BAM 216

BY

ENGR. LAWAL ADEWOLE JIMOH

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Entrepreneurship philosophy
There are two types of entrepreneurship and these are the replicative type and the Schumpeterian typed
named after Joseph Alois Schumpeter, an Austrian born American economist, who taught at Harvard
University from 1932 until his death at 66 years old in 1950. Several schools whether big or small had
embraced an entrepreneurial philosophy and rightly so since this what our country needs. Entrepreneurship is
the modern day philosophers’ stone, a mysterious something that supposedly holds the secret to boosting
economic growth, development and creating jobs.
Replicative entrepreneurial activities are best exemplified by the ubiquitous sari-sari store and even food
franchises. These are termed replicative because expansion is seen as additive and as you add more
enterprises then the business grows. There is a world of difference between the replicative entrepreneur of
the typical small business owners who dreams of opening another shop and the entrepreneur who dreams of
changing the entire industry. Much of the philosophical thought and framework of this other type of
entrepreneurial behavior is mostly the work of Schumpeter, who was born in the now Czech Republic.
Schumpeter believed that capitalism could only be understood as an evolutionary process of innovation,
entrepreneurship, and creative destruction.
The success of the entrepreneurial capitalist leads to corporatism defined as entrepreneurial spirit.
Innovation, technological changes and improvements come from entrepreneurs. This wild spirit translates
into huge capital surplus that can be channeled into research and development that further results in
improvement and more surplus capital. To help foster this spirit, business schools must have the proper kind
of leadership. This is a tricky aspect but a crucial one. Educational institutions do not pay well so an
entrepreneur might never be hired or apply, specially the Schumpeterian kind.

Of course, there had been leaderships where the business school head had gone abroad to a finishing school
and put up a string of franchise stores like those of Jollibee and Red Ribbon. That does not deserve the
Schumpeterian kind but more of the replicative kind. This is another conundrum of business schools. Its
leadership, administrators and faculty are better teachers if they run or are still running a business if it is the
Schumpeterian kind.

How to choose best business location for a new business?

One of the most important things before starting business is to choose the best place the business is to be
started because in the first step or question before starting a new business is ‘Where to start the business’
because the finance is required when the plan of the business got final. Prior starting a new business, the
proprietor or entrepreneur has to satisfy himself in lieu of the following questions:
What would be the name of the business?
What business would be started?
Where the business would be started?
How much finance would be required?
What are the skills and competitive advantages available with him?
What is the charm of the business?
How the business will be run?
How much funds or capital is available with him?
Many other questions of his own have to be satisfied by him.

Following are the tips and factors which needs to be satisfied by the person going to start a new business and
is in the process of choosing the best location:

1. Nature of the Business

Before choosing a location for a new business the owner has to understand the nature of the business and
then he should choose the area that whether the community of the vicinity is of need of the products which
are the product line of the business and whether any other such business is started in such locality and if so
then evaluate the progress and conditions of such business.

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2. Trend of Customers
Where the trend of community of the locality? This is the utmost important aspect before choosing a best
business location that the proposed locality’s peoples trend. Whether the people of such locality go
somewhere other to purchase such commodities or not. If the answer is yes then check how many other
competitors are running their business in the locality.

3. Value of the Locality

The most huge expense in the business are two one is the value of the building and the other is the value of
the machinery but in business other than the manufacturing concerns the most huge and first one expense is
the value of the locality or building being chosen for the business. Such place should be on good location and
the same should be attractable for the customers that customers attention should be upon the business place
when they enter into the market. In other words the business place should be conveniently accessible.

4. Assessment of Costs
While choosing the business location the owner is to consider whether the cost of the product will be in range
because if the location is far away from the market then much expenses will incurred upon the transportation
of the product which directly increased the cost of the owner and indirectly increased the prices of the
products which is not a good thing for a new business because a new business is when started it has to
compete the other competitors in the vicinity, if the cost of the product will go rise then the competition is
more difficult and tantamount to impossible.

5. Transportation Accessibility
The most important factor for a new business and business location is whether the customers for which the
business is tending to start can easily access to it and whether the requisite transportation means are available
or not because if the business is started at somewhere where the customer can not easily access then he
purpose of the business finished.

6. Assessment of Value of Rental if the business building is on rental basis

Value of rental is also to be determining if the business location and building is propose to be acquired on
rental basis because high monthly rental will increase the costs and expenditures of the business which also
directly and indirectly affect the business costs. It is a general rule if you choose good, attractive and
furnished location then you has to pay a lot as its consideration. Therefore, before choosing any location it
should be considered by the entrepreneur that the furnished location is the requirement or not.

7. Assessment Regarding Competition

The interest of the business is the completion of the business which directly hit the mentality of the
competitors because if the competitors are running concern in more furnished and sophisticated location then
the other one will definitely effort to defeat the competitors. Competition in the business create interest
between the competitors that how to defeat the other by avoiding any sort of loss as of pecuniary as well as
of any other kind. It is also needed to be consider that the location of the competitor is how far or near
because it also effect the psychology of the customer because if the competitor is far away then the customer
will hesitate to go or if he is near of the shop then before purchasing he will be urged to visit him. Therefore,
assessment in all respect of the competitor is necessary.

Characteristics of Successful Entrepreneurs

As we know the most important person for every business is the entrepreneur who develops the idea of the
business, start it by using his resources of all kinds and run the business activities to achieve his personal
objectives by achieving the organization objectives. Entrepreneurship is the such process which helps the
entrepreneur in all respect of the business through which he can assess his plans possibilities and predict on
the basis of collected information and plan for future if he possess the following characteristics;

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1. Creative Mind
Creativity is the major characteristic of entrepreneur. He should have the ability to create more value for their
product and services. The business opportunity, creative imagination is regarded a unique asset in the
business world.

2. Confidence to Take Initiatives

The business world of today is moving at a very fast speed and require timely and more effective decisions,
planning and controlling to overcome the sudden challenges therefore, an entrepreneur should have the
ability to take initiatives by producing new things, new methods of marketing the product and service as per
expectation of the target customer.

3. Ethical Standard
The ethical standard of the business is that there should not be cheating, fraud and other commercial bribery
in business. A good entrepreneur has the social, moral, and religious responsibility to follow the ethical
standard of the business to earn profit and stay long in the market.

4. Conceptual Skill
Effective entrepreneur are characterized by their conceptual skills. Conceptual skills are specific abilities to
analyze a situation, decision making, determine the root of any problem or opportunities and devise an
appropriate plan.

5. Versatile Knowledge
An entrepreneur should have a versatile knowledge of his business as well as adequate knowledge of trade,
finance, marketing, legal management issues, technical management concern, and other business areas.

6. Knowledge of Market
An entrepreneur should have sufficient knowledge of market as well as finding new market for expand their
business. He should know the geographic, demographic, psychographics and behavioral changes in the
market. Entrepreneur should be honest in dealing with others. He should provide qualitative product and
services to their customer. He doesn’t make any anti-social practices such as black marketing, smuggling,
overcharging to earn profit.

7. Energetic and Diligent

Entrepreneur should be energetic and diligent person. He should complete their work in time. He must
believe in this phrase “don’t put of till tomorrow what you can do today.” He is hardworking person and
complete their all task as soon as possible.

8. Responsive To Criticism and Suggestions

An entrepreneur should response to criticism intelligently. He should concentrate on customer criticism or
complaints. He accepts criticism for their product and services and responds positively to overcome these
complaints. An entrepreneur should have the aptitude for research and adaptability to apply scientific
findings to complete and stay in business. He should be able to adopt the new technologies for producing the
product or services and new method of marketing the product and services. Entrepreneur pays their attention
toward suggestion from their co-workers, customer, suppliers, or venture distributes. If he collects any best
idea from these resources, he should be carefully tried to implement these suggestion.

9. Eligible to Evaluate Risks

Although every business has some internal and external risk but entrepreneur carefully evaluate these risks
and implement their plan. Although there is no guaranty for success but the chances of success are more due
to calculated venture planning.

10. Self-Confident and Optimistic:

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Effective entrepreneur are characterized by self-confident and optimism quality. He is confident about their
plans for their venture. Sometime he may due to some critical situation in their venture but he faces these
situations confidently. The major characteristics of the entrepreneur are the commitment toward organization
goals. He is willing to do anything and respond positively to venture challenges. Demanding challenge
motivate entrepreneurs to achieve results and developing their own managerial skills and capabilities. An
entrepreneur maintains a professional relation with their staff. He believes that business activity is carried on
by the workers. He should be aware of the temperament, aptitude and belief of the staff working with him.
He should also know the limitation and feelings of the individual. He should have the ability to solve any
misunderstanding or conflict between the staff.

Importance of Entrepreneurship
1. Growth of Entrepreneurship
Entrepreneurship the advent of new venture particularly small ventures to materialize the innovative ideas of
the entrepreneurs.

Thus, the growth or establishment of small enterprises ii the specific contribution of entrepreneurship in
every economy of the world.

The statistics reveal that in USA economy nearly half a million small enterprise is established every year.
Our country is not an exception in this regard.

2. Creation of job opportunities

Entrepreneurship firms contributed a large share of new jobs. It provides entry-level jobs so necessary fur
training or gaining experience for unskilled workers.
The small enterprises are the only sector that generates a large portion of total employment every year.
Moreover, entrepreneurial ventures prepare and supply experienced labor to large industries.

3. Innovation
Entrepreneurship is the incubator of innovation. Innovation creates disequilibria in the present state of order.
It goes beyond discovery and does implementation and commercialization, of innovations.
“Leapfrog” innovation, research, and development are being contributed by entrepreneurship.
Thus, entrepreneurship nurses innovation that provides new ventures, products, technology, market, quality
of good, etc. to the economy that increases Gross Domestic Products and standard of living of the people.

4. Impact on community development

A community is better off if its employment base is diversified among many small entrepreneurial firms.
It promotes abundant retail facilities, a higher level of homeownership, fewer slums, better, sanitation
standards and higher expenditure on education, recreation, and religious activities.
Thus, entrepreneurship leads to more stability and a higher quality of community life.

5. The consequence of business failure

The collapse of the large industry almost has irresistible damage to the development of the state and the state
of the economy and the financial condition of the relevant persons.
The incumbents lost their jobs: suppliers and financial institutions face a crisis of recovery.
Customers are deprived of goods, services, and government losses taxes. This could not happen in the case of
failure of entrepreneurship.
There shall be no measurable effect upon the economy and no political repercussions too.

6. Political and economic integration of outsiders

Entrepreneurship is the most effective way of integrating those who feel disposed of and alienated into the
economy.

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Minorities, migrants, and women are safely integrated into entrepreneurship that will help to develop a well-
composed plural society.

7. Spawns entrepreneurship
Entrepreneurship is the nursing ground for new inexperienced adventurists.
It is the field where a person can start his/her idea of the venture, which may be ended up in a giant
enterprise. All the large industrial ventures started as a small entrepreneurial enterprise.
Therefore, entrepreneurship provides a wide spectrum of ventures and entrepreneurs in every economy. The
vast open arena of entrepreneurship thus acts as an incubator to entrepreneurs.

8. Enhances the standard of living

The standard of living is a concept built on an increase in the amount of consumption of a variety of goods
and services over a particular period by a household.
So it depends on the availability of diversified products in the market. Entrepreneurship provides enormous
kinds of a product of various natures by their innovation.
Besides, it increases the income of the people who are employed in entrepreneurial enterprises.
That also capable employed persons to consume more goods and services. In effect, entrepreneurship
enhances the standard of living of the people of a country.

9. Promotes research and development

Entrepreneurship is innovation and hence the innovated ideas of goods and services have to be tested by
experimentation.
Therefore, entrepreneurship provides funds for research and development with universities and research
institutions. This promotes the general development, research, and development in the economy.
Entrepreneurship is the pioneering zeal that provides events in our civilization.
We are indebted to it for having prosperity in every arena of human life- economic, technological and
cultural.
The above discussion, in a nutshell, enumerates that tremendous’ contributions of entrepreneurship.

When Further Capital is required to Entrepreneurs?

Business are primarily done for the sake to earn profit and secondly to satisfy the demand other customer,
both the objective are reciprocal of each other because of the business does not fulfill the demands of the
customer then it could never be able to earn profits and if it could be able to fulfill the demands of the
customers then sometime positively the entrepreneur has to raise the capital in the business to med the
market ends by fulfilling the demands and supplied of the market to balance the business activities but it is
more difficult for the entrepreneur to raise capital at the eleventh hour, therefore, he has to evaluate the
business position in all the respect and as well as the market conditions.

At Increasing the Volume of Sale and Production

When the sales and the production demands rise from the limits and volume of capital already invested in the
business then the business require more capital to compete the market and production demands. This is a
positive trend for the raising of business capital because in such trends the profits of the business increase.

By Launching a New Brand

According to Boston Consulting Group when an organization introduced a new product in the market at such
a situation it has to be introduced in the market and the same should be familiar to the interested groups of
the market, such product at this step is the question mark in the market because at such situation it has to gain
the acceptance of the customers. This is the losing stage of new brand until it attain the acceptance of the
market stakeholders and therefore, in such circumstances the organization or concern need capital for the
proper launching, marketing and publicity of the brand that at an early stage as much as it could possibly be
introduced to more and more stakeholders.

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Commencing New Project
It is a good step for all the businesses when the business achieve its settled goals and objective and go for a
new one but in the same time this is the situation when the same business is going to take a risk of new
project whether such project is in connection to the last project or is new project according to the market
situation and demands. At such a stage, the organization is of the need to plan and arrange funds to meet the
requirements of the project, so that the project could be started in time and the objectives, so predicted could
be achieved.

Sudden Loss
Sudden loss is the situation which some time complete ruin the business activities and sometimes require
more capital to survive in the market. Such losses often happen in uncertainties or natural uncertainties such
as earth quite, storms, economical crisis, death of the partner and etc.

In all the above referred situation a business require capital, sometime such demand is for prosperity and
progress of the concern but on the other hand sometimes it is for to survive in the market, therefore, every
business strategy when it is prepare it is prepared the prosperous happening but by neglecting uncertainties,
that’s why such loss are called sudden losses.

How capital could be raised for new ventures?

The main element which is the basic need of every business is the financial resources available with the
entrepreneurs for the commencement of the business, with the passage of time and by the growing of the
concern these requirements changed and increased consistently to the business situations. At the eleventh
hours it is more difficult for the entrepreneur to obtain those resources therefore, the entrepreneur has to
increase the capital if he posses the funds otherwise he has to raise funds as loans from friends or alternately
has to secure loans and finances from the banks.

Managing of funds from Asset Management

When the business required capital then first of all the management of the business observe and evaluate the
position of the business that how they can generate funds and the first step which the management take for
the managing of the funds or raising the capital is asset management. It is a crucial process for the
management of funds because it creates more liabilities and requires more calculation of the facts and
availabilities with the organization.

Equity Financing
Equity financing means the capital which the owner of the business invests in the business at starting stage.
Equity is capital invested in a business by its owner and it is “at risk” on permanent basis. Equity finance
does not require collateral and offers the investor some form of ownership position in the venture. All
ventures have some equity, as all ventures are owned by some person or institution. Although the owner
sometimes not be directly involved that is provided by the owner. The liabilities in respect of equity
financing vary in lieu of the amount of equity as well as in regard of the size and nature of the concern.
Generally capital or the equity may be fully invested by the entrepreneur such as educational institution or
food places. Ventures of multiple levers require more than one entrepreneur which also include and consist
on private stakeholders or venture equity introduced by the entrepreneurs. Equity is generally on debt
financing basis which in consistency make the capital base of the venture.

Debt Financing
Debt financing is also called asset-based financing. Dept financing is financing method involving an
international bearing instrument, usually a loan Dept financing require the entrepreneur to pay back the
amount of funds borrowed as well fee expressed in terms of the interest rate.

Short term debt (less than one year), the money is usually used to provide working capital to final inventory,
account receivable, or the operation of the business. The funds are typically repaid from resulting sales and
profits during the year.

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Long term debt (lasting more than one year) is frequently used to purchase some asset such as machinery,
land, building or vehicle. The entrepreneur needs to be careful that the debt is not so large that regular
interest payment becoming difficult.

Small enterprises have fewer choices than large firms for obtaining debt financing. They are excluded from
financial resources such as money raised through the sale of bonds, debenture and commercial paper.

There are two important ways to obtain debt financing,

Commercial banks:
Most commercial loan is made to small business. Commercial banks provide unsecured and secured loans.
An unsecured loan is personal or signature loan that grant on the basis of business strength and reputation.

Unsecured loan are usually small loan but they can be quite useful for meeting emergency cash flow
requirement such as paying wages or bills. Unsecured signature loan usually must be paid back with in year
and they will have high interest charges.

Entrepreneur also establish personal “lines of credit” through their banks and these are treated in the same
way as credit card account that must be paid down or cleared each month.

Secured loan are those with security pledge to the bank as assurance that the loan will be paid. There are to
many types of security will consider, such as guarantor, another credit worthy person or company that agree
to pay the loan in the vent the borrower default but the most security is in the form of tangible assets pledged
as collateral.

Plan for Obtaining Loan from Commercial Bank for a Restaurant

Banks finance in the business because the basis purpose of banks is to aid the business community
secondarily but to earn huge profits firstly as the same is the aim and objective of very business. The
proposed business is a small restaurant in the well know city and area of London and the restaurant
management if of the need to contract a new floor therefore, has need of funds to construct and furnish the
restaurant building.

As the business of restaurant is not fallen in the negative category and is huge profit earning business and the
building of the restaurant is in the ownership of the restaurant owner and all the goods and furniture available
in the restaurant is newly purchased and of good quality.

Application and Proposal to Invite the Bank for Financing

An application for financing from the bank has been submitted in which the bankers are fully informed with
the demands and requirements of the business/restaurant’s need. As the restaurant has attain the acceptance
of the customers and the customers like to eat the foods of cooking’s of the restaurant therefore the restaurant
has need of more capacity to arrange the arrangements for the more customers to be entertain at the same
time. All the approved financial of the restaurant all attached with the application which clearly shows the
progress and position of the restaurant. All the records are properly maintained. For what purpose the
restaurant is requiring such financing and what are the sources available with the restaurant if it will fail to
repay, what will be the position of the restaurant if the bank med and finance the requirement of the
restaurant, how the restaurant will repay the loan amount an d in what period. The plan of the restaurant is
one which completely will satisfy the bank official management because the earning of the restaurant will
increase approximately double if the bank will invest in the restaurant because such construction will double
the sitting, living and entertaining capacity of the restaurant.

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Amount of Proposed Financing Requirement
As the construction of a new floor is required therefore, the bank has to finance 75% of the total requirement
at settled profit rate which will be prevail in the time of financing. Bank is satisfied with the reputation of the
restaurant and is ready to invest his financing at a low rate.

Tenure for Repayment

It is proposed to bank officials that an install mint of the repayment of loan should be not more that average
sale of 10 days so that the restaurant wants to avail the long term finance for the period of 3 year to repay. It
is also pertinent to mention here that it should also be mentioned in the agreement that if the restaurant
management wants to repay the loan amount by paying extra amounts as per their savings then subsequently
the advantages of early payment should be delivered to the restaurant in shape of discounts and concessions.

Payment of Agreed Amount

Bank will pay the payment in installments as per the projected plan and actual position of the restaurant
construction work. Bank will firstly make the payment of 25% on work starting of construction, 2nd
installment for payment of 25 % when prior to finishing of funds the restaurant management will contact to
the bank officials and the last remaining payment of loan when the main work of furnishing of restaurant
building will start.

Collectable of Loan
Restaurant management will surrender the document of the restaurant to the bank officials till the whole
payment of loan is not repaid as collectable. If the restaurant management will fail to repay the bank loan
amount then the bank will be at liberty to initiate legal proceedings against the restaurant management and
shall also be at liberty to auction the restaurant building to recover its debt. All the charges that will incur
upon such process shall be deducted and paid by the restaurant management or from the sale proceed or
auction money of restaurant building.

The general profile of entrepreneurs

According to Kuratko and Hodgetts (1998), an entrepreneur is an innovator or developer who recognizes and
seizes opportunities; converts these opportunities into workable/marketable ideas; adds value through time,
effort, money or skills; assumes the risks of the competitive marketplace to implement these ideas and
realizes the rewards from these efforts. Entrepreneurs have specific abilities compared to others, which make
them think and act in an entrepreneurial way. However, a review of extant literature points to the fact that
there are different characteristics and qualities of an entrepreneur (see Kapadia, 2011; Tobak, 2010; Amadi,
2008; Thom-Otuya, 2005; Jimngang, 2004; Jaja, 2004), but no one definitive profile of the entrepreneur ever
exists. Entrepreneurs are of various ages, income level, gender, race, and they differ in education and
experience. In view of the diversity of entrepreneurial characteristics as indicated by many researchers, the
adoption of a workable instrument becomes a ―sine qua non. In this paper, therefore, the 25 key
entrepreneurial characteristics used in profiling entrepreneurs as adopted by Iyayi et al. (2012) and reported
by the Hawai Entrepreneur Training and Development Institute (HETDI) a world leading entrepreneur
training centre as cited byTobak (2010) is used as a working document in this paper for proofing the
entrepreneur. The general profile include:-

-Drive and Energy Entrepreneurial organizations have leadership and staff that do not live by the clock;
rather they work to get the job done.

-Self-Confidence Entrepreneurial people and entrepreneurial organizations believe in themselves and what
they are doing.

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-Long-Term Involvement Entrepreneurs are builders who clearly believe that long-term results are what
count. They tend to reinvest. One business leads to another business. -Money is Notan End in Itself
Entrepreneurs view money, profits, and net worth not as ends, but as a means by which they check how they
are doing-a measuring stick.

-Persistent Problem-Solving Successful entrepreneurs strive to overcome hurdles and solve problems.
Difficulties do not overwhelm them.

-Ability and Commitment to Setting Goals Entrepreneurs have the ability and commitment to set clear, high,
challenging, but realistic goals for themselves and/or their organizations. -Moderate Risk

-Taking Entrepreneurs are risk-takers, but they are not careless. They calculate their chances.

-Attitude towards Failure They regard failure as an opportunity to learn, to better understand a situation and
to avoid a similar problem in the future. They are more concerned with succeeding.

-Seeking and using Feedback As high achievers, entrepreneurs are concerned with their performance. They
constantly seek information and clues about their work.

-Taking Initiative and Seeking Personal Responsibility They are not armchair critics that place responsibility
for events on the doorsteps of others. They are self-motivated and self-reliant.

-Willingness to use other Resources Entrepreneurs know how and when to seek help and advice. While they
are very self-reliant, they are also realistic about their own shortcomings.

-Competing against their Own Self-Imposed standards Successful entrepreneurs compete with themselves.
They run against their own internal standards. -Master of their Own Fate Successful entrepreneurs do not
believe that success or failure depends on fortune or luck. They believe they control their own lives and their
businesses.

-Tolerance of Ambiguity and Uncertainty In contrast to professional managers, entrepreneurs are able to
cope with modest to high levels of uncertainty. Entrepreneurs don„t give job security and permanency the
priority that managers do.-Independence and Individuality Entrepreneurs want to be their own boss anddo
their own thing in their own way and at their own pace. They relish their freedom and the right to be different
and unique.

-Optimistic Entrepreneurs are optimistic. However, their optimism is not based on unjustified hope or
illusions. Rather, it rises from their self-confidence.

-Innovative and Creative Seeking new ways to do things or solve problems is the hallmark of
entrepreneurship.

-Gets Along Well with Other Entrepreneurs are interested in people. They understand that managing people
is the key to success. They capitalize on the talents of others and know how to motivate them.

-Flexible Entrepreneurs can roll with the punches. They can gears in order to adapt to changing
circumstances. They are flexible and tend to be opportunistic.

-High Need for Achievement The need to achieve is fundamental for entrepreneurs. They have a
commitment to excellence and the process of attaining it.

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-Profit-Oriented Entrepreneurs believe in and accept profits. They believe that profits are a key measure of
business success. Entrepreneurs may take some of the profit, of course, but there is a common pattern of re-
investing. Social entrepreneurs link the use of profit to reinvesting to extend both social and economic
results.

-Persistent, Persevering, Determined―Entrepreneurs know when to let go and to walk away from an unwise
and unproductive activity or decision.

-Integrity They know that you can’t be a crook and succeed in the long term. Honesty is still the best policy.
A reputation of dishonesty and unreliability is fatal. Building a reputation for integrity is the key.

-Foresightful, Perceptive Entrepreneurs tend to be visionary. They can see ahead. While they rely on facts,
they also rely on their intuition.

-Likes Challenges If you like a challenge and tend to see problems as opportunities, you are entrepreneurial

What is Business Risk?

Business risk refers to a threat to the company’s ability to achieve its financial goals. In business, a risk
means that a company’s or an organization’s plans may not turn out as originally planned or that it may not
meet its target. Such risks cannot always be blamed on the owner of the company, as risk can be influenced
by various external factors, which may include rising prices of raw materials for production, growing
competition, and even changes and additions to existing regulations set by the government.

How to Identify Business Risks

Risks are inherent to every environment and business. They cannot be avoided and, so, must be addressed
head-on to minimize their impact. The first step in risk management is to identify the risks in order to come
up with a risk management strategy.

1. Analyze the sources that may trigger problems

It is important to identify and analyze the sources that can cause a problem. Risk triggers can be internal or
external.

2. Act now
Managers shouldn’t wait for potential problems to become actual problems before they start doing
something. The moment a problem is deemed to be a threat, it should immediately be dealt with by the
company’s executives by devising a plan of action in the event that the risk becomes a full-blown concern.

3. Involve employees
Identifying risks is not the sole responsibility of the managers and top-ranking officials. Management should
involve their employees in identifying the risks that they see in their respective departments and train them to
handle such risks at their level.

4. Make a list of industry-specific risks

By looking outside of the box and into the industry where the company operates in, managers will be able to
identify the possible risks that the business may face. If the same risks happen to other companies in the
same industry, there is a likely chance that it will happen to all other companies. Also, businesses should be
ready with a list of solutions or steps to address the risks.

5. Create a record of risks

Sometimes, the same risks arise over and over. By creating a record of all the risks experienced by the
company since it started, the business will be able to do a regular review of past events in order to perhaps
detect a pattern that will better prepare the company for future risks.

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Types of Risks in Business
Risks come in different forms. Below are the different types of business risks:

1. Strategic risk
Strategic risks can occur at any timeme. For example, a company manufacturing an anti-mosquito lotion may
suddenly see a decline in its sales because people’s preferences have changed, and they now want a spray
mosquito repellent rather than a lotion. To avoid having to face such a risk, companies need to implement a
real-time feedback system to know what its customers want.

2. Compliance risk
Compliance risk involves companies having to comply with new rules that are set by the government or by
any other governing body. For example, there may be a new minimum wage that must be implemented
immediately.

3. Financial risk
Financial risk is about the financial health of the company. Can the company afford to offer installment
payments to its customers? How many customers can it offer such an installment scheme? Can it handle
business operations when two or three of these customers are not able to make their payments on time?

4. Operational risk
Operational risk occurs within the business’ system or processes. For example, one of its production
machines breaks down when the target output is still unmet. What will the company do if one of its machine
operators has an accident during work hours?

Causes of Business Risks

There are basically three causes of business risk:

1. Natural causes
Natural causes of risk include flooding, earthquakes, cyclones, and other natural disasters that can lead to the
loss of lives and property. For example, a delivery truck is on its way to delivering the orders of one
customer, but is met with a cyclone along the way, causing an accident. In order to counter such causes,
businesses need to take out comprehensive insurance coverage.

2. Human causes
Human causes of risk refer to negligence at work, strikes, work stoppages, and mismanagement.

3. Economic causes
Economic causes involve rising prices of raw materials and minimum wage, rising interest rates for
borrowing, and competition.

How to Manage Business Risks

Business risks may be inevitable, but there are several ways to minimize their impact, such as:
1. Avoid the risk
It may sound ironic to suggest avoiding the risk when we say that it is inevitable. But what is meant here is
that companies should go the other way, instead of the one that leads to the risk. Managers should think of
alternatives in order to not have to face the risk.
2. Prevent the risk
In the example of the delivery truck above, it would help prevent the risk if companies check on the weather
prior to sending out deliveries in order to make sure they reach their destination safely. If there is a deemed
risk, then they should act to prevent it from happening – for example, by halting deliveries during severe
weather.
3. Retain the risk

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Sometimes, there are risks that cannot be avoided or prevented. Companies can choose to retain said risks
while putting up safety nets. For example, since all businesses need to access the internet where hackers
abound, they may put stronger firewalls and other protective measures in place to ensure their company’s
safety.

Entrepreneurs can contribute through their productivity to the industrial and economic development
of Nigeria.

1. Investing in products and services people need.

What motivates a person to start a new business? According to traditional models, entrepreneurs create new
businesses in response to unmet needs and demands in the market. That is, there is an opportunity to provide
a product or service that is not currently in existence, or otherwise available. Economists refer to these
business-starters as “opportunity” entrepreneurs in order to distinguish these individuals from those who start
businesses for lack of better work opportunities. So-called “opportunity” entrepreneurs, who launch new
enterprises in response to market needs, are key players when it comes to fostering economic growth in a
region. They enable access to goods and services that populations require in order to be productive. This is
not to ignore “necessity” entrepreneurs that launch enterprises because they have no other options. Both can
and do contribute to economic growth.

2. Providing employment opportunities.

New businesses need to hire employees. They create jobs and these economic opportunities uplift and
support communities through increasing the quality of life and overall standard of living.

3. Commerce and regional economic integration.

Technology has made it possible for small, entrepreneur-led businesses to expand into regional and global
markets. When new businesses export goods and services to nearby regions, these enterprises contribute
directly to a region’s productivity and earnings. This increase in revenue strengthens an economy and
promotes the overall welfare of a population. Economies that trade with one another are almost always better
off. Politics aside, engaging in regional and international trade promotes investment in regional
transportation and infrastructure, which also strengthens economies. This has never been more true than it is
today, as we live in an increasingly interconnected global economy. Even for a large and advanced economy
like the United States, foreign markets have a significant role. Foreign trade, according to some estimates, is
responsible for over 90 percent of our economic growth.

What exactly is innovation and how does it promote economic development? Under what conditions, do
entrepreneurs innovate? A widely-accepted definition measures innovation using a set of criteria including
how many new products are invented, the percentage of high-tech jobs, and the size of the talent pool
available to tech industry employers. More recently and increasingly, our definition of innovation has
expanded to include the development of new service offerings, business models, pricing plans, and routes to
market. While the role that startups and young tech companies play in job creation is well documented, their
contribution to overall productivity is less intuitive and not discussed as often. To better understand how
innovation contributes to economic development, I’ve unpacked a few examples below.

4. New technologies promote efficiency.

The ability to turn ideas into new products and services that people need is the fount of prosperity for any
developed country. Economic growth, generally speaking, is driven by new technologies and their creative
applications. Periods of rapid innovation historically have been accompanied by periods of strong economic
growth. The impetus of innovation is the greatest natural resource of all: the human mind. Creating
innovative products and solutions requires an educated population and an environment where collaborative
work can take place. In addition to being good for business, education increases workforce creativity and
quality of life.

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5. Addressing environmental challenges.
Innovation is (and will continue to be) crucial when it comes to addressing the enormous environmental
challenges we face today: combating climate change, lowering global greenhouse gas emissions, and
preserving biodiversity in the environment. Without power for extended periods of time, commerce comes to
a halt. Without water, we cannot live. Reliable access to these innovations (such as irrigation technology,
electricity, and urban infrastructure) increases productivity and enhances economic development.

6. Innovation impacts socio-economic objectives.

Innovative business practices create efficiency and conserve resources. Innovation in agriculture is especially
relevant for addressing socioeconomic challenges (in addition to encouraging economic growth). In the U.S.,
for instance, we waste billions of dollars annually due to inefficiencies and uncompetitive practices in our
healthcare system. Hopefully, new ideas and innovations in the future will address these problems, resulting
in further reforms. When this occurs, Americans’ overall health and quality of life will benefit, and so will
our economy if our wasteful healthcare costs also decrease.

7. Innovation happens where there is competition.

In essence, there is a positive feedback loop among innovation, entrepreneurship, and economic
development.

New and growing businesses represent the principal sources of job creation and innovative activity in an
economy, two factors that generally result in the rising standards of living for all.

Management has been described as a social process involving responsibility for economical and effective
planning & regulation of operation of an enterprise in the fulfillment of given purposes. It is a dynamic
process consisting of various elements and activities. These activities are different from operative functions
like marketing, finance, purchase etc. Rather these activities are common to each and every manger
irrespective of his level or status.

Different experts have classified functions of management. According to George & Jerry, “There are four
fundamental functions of management i.e. planning, organizing, actuating and controlling”.

According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to control”.
Whereas Luther Gullick has given a keyword ’POSDCORB’ where P stands for Planning, O for Organizing,
S for Staffing, D for Directing, Co for Co-ordination, R for reporting & B for Budgeting. But the most
widely accepted are functions of management given by KOONTZ and O’DONNEL i.e. Planning,
Organizing, Staffing, Directing and Controlling.

For theoretical purposes, it may be convenient to separate the function of management but practically these
functions are overlapping in nature i.e. they are highly inseparable. Each function blends into the other &
each affects the performance of others.

1. Planning
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It is the basic function of management. It deals with chalking out a future course of action & deciding in
advance the most appropriate course of actions for achievement of pre-determined goals. According to
KOONTZ, “Planning is deciding in advance - what to do, when to do & how to do. It bridges the gap from
where we are & where we want to be”. A plan is a future course of actions. It is an exercise in problem
solving & decision making. Planning is determination of courses of action to achieve desired goals. Thus,
planning is a systematic thinking about ways & means for accomplishment of pre-determined goals. Planning
is necessary to ensure proper utilization of human & non-human resources. It is all pervasive, it is an
intellectual activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc.
2 Organizing
It is the process of bringing together physical, financial and human resources and developing productive
relationship amongst them for achievement of organizational goals. According to Henry Fayol, “To organize
a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and
personnel’s”. To organize a business involves determining & providing human and non-human resources to
the organizational structure. Organizing as a process involves:

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.

3 Staffing
It is the function of manning the organization structure and keeping it manned. Staffing has assumed greater
importance in the recent years due to advancement of technology, increase in size of business, complexity of
human behavior etc. The main purpose o staffing is to put right man on right job i.e. square pegs in square
holes and round pegs in round holes. According to Kootz & O’Donell, “Managerial function of staffing
involves manning the organization structure through proper and effective selection, appraisal & development
of personnel to fill the roles designed un the structure”. Staffing involves:

 Manpower Planning (estimating man power in terms of searching, choose the person and giving the
right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer

4 Directing
It is that part of managerial function which actuates the organizational methods to work efficiently for
achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in motion
the action of people because planning, organizing and staffing are the mere preparations for doing the work.
Direction is that inert-personnel aspect of management which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has following
elements:

 Supervision
 Motivation
 Leadership
 Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching &
directing work & workers.

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Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive,
negative, monetary, non-monetary incentives may be used for this purpose.

Leadership- may be defined as a process by which manager guides and influences the work of subordinates
in desired direction.

Communications- is the process of passing information, experience, opinion etc from one person to another.
It is a bridge of understanding.

5 Controlling
It implies measurement of accomplishment against the standards and correction of deviation if any to ensure
achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in
conformities with the standards. An efficient system of control helps to predict deviations before they
actually occur. According to Theo Haimann, “Controlling is the process of checking whether or not proper
progress is being made towards the objectives and goals and acting if necessary, to correct any deviation”.
According to Koontz & O’Donell “Controlling is the measurement & correction of performance activities of
subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being
accomplished”. Therefore controlling has following steps:

a. Establishment of standard performance.

b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out deviation if any.
d. Corrective action

Roles of a Manager
Everything you need to know about the roles of a manager in an organisation. Manager is responsible to
integrates all the activities which are performed in an organisation.

In other words, he has to co-ordinate the talents of people working under him for the purpose of achieving
the organisational goals.

The role of a manager gets much importance than other executives in an organisation. Hence, a manager’s
job is very much complex and requires some special qualities to be a head.

The roles of a manager can be studied under the following categories:-

1. Interpersonal Roles
2. Informational Roles
3. Decisional Roles.

Some of the interpersonal roles of a manager are:-

i. Figure Head Role

ii. Leadership Role
iii. Liaison Role.

Some of the informational roles of a manager are:-

i. Monitoring Role
ii. Disseminator
iii. Spokesperson.

Some of the decisional roles of a manager are:-

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 i. Disturbance Handler
ii. Entrepreneur
Negotiator
iii. Resource Allocator.

Additionally, some of the other roles of a manager are:-

1. Managing Work
2. Managing Workers
3. Managing Managers
4. Managing Resources
5. Managing Stakeholders
6. Managing Innovation
7. Managing Pressure Groups
8. Managing PR (Public Relations)
9. Managing Information
10. Managing Globalisation.
Roles of a Manager in an Organization

The roles of a manager can be studied under the following categories:- 1. Interpersonal Roles 2.
Informational Roles 3. Decisional Roles.

Some of the interpersonal roles of a manager are:-i. Figure Head Role ii. Leadership Role iii. Liaison Role.

Some of the informational roles of a manager are:- i. Monitoring Role ii. Disseminator iii. Spokesperson.

Some of the decisional roles of a manager are:- i. Disturbance Handler ii. Entrepreneur iii. Negotiator iv.
Resource Allocator.

Roles of a Manager – 3 Roles of a Manager as Classified by Mintzberg

It is important to know “what managers actually do”. Managers play a variety of roles in organisation to
manage the work. Henry Mintzberg criticized the traditional functional approach. He concluded that
functions “tell us little about what managers actually do. At best they indicate some vague objectives
managers have when they work. Managers do not act out the classical classification of managerial functions.
Instead, they engage in a variety of other activities.” Roles are organized set of behaviours. These are
behavioural patterns. After studying several managers at work, Mintzberg classified their behaviours into
three distinct areas or roles- interpersonal, informational, and decisional. Figure 1.2 shows that managers
have formal authority, status, personal characteristics and skills to perform these roles effectively.

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1. Interpersonal Roles:
There are three interpersonal roles inherent in the manager’s job. This set of roles derives directly from the
manager’s formal position. As the figurehead for his unit, he stands as a symbol of legal authority,
performing certain ceremonial duties e.g., signing documents and receiving visitors. The manager in a leader
role hires, trains, and motivates his personnel. In the liaison role, manager interacts with many people outside
the immediate chain of command, those who are neither subordinates nor superiors.
2. Informational Roles:
Informational roles are important because information is the lifeblood of organizations and the manager is
the nerve center of his unit. As a monitor, the manager is a receiver and collector of information. Information
is acquired through meetings, conversations, or documentation. In the disseminator role, managers distribute
information to subordinates daily. As a spoke-person, the manager transmits information to individuals
outside the organization. This role is present in all managerial jobs.
3. Decisional Roles:
To get the work done, managers have to make decisions. In performing the decision-making role, managers
act as entrepreneur, disturbance handler, resource allocator, and negotiator. In playing the entrepreneurial
role, managers actively design and initiate changes within the organization. It involves some improvements.

As a disturbance handler, the manager handles difficult problems and non-routine situations such as strikes,
energy shortages etc. As resource allocator, the manager decides how resources are distributed, and with
whom he will work most closely. The fourth decisional role is that of negotiator. Managers negotiate with
suppliers, customers, unions, individual employees, the government, and other groups.

It is important to note that neither the functional (process) nor the role approach provides complete insight into
many aspects of a manager’s daily routine. Managers should integrate the role oriented approach with the traditional
process approach, because it is, as Jon Pierce says, through the interpersonal, informational, and deci sional roles that
managers execute the planning, organizing, directing and controlling functions.

METHODS OF GROWTH
Small businesses can expand their operations by pursuing any number of avenues. The most commonplace
methods by which small companies increase their business are incremental in character, i.e., increasing
product inventory or services rendered without making wholesale changes to facilities or other operational
components. But usually, after some period of time, businesses that have the capacity and desire to grow will
find that other options should be studied. Common routes of small business expansion include:

Here’s an overview of growth strategies.

1. Market share—Under this strategy, your company seeks to capture a bigger share of your current market
with the products it already has. For example, you can do so by increasing your marketing efforts or adjusting
your prices.
2. New markets—Another strategy is to find new markets for your current products. For example, you can
expand sales to a new city, province or country.
3. Diversification—You can also develop new products to sell to your current market and/or to new customers.
This can lead you into a related line of business or an entirely different one.
4. Acquisition—Buying another company can be a cost-effective way to increase market share, capture new
markets or diversify. This strategy gives you an established clientele and operation, which you can adjust to
add value. Acquisition may be a good strategy if you want to expand into a new geographic location or to
another country where you lack contacts and local knowledge.
5. Buying a franchise—You may also consider acquiring a franchise. Such a business usually comes with name
recognition, serious marketing power and support from the franchise owner. But be sure to investigate all
your costs, including start-up fees, royalties, advertising and supplies.
6. Franchising your business—Franchising your own business can be a successful growth strategy, especially if
you have a profitable operation that can be easily replicated by others.

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 7. Strategic partnerships—Another common growth strategy is to pursue partnerships with other companies. A
partnership can be as simple as an informal agreement between businesses in complementary markets to
refer clients to each other.

EXPANSION ISSUES
Whatever method a company chooses to utilize to expand—and whatever guiding strategy it chooses to
employ—its owners will likely face a combination of potentially vexing issues as they try to grow their
business in a smooth and productive manner. "Expanding a company doesn't just mean grappling with the
same problems on a larger scale," wrote Sharon Nelton in Nation's Business. "It means understanding,
adjusting to, and managing a whole new set of challenges—in essence, a very different business."

GROWING TOO FAST This is a common malady that strikes ambitious and talented entrepreneurs who have
built a thriving business that meets a strong demand for a specific set of goods and/or services. Success is
wonderful, of course, but rapid growth can sometimes overwhelm the ill-prepared business owner.
"Companies growing at hyper-speed sometimes pay a steep price for their success," confirmed Ingram's
contributor Bonar Menninger. "According to management experts, controlling fast-track growth and the
problems that come with it can be one of the most daunting tasks an entrepreneur will face." This problem
most often strikes on the operational end of a business. Demand for a product will outpace production
capacity, for example. In such instances, the business often finds that its physical needs have outgrown its
present facilities but that its lease agreement or other unanticipated factors hinder its ability to address the
problem. "You may sign a five-year lease for a building, and 18 months later you're busting at the seams,"
one executive told Menninger. "We had to move three times in five years. When we signed our latest lease,
we signed a three-year deal. It's a little more expensive, but we can bail if we have to." In other cases, a
business may undergo a period of feverish expansion into previously untapped markets, only to find that
securing a meaningful share of that market brings them unacceptably low profit margins. Effective research
and long range planning can do a lot to relieve the problems often associated with rapid business expansion.

RECORDKEEPING AND OTHER INFRASTRUCTURE NEEDS It is essential for small businesses that are
undergoing expansion to establish or update systems for monitoring cash flow, tracking inventories and
deliveries, managing finances, tracking human resources information, and myriad other aspects of the rapidly
expanding business operation. As one business owner told Nation's Business, "if you double the size of the
company, the number of bills you have goes up by a factor of six." Many software programs currently
available in the marketplace can help small businesses implement systems designed to address these
recordkeeping requirements. In addition, growing enterprises often have to invest in more sophisticated
communication systems in order to provide adequate support to various business operations.

EXPANSION CAPITAL Small businesses experiencing growth often require additional financing. Finding
expansion capital can be a frustrating experience for the ill-prepared entrepreneur, but for those who plan
ahead, it can be far less painful. Businesses should revise their business plan on an annual basis and update
marketing strategies accordingly so that you are equipped to secure financing under the most advantageous
terms possible.

PERSONNEL ISSUES Growing companies will almost always have to hire new personnel to meet the demands
associated with new production, new marketing campaigns, new recordkeeping and administrative
requirements, etc. Careful hiring practices are always essential, but they are even more so when a business is
engaged in a sensitive period of expansion. As one consultant told Ingram's, "too often, companies spend all
their energy on marketing and production plans and ignore developing similar roadmaps for their personnel
needs."

Business expansion also brings with it increased opportunities for staff members who were a part of the
business in its early days. The entrepreneur who recognizes these opportunities and delegates responsibilities
appropriately can go far toward satisfying the desires of employees who want to grow in both personal and
professional capacities. But small business owners also need to recognize that business growth often triggers

19
the departure of workers who are either unable or unwilling to adjust to the changing business environment.
Indeed, some employees prefer the more relaxed, family-type atmosphere that is prevalent at many small
business establishments to the more business-like environment that often accompanies periods of growth.
Entrepreneurs who pursue a course of ambitious expansion may find that some of their most valuable and
well-liked employees decide to instead take a different path with their lives. In addition, Nelton pointed out
that "some employees may not be able to grow with the company. You may have to let them go, despite their
intense loyalty and the fact that they have been with the company since its inception. This will be painful."

CUSTOMER SERVICE Good customer service is often a significant factor in small business success, but
ironically it is also one of the first things that tends to fall by the wayside when business growth takes on a
hectic flavor. "When the workload increases tremendously, there's a feeling of being overwhelmed," one
small business owner admitted to Menninger. "And sometimes you have a hard time getting back to clients in
a timely fashion. So the very customer service that caused your growth in the first place becomes difficult to
sustain." Under such scenarios, businesses not only have greater difficulty retaining existing clients, but also
become less effective at securing new business. A key to minimizing such developments is to maintain
adequate staffing levels to ensure that customers receive the attention and service they demand (and deserve).

DISAGREEMENTS AMONG OWNERSHIP On many occasions, ownership arrangements that functioned fairly
effectively during the early stages of a company's life can become increasingly problematic as business
issues become more complex and divergent philosophies emerge. For example, Sherman noted that in many
growing enterprises that were founded by two or more people, "one or more of the cofounders are unable to
keep pace with the level of sophistication or business acumen that the company now requires. Such a
cofounder is no longer making a significant contribution to the business and in essence has become
'obsolete.' It's even harder when the obsolete partner is a close friend or family member: In this case, you
need to ask: Will the obsolete cofounder's ego allow for a position of diminished responsibility? Can our
overhead continue to keep him or her on staff?" Another common scenario that unfolds during times of
business growth is that the owners realize that they have profoundly different visions of the company's future
direction. One founder may want to devote resources to exploring new marketing niches, while the other may
be convinced that consolidation of the company's presence in existing markets is the way to go. In such
instances, the departure of one or more partners may be necessary to establish a unified direction for the
growing company.

FAMILY ISSUES Embarking on a strategy of aggressive business expansion typically entails an extensive
sacrifice of time—and often of money—on the part of the owner (or owners). But as Sherman noted, "many
growing companies, especially those founded by younger entrepreneurs, are established at a time when all of
the cofounders are either unmarried or in the early stages of a marriage. As the size of the company grows, so
does the size of the cofounders family. Cofounders with young children may feel pressure to spend more
time at home, but their absence will significantly cut their ability to make a continuous, valuable contribution
to the company's growth." Entrepreneurs pondering a strategy of business growth, then, need to decide
whether they are willing to make the sacrifices that such initiatives often require.

METAMORPHOSIS OF COMPANY CULTURE As companies grow, entrepreneurs often find it increasingly

difficult for them to keep the business grounded on the bedrock values that were instituted in its early days.
Owners are ultimately the people that are most responsible for communicating those values to employees.
But as staff size increases, markets grow, and deadlines proliferate, that responsibility gradually falls by the
wayside and the company culture becomes one that is far different from the one that was in place—and
enjoyed—just a few short years ago. Entrepreneurs need to make sure that they stay attentive to their
obligations and role in shaping company culture.

CHANGING ROLE OF OWNER "In the early years, from the time you start a business until it stabilizes, your
role [as small business owner] is probably handson," said Nelton. "You have few employees; you're doing
lots of things yourself. But when a company experiences its first real surge of growth, it's time for you to
change what you do. You need to become a CEO—that is, the leader, the strategic thinker, and the planner—
and to delegate day-to-day operations to others." Moreover, as businesses grow in size they often encounter
20
problems that increasingly require the experience and knowledge of outside people. Entrepreneurs guiding
growing businesses have to be willing to solicit the expertise of accounting and legal experts where
necessary, and they have to recognize their shortcomings in other areas that assume increased importance
with business expansion.

The practical aspect of running a business.

Starting a new business can be a daunting task. There are myriad issues a new entrepreneur will encounter:
legal issues, financing, marketing, product development, intellectual property, human resources—the list is
endless. Many new entrepreneurs are simply overwhelmed by all the things they are expected to know.

Having been involved in hundreds of startups as an entrepreneur, lawyer, venture capital investor, angel
investor, and Board member, I have learned a number of real-world lessons. In this article, I share 17 of the
most important ones, along with references to other helpful articles that can offer you a more in-depth
discussion of each topic.

1. Come Up With a Great Name for Your Business.

Finding the right name for your startup can have a significant impact on your success. The wrong name could
result in insurmountable legal and business hurdles. Here are some quick tips for naming your startup:

 Avoid hard-to-spell names.

 Don’t pick a name that could be limiting as your business grows.
 Conduct a thorough Internet search on a proposed name.

 Get a “.com” domain name (as opposed to “.net” or another variant).

 Conduct a thorough trademark search.
  Make sure you and employees will be happy saying the name.
 Come up with five names you like, then test market the name with prospective employees, partners,
investors as well as potential customers..

2. Understand That Raising Financing Is Difficult.

Raising financing for your startup will likely be more difficult and more time consuming than you imagine. It
takes a great deal of effort to convince angel investors or venture capitalists to invest in your company. So
you need to anticipate the time delays involved.

Don’t waste your time trying to require prospective angel or venture capital investors to sign a Non-
Disclosure Agreement (NDA) so that they won’t steal your idea. It’s counterproductive and will slow down
your fundraising. And many investors will refuse anyway. It’s hard enough to get a meeting with an investor,
so don’t put another hurdle in your way.

3. Focus on Building a Great Product—But Don’t Take Forever to Launch.

Your product or service has to be at least good, if not great, to start out with. It has to be differentiated in
some meaningful and important way from your competitors’ offerings. All else follows from this principle.
Don’t dawdle on getting your product out to the market, as early customer feedback is one of the best ways
to help improve it. But you do want a minimally viable product to begin with.

4. Become a Strong Salesperson.

If your business is to become successful, you must become a great salesperson. You are going to have to
“sell” your business not only to customers but also to prospective investors and even to potential employees.

You must practice. You must refine your pitch. You must get feedback. You must be extroverted. You need
to show confidence. You must be positive. You must be trustworthy. You must follow-up. You must ask for
the sale. You must listen.

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5. Build a Great Website for Your Company.
You should devote time and effort to building a great company website. Prospective investors, customers,
and partners are going to check out your site and you want to impress them with a professional product. Here
are some tips for building a great company website:

 Check out competitor sites.

 Start by sketching out a template for your site.
 Come up with five or six sites you can point out to your Web developer to convey what you like.
 Be sure the site is search engine optimized (and thus more likely to show up early on search results).
 Have high-quality content.
 Make sure your site is mobile optimized.
 Make sure the site loads quickly.
 Create an optimized user experience.
 Keep it clean and simple; clutter will drive visitors away.
 Make sure you have a Terms of Use Agreement and Privacy Policy.
 Make the navigation bars prominent.
 Obtain and use a memorable “.com” domain name.

6. Perfect Your Elevator Pitch.

An “elevator” pitch is intended to be a concise, compelling introduction to your business. Your can modify
your elevator pitch depending on whether you are pitching to prospective investors, customers, employees,
or partners. Here are a few tips for coming up with a great elevator pitch:

 Start out strong.

 Be positive and enthusiastic in your delivery.
 Remember that practice makes perfect.
 Keep it to 60 seconds in length.
 Avoid using industry jargon.
 Convey why your business is unique.
 Pitch the problem you are solving.
 Invite participation or interruption by the listener—this shows they are interested and engaged.

7. Nail Your Executive Summary and Pitch Deck.

An executive summary typically is a 3-4 page high-level summary of your company that can be presented to
potential investors. A pitch deck is a 15-20 page PowerPoint presentation that lays out more visually the
business for prospective investors. You absolutely have to nail both documents. You must clearly articulate:

 Your mission
 The problem you are trying to solve
 The experience and passion of the management team
 The product and its key differentiating features
 The big market opportunity you see
 Your technology or proprietary innovation edge
 The competitive landscape and competitor shortcomings
 Believable projections showing a big upside in the business
 Examples of early buzz or customer traction

Review other executive summaries and pitch decks to help you improve your own. If you have friends who
are successful entrepreneurs, ask if you can see theirs. Plenty of examples are also available online. For
example, check out the pitch decks used by Facebook, Airbnb, LinkedIn, Buzzfeed, YouTube, and WeWork.

8. Understand Financial Statements and Budgets.

You must keep on top of your expenses and learn how to thoroughly understand financial statements and
budgeting. Many startups have failed because the entrepreneur wasn’t able to adjust spending to avoid

22
running out of cash. Establishing a detailed, month-by-month budget is important, and this budget must be
regularly reviewed.

Understanding your financial statements will also help you answer questions from prospective investors.
Here are some financial statement questions you can expect to get from investors:

 What are the company’s three-year projections?

 What are the key assumptions underlying your projections?
 How much equity and debt has the company raised; what is the capitalization structure?
 What future equity or debt financing will be necessary?
 How much of a stock option pool is being set aside for employees?
 When will the company get to profitability?
 How much burn will occur until the company gets to profitability?
 What are your unit economics?
 What are the factors that limit faster growth?
 What are the key metrics that the management team focuses on?

9. Keep Your Investors Constantly Informed With Both Good and Bad News.
It’s good practice to keep your investors updated on a monthly basis via email. The updates don’t need to be
incredibly detailed, but here are some general items you want to consider including in your updates:

 Summary of the progress of the company

 Summary of product development
 Team and recruiting update
 Recent press or PR
 Key metrics you are paying attention to
 Financials, including monthly burn rate and current cash position
 Strategic issues you are facing (and ask for advice)
 Request for help by introduction to prospective investors, partners, and customers (you want to leverage
their networks)

You want to maintain great relationships and connections with your investors. And you don’t want them to
be surprised when you need to go back to them for additional financing.

10. Get All Employees and Consultants to Sign a Confidentiality & Invention Assignment Agreement.
To make sure employees and consultants keep the company’s proprietary information confidential, the
company should typically require them to sign a Confidentiality and Invention Assignment Agreement. This
form deals with the confidentiality issues, but also provides that the ideas, work product, and inventions that
the employee or consultant creates which are related to the company business belong to the company and not
to the employee or consultant.

Venture capitalists and other investors in startups expect to see that employees and consultants have signed
such agreements. In an M&A transaction where the company is sold, the acquirer’s due diligence team will
also be looking for these agreements.

11. Market Your Business Like Crazy.

To succeed in business, you need to continually be attracting, building, and even educating your target
market. Make sure your marketing strategy includes the following:

 Learn the fundamentals of SEO (search engine optimization) so that people searching for your products and
services might find you near the top of search results.
 Use social media to promote your business (LinkedIn, Facebook, Twitter, Pinterest, etc.).
 Engage in content marketing by writing guest articles for relevant websites.
 Issue press releases for any significant events.

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  Network continually.

12. Use Consultants and Freelancers to Supplement Your Team.

At the early stages of your startup, you will likely want to have a small employee team to minimize expenses.
A good way to fill in for specialized expertise is to use freelancers or consultants. That way, you avoid taking
on employee costs and benefits payments. And there are a variety of sites that can help you access
freelancers, such as [Link], [Link], and [Link].

13. Make the Deal Clear With Co-Founders.

If you start your company with co-founders, you must agree early on about the details of your relationship.
Not doing so can potentially cause enormous problems down the road (for example, see the
Zuckerberg/Winklevoss Facebook litigation). In a way, think of the founder agreement as a form of “pre-
nuptial agreement.” Here are the key deal terms your written founder agreement needs to address:

 Who gets what percentage of the company?

 Is the percentage ownership subject to vesting based on continued participation in the business?
 What are the roles and responsibilities of the founders?
 If one founder leaves, does the company or the other founder have the right to buy back that founder’s
shares? At what price?
 How much time commitment to the business is expected of each founder?
 What salaries (if any) are the founders entitled to? How can that be changed?
 How are key decisions and day-to-day decisions of the business to be made? (majority vote, unanimous vote,
or certain decisions solely in the hands of the CEO?)
 Under what circumstances can a founder be removed as an employee of the business? (usually, this would be
a Board decision)
 What assets or cash into the business does each founder contribute or invest?
 How will a sale of the business be decided?
 What happens if one founder isn’t living up to expectations under the founder agreement? How will it be
resolved?
 What is the overall goal and vision for the business?

14. Get the Right Business Lawyer.

In a misguided effort to save on expenses, startup businesses often hire inexperienced legal counsel. Rather
than spending the money necessary to hire competent legal counsel, founders will often hire lawyers who are
friends, relatives, or others who offer large fee discounts. In doing so, the founders deny themselves the
advice of experienced legal counsel who could potentially help them avoid many serious legal problems.
Founders should consider interviewing several lawyers or law firms and determine if the lawyers or the law
firms have expertise in some, if not all, of the following legal areas:

 Corporation, commercial, and securities law

 Contract law
 Employment law
 Intellectual property laws
 Tax laws
 Franchise laws
 Venture capital and angel financings

It is not necessary that the lawyer or law firm has experience in all of these areas, because certain problems
can be “farmed out” to different specialized lawyers or firms. But it is often best that you retain a firm that
can handle some, if not many, of the areas of expertise listed above so as to provide continuity between you
and your legal counsel.

There are a number of ways to locate competent legal counsel:

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  Ask friends and business acquaintances for recommendations.
 Use state bar referral services.
 Conduct an online search (via a site such as [Link]).
 Ask for referrals from venture capital and angel investors.

15. Take Into Account Important Tax Issues.

When starting a business, there are some key tax issues to consider. Here are some of the most common:

 Choice of legal entity. There may be valid reasons to choose a flow-through tax entity, such as an LLC or S
corporation. Flow-through entities allow business losses to flow through to the shareholders to use on their
individual tax return. But most venture capitalists and institutional investors prefer C corporations instead of
flow-through entities.
 Sales tax. The company needs to collect sales tax on sales of its products, because failure to do so can have
disastrous consequences. This issue is compounded if the company is selling in multiple states.
 Payroll tax. Many cities and counties impose a payroll tax.
 Section 83(b). Founders and employees need to consider whether they can mitigate potential tax issues by an
IRC § 83(b) election. A Section 83(b) election relates to when someone receives stock or options subject to
vesting and can minimize deemed taxable income to the recipient.
 Stock option issues. Companies often grant stock options to employees. If not done in compliance with IRS
guidelines, such grants can result in adverse tax consequences to the company and/or employee.
 Qualified Business Stock. Holders of stock in qualified small business corporations may be entitled to a
reduced rate of tax on gain from the sale of “qualified small business stock” under IRC § 1202.
 Tax Incentives. Depending on the nature of the business, various tax incentives may be available, such as
renewable energy tax credits and investment tax credits.

A good accountant or tax lawyer familiar with these issues can be a valuable partner.

16. Do These Things Before Hiring an Employee.

Before hiring an employee, do the following:

 Make sure the employee has relevant experience for the job.
 Have several people within the company do an interview to make sure there will be a cultural fit.
 Be sure to check references and academic credentials.
 Make sure the employee signs a well-drafted employment “at will” letter (allowing you to terminate the
employee for any reason).
 Make sure the employee signs a confidentiality and Inventions Assignment Agreement (see Confidentiality
and Invention Assignment Agreements for Employees.)

17. Expect Big Challenges and Be Prepared for Them.

The biggest challenges to starting and growing a business include:

 Coming up with a great product or service

 Having a strong plan and vision for the business
 Not having sufficient capital and cash flow
 Finding great employees
 Firing bad employees quickly in a way that doesn’t result in legal liability
 Working more that you expected
 Not getting discouraged by rejections from customers
 Managing your time efficiently
 Maintaining a reasonable work/life balance
 Knowing when to pivot your strategy
 Maintaining the stamina to keep going even when it’s tough

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