entrepreneurship is
very slow in the state.
Problems of women entrepreneurs
The basic problem of a woman entrepreneur is that she is a woman. Women entrepreneurs
face two sets of problems specific to women entrepreneurs. These are summarized as follows.

1) Shortage of Finance: Women and small entrepreneurs always suffer from inadequate
fixed and working capital. Owing to lack of confidence in women’s ability, male members in the
family do not like to risk their capital in ventures run by women. Banks have also taken negative
attitude while lending to women entrepreneurs. Thus women entrepreneurs rely often on
personalsaving and loans from family and friends.
2) Shortage of Raw Material: Women entrepreneurs find it difficult to procure material and
other necessary inputs. The prices of many raw materials are quite high.
3) Inadequate Marketing Facilities: Most of the women entrepreneurs depend on
intermediaries for marketing their products. It is very difficult for the women entrepreneurs to
explore the market and to make their product popular.
4) Keen Competition: Women entrepreneurs face tough competition from male entrepreneurs
and also from organized industries. They cannot afford to spend large sums of advertisement.
5) High Cost of Production: High prices of material, low productivity. Under utilisation of
capacity etc. account for high cost of production. The government assistance and subsidies
would not be sufficient for the survival.
6) Family Responsibilities: Management of family may be more complicated than the
management of the business. Hence she cannot put her full involvement in the business
Occupational backgrounds of the family and education level of husband has a direct impact on
the development of women entrepreneurship.
7) Low Mobility: One of the biggest handicaps for women entrepreneur is her inability to travel
from one place to another for business purposes. A single women asking for room is looked upon
with suspicion. Sometimes licensing authorities, labour officials and sales tax officials may
harass them.
8) Lack of Education: Many women are still illiterate in Tanzania. There exists a belief that
investing in woman’s education is a liability, not an asset. Lack of knowledge and experience
creates further problems in the setting up and operation of business.
9) Low Capacity to Bear Risks: Women lead a protected life dominated by the family
members. She is not economically independent. She may not have confidence to bear the risk
alone. If she cannot bear risks, she can never be an entrepreneur.

10) Social Attitudes: Women do not get equal treatment in a male dominated society.
Wherever she goes, she faces discrimination. The male ego stands in the way of success of
women entrepreneurs. Thus, the rigid social attitudes prevent a woman from becoming a
successful entrepreneur.
11) Low Need for Achievement: Generally, a woman will not have strong need for
achievement. Every women suffers from the painful feeling that she is forced
to depend on others in her life. Her pre-conceived notions about her role in life inhibit
achievement and independence.
12) Lack of Training: A women entrepreneur from middle class starts her first entrepreneurial
venture in her late thirties or early forties due to her commitments towards children. Her biggest
problem is the lack of sufficient business training.
13) Lack of Information: Women entrepreneurs sometimes are not aware of technological
developments and other information on subsidies and concessions available to them. They may
not know how to get loans, industrial estates, raw materials etc.

REMEDIES TO SOLVE THE PROBLEMS OF WOMEN ENTREPRENEURS

The following measures may be taken to solve the problems faced by women entrepreneurs in
Tanzania:
1) In banks and public financial institutions, special cells may be opened for providing easy
finance to women entrepreneurs. Finance may be provided at concessional rates of interest.

2) Women entrepreneurs’ should be encouraged and assisted to set up co-operatives with a view
to eliminate middlemen.

3) Scarce and imported raw materials may be made available to women entrepreneurs on priority
basis.
4) Steps may be taken to make family members aware of the potential of girls and their due role
in society.
5) Honest and sincere attempts should be undertaken by the government and social organizations
to increase literacy (i.e. read and write financial statements) among females.
6) In rural areas self employment opportunities should be developed for helping women.
7) Marketing facilities for the purpose of buying and selling of both raw and finished goods
should be provided in easy reach.
8) Facilities for training and development must be made available to women entrepreneurs.
Family members do not like women to go to distant place for training. Therefore mobile training
centres should be arranged. Additional facilities like stipend, good hygienic crèches, transport
facilities etc., should be offered to attract more women to training centre.
DIFFERENT BETWEEN MEN AND WOMEN ENTREPRENEUR
“No two entrepreneurs are the same “Entrepreneurs differ with respect to the sector they work in,
their background and experience, the size of the enterprises, etc. This applies to female as well as
to male entrepreneurs. It is interesting to investigate in what way female and male entrepreneurs
differ.

Differences between male and female entrepreneur can be noticed with respect to their
experience and education, the time they spend on running the business, networking, sector, firm
size and entrepreneurial characteristics.
One reason that they may differ is that their societal opportunities are unevenly distributed or
as a result of a different upbringing.
Men tend to be more dominant(forceful and aggressive) and are emotionally stable, while
women tend to be more sensitive, warm(attentive to others)and apprehensive

MALE ENTREPRENEUR FEMALE ENTREPRENEUR

Decision making is easy Difficulty in making decisions

Business focused on economy and cost Business focused on making social contribution
and quality

Willing to take financial risk More conservative when it comes to financial

risk

Task oriented managers Focus on good relationship with employees

Business manufacturing and construction Business small retail and service orientation

More logical thinkers More intuitive thinkers

TOPIC TEN: TOTAL QUALITY MANAGEMENT (TQM) IN SMEs OPERATIONS.

A core definition of total quality management (TQM) describes a management approach to long-
term success through customer satisfaction. In a TQM effort, all members of an organization
participate in improving processes, products, services, and the culture in which they work.

Total Quality Management is a management framework based on the belief that an organization
can build long-term success by having all its members, from low-level workers to its highest
ranking executives, focus on quality improvement and, thus, delivering customer satisfaction.
TOTAL QUALITY MANAGEMENT (TQM) IN SMEs OPERATIONS

Why is online shopping a better experience on some sites than on others? Let's look at total
quality management (TQM) for the reasons.
The term ‘total’ means the entire organization—all teams, departments and functions—is
involved in quality management. The ‘system’ refers to the managerial and technological
methods to achieve quality requirements and business objectives throughout an entire
organization.
Total quality management is an organization-wide philosophy with its core values centered on
continually improving the quality of its product and services, and the quality of its processes, to
meet and exceed customer expectations.
This means that everyone in the organization - from top management to the employees - plays a
role in providing quality products and services to customers. Even suppliers and the customers
themselves are part of the TQM.

Total Quality Management (TQM) is a management framework based on the belief that an
organization can build long-term success by having all its members, from low-level workers to
its highest ranking executives, focus on improving quality and, thus, delivering customer
satisfaction.

TQM requires organizations to focus on continuous improvement, or kaizen. It focuses on

process improvements over the long term, rather than simply emphasizing short-term financial
gains.

TQM's objectives are to eliminate waste and increase efficiencies by ensuring that the production
process of the organization's product (or service) is done right the first time.

Importance of TQM
TQM can have an important and beneficial effect on employee and organizational development.
By having all employees focus on quality management and continuous improvement, companies
can establish and uphold cultural values that create long-term success to both customers and the
organization itself. TQM’s focus on quality helps identify skills deficiencies in employees, along
with the necessary training, education or mentoring to address those deficiencies.

With a focus on teamwork, TQM leads to the creation of cross-functional teams and knowledge
sharing. The increased communication and coordination across disparate groups deepens
institutional knowledge and gives companies more flexibility in deploying personnel.

Principles of TQM
In order to exceed customer expectations, an organization must embrace five principles:
1. Customer Focus
The purpose of quality management is to provide customer satisfaction. With customer focus as
an approach, the organization provides services or products meeting the customer expectations.
From having several quality checks to friendly support centers, the ever-improving quality can
be achieved. Organizations that are more customer focused are the one with larger customer
share in the market.

2. Employee Involvement
As Total Quality Management requires the involvement of every employee, it’s the
responsibility of the organization to foster the employee-friendly work culture. The work done
by employees should be appreciated and their opinions and feedback are taken into
consideration. A workplace that encourages employees to give their best achieves continuous
improvement in quality.

3. Process-Centered
This process needs to be well defined and need to be monitored for any deviation during the
execution. Best practices can be adopted in this approach.

4. Communication
This is the building block of a successful business. Communication plan and training employees
on communication etiquettes goes a long way in fostering healthy work culture. Communication
involves internal amongst the employees and external with the stakeholders. Effective
communication makes opinions and feedbacks easier.

5. Fact-Based Decision Making

The performance of an organization can be found from the data collected and analyzed for
various parameters. To improve the decision, this data needs to be considered. An accurate
decision can be taken if a proper fact-based decision model is created.
6. Continuous Improvement
One of the popular approaches in quality management is continuous improvement. It implies to
finding creative ways to implement existing processes. This, in turn, helps in being more
competitive and meeting the expectations of stakeholders.

Benefits of TQM
The benefits of TQM include:

Less product defects. One of the principles of TQM is that creation of products and services is
done right the first time. This means that products ship
 with fewer defects, which reduce product recalls, future customer support overhead
and product fixes.
  Satisfied customers. High-quality products that meet customers’ needs results in
higher customer satisfaction. High customer satisfaction, in turn, can lead to
increased market share, revenue growth via upsell and word-of-mouth marketing
initiated by customers.
 Lower costs. As a result of less product defects, companies save cost in customer
support, product replacements, field service and the creation of product fixes. The
cost savings flow to the bottom line, creating higher profit margins.
 Well-defined cultural values. Organizations that practice TQM develop and nurture
core values around quality management and continuous improvement. The TQM
mindset pervades across all aspects of an organization, from hiring to internal
processes to product development.

TOPIC ELEVEN: BUSINESS NETWORKING IN SMSs OPERATIONS.

Define entrepreneual networking

Entrepreneual networking is a term that refers to meeting other business owners, potential
suppliers, or other professionals who have business experiences—to help you grow your
business. Networking gives you a pool of experts that range from competitors to clients, and
allows you to offer something to them; hopefully in exchange for their services, advice,
knowledge, or contacts.

Explain between business network and business networking

Networking in business
Networking is about interacting with people and engaging them for mutual benefit.
It can help you establish a new business or grow an existing one. You can also use networking as
a tool for finding investors, customers, staff, suppliers and business partners with minimal cost to
your business.
You can network face-to-face at social events, conferences and through industry associations.
You can also network online, through sites such as LinkedIn and Facebook. The more ways you
can network, the more your business will benefit.

It's common for people to feel apprehensive about networking, but it's a skill you can develop
with practice. The more networking you do, the easier it will become. It can happen naturally,
but you can also take a strategic approach.

Business networks
A business network is a complex network of companies, working together to accomplish certain
objectives.[1] These objectives, which are strategic and operational, are adopted by business
networks based on their role in the market. There are two categories of business networks —
business associations and company aggregations — that help small and medium-sized
enterprises (SME) to become more competitive and innovative
Business networks can be divided into two main categories: business associations and company
aggregations

Types of business networks

Business networks can be divided into two main categories: business associations and company
aggregations
1. Business associations — also called business networks as business associations — provide
member companies with a platform and conditions for cooperation to meet an objective. The
companies decide if they want to cooperate to achieve that objective.

Business associations create a level playing field for cooperation among companies. They have a
stable and well-functioning governance structure. The members may pay a fee to the association.
In return, the business association monitors and meets the needs of their members and
proactively develops and provides new services. This is the key task of business associations.
Business associations provide services that are generally more professional, extensive, and cost
effective compared to services offered by individual members.

In a business association, there is a direct link between the business association (central body)
and each of its constituent members. This is displayed with solid bidirectional arrows (refer to
Figure 1). The members may or may not choose to cooperate with each other, displayed with
dashed lines between companies.
Business associations are further categorized by sector or by location and scope
2. Company aggregations
Company aggregations — also called business networks as company aggregations — are formed
by companies, which decide to cooperate and aggregate. Unlike business associations, these
companies have already taken the decision to work together on a joint set of objectives.
In a company aggregation, companies collaborate directly with each other without a
representative and/or a servicing association. The aggregation of the companies can be formali

The importance of business networking

Here are some key reasons that clearly outline why networking is important for small business.
1. Business Leads
Networking is a great way to acquire new business leads. Using the contacts you make when
you meet people can open doors for business opportunities.

Communicate professionally when you follow up on leads. People want to help others
but aren’t interested in someone badgering them for business. Be sensitive to timing and use
common courtesy when following up with contacts.
2. Identify Best Practices

Networking is a great way to identify business best practices or industry benchmarks. Learning
from what others do is a valuable strategy for all businesses.
For example, if you own a restaurant and you belong to a restaurant association, you can find out
what the latest software programs are or employee management practices that you can bring back
to your own business.
3. New Business Trends

Networking can help you stay on the cutting edge of technology and new business trends. These
types of relationships and “inside” information can give you an advantage over your competitors
by implementing new and fresh ways of doing things.
Having said all of this, networking is a skill and some people are just naturally more gifted at
mingling with people they don’t know and making friends on first contact.
Practice being friendly and learn the art of striking up conversations. Learn the trick to
remembering people’s names that you meet. Get a system; write something specific about a
person on the back of their business card so you can remember them when you get back to your
office.
4. Increased Confidence
By regularly networking, and pushing yourself to talk to people you don’t know, you will get
increased confidence the more you do this. This is really important as a business owner, because
your business growth is very dependent on talking to people and making connections.
Networking is great for people that aren’t confident as it really pushes them to grow and learn
how to make conversations and lasting connections with people they don’t know.

5. Connections
“It’s not WHAT you know, but WHO you know”. This old adage is absolutely true when it
comes to building successful business. To grow your small business quickly you will need to
have a strong source of relevant connections in your network that you can call on when you need
them.
6.Opportunities to help other business owners

7.Receiving assistance from other owners

8.Additional knowledge and perspective
9.Communication with like-minded individualsDemonstrate Networking skills in business
Networking skills are the abilities or competencies you need to maintain interpersonal
connections. Networking skills is fundamental for business internally or externally. Networking
skills can Have ability and qualities in any business in defferent ways
1. Business Leads
Networking is a great way to acquire new business leads. Using the contacts you make when
you meet people can open doors for business opportunities.
Communicate professionally when you follow up on leads. People want to help others but aren’t
interested in someone badgering them for business. Be sensitive to timing and use common
courtesy when following up with contacts.
2. Connections
“It’s not WHAT you know, but WHO you know”. This old adage is absolutely true when it
comes to building successful business. To grow your small business quickly you will need to
have a strong source of relevant connections in your network that you can call on when you need
them.

3. Expandind customer base

Through business networking buisness owner or managers can meet different people from
different places, they can introduce their companies, productis, offers which can lead to gain new
costomers

4. Copping with competition

Through business networking organization can meet with suppliers of raw materials with low
cost, can meet with other organization from same industry, advivertising companies , those
organization can help organization winning competition from competitors due to drescres in cost
of raw materials, widen customer base etc

5. It provides new ideas and perspectives

Networking means engaging with all kinds of different people who come from all different
backgrounds. You and everyone you meet can bring something unique to the table. Collaborating
(or even just talking) can lead to new business ideas, new insights, and so much more. Not only
can this help you learn new things, but it can help organization avoid mistakes, save you time,
and make sure you never run out of fresh ideas.
6. It strengthens existing relationships
Networking allows business organization see more of who you are and what you can provide. A
firm can provide merits to other firms in exchange of other merits, this helps to streangthen the
relationship between companies

TOPIC TWELVE: FAMILY BUSNESS MANAGEMENT IN SMEs CONTEXT.

A family business is a commercial organization in which decision-making is influenced by
multiple generations of a family, related by blood or marriage or adoption, who has both the
ability to influence the vision of the business and the willingness to use this ability to pursue
distinctive goals.[1][2] They are closely identified with the firm through leadership or ownership.
Owner-manager entrepreneurial firms are not considered to be family businesses because they
lack the multi-generational dimension and family influence that create the unique dynamics and
relationships of family businesses
Advantages of family businesses

1. Common values - you and your family are likely to share the same ethos and beliefs on
how things should be done. This will give you an extra sense of purpose and pride - and a
competitive edge for your business.
2. Strong commitment - building a lasting family enterprise means you're more likely to put
in the extra hours and effort needed to make it a success. Your family is more likely to
understand that you need to take a more flexible approach to your working hours.
3. Loyalty - strong personal bonds mean you and family members are likely to stick
together in hard times and show the determination needed for business success.
4. Stability - knowing you're building for future generations encourages the long-term
thinking needed for growth and success - though it can also produce a potentially
damaging inability to react to change.
5. Decreased costs - family members may be more willing to make financial sacrifices for
the sake of the business. For example, accepting lower pay than they would get elsewhere
to help the business in the longer term, or deferring wages during a cashflow crisis. You
may also find you don't need employers' liability insurance if you only employ close
family members.
 Disadvantages of family businesses

1. Lack of skills or experience - some family businesses will appoint family members into
roles that they do not have the skills or training for. This can have a negative effect on the
success of the business and lead to a stressful working environment.
2. Family conflict - conflict can arise in any business, but it's important to consider that
disputes within a family business can become personal as the staff are working with the
people closest to them. Bad feelings and resentment could destabilise the business'
operations and put your family relations at risk.
3. Favouritism - can you be objective when promoting staff and only promote the best
person for the job whether they are a relative or not? It is important to make business
decisions for business reasons, rather than personal ones. This can sometimes be difficult
if family members are involved.
4. Succession planning - many family business owners may find it difficult to decide who
will be in charge of the business if they were to step down. The leader must determine
objectively who can best take the business forward and aim to reduce the potential for
future conflict - this can be a daunting decission

Succession Plan in family.

Succession planning is the process of replacing your organization’s leaders and managers with
high-potential, internal (sometimes external) replacements. Essentially, it is about identifying,
developing and replacing employees to make a potential shift in responsibilities/hierarchy as
smooth as possible.

What Is The Purpose Of Succession Planning?

The purpose of succession planning is complex. It is not simply about damage control or
replacing a key leader as quickly as possible. It’s about replacing a leader with someone prepared
for the role, with the potential to succeed, who can shift into the position both quickly and
successfully (with added emphasis on successfully).

Why Should You Build A ‘Succession Plan’?

Building a succession planning process or framework is about mitigating the risks of
organisational change. This way, when a change at the very top occurs, the friction between
departments, teams and employees is reduced or becomes nonexistent, because the ‘vacuum’ of
institutional knowledge is removed.

The Succession Planning Process

Let’s consider the image above as a quick run-through of how
the succession planning process works. These are the seven key steps in the succession
planning process:
 Start identifying key positions
 Identify needs
 Develop your job profiles
 Start the recruiting process
 Appoint a successor
 Hand over the job
 Document the transition

Now that you know a bit more about succession planning as an HR strategy, and why it matters,
how can you do it? Here are seven well-coordinated steps to ensure key positions are filled
successfully…

1) Start Identifying Key Positions

This is going to require some internal reflection. Begin the succession planning process
by identifying qualifications that are essential to your company’s success. This could include
years of experience, qualifications or licenses, or other ‘soft skills’ that have an impact on
company success (like customer relations abilities, for example).

Then, you need to write them down. So, take these qualifications essential to your company’s
success and document them in what we might call ‘initial job profiles.’ Now you have an idea of
what you need, relatively speaking, but we need to dig a bit deeper to get to the core of the
issue…

2) Identify Needs
If we start by knowing the key qualifications that influence success, now we need to plan for
where we might lose those skills. So, you need to establish which key positions might become
vacant in the near future. Ask yourself:

 Which employees are about to retire?

 Are any employees currently pregnant?
 What is your overall attrition rate?
You can also take a top-down approach in this step, and plan for your entire company’s
succession plan starting from your CEO to executive leadership and further down the
organizational chart. That said, if you are in a pinch and want to get started immediately, you
should start filling gaps that may reveal themselves sooner than later.

In this step, it is also important to include the financial resources you may need for the recruiting
process. It is important to note how the recruiting process transfers into time (and money) spent.
It’s also at this point that proper recruitment software can help maintain efficiency without
draining resources.

3) Develop Your Job Profiles

A key part of the succession planning framework is having fleshed-out job profiles in place.
What constitutes an effective job profile, though, and where should you focus your efforts?
Here’s a quick rundown:

Tasks The tasks a key position currently performs.

 Qualifications Qualifications a person in that position has to their name.

"Evolutions" Potential evolutions of this role as times change.

Additions Any additional skills this position may want to have in the future.

Think of this as your template for finding the ideal person to fill this role in the future.
Essentially, it is taking the current person who occupies this role and turning their skills into
something of a blank canvas. This transforms skills thought to be irreplaceable into an actionable
plan for recruiting.

4) Start the Recruiting Process

Concrete examples of succession planning typically begin during the recruitment process. This
is where the process takes shape, and it helps if you approach it from several key angles,
including:

 Building up your talent pool.

 Implementing an employee referral program.
 Providing targeted up skilling training for current employees.
If you are taking a proactive approach, maybe you have all the time in the world for succession
planning. But, if you’re low on time, you may want to set deadlines for finding a suitable
candidate or completing the handover period.

5) Appoint A ‘Successor’
Whether internally or externally, this is the part of succession planning that signals the end.
While a lot of the heavy lifting may have been done during the job profile stage, now you have
someone in mind who could be able to take on this role.

Apart from interviews, though, finding the right candidate during the succession planning
process should rely on more nuanced measures. You should work with assessment centers, case
studies or work trials, to determine the best fit.

That said, a technical fit is not always a cultural fit. For succession planning to be successful, it
often comes down to how someone fits within a company’s distinct culture.

How do you begin to evaluate this? First, you likely need to have a hold on your own culture and
what it means to work with your company, but you may want to consider the following to
evaluate a candidate’s fit:

 An interview with potential peers to see if they mesh well.

 A case study directly related to their soft skills (perhaps giving or receiving feedback).
 Scheduling a more casual interview setting (like lunch) for a candidate to show more of their
personality.
This is the part of succession planning that you need to get right. After all, you now have
someone that you have deemed the right fit for the role. So, they need to be the right fit from
multiple angles, and not based on whether they can do the job or not.

6) Hand Over The Job

When done right, succession planning also loops in the person leaving the role. This is most felt
during the handover process, where a new employee gradually learns their new tasks, both from
their future coworkers and team leads, as well as from theirpredecessor (who will share existing
knowledge or institution knowledge they only have).

Keep in mind, though, that the handover period shouldn’t be too short. Especially if a key
position is being filled, it is important to bake in more time (think in terms of months and not
weeks) for an employee to manage complex tasks that used to go smoothly. They will get there,
but they require patience.

However, if a handover period is too long, there is a risk that the successor won’t be able to
come into the role in their own right. They will be too influenced by how the role used to
perform, and you may lose out on the future-oriented skills that you feel this role needs to thrive.

The best answer is somewhere in the middle. While team leads should have a long-term
perspective, there should be an active, fast-paced, and collaborative approach to handing over
knowledge. Ideally, this would also be done through confluence pages or a company wiki, where
institutional knowledge is public and not private.

7) Document the Transition

Now that the handover of the job has been completed, what comes
next? Documenting the transition is a crucial step, in order to note how the position was filled
and to inform future processes. Keep in mind the following:

 The demands of this position in particular.

 Processes that went smoothly during the handover.
 Issues during the handover that caused confusion.
 Gaps that still potentially exist.
In the future, this will help optimise your recruiting process, as well as succession planning
strategies for similar roles that may become available.

Who needs succession planning?

Large or small, every business needs succession planning. In smaller companies, it may be less
complex, but the impact of losing a highly valued employee is no less disruptive. In fact, you
could argue it’s more disruptive based on the ratio of leavers to employees.
One way to ensure interim support for critical roles is to cross-train employees with the most
comparable skills to those needed, until the business is able to permanently fill the role. This
situation may arise if there are no suitable candidates internally at the time the position becomes
vacant. But it’s far from ideal and better to have a plan in place that has contingency built in.

What are the objectives of succession planning?

Succession planning aims to keep your workforce and talent pipeline stable by assessing
vulnerabilities and identifying internal candidates that could move into critical positions over
time. It begins by establishing which positions would have a noticeable impact on the business if
they became vacant for any length of time. The ultimate objective is to ensure all critical
positions are occupied continuously and seamlessly.

However, complexity arises from the pattern of many-to-many relationships across employees
and positions. You can end up having many employees as succession candidates for the same
position or a single employee as succession candidate for many positions. This just emphasizes
the need for good succession planning.

6 benefits of succession planning

Having a plan that enables you to regulate and maintain workforce stability and organizational
capability brings with it several positive effects. Below we explain 6 benefits of succession
planning for your organization to consider.

1. Protect the business from sudden, unexpected change

Perhaps most importantly, succession planning contributes to the resilience of your organization
in the face of sudden change. It’s easy for business leaders to be too swept up in the day-to-day
to notice patterns affecting the workforce. And it’s easier to replace your employees as positions
become vacant. But if you take this road, your talent strategy will always be focused on external
resources, which as we explain in our article 8 steps to successful succession planning, we think
is unsustainable.

Without succession planning, you’re taking for granted the health and loyalty of your workforce.
What would you do if one of your top employees developed a long-term illness or was poached
by a competitor? Sure, you might be able to recruit effectively to replace them but how much
will that cost you, in terms of fees, increasingly competitive salaries and loss of intellectual
capital?

2. Reveal vulnerabilities and highlight skills gaps

Continuing on this theme, succession planning provides a risk assessment that will uncover
vulnerabilities and gaps in your workforce and skills base. By reviewing your current
organizational structure by department, you can begin to see points of weakness that could
impact your business strategy.
With this knowledge, you can take action well in advance to mitigate these risks and motivate
your top talent in the process. In essence, succession planning shifts the focus of talent planning
from external to internal.

3. Promote training and development

It’s worth remembering that succession planning doesn’t have to be about linear career
progression. If there isn’t a clear path for your best people to progress, they could end up leaving
the organization – unless you’re able to provide alternatives.

Supported by a well-rounded training and development program, succession planning can

highlight opportunities for employees to move laterally into positions that have skills in
common. This opens up possibilities for a rewarding career that your best people might not have
considered.

A good training and development program shouldn’t just provide courses and learning materials,
it should also offer opportunities for coaching, mentoring, job shadowing and support for
professional certifications.

4. Knowledge transfer and process refinement

When experienced employees retire or leave the business after a long tenure, they take with them
a font of knowledge that will be hard to replace. One of the aims of succession planning is to
stop this drain on the business and smooth the transition of such changes.

By prioritizing succession paths that involve employees whose departure from the business is
planned or otherwise anticipated, knowledge can be passed on to those who will take up the
reins. Most retiring employees will be happy to help rather than see such an important product of
their labour go to waste.

Alongside knowledge transfer comes the opportunity to review processes and procedures, to
question existing methods and look for opportunities to improve them. Ambitious succession
candidates will be open to the recommendations of outgoing colleagues concerning pitfalls and
weaknesses, as this presents a chance for them to make an early impact.

5. Long-term talent planning and retention

Another important benefit of succession planning is improved retention of your top employees
by offering them clear opportunities for growth. By planning longer-term, organizations can
reduce their reliance on recruitment, so that talent is only sourced externally as a last resort.

Your succession plan should be closely aligned with the business strategy, so that it provides
answers to talent questions relating to organizational growth, business expansion and innovation.
You might think this is what strategic workforce planning does, but succession planning differs
in that it actively pursues workforce continuity rather than workforce resourcing.
6. Preserve brand integrity and reputation

When done badly, succession planning can have an impact on the business beyond its remit,
particularly for publicly visible positions. There are many examples of failed c-level succession
plans that have caused substantial reputational damage to the organizations concerned.

When a senior executive comes into the organization from outside, it’s vital the leadership team
takes steps to ensure the new appointee understands the values that bind its people and business.
Rash attempts to impose change and make a mark could undermine the organization’s core
purpose and overlook the needs and expectations of both customers and employees. This is a
very real concern, as the Disney example below illustrates.

By placing the emphasis on internal succession to senior positions, these threats have less chance
of materializing, as senior leaders are more likely to understand what’s right for the business and
its people. Microsoft CEO Satya Nadella is an excellent example of this.

When succession planning goes wrong

Disney has a track record of disastrous succession planning but its most notable failure was then-
CEO Michael Eisner’s choice of the company’s new president in 1995. Eisner brought in
Michael Ovitz from the Creative Arts Agency instead of appointing colleague Jeffrey
Katzenberg as expected.

This ill-judged snap decision backfired spectacularly when Katzenberg subsequently sued
Disney to enforce his contract terms, resulting in a $270 million lawsuit that he won. 14 months
later, Ovitz left Disney having struggled to adapt to the company’s culture, costing Disney a
further $140 million in severance. In reaction to this, Disney’s shareholders sued the company
and voted to remove Eisner as chairman in 2004, which led to him stepping down as CEO the
following year.