COURSE TITLE:

ENTREPRENEURSHIP:
COURSE CODE: MGMT 102
CREDIT HOUR: 3

PREPARED BY
GETACHEW M - MSC/MBA/
 ENTREPRENEURSHIP

Table of Contents
chapter 1: The Nature of
Entrepreneurship
Chapter 2: Business Planning
CHAPTER 3: BUSINESS FORMATION
 CHAPTER 1:
THE NATURE OF ENTREPRENEURSHIP
 INTRODUCTION
 The word entrepreneur‘ is widely used, both in everyday conversation and as a
technical term in management and economics.
 Its origin from a French word, entreprender, where an entrepreneur was an
individual commissioned to undertake a particular commercial project.
 A number of concepts have been derived from the idea of the entrepreneur
such as entrepreneurial, entrepreneurship and entrepreneurial process.
 Entrepreneur is someone who undertakes certain projects offers an opening
to developing an understanding of the nature of entrepreneurship.
 Entrepreneurship is then what the entrepreneur does.
 Entrepreneurial is an adjective describing how the entrepreneur undertakes
what he or she does.
HISTORICAL PERSPECTIVE
 During the ancient period the word entrepreneur was used to refer to a person
managing large commercial projects through the resources provided to him.
 □ In the 17th Century a person who has signed a contractual agreement with
the government to provide stipulated products or to perform service was
considered as entrepreneur.
 □ In the 18th Century the first theory of entrepreneur has been developed by
Richard Cantillon.
 He said that an entrepreneur is a risk taker. If we consider the merchant,
farmers and /or then professionals they all operate at risk.
 For example, the merchants buy products at a known price and sell it at
unknown price and this shows that they are operating at risk.
CONTINUED…
 The other development during the 18th Century is the differentiation of the
entrepreneurial role from capital providing role.
 The later role is the base for today’s venture capitalist.
 In the late 19th and early 20th Century an entrepreneur was viewed from
economic perspectives.
 The entrepreneur organizes and operates an enterprise for personal gain.
 In the middle of the 20th and early 21th Century the notion of an
entrepreneur as an inventor was established
 From historic development it is possible to understand the fact that the
perception of the word entrepreneur was evolved from managing commercial
project to the application of innovation in the business idea.
 DEFINITIONS OF ENTREPRENEURSHIP

 Entrepreneurship is the process of identifying opportunities in the market

place, arranging the resources required to pursue these opportunities and
investing the resources to exploit the opportunities for long term gains.
 Entrepreneurship can also be defined as the process of creating something
different and better with value by devoting the necessary time and effort by
assuming the accompanying financial, psychic and social risks and receiving
the resulting monetary reward and personal satisfaction.
 Entrepreneurship is the processes through which individuals become aware
of business ownership then develop ideas for, and initiate a business.
ENTREPRENEURSHIP …

 Entrepreneurship is the art of identifying viable

business opportunities and mobilizing resources to
convert those opportunities into a successful enterprise
through creativity, innovation, risk taking and
progressive imagination.
 It involves creating incremental wealth by bringing
together resources in new ways to start and operate an
enterprise.
 Entrepreneurship is an incredible force for growth
opportunities.
 ENTREPRENEURSHIP …
 Entrepreneurship is a practice and a process that results in creativity,
innovation and enterprise development and growth.
 It refers to an individual‘s ability to turn ideas into action involving and
engaging in socially-useful wealth creation through application of innovative
thinking and execution to meet consumer needs, using one‘s own labor, time
and ideas.
 Engaging in entrepreneurship shifts people from being ―job seekers to
―job creators, which is critical in countries that have high levels of
unemployment. It requires a lot of creativity which is the driving force behind
innovation
 DEFINITION OF ENTREPRENEUR

 An entrepreneur is any person who creates and develops a business idea and
takes the risk of setting up an enterprise to produce a product or service which
satisfies customer needs.
 An entrepreneur can also be defined as a professional who discovers a
business opportunity to produce improved or new goods and services and
identifies a way in which resources required can be mobilized.
 An entrepreneur is an individual who: has the ability to identify and pursue a
business opportunity; undertakes a business venture; raises the capital to
finance it; gathers the necessary physical, financial and human resources
needed to operate the business venture; sets goals for him/herself and others;
initiates appropriate action to ensure success; and assumes all or a major
portion of the risk
 An entrepreneur is a person who: create the job not a job-seeker; has a
dream, has a vision; willing to take the risk and makes something out of
nothing
 DEFINITION OF ENTREPRENEUR…

 An entrepreneur is a person who is action oriented, highly motivated, takes

risks to achieve goals
 An entrepreneur is a person who establishes his own business with the
intention of making profits
 An entrepreneur is a person who only provides capital without taking active
part in the leading role in an enterprise.
 An entrepreneur is a one who innovates, raise money, assemble input,
choose managers and set the organization growing.
 Entrepreneurs play a key role in the economic development of countries.
 They are the engine of growth and innovation in the economies of some of the
countries
CONTINUE…
 Entrepreneurship is the process and entrepreneur is the person undertaking
entrepreneurial activity such as undertaking own business.
 In general, entrepreneur refers to the person and entrepreneurship
defines the process. Both men and women can be successful
entrepreneurs; it has nothing to do with gender. All entrepreneurs are
business persons, but not all business persons are entrepreneurs
PROCESS OF ENTREPRENEURSHIP ELEMENTS
In general, the process of entrepreneurship includes five critical elements.
These are:
1) The ability to perceive an opportunity.
2) The ability to commercialize the perceived opportunity i.e. innovation
3) The ability to pursue it on a sustainable basis.
4) The ability to pursue it through systematic means.
5) The acceptance of risk or failure.
 TYPES OF ENTREPRENEURS

 Entrepreneurship can take three different forms. They are:

 The individual entrepreneur:- is someone who started; acquired or franchised
his/her own independent organization.
 Intra- preneur: is a person who does entrepreneurial work within large
organization.
 The Entrepreneurial Organization: - The entrepreneurial function need not be
embodied in a physical person. An organization can create an environment in
which all of its members can contribute in some function to the entrepreneurial
function.
ROLE OF ENTREPRENEURS WITHIN THE ECONOMY
 Capital formulations: - Entrepreneurs mobilize the idle saving of the public through the
issue of industrial securities.
 Improvement in per capita income
 Generation of employment /provides immediate large-scale employment. Thus it helps to
reduce unemployment in the country.
 Improvement of the living standard
 Economic independence
 Balances regional development
 promotes country‘s export trade
 encourages effective resources mobilization of capital and skill
 stimulates the equitable redistribution of wealth, income and even political power
 Provide diversity firms
 Combine economic factors
 Maximize investor’s return
 Enhance the no. of enterprise
 QUALITIES OF AN ENTREPRENEUR
 Opportunity-seeking: An opportunity is a favorable set of circumstances that
creates a need for a new product, service or business
Persevering: An entrepreneur always makes concerted efforts towards the
successful completion of a goal
 Risk Taking:
 Set their own objectives where there is moderate risk of failure and take calculated risks
Gain satisfaction from completing a job well
 Not be afraid of public opinion, skepticism
Take responsibility for their own action
 Demanding for Efficiency and Quality

Efficiency: Being efficient means producing results with little wasted effort.
Quality: There is always a demand for quality products and efficient services. Quality plays an important role in this new era of globalization
because it confers certain benefits which include ( Reduction of waste, Cost-effectiveness, An increase in market share, Better profitability, Social
responsibility, Reputation)
QUALITIES OF AN ENTREPRENEUR CONT…

 information-seeking:
 Goal Setting ;- an entrepreneur must have a goal and an objective which is specific,
measurable, attainable relevant, and time bound (SMART).
 Persuasion and Networking

Persuasion is a way of convincing someone to get something or
make a decision in your favor.
Networking is an extended group of people with similar interests or
concerns who interact and remain in informal contact for mutual
assistance or support
 Building Self-confidence
 Listening to Others:
 Demonstrating Leadership:
 ENTREPRENEURIAL CHARACTERISTICS
Being an entrepreneur requires specific characteristics and skills that are often achieved
through education, hard work, and planning.

Risk Taker
Businesses face risk. Entrepreneurs minimize risk through research, planning, and skill
development.

Perceptive
Entrepreneurs view problems as opportunities and challenges.

Curious
Entrepreneurs like to know how things work. They take the time and initiative to pursue
the unknown.

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 ENTREPRENEURIAL CHARACTERISTICS

Imaginative
Entrepreneurs are creative. They imagine solutions to problems that encourage them to
create new products and generate ideas.

Persistent
True entrepreneurs face bureaucracy, make mistakes, receive criticism, and deal with
money, family, or stress problems. But they still stick to their dreams of seeing the venture
succeed.

Goal-setting
Entrepreneurs are motivated by the excitement of staring a new business. Once achieved,
they seek out new goals or ventures to try.

Hardworking
Entrepreneurs need a great deal of energy to see a venture start and succeed. Yet they are
not deterred by the long hours to achieve their goal.

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 ENTREPRENEURIAL CHARACTERISTICS ….

Self-confident
Entrepreneurs believe in themselves. Their self-confidence takes care of any doubts
they may have.
Flexible
Entrepreneurs must be flexible in order to adapt to changing trends, markets,
technologies, rules, and economic environments.
Independent
An entrepreneur’s desire for control and the ability to make decisions often makes it
difficult for them to work in a controlled environment.

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 ENTREPRENEURIAL SKILLS:

 General Management Skills

 Strategy Skills – An ability to consider the business as a whole, to understand
how it fits within its market place, how it can organize itself to deliver value to its
customers, and the ways in which it does this better than its competitors.
 Planning Skills – An ability to consider what the future might offer, how it will
impact on the business and what needs to be done to prepare for it now.
 they satisfy the customer‘s needs and why the customer finds them
attractive.
 Financial Skills – An ability to manage money; to be able to keep track of
expenditure and to monitor cash-flow, but also an ability to assess
investments in terms of their potential and their risks.
 Project Management Skills – An ability to organize projects, to set specific
objectives, to set schedules and to ensure that the necessary resources are
in the right plat of the right time.
 Time Management Skills – An ability to use time productively, to be able
to priorities important jobs and to get things done to schedule.
ENTREPRENEURIAL SKILLS CONT…
People Management Skills:
 Businesses are made by people. A business can only be successful if the peoples who
make it up are properly directed and are committed to make an effort on its behalf.
 An entrepreneurial venture also needs the support of people from outside the organization
such as customers, suppliers and investors.
 To be effective, an entrepreneur needs to demonstrative a wide variety of skills in the way
he/she deals with other peoples. Some of the more important skills we might include under
this heading are:
 Communication Skills – An ability to use spoken and written language to express ideas and
inform others.
 Leadership Skills – An ability to inspire people to work in a specific way and to undertake the
tasks that are necessary for the success of the venture.
 Motivation Skills – An ability to inspire people and get them to give their full commitment to the
tasks in hand.
 Delegation Skills – An ability to allocate tasks to different people.
 Negotiation Skills – An ability to understand what is wanted from a situations, what is motivating
others in that situation and recognize the possibilities of maximizing the outcomes for all parties.
CREATIVITY AND ENTREPRENEURSHIP
 Creativity, innovation and entrepreneurship, have been
recognized as important contributors to a nation‘s economic
growth.
 Creativity
 Creativity is defined as the tendency to generate or
recognize ideas, alternatives, or possibilities that may be
useful in solving problems, communicating with others, and
entertaining ourselves and others.
 Creativity is the ability to come up with new idea and to
identify new and different ways of looking at a problem and
opportunities
 Creativity is the ability to develop new ideas and to discover
new ways of looking at problems and opportunities.
 STEPS IN THE CREATIVE PROCESS

 Step1: Opportunity or problem Recognition: A person discovers that a new

opportunity exists or a problem needs resolution.
 Step2: Immersion: the individual concentrates on the problem and becomes
immersed in it.
 Step 3: Incubation: the person keeps the assembled information in mind for a
while. He or she does not appear to be working on the problem actively;
however, the subconscious mind is still engaged. While the information is
simmering it is being arranged into meaningful new patterns.
 Step 4: Insight: the problem-conquering solution flashes into the person‘s mind
at an unexpected time, such as on the verge of sleep, during a shower, or while
running. Insight is also called the Aha! Experience.
 Step 5: Verification and Application: the individual sets out to prove that the
creative solution has merit. Verification procedures include gathering supporting
evidence, using logical persuasion, and experimenting with new ideas.
 INNOVATION
 Innovation is the ability to apply creative solution to those problems and opportunities

in order to enhance people‘s lives or to enrich society.

 Innovation lies at the heart of the entrepreneurial
process and is a means to the exploitation of
opportunity.
 It is the implementation of new idea at the individual,
group or organizational level.
 Innovation is a process of intentional change made to
rate value by meeting opportunity and seeking
advantage.
 Generally, innovation is the introduction of some
thing new and effective into the market.
 TYPES OF INNOVATION

 There are four distinct types of innovation, these are as follows:

 Invention - described as the creation of a new product, service or process
 Extension - the expansion of a product, service or process
 Duplication - defined as replication of an already existing product, service or
process
 Synthesis - the combination of existing concepts and factors into a new
formulation
 THE INNOVATION PROCESS

 1. Analytical planning: carefully identifying the product or service features,

design as well as the resources that will be needed.
 2. Resources organization: obtaining the required resources, materials,
technology, human or capital resources
 3. Implementation: applying the resources in order to accomplish the plans
 4. Commercial application: the provision of values to customers, reward
employees and satisfy the stakeholders
 AREAS OF INNOVATION
 New product
 New Services
New Production Techniques
 New Way of Delivering the Product or Service to the Customer
 New Operating Practices
 New Means of Informing the Customer about the Product
New Means of Managing Relationship within the Organization
 New Ways of Managing Relationships between Organizations
DIFFERENCE B/N CREATIVITY AND INNOVATION
creativity
innovation
 quality thinking of new idea and - act of executing the creative putting
them into reality ideas into practice
 imaginative process - productive process
 not quantifiable - quantifiable
 thinking some thing new - introducing some thing new
 there is no money consumption - there is money consumption
No risk is happen - risk is happen
 DIFFERENCE B/N MANAGER AND ENTREPRENEUR

Manager entrepreneur
 it is professional - not professional/style of life/
 not necessarily the full risk taker - is full risk taker
 is custodial - is creator
 more focus on short term goals - on long period of time goals
 delegate tasks and supervise - involved on operational
activities
 proved on way of doing - seeks change by exploiting
opportunities
 DIFFERENCE B/N INVESTOR AND
ENTREPRENEUR
Investors entrepreneur
 invest their money - invest not only money but also time,
idea ,mental etc
 focus on profit and utility maximize - opportunity maximize and spiritual
satisfaction
 not necessarily risk takers - necessarily risk takers
 necessarily not job creator - necessarily job creator
 Duplicate or copy from others - are innovators
 are organization or group of org - are individual, intrapreneurship or
corporate
THE ENTREPRENEURIAL
TASKS
 Owning Organizations
 Founding New Organizations
 Bringing Innovations to Market
 Identification of Market Opportunity
 Application of Expertise
 Provision of leadership
 The entrepreneur as manager
THE ENVIRONMENTAL FACTORS AFFECTING
ENTREPRENEURSHIP
 There are complex and varying combination factors ;-
 financial
 institutional
 culture
 personality
 Multitude factors env’t factors determine
 the entrepreneurial spirit among people
 the entrepreneurs in turn create impact in
environments
 the interaction b/n the entrepreneur and his
environments is ongoing process.
 WEALTH OF THE ENTREPRENEUR

 Wealth is money and anything that money can buy. It

includes money, knowledge and assets of the
entrepreneur.
 No entrepreneur works in a vacuum.
 The venture they create touches the lives of many other people
such as
 employees,
 investor,
 supplier,
 customer,
 the local community and government
ENVIRONMENTAL FACTORS AFFECTING
ENTREPRENEURSHIP
Some of the environmental factors which hinder entrepreneurial
growth
 Sudden changes in Government policy.
 Sudden political upsurge.
 Outbreak of war or regional conflicts.
 Political instability or hostile Government attitude towards
industry.
 Excessive red-tapism and corruption among Government
agencies.
 Ideological and social conflicts.
 Unreliable supply of power, materials, finance, labor and other
inputs.

 FROM CREATIVITY TO ENTREPRENEURSHIP

 Creativity is the ability to develop new

ideas and to discover new ways of looking
at problems and opportunities.
 Innovation is the ability to apply creative
solution to those problems and
opportunities in order to enhance people’s
lives or to enrich society.
 Entrepreneurship = creativity + innovation
 E ND O F C H AP T E R
TH E
ONE
CHAPTER TWO: BUSINESS
PLANNING
 A business plan is a written document prepared by the individual entrepreneur
or partners that describes the goals and objectives of the business along with
steps necessary to achieve those goals.
Business plan is also defined as a written summary of the entrepreneur’s
proposed venture, its operational and financial details, its marketing
opportunities & strategy, and its manager’s skills and abilities.
 Purpose/ When business plans are produced/
 At star-up of new business.
 Buyout stage/business purchase.
 Ongoing review stage.
 Major decision.
CONTINUE…
 Who is going to prepare business plans
 Managers:
 Owners:
 Lenders:
 Why business plans
 Managers: - Clarifying ideas and finding strength, weakness, opportunity &
threats.
 Owners:- Assessing feasibility & viability of business, setting objective &
budgets:
 Lenders: - Evaluate risk us. Benefits, appraise quality of management
OPPORTUNITY IDENTIFICATION AND
EVALUATION
 Scanning the Environment/ Getting
the Idea/
Opportunity Identification
Opportunity Development
Opportunity Evaluation ;- Business
factor
 Assessment of the
Entrepreneurial Team
 THE OPPORTUNITY IDENTIFICATION AND EVALUATION STAGE OF
FIVE MAIN STEPS:
1. Scanning the Environment/ Getting the Idea
 While scanning the environment it may be provide you with idea and business
opportunities.
 Idea is thought or suggestion about a possible course of action .
 idea synonymous as intention, schemes, brainwave, concept, connotation, insight etc
 Opportunity is a favorable time or set of circumstances for doing something.
 A business opportunity is a gap left in a market by those who currently serve it, giving
a chance to others to add unrealized value by performing differently from and better
than competitors in order to create new possibilities.
 Synonymous for opportunity is chance, opening, prospect

2. Opportunity Identification
 Opportunity identification is ability to see, to discover and exploit opportunities that
others miss. It is the process of seeking out better ways of competing. It includes
scanning the informational environment, being able to capture, recognize and make
effective use of abstract, implicit and changing information from the changing external
environments.
 THE OPPORTUNITY IDENTIFICATION AND EVALUATION
STAGE OF FIVE MAIN STEPS:
3. Opportunity Development
 Having recognized the opportunity, timely adaptation of that opportunity to suit
actual market need is key to new venture success. Opportunity development is the
process of combining resources to pursue a market opportunity identified.
 This involves systematic research to refine the idea to the most promising high
potential opportunity that can be transformed into marketable items
4. Opportunity Evaluation
 Opportunity screening and evaluation is a critical element of the entrepreneurial
process.
 A professional executed evaluation can tell whether the specific product or service
has the returns needed to justify the investment and the risk to be taken.
5. Assessment of the Entrepreneurial Team
 Regardless of how right the opportunity may seem to be, it will not make a
successful business unless it is developed by a team with strong skills. Gartner et
al (1999:230) advices that once the opportunity has been evaluated, the next step
is to ask pertinent questions about the people who would run the company.
 BUSINESS IDEA DEVELOPMENT

 A business idea is a short and precise description of the basic operation of an

intended business. There are three types of business ideas. They are:
 Old Idea –an existing business idea from someone.
 Old Idea with Modification – In this case the person accepts an old idea
from someone and then modifies it in some way to fit a potential customer‘s
demand.
 A New Idea – This one involves the invention of something new for the first
time
 BUSINESS IDEA IDENTIFICATION

 Before you start a business, you need to have a clear idea of the sort of
business you want to run.
 All business ideas are not equally worth. Therefore, to identify promising
business idea among others.
 The Need will Your Business Fulfill for the Customers
 Your business idea should always have customers and their needs in mind.
 Goods or Services will your Business Sell
 Depending on your skills and the needs of the customers, you should decide
which good or service your business will sell.
 Identifies Potential Customer
 Strategy for Selling Goods or Services/ How is Your Business Going to
Sell Good or Services?
 Relation between Business and Environment
 METHODS FOR GENERATING BUSINESS IDEAS
 Every business idea should be based on knowledge of the market and its needs.

 The market refers to people who might want to buy a good or service; i.e. the
customers.
 There are many ways to come up with business ideas, such as surveying local
businesses or asking existing business owners. Therefore it include
 Learn from successful business owners
 Draw From your and others people Experience

 Survey Your Local Business Area

 Scanning Your Environment

 Brain storming

 Structured Brainstorming

 Focus Group

 Free association

 Problem Inventory Analysis

 Forced relationship

 Attribute Listing
 BUSINESS IDEA SCREENING

 Idea screening is the process to spot good ideas and

eliminate poor one. To screen the business idea
generated, three approaches are discussed as follow:
 Macro screening: is aimed screening down ideas to 10.
And the common criteria are:
 Marketability
 availability of raw material
 Easy of implementation
 Financial ability of entrepreneur

 Micro Screening: is aimed screening down ideas into 3.

The common criteria used for screening are: viability of
 Marketing
 Technical
 Org and MGT
 Financial
 Ecological
 Scoring the sustainability of business idea
 CONCEPT OF BUSINESS PLAN

 Planning is the first and the most crucial step for starting a business.
 A carefully charted and meticulously designed business plan can convert a
simple idea/innovation into a successful business venture.
 A business plan is a road map for starting and running a business. A well-
crafted business plan identifies opportunities, scans the external and internal
environment to assess the feasibility of business and allocates resources in the
best possible way, which finally leads to the success of the plan.
 It provides information to all concerned people like the venture capitalist and
other financial institutions, the investors, the employees.
 It provides information about the various functional requirements (marketing,
finance, operations and human resources) for running a business.
 A BUSINESS PLAN….
 A business plan is the blueprint of the step-by-step procedure that would
be followed to convert a business idea into a successful business venture.
 A business plan first of all identifies an innovative idea, researches the
external environment to list the opportunities and threats, identifies internal
strengths and weakness, assesses the feasibility of the idea and then allocates
resources (production/operation, finance, human resources ) in the best
possible manner to make the plan successful:.
 The objectives of a business plan are to:
 Give directions to the vision formulated by entrepreneur.
 Objectively evaluate the prospects of business.
 Monitor the progress after implementing the plan.
 Persuade others to join the business.
 Seek loans from financial institutions.
 Guide the entrepreneur in the actual implementation of the plan.
 Identify the strengths and weakness of the plan.
 Identify challenges in terms of opportunities and threats
 Identify the resources that would be required to implement the plan.
 Developing a Business Plan
Business Planning Process

 Preliminary Investigation
 Opportunity Identification and Idea Generation
 Environmental Scanning
 Feasibility Analysis
 Report Preparation
 ESSENTIAL COMPONENTS OF BUSINESS PLAN

 Cover Sheet: Cover sheet is like the cover page of the book. It
mentions the name of the project, address of the headquarters (if any)
and name and address of the promoters.
 Executive Summary: Executive summary is the first impression about
the business proposal. As the saying goes, the first impression is the
last impression. A careful presentation of information should be done to
attract the attention of the evaluators.
 It should briefly describe the company; mention some financial figures
and some salient features of the project. Generating interest in the
minds of the readers is the prime motive of the executive summary.
 The Business: This will give details about the business concept. It will
discuss the objective of the business, a brief history about the past
performance of the company
 Funding Requirement: Since the investors and financial institutions
are one of the key bodies examining the business plan report and it is
one of the primary objectives of preparing the business plan report, a
careful, well-planned funding requirement should be documented. It is
 ESSENTIAL COMPONENTS OF BUSINESS PLAN…
The Plan: Now the functional plans for marketing, finance, human resources and
operations are to be drawn.
 Marketing Plan: Marketing mix strategies are to be drawn, based on the market
research.
 Operational Plan: (i) Plant location:
 (ii) Plan for material requirements, inventory management and quality control are also
drawn for identifying further costs and intricacies of the business. Finally, the budget for
operational plan is also drawn.
 Organizational Plan: The organizational plan indicates the pattern of flow of
responsibilities and duties amongst people in the organization,
 Financial Plan: The financial plan is usually drawn for two to five years for an existing
company. For a new organization the following projections are drawn:
 Projected Sales
 Projected Income and Expenditure Statement
 Projected Break Even Point
 Projected Profit and Loss Statement
 Projected Balance Sheet
 Projected Cash Flows
 Projected Funds Flow
 Projected Ratios
ESSENTIAL COMPONENTS OF BUSINESS PLAN…
 Critical Risks: The investors are interested in knowing the tentative risks to
evaluate the viability of the business and to measure the risks involved in the
business. This can further give confidence to the investors as they can
calculate the risks involved in the business from their perspectives as well.
 Exit Strategy: The exit strategies would provide details about how the
organization would be dissolved, what would be the share of each stakeholder
in case of winding-up of the organization. It further helps in measuring the
risks involved in investing.
 Appendix: The appendix can provide information about the Curriculum Vitae
of the owners, Ownership Agreement and the like.
 SCOPE OF BUSINESS PLAN
Business plan includes information on the following aspects:
 Economic/Market aspects: Economic justification like market size, market
growth, market share.
 Technical aspects: Details on technology needed, equipment and match
their sources
 Financial aspects: Total investment, cost of capital, ROI, source of capital,
enterprise contribution
 Production aspects: product, its design, standard of quality, usage,
production aspect like production process, schedule, technology.
 Managerial aspects: Qualification & experience, commitment & planning
 COMMON MISTAKES IN BUSINESS
PLAN PREPARATION
 Single-Purpose use
 One- person commitment
 Being neglect
 Unworkable document
 Unbalanced application
 Disillusionment
 Too- action Oriented
 No Performance Standard
 TH E E N D O F
CHAP T E R T W O
 CHAPTER 3:
BUSINESS FORMATION
THE CONCEPT OF SMALL BUSINESS DEVELOPMENT

 Based on socio- economic conditions, countries define small business

differently. But all may use size and economic criteria as a base to define small
business.
 Small business is a business which is independently owned and operated, not
dominated in its field of operation and meets certain standard of number of
employee and capital.
 Size criteria include number of employees and the startup capital.
 Size does not always reflect the true nature of an enterprise; in addition,
qualitative characteristics are used to differentiate small business from other
business.
 Small business and entrepreneurial ventures
 Difference between small business owners and entrepreneurial ventures as
well.
 Small business particularly important in the developing economies and
predominant even in developed countries.
 Most small businesses’ owners work with known products and services aimed
at incremental growth, and their innovation is focused on sales, marketing, and
market expansion.
 Small businesses could be entrepreneurial ventures.
 An entrepreneurial venture often is a growth-oriented innovative company
with product or service offerings that are new to the market.
 Entrepreneurial ventures incorporate a different set of strategies.
 Most entrepreneurial ventures start as a small business.
 APPROACHES TO DEFINE SMALL
BUSINESS
 There are two approaches to define small business.
 They are: Size Criteria, and Economic/control criteria.
 Size Criteria
 Size does not always reflect the true nature of an enterprise. In addition,
qualitative characteristics may be used to differentiate small business from
other business.
 SMALL BUSINESSES APPROACH
 In general there are two approaches to define a small
business; measures of the size and economic/ control
criteria.
 Size criteria ;- some of the criteria’s to measure the size
are
 Number of employees: - for example in Ethiopian case it is
Less than 30 employees (6-30).
 Investment paid up capital: - for Ethiopia it is 100,001-
1,500,000 (industry), and 50,001-500,000 birr (service).
 Volume of sales, production and deposits are also used to
measure the size of business
If there is ambiguity in the definition between the usage of
man power and capital, it is recommended to use the total
paid up capital as a measurement criteria
 SMALL BUSINESS APPROACH

Economic/Control criteria
Market share: has no significant influence on the price of national quantities of
goods sold to any significant level.
 Independence: independence means that an owner has control of the
business himself.
 Personalized management: It implies that the owner actively participates in all
aspects of the management of the business and in major decision making
process.
 Technology: small business is generally labor intensive.
 Geographical area of operation: the area of operation of a small business is
often local.
 CHARACTERISTICS OF SMALL SCALE
INDUSTRY
 Closely held

□ Personal character
□ Limited scale of operation
□ Indigenous resources
□ Labor intensive
□ Local area of operation
□ Simple organization
 FORMS OF BUSINESS (A SHORT EXPLANATION)

 There are three basic legal forms of business formation with some variations
available depending on the entrepreneurs‘ needs. The three basic legal forms
are:-
 1) Proprietorship,
 2) Partnership, and
 3) Corporation, with variations particularly in partnerships and corporations.
 Proprietorship- Form of business with single owner who has unlimited
liability, controls all decisions, and receives all profits.
 Partnership- Two or more individuals having unlimited liability who have
pooled resources to own a business
 Corporation- Separate legal entity that is run by stockholders having limited liability
 Proprietorship Partnership Corporation
Ownershi Solely owned by Owned by two or more Owned by shareholders who
p one individual. individuals who share hold shares of stock
profits and losses. representing ownership.

Liability The owner has Partners may have Shareholders have limited
unlimited unlimited personal liability; their personal
personal liability liability, depending on assets are generally
for business debts the type (general or protected.
limited) of partnership.
Managem The owner Partners typically share Managed by a board of
ent manages and management directors elected by
makes all responsibilities and shareholders; day-to-day
decisions for the decision-making. operations are overseen by
business. officers.
Continuit Business Continuity may be Continuity is not affected by
y continuity is affected by the death, changes in ownership; the
dependent on the withdrawal, or addition corporation can exist
 CLASSIFICATION OF MICRO AND SMALL ENTERPRISES

In Case of Manufacturing Enterprise (Manufacturing, Construction and

Mining):
A Micro Enterprise is one in which the investment in plant and machinery
(total asset) does not exceed birr 100, 000 (one hundred thousand); and
operates with 5 people including the owner
Small Enterprises is one in which the investment in plant and machinery (a
paid up capital of total asset) of birr100, 000 (one hundred thousand) and not
more than Birr 1.5 million; and operates with 6-30 persons.
 In Case of Service Enterprise (Retailing, Transport, Hotel and Tourism,
ICT and Maintenance):
 A micro enterprise is one with the values of total asset is not exceeding Birr 50,000
(fifty thousands); and operates with 5 persons including the owner of the enterprise.
 Small Enterprises is one in which the total asset value or a paid up capital of
birr100, 000 (one hundred thousand) and not more than Birr 1.5 million; and
operates with 6-30 persons.
 ROLE/IMPORTANCE OF MSES IN DEVELOPING COUNTRIES

 Large Employment Opportunities:

 Economical Use of Capital:.
 Balanced Regional Development/ Removing Regional Imbalance/:
 Equitable Distribution of Wealth and Decentralization of Economic Power:
 Dispersal over Wide Areas
 Higher Standard of Living:
 Mobilization of Locals Resources/Symbols of National Identity:
 Innovative and Productive /Simple Technology:.
 Less Dependence on Foreign Capital/ Export Promotion:
 In addition they provide
 Promotion of Self Employment:
 Protection of Environment:
 Shorter Gestation Period:
 Facilitate Development of Large Scale Enterprises:
 Individual Tastes, Fashions, and Personalized Services:
 More Employment Creation Capacity:
 PRIORITY SECTORS AND SUB-SECTORS FOR MSES ENGAGEMENT IN ETHIOPIA

 Manufacturing Sector-
 textile and garment, leather and leather product, food processing
and beverage ,metal work and engineering, wood works etc.
 Construction Sectors- sub contracting , building material ,
traditionally mining work, cobble stone, infrastructure etc.
 Trade Sectors- comprise whole sale and retail sale of domestics
product, raw material supply
comprise of small and rural transport, cafe
 Service Sectors-
and restaurant, tourism and hotel, Mgt service ,
maintenance, beauty salon, internet cafe ,decoration etc.
 Agriculture Sector (Urban Agriculture) – modern livestock, bee
production, poultry, vegetable and fruit ,modern forest
development, animal food processing , modern irrigation etc.
 LEVELS OF MSES IN ETHIOPIA

 Start-up:- Start up level refers to enterprises that incorporate people who are
interested to establish MSE and those who completed the required
profession/skill from various institutions and innovated by legally either in the
form of association or private. It is a level where an enterprise begins
production and service under legal framework or legal entity.
 Growth Level: - An enterprise is said to be at growth level when an
enterprise become competent in price, quality and supply and profitable using
the support provided. At this level, the enterprise man power and total asset is
larger than at startup level; and use book keeping system.
 Maturity Level: - Maturity level means when an enterprise able to be
profitable and invest further by fulfilling the definition given to the sector and
using the support provided.
 Growth- Medium Level:- An enterprise is said to be transformed from
small to medium level of growth is when it enabled to be competent in
price, quality and supply using the support given to the level.
 SETTING UP SMALL SCALE BUSINESS

 Steps for Setting up the Entrepreneurial Venture

 Once an individual decides to take up entrepreneurship
as a career path, to be a job provider instead of a job
seeker, s/he has to establish an enterprise.
 The entrepreneurial process of launching a new venture
can be divided into three key stages of:
 Discovery;
 Evaluation and
 Implementation
STEPS FOR SETTING UP THE ENTREPRENEURIAL VENTURE…

 These 3 stage can be further sub-divided into seven

steps:
1/Discovery: is to identify opportunities that may form
the basis of an entrepreneurial venture.
 It requires creative thinking to identify issues that can benefit
from an entrepreneurial vision.
This stage can be divided into two steps:
 Step 1 Discovering your entrepreneurial potential
Step 2 Identifying a problem and potential solution

2/ Evaluation: By the end of first stage of discovery, you

should have selected an idea worthy of further detailed
investigation.
STEPS FOR SETTING UP THE ENTREPRENEURIAL VENTURE…

 3/Exploitation/implementation/: By the end of the second

stage of evaluation, you should have identified an opportunity
that has reasonable prospects of success, and analyzed what is
required to launch it.
 Step 5 Forming the enterprise to create value – set up a
business entity and protect any intellectual property.
 Step 6 Implementing the entrepreneurial strategy –
activate the marketing, operating, and financial plans.
Step 7 Planning the future – look ahead and visualize where
you want to go.
 PHASES OF BUSINESS ENVIRONMENT

 Business environment may be classified into two broad categories; namely

external; and internal environment.
 External environment ;-
 Economic
Legal
Political
Socio-Cultural
Demographic

B) Internal Environment ;- Raw Material, Production/Operation, Finance,

Human Resource:
 SEQUENCE OF ENVIRONMENTAL ANALYSIS
 Entrepreneurship is affected by and affects the environment.
 1.Macro Environment analysis ;- an entrepreneur consists of the political,
technological, social, legal and economic environments. All of these are not
immediate part of the entrepreneur‘s venture yet they have an impact on
his/her enterprise.
 2.Sectoral Analysis ;- be certain constraints regarding availability of
technology, manpower or raw materials, which are industry specific.
strength, weakness in internal and opportunity
 3.SWOT Analysis ;-
and threat external force in organization that is individual on
accomplish mission, goal, and objectives.
 4. Product and service analysis next chapter.
 SMALL BUSINESS FAILURE FACTORS

 A failure occurs when a business closes with a financial loss to a creditor .

 A business failure is the closure of a business as a result of either
 (1) actions such as bankruptcy, foreclosure, or voluntary withdrawal from the business with a
financial loss to a creditor; or
 (2) a court action such as receivership (taken over involuntarily) or reorganization
(receiving protection from creditors).
 Causes of Business for Failure
 internal factors
 Inadequate Management: - 89% of failure of business is internal factors
( control factors)
 Lack of experience / in experience /
 Arrogance
 Mis-management
 Lack of planning
 Types of ownership
 Size of business
 Expertise of owners
 Inadequate Financing: -
 Failure to plan for future
 Extend too
 Over invest in fixed asset
 Hire the wrong people

 CAUSES OF BUSINESS FAILURE …

 External factors for failure

economic business cycle

 interest rate
 interrupted supplies
 labor market trends
 inflation
 SMALL BUSINESS FAILURE
FACTORS
 Management incompetence

□ Poor financial control

□ Lack of adequate capita
□ Over investment in fixed asset
□ Failure to plan current as well as future operation
□ Failure to adopt proper inventory control system
□ Improper Attitude
□ Inadequate marketing plan
□ Incorrect market identification
□ Poor distribution channel
□ Weak marketing communication or promotion
 SMALL BUSINESS SUCCESS FACTORS

 Conducive Environment ;- Successful small enterprises do not emerge, and

thereafter survive and grow unless the environment is conductive. Political,
economic, technological and socio-cultural factors in the environment impinge
upon the life of the small enterprises and generate much of the needs required
for their existence
 Adequate Credit Assistance
Adequate and timely supply of credit is critical for new entrepreneurs to
emerge especially from a wide base.
 Markets and Marketing Support ;- the government too can take an active
part in marketing specific products or assisting small groups of entrepreneurs
in selling their products.
 BUSINESS TERMINATION
 A termination occurs when a business no longer exists for any reason. That are
;-
 opportunity to sell for profit
 to move on to a new business
 product have changed or become saturated in markets
 to retire or lost interest in the business
 HOW TO AVOID THE PITFALLS/
DIFFICULTIES OF
A SMALL BUSINESS
 Know your business in depth:

□ Have a Good Relation with Stake Holders

□ Prepare business plan
□ Managing financial resources
□ Understanding financial statement
□ Learn to manage people effectively
□ Keep in tune with yourself
□ Take up short professional courses in management (entrepreneurship):
□ Be sensitive to your customers
MAIN SUPPORTING PACKAGE FOR MSES IN ETHIOPIA
 Awareness creation about sectors
 Provision of legal service to form legal business
 providing technical and business Mgt
 Financial support based on personal selling ( 20/80) saving 20 % and MFIS
provide loan 80% for project.
 Facilitate working premises
 Industries extension service
 Book keeping and audit service
PROBLEM OF SMALL BUSINESS IN
ETHIOPIA
 financial, production, and marketing problems
are still major handicaps to their development. In
detail
 Uncertainty of income
 Risk of losing your entire invested capital
 Long hour and hard work
 lower quality of life unit established
 Complete responsibility – boss approach
 ORGANIZATIONAL STRUCTURE AND ENTREPRENEURIAL TEAM
FORMATION
 Designing the Organization expectations can be grouped into the following
five areas:-
 Organization structure- defines members 'jobs and the communication and
relationship these jobs have with each other.
Planning, measurement, and evaluation schemes- All organization activities
should reflect the goals and objectives that underlie the venture‘s existence.
The entrepreneur must spell out how these goals will be achieved (plans), how
they will be measured, and how they will be evaluated.
Rewards- Members of an organization will require rewards in the form of
promotions, bonuses, praise, and so on. The entrepreneur or other key
managers will need to be responsible for these rewards.
Selection criteria- The entrepreneur will need to determine a set of guidelines
for selecting individuals for each position.
Training- Training, on or off the job, must be specified. This training may be in
the form of formal education or learning skills.
 OSETF ….
 Building the Management Team and a Successful Organization Culture

In essence, the team must be able to accomplish three functions:-

 A. Execute the business plan;
 B. Identify fundamental changes in the business as they occur; and
 C. Make adjustments to the plan based on changes in the environment and market
that will maintain profitability.
 Important consideration and strategies in recruitment and
assembling and effective team , positive organization culture
1. the entrepreneur‘s desired culture must match the business strategy outlined in the
business plan.
2. the leader of the organization must create a workplace where employees are
motivated and rewarded for good work.
3. the entrepreneur should be flexible enough to try different things.
4. it is necessary to spend extra time in the hiring process.
5. the entrepreneur need to understand to the significance of leadership in the
organization.
 TH E E ND O F
CHAPTER T H R E E
 CHAPTER 4:
PRODUCT / SERVICE DEVELOPMENT
 4.1 INTRODUCTION
 In Entrepreneur‘s business, product/service development
is the term used to describe the complete process of
bringing a new product or service in the market.
 The new product development process involves the idea
generation, product design, and detail engineering; and
also involves market research and marketing analysis.
 Intense global competition, short product and technology
lifecycles, unpredictable consumer buying patterns and
possible market stagnation makes new product
development a critical activity in most businesses
 4.2THE CONCEPT OF PRODUCT/SERVICE

 Organization's success is dependent on customer satisfaction and

delight.
 Customer satisfaction is achieved through the development of
product and service, which have all attributes required by the
customer.
 A success product or services do not only have an attractive
package design but should be also able to provide robust
performance.
 Thus, product design must be practical enough for production and
powerful enough to provide a competitive advantage.
 The essence of product design is to satisfy customer and maximizes
the value for the customer at minimum cost.
 The merchandise or service should also be able to meet primary
needs and desire of the customer
4.3 PRODUCT/SERVICE DEVELOPMENT PROCESS
 One of the essential characteristics of a successful business is exemplified
by its ability to continuously and rapidly develop new or improved versions
of existing products that deliver values more than customers expect.
 Product development is the process through which companies react to
market signals, respond to changes in customer demand, adopt new
technologies, foray into new areas, and ensure continuous growth.
 Product/service development process is part of the overall new-venture
creation process
 Four distinct stages
 Idea Generation
 Incubation
 Implementation
 Diffusion
 THE VARIOUS STAGES OF NEW PRODUCT DEVELOPMENT
PROCESS ARE
 New Idea Generation
 The new product development process starts with search for ideas. Companies have to encourage
any new idea coming. The key to successful domestic and international entrepreneurship is to
develop an idea that has a market for the new product/service idea conceived.
 Some of the more fruitful sources of ideas for entrepreneurs include consumers, existing products
and services, distribution channels, the federal government, and research and development.
 Idea Screening
 In the 2nd stage, the purpose is to lessen the number of ideas to few vital/valuable ideas. The
ideas should be written down and reviewed each week by an idea committee who should sort the
ideas into three groups- Promising Ideas, Marginal Ideas, and Rejects: Each promising idea should
be researched by committee member.
 Concept Development and Testing
 Attractive ideas must be refined into fast able product concepts since people do not purchase
ideas but they buy concepts. Any product idea can be turned into several product concepts. The
questions asked probably include:-
 Concept Testing: - calls for testing product concepts with an appropriate group of target
consumers/customers, and then getting the consumers‘ reactions. At this stage, the concepts can
be in words or picture description
 STAGES OF NEW PRODUCT DEVELOPMENT PROCESS …
 Marketing Strategy Development
 After testing the new product the concerned body must develop a preliminary
marketing strategy plan for introducing the new product into the market.
 Business Analysis

 After management develops product concept and marketing strategy, it can evaluate
the proposals‘ business attractiveness. Management needs to prepare sales, cost and
profit projections to determine whether they satisfy the company's objective or not.
 Product Development
 If product concept passes the business test, it moves to R&D or engineering to be
developed to one or more physical version of the product concept.
 Its goal is to find a prototype that the consumers/customers see as embodying the
key attribute described in the product concept statement,
 Scientists must not only design the products’ required functional characteristics but
also know how to communicate its psychological aspects through physical cues and
how will the consumer/customer react to different colors, sizes, weight & other
physical cues.
 STAGES OF NEW PRODUCT DEVELOPMENT
PROCESS…
 When the prototypes are ready, they must be put through regroups functions
and consumer/customer tests.
 Consumer testing can take variety of forms, from bringing
consumers/customers into laboratory to giving them samples to use in their
homes.
 Market Testing
 After management is satisfied with the products‘ functional and psychological
performance, the product is ready to be dressed up with the brand name.
 The goals are to test the new product is more authentic consumer/customer
settings and to learn how large the market is and how consumers/customers
and dealers react to handling, using and repurchasing the actual product.
 Commercialization
 When (Timing):- In commercializing, market entry timing is critical. If the
company hears about a competitor nearing the end of its development work,
it will face three choices
 4.3 Legal and Regulatory Frameworks for Entrepreneurs

 One of the challenges the novice entrepreneur will face as she goes into
business understands the regulatory environment which is made up of
numerous laws and regulations.
 To operate as a legal businessperson and protect the business from
unnecessary suits and liabilities, the entrepreneur needs to understand the
various laws that govern his/her business. Following are the key legal issues
for the entrepreneur.
 4.4 Intellectual Property Protection/Product/Service Protection
 4.4.1 What is Intellectual Property?
 Intellectual Property which includes patents, trademarks, copyrights, and
trade secrets represents important assets to the entrepreneur and should be
understood even before engaging the services of an attorney.
 Intellectual property is a legal definition of ideas, inventions, artistic works
and other commercially viable products created out of one's own mental
processes.
 In the same sense that real estate titles establish ownership of tangible items,
intellectual property is protected by such legal means as patents, copyrights,
and trademark registrations. In order to enjoy the benefits arising from the
exclusive ownership of these properties,
 Intellectual Property
 Patents
 An entrepreneur who invents a new thing or improves an
existing invention needs to get legal protection for her invention
through a patent right.
 A patent is a contract between an inventor and the government
in which the government, in exchange for disclosure of the
invention, grants the inventor the exclusive right to enjoy the
benefits resulting' from the possession of the patent.
 Utility Patent: A utility patent protects any new invention or
functional improvements on existing inventions.
 Design Patent: This patent protects the appearance of an
object and covers new, original, ornamental, and unobvious
designs for articles of manufacture.
Intellectual Property…
 What Can Be Patented Then?
 Processes: Methods of production, research, testing,
analysis, technologies with new applications.
 Machines: Products, instruments, physical objects.
 Manufactures: Combinations of physical matter not
naturally found.
 Composition of matter: Chemical compounds,
medicines, etc
Intellectual Property…
 Trademarks
 These are distinctive names, marks, symbols or motto identified with a
company’s product or service and registered by government offices. They
may be a word, symbol, design, or some combination of such, or it could be
a slogan or even a particular sound that identifies the source or sponsorship
of certain goods or services.
 Benefits of a Registered Trademark
 It provides notice to everyone that you have exclusive rights to the use of
the mark throughout the territorial limits of the country.
 It entitles you to sue in federal court for trademark infringement, which can
result in recovery of profits, damages, and costs.
 It establishes incontestable rights regarding the commercial use of the mark.
 It establishes the right to deposit registration with customs to prevent
importation of goods with a similar mark.
 It entitles you to use the notice of registration (®).
 It provides a basis for filing trademark application in foreign countries.
Intellectual Property…
Copyrights
 Copyrights provide exclusive rights to creative individuals
for the protection of literary or artistic productions.
 It protects original works of authorship including literary,
dramatic, musical, and artistic works, such as poetry,
novels, movies, songs, computer software, and architecture.
 Copyright is a right given to prevent others from printing,
copying, or publishing any original works of authorship.
 They pertain to intellectual property. Usually copyrights are
valid for the life of the inventor plus a few decades.
THE INTELLECTUAL PROPERTY SYSTEM IN ETHIOPIA
 Patent Proclamation- According to the
proclamation in order to be granted a patent, an
invention must fulfill three conditions-
 (1) it must be new- It should never have been
published or publicly used before;
 (2) It should be capable of industrial application- It
must be something which can be industrially
manufactured or used; and
 (3) It must be "non-obvious”- It should not be an
invention which would have occurred to any specialist
working in the relevant field.
 The duration of a patent is 15 years which may be
extended for a further period of five years if proof is
furnished that the invention is properly worked in
THE INTELLECTUAL PROPERTY SYSTEM IN
ETHIOPIA…
 Trademark Directive -is issued in the country in 1986 with
the following objectives in that it helps:-
 To centrally deposit trademarks which are used by local and
foreign enterprises to distinguish their goods or services;
 To distinguish the products or services of one enterprise from
those of other enterprises and prevent consumers from being
victims of unfair trade practices;
 To provide information on trademark ownership and right of
use when disputes arise between parties;
 To provide required information on trademarks to government
and individuals; and
 Protection is granted after publication of cautionary notice;
THE INTELLECTUAL PROPERTY SYSTEM IN ETHIOPIA

 Copyright is protected on the basis of the copyright and related rights

proclamation issued in 2004.
 The proclamation gives protection to literary, artistic and scientific works which
include
 books, pamphlets, articles, computer programs and other writings
speeches, lectures, addresses, sermons, and other oral works;
dramatic, dramatic-musical works, pantomimes, choreographic works, and
other works created for stage production;
musical works, with or without accompanying words;
 audiovisual works and sound recordings works of architecture;
works of drawing, painting, sculpture, engraving, lithography, tapestry, and
other works of fine arts;
photographic and cinematographic works; illustrations, maps, plans, sketches,
and three dimensional works related to geography, topography, architecture or
science;
derivative works; and
collection of works, collection of mere data (databases) whether readable by
machine or other form.
 THE INTELLECTUAL PROPERTY SYSTEM IN ETHIOPIA

 The Proclamation gives protection to:

 Works of authors who are nationals of or have their habitual residence in
Ethiopia;
 Works first published in Ethiopia; or works first published in another
country and published within thirty days in Ethiopia;
 Audio-visual works whose producer has his headquarter or habitual
residence in Ethiopia; and
 Works of architecture erected in Ethiopia and other artistic works
incorporated in a building or other structure located in Ethiopia.
 The rights of performers, producers of phonograms and broadcasting
organizations are also protected by law. Copyright is protected for the life
of the author plus fifty years.
 Fifty years for the rights of performers and producers of sound Recordings
and 20 years for the rights of broadcasting organizations.
The end of chapter
four
 CHAPTER FIVE: MARKETING
 Marketing has been defined in various ways :-
 Marketing is a social and managerial process by which an
individual or group obtain what they need and want through
creating, offering and exchanging of product of values with others
(Philip Kotler,2012).
 Marketing is the total business activity designed to plan, price,
promote and distribute want satisfying products to target market
to achieve organizational goal (William J.Stanton, 1984).
 Marketing is the creation and delivery of standard of living to
society (Paul. Mazor, 2005).
 Marketing is the effort to identify and satisfy customers‘ needs
and wants.
 CORE CONCEPTS OF MARKETING

 Marketing Terminologies
 Need: Human Need is a state of deprivation of some basic satisfaction. People require food,
clothing, shelter, safety and belonging and esteem.
 Wants: Wants are desires for specific satisfiers of needs. Human wants are continually shaped
and reshaped by social forces and institutions including churches, schools, families and business
cooperation. Eg. A person needs food but wants spaghetti
 Demands: Demands are wants for specific products that are backed by ability and willingness to
buy them. Wants become demand when supported by purchasing power.
 Product: is anything that can be offered to satisfy a need or want. Products broadly classify as
tangibility and intangibility features.
 Value: is the consumer‘s estimate of the products overall capacity to satisfy his or her needs.
 Cost: is the amount of money that are going to be expended or already incurred to acquire a
product.
 Exchange: is the act of obtaining a desired product from someone by offering something in
return.
 Transaction: is the trade of values between two parties.
 Market: consists of all the potential customers sharing a particular need or want who might be
willing and able to engage in exchange to satisfy their need or want.
 Possession Utility: Possession utility is created when a customer buys the product-that is,
ownership is transferred to the buyer. Thus, for a person to consume and enjoy the product, a
transaction must take place. This occurs when you exchange your money for a product.
 IMPORTANCE OF MARKETING

 A customer purchases a product because it provides satisfaction. That something that

makes a product capable of satisfying want is its utility. And it is through marketing that
much of a products utility is created. Then potential buyers must be informed about the
products existence and the benefits it offers through various forms of promotion.
 Form Utility: Form utility is the physical or chemical changes that make a product
more valuable. When timber is made into furniture, form utility is created. This is
production, not marketing. However, marketing research may aid in decision making
regarding product design, color, quantities produced, or some other aspect of a product.
All of these things contribute to the product‘s form utility.
 Place Utility: Place utility exists when a product is readily accessible to potential
customers. So physically moving the products to a store near the customers add to its
value.
 Time Utility: Time utility means having a product available when you want it.
 Information Utility: Information utility is created by informing prospective buyers that
a product exists. Unless you know a product exists and where you can get it, the
product has no value. Advertising that describes a sales person answering a customer
questions about the durability of a product creates information utility. Image utility is a
special type of information utility.
 MARKETING PHILOSOPHIES

 The Production Concept

 The production concept holds that consumers will favor products that are widely available
and low in cost. ‗Cut costs. Profits will take care of themselves’
 The Product Concept The product concept holds that consumers will favor those
products that offer the most quality, performance or innovative features. Managers in
product oriented organization focus their energy on making superior products and
improving them over time. Under the concept, mangers assume that buyers admire well-
made products and can appraise product quality and performance. ‗A good product will sell
itself’
 The Selling Concept/Sales Concept: The selling concept holds that consumers, if left
alone, will ordinarily not buy enough of the organization product. The organization must
therefore undertake an aggressive selling and promotion effort. This concept assumes that
consumers typically show buying inertia or resistance and must be coaxed into buying. It
also assumes that the company has made available a whole battery of effective selling
and promotion tools to stimulate more buying. ‗Selling is laying the bait for the customer’
 The Marketing Concept The marketing concept holds that the key to achieving
organizational goals consists of being more effective than competitors in integrating
marketing activities toward determining and satisfying the needs and wants of target
markets. ‗The customer is King!’
 MARKETING PHILOSOPHIES
 The Societal Marketing Conceptorganization should determine the
needs, wants and interests of target markets. It should then deliver the
desired satisfactions more effectively and efficiently than competitors in a
way that maintains or improves the consumers and the society‘s well-
being. The societal marketing concept questions whether the pure
marketing concept is adequate in an age of environmental problems,
resource shortages, rapid population growth, worldwide economic
problems, and neglected social services. It asks if the firm that senses, s
 The societal marketing concept holds that the erves and satisfies individual
wants is always doing what‘s best for consumers and society in the long
run.
 Relationship Marketing
 Relationship marketing is the practice of building long term satisfying
relations with key parties-customers, suppliers, distributors- in order to
retain their long term preferences and business. The ultimate outcome of
relationship marketing is the building of a unique company asset called a
marketing network. In this case, customer experience rather than customer
satisfaction is the most critical component in relationship marketing
 MARKETING RESEARCH COMPONENTS

 Marketing Research Components

 Marketing researchers deal with many aspects of a
market including the following:
 Market size: this deals with the number or value of units sold to a
market in a given period.
 Market Share: this one is about a specific corporation‘s share of
the market size out of the whole market.

Market penetration: this is a marketing strategy which is used to
know when a company enters/penetrates a market with current
products to get better market share by lowering the price of a
product.
 Brand equity research – this research is conducted to know how
favorably consumers view the brand.
 Buyer decision processes research – this part of marketing
research activity is used to determine what motivates people to buy
and what decision-making process they use.
 CUSTOMER SATISFACTION RESEARCH

 Distribution channel audits - to assess distributors ‘and retailers

‘attitudes toward a product, brand, or company.
 Marketing effectiveness and analytics - Building models and
measuring results to determine the effectiveness of individual
marketing activities.
 Mystery Consumer or Mystery shopping – here the researcher
acts as a shopper. This is often used for quality control or for
researching competitors' products.
 Price elasticity testing – here the objective of the research is to
determine how sensitive customers are to price changes
 Sales forecasting - to determine the expected level of sales given
the level of demand with respect to other factors like advertising
expenditure, sales promotion etc.
 Segmentation research – this type of research helps to determine
the demographic, psychographic, and behavioral characteristics of
potential buyers.
 Test marketing – this is a small-scale product launch used to
determine the likely acceptance of the product when it is introduced
 THE IMPORTANCE OF MARKETING INTELLIGENCE

 Marketing intelligence provides the following benefits;

 Market and customer orientation – promote external focus.
 Identification of new opportunities.
 Smart segmentation.
 Early warning of competitor moves.
 Minimizing investment risks.
 Quicker, more efficient and cost-effective information.

 Competitive Analysis
 Competitive analysis refers to determining the strengths and weaknesses of
competitors and designing ways to take opportunities or tackle threats posed by
competitors. Steps
 Identify your competitors:
 Gather information about competitors:
 Gathering Information on Competitors
 Analyzing the Competition
 Develop a pricing:
 The Marketing Mix and Marketing Strategies
The 4 P’s Of Marketing/The Marketing Mix

 These are marketing variables that the marketing manager can manipulate as
controllable variables. They include
 Product:
 Pricing:
 Place:
 Promotion:
 MARKETING STRATEGY

 A marketing strategy is a process that can allow an organization to concentrate its

limited resources on the greatest opportunities to increase sales and achieve a
sustainable competitive advantage.
 Marketing strategy is a method of focusing an organization's energies and
resources on a course of action which can lead to increased sales and dominance of
a targeted market.
 A marketing strategy combines product development, promotion, distribution,
pricing, relationship management and other elements; identifies the firm's
marketing goals, and explains how they will be achieved, ideally within a stated
timeframe.
 Marketing strategy determines the choice of target market segments, positioning,
marketing mix, and allocation of resources. It is effective when it is an integral
component of the overall firm strategy, defining how the organization will
successfully engage customers, prospects, and competitors in the market arena.
 PRICE STRATEGY
 Pricing Strategy
 Price is the value placed on what is exchanged. Price is often the only element
the marketer can change quickly in response to demand shifts. Pricing
structure changes through time as products pass through their life cycles. The
following are some of pricing strategies mostly applicable in the real world
scenario.
 Price Skimming: this is a type of marketing strategy that firms use by
charging the highest possible price that buyers who most desire the product
will pay. It attracts a market segment that is more interested in quality, status,
uniqueness etc. In this case, consumers ‘demand must be inelastic.
 Penetration Pricing: In this strategy, prices of products are reduced
compared to competitors ‘price for the same product to penetrate into markets
and to increase sales. However, the quality of the product should not be lower
as compared to other competitors ‘product. It should be again noted that the
cost of production should be lower to the extent that can enable the firm to get
the desired profit. This is appropriate when the demand is elastic.
 PROMOTION AND DISTRIBUTION STRATEGY
 Promotion Strategies
 Promotion is the communication of the company and its products to customers.
Promotional strategy is choosing a target market and formulating the most
appropriate promotion mix to influence it. An organization‘s promotional strategy can
consist:
 Advertising:
Personal selling:
Public relations:
Sales promotion:
 Distribution Strategies
 . For product-focused companies, establishing the most appropriate distribution
strategies is a major key to success, defined as maximizing sales and profits.
 Direct channels: In this type of channel, producers and end users directly interact.
 Indirect channels: In this type of channel intermediaries are inserted between
seller and buyer. Intermediaries include Merchant Wholesalers, retailers, dealers,
agents, brokers; and manufacturer‘s branches and offices.
 SELLING AND OF CUSTOMER SERVICE

 The Concept of Service

 Service refers to any activity undertaken to fulfil customer‘s needs.
 It is any act or performance that one party can offer to another that is
essentially intangible and does not result in the ownership of anything.
 Its production may or may not be tied to a physical product.
 The Concept of Customer
 Customer is a person or organization that buys a product or service either for
use or for resale.
 Customers can be internal (e.g. member of the organization) or external
(customers coming from outside).
STRATEGIC ACTIVITIES NEEDED FOR QUALITY CUSTOMER SERVICE DELIVERY

 Organizations should identify important strategic activities to ensure

consistent, efficient and excellent customer service delivery using continuous
improvement philosophy.
 Establishing a clear customer service strategy.
 Ensuring that correct people are in place, with the correct skills to deliver
outstanding personal service.
 Establishing clear material service delivery processes.
 Improving in terms of process improvement, quality monitoring and recovery
continuously.
 Participatory Management.
 The major reasons to lose customers are:
 Poor service,
 Poor quality and
 Rude behaviour.
CUSTOMER HANDLING AND SATISFACTION

 Customer handling and satisfaction is a key for successful organizations

 Managers and employees should work hand-in-hand to improve their service
delivery programs.
 Existing customers must be satisfied with the existing service.
 Existing customers are also means of potential customers.
 Poor service/defective service is the causes of loss and bankruptcy for
many organizations.
 Many organizations, especially business organizations worried about the
reduction of sales or profitability due to lost customers/ or gradual reduction of
customers.
Organizations invest huge cost to increase market share by using
advertisement or different sales promotion techniques.
 Considering Customers as an Invaluable Asset
 Reducing Customer Complaints
 MARKETING INTELLIGENCE

□ Marketing intelligence is the systematic collection and analysis of publicly

available information about competitors and developments in the marketplace.
□ Techniques range from quizzing the company’s own employees and
benchmarking competitors’ products to researching internet, lurking around
industry tradeshows, and even routing through rivals’ trash bins.
 COMPETITIVE ANALYSIS
□ Competitive analysis is a widely used approach for developing strategies in
many industries.
□ According to Porter, the nature of competitiveness in a given industry can be
viewed as a composite of five forces:
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
 MARKETING STRATEGIES
 Marketing strategy refers to the marketing logic by which the company hopes
to create customer value and achieve profitable relationships.
 Companies know that they cannot profitably serve all consumers in a given
market.
 Thus, each company must divide up the total market, choose the best
segment, and design strategies for profitably serving chosen segments.
 This process involves market segmentation, target marketing, differentiation
(actually differentiating the market offering to create superior customer value),
and positioning.
 DIVERSIFICATION
STRATEGIES
□ In search of growth, a firm has four options:
1. Market Penetration: the firm can stay with its base product or service, and its
existing market
2. Product Development: the firm can develop related or new products for its
existing market.
3. Market Development: the firm can develop related or new markets for its
existing products.
4. Entry in to new Market: the firm might try to move into related or new
markets with related or new products.
INTERNATIONAL MARKETS
 International marketing is important because of
the economic theory of comparative advantage.
 This theory states that each country has natural
advantages over others in the production of
certain goods, and therefore specialization and
the trading of surpluses will benefit everybody
 REASONS FOR
INTERNATIONALIZATION
small or saturated domestic markets
 Economies of scale
 International production
 Customer relationships
Market diversification
International competitiveness
The end of chapter five
 CHAPTER 6: BUSINESS FINANCING

 When establishing an entrepreneurial team people should look for

□ Those who share the same values and vision for the company
□ Those who have complementary skills
□ Those who have integrity
□ Those who can manage the risks of a small business
 FINANCIAL REQUIREMENTS

 All businesses need money to finance a host of different requirements.

 In looking at the types and adequacy of funds available, it is important to
match the use of the funds with appropriate funding methods.
 Permanent Capital
 Working Capital
 Asset Finance
 Sources of Financing
 SOURCES OF FINANCE
 Debt financing (short term)
 Trade credit (Open-book credit & Promissory notes)
 Loans (Secured Loans & Unsecured Loans)
 Commercial paper
 Debt as Long-term financing
 Long-term loans
 Lease
 Bonds
 Equity Financing

□Stock (Preferred & Common stock)

□Retained earnings
□Sale of assets
 VENTURE CAPITAL…
 Venture capitalists may be investment bankers when
they invest capital, make loans, and give management
advice intended to assist the company to achieve
significant growth.
 Many companies financed by venture capitalists convert
from closely held corporations to public corporations
during the course of their growth.
 Government program
 In USA Small Business Administration loans are available
to smaller businesses.
 SOURCES OF FINANCING

 Internal Sources (Equity capital)

 Sources of Equity Capital
 Personal saving:
 Friends and relatives:
 Partners:
 Public stock sale (going public):
 Angels:
 Venture capital companies:
 EXTERNAL SOURCES (DEBT CAPITAL)
 Commercial banks: Commercial banks are by far the most frequently used source for
short term debt by the entrepreneur.
 Bank Lending Decision:-The small business owner needs to be aware of the criteria
bankers use in evaluating the credit worthiness of loan applications. Most bankers refer
to the five C‘s of credit in making lending decision. The five C‘s are capital, capacity,
collateral, character, and conditions.
 Capital: A small business must have a stable capital base before a bank will grant a
loan
 Capacity: The bank must be convinced of the firm‘s ability to meet its regular financial
obligations and to repay the bank loan.
 Collateral: The collateral includes any assets the owner pledges to the bank as
security for repayment of the loan.
 Character: Before approving a loan to a small business, the banker must be satisfied
with the owner‘s character. The evaluation of character frequently is based on
intangible factors such as honesty, competence, willingness to negotiate with the bank.
 Conditions: The conditions surrounding a loan request also affect the owner‘s chance
of receiving funds.
 EXTERNAL SOURCES (DEBT CAPITAL) ….

 Micro Finances: provide financial services mainly to the poor ,micro and small
enterprises(detail to be discussed later in part 6.7)
 Trade Credit: It is credit given by suppliers who sell goods on account. This credit is
reflected on the entrepreneur‘s balance sheet as account payable and in most cases
it must be paid in 30 to 90 or more days.
 Equipment Suppliers: Most equipment vendors encourage business owners to
purchase their equipment by offering to finance the purchase.
 Account receivable financing: It is a short term financing that involves either the
pledge of receivables as collateral for a loan.
 Credit unions: Credit unions are non-profit cooperatives that promote savings and
provide credit to their members. But credit unions do not make loans to just any one;
to qualify for a loan an entrepreneur must be a member.
 Bonds: A bond is a long term contract in which the issuer, who is the borrower,
agrees to make principal and interest payments on specific date to the holder of the
bond. Bonds have always been a popular source of debt financing for large
companies in the western world.
 Traditional Sources of Finance: ―Idir‖, ―equib
 LEASE FINANCING

 Lease financing is one of the important sources of medium- and

long-term financing where the owner of an asset gives another
person, the right to use that asset against periodical payments.
 The owner of the asset is known as lessor and the user is called
lessee. The periodical payment made by the lessee to the lessor is
known as lease rental.
 Types of Lease
 Depending upon the transfer of risk and rewards to the lessee, the
period of lease and the number of parties to the transaction, lease
financing can be classified into two categories.
 Finance Lease
 It is the lease where the lessor transfers substantially all the risks
and rewards of ownership of assets to the lessee for lease rentals.
In other words, it puts the lessee in the same condition as he/she
would have been if he/she had purchased the asset. Finance lease
has two phases: The first one is called primary period.
 LEASE FINANCING
 This is non- cancellable period and in this period, the lessor recovers
his total investment through lease rental.
 The primary period may last for indefinite period of time. The lease
rental for the secondary period is much smaller than that of primary
period.
 Operating Lease
 Lease other than finance lease is called operating lease. Here risks
and rewards incidental to the ownership of asset are not transferred
by the lessor to the lessee.
 The term of such lease is much less than the economic life of the
asset and thus the total investment of the lessor is not recovered
through lease rental during the primary period of lease.
 In case of operating lease, the lessor usually provides advice to the
lessee for repair, maintenance and technical knowhow of the leased
asset and that is why this type of lease is also known as service lease.
 ADVANTAGES OF LEASE FINANCING

 Assured Regular Income: Lessor gets lease rental by leasing an asset during the period of lease
which is an assured and regular income.
 Preservation of Ownership: In case of finance lease, the lessor transfers all the risk and rewards
incidental to ownership to the lessee without the transfer of ownership of asset. Hence the
ownership lies with the lessor.
 Benefit of Tax: As ownership lies with the lessor, tax benefit is enjoyed by the lessor by way of
depreciation in respect of leased asset.
 High Profitability: The business of leasing is highly profitable since the rate of return based on
lease rental, is much higher than the interest payable on financing the asset.
 High Potentiality of Growth: The demand for leasing is steadily increasing because it is one of
the cost efficient forms of financing. Economic growth can be maintained even during the period of
depression. Thus, the growth potentiality of leasing is much higher as compared to other forms of
business.
 Recovery of Investment: In case of finance lease, the lessor can recover the total investment
through lease rentals.
 Lessor suffers from certain limitations which are discussed below:
 Unprofitable in Case of Inflation: Lessor gets fixed amount of lease rental every year and they
cannot increase this even if the cost of asset goes up.
 Double Taxation: Sales tax may be charged twice. First at the time of purchase of asset and
second at the time of leasing the asset.
 Greater Chance of Damage of Asset: As ownership is not transferred, the lessee uses the asset
carelessly and there is a great chance that asset cannot be useable after the expiry of primary
period of lease.
 CROWD FUNDING

 Crowd funding is a method of raising capital through the collective effort of friends,
family, customers, and individual investors or even from the general public. This
approach taps into the collective efforts of a large pool of individuals primarily online
via social media and crowd funding platforms and leverages their networks for greater
reach and exposure.
 Types of Crowd Funding :- 3 primary types are donation-based, rewards-based, and
equity crow funding.
 Donation-Based Crowd Funding: Broadly speaking, you can think of any crowd
funding campaign in which there is no financial return to the investors or contributors
as donation-based crowd funding. Common donation- based crowd funding initiatives
include fund raising for disaster relief, charities, non profits, and medical bills.
 Rewards-Based Crowd Funding: Rewards-based crowd funding involves individuals
contributing to your business in exchange for a ―reward,‖ typically a form of the
product or service your company offers.
 Equity-Based Crowd Funding: Unlike the donation-based and rewards-based
methods, equity-based crowd funding allows contributors to become part-owners of
your company by trading capital for equity shares. As equity owners, your contributors
receive a financial return on their investment and ultimately receive a share of the
profits in the form of a dividend or distribution.
 MICRO FINANCES

 Microfinance is a term used to describe financial services, such as loans,

savings, insurance and fund transfers to entrepreneurs, small businesses and
individuals who lack access to banking services with high collateral
requirements. Essentially, it is providing loans, credit, access to
savings accounts – even insurance policies and money transfers to small
business owners, entrepreneurs (many of whom live in the developing world),
and those who would otherwise not have access to these resources.
 Importance of MFIs
 Microfinance provides resources and access to capital to the financially
underserved, such as those who are unable to get checking accounts, lines of
credit, or loans from traditional banks.
 Without microfinance, these groups may have to resort to using loans or
payday advances with extremely high interest rates or even borrow money
from family and friends.
 Microfinance helps them invest in their businesses, and as a result, invest in
themselves.
The end of chapter six
 CHAPTER 7
MANAGING GROWTH AND TRANSITION
TIMMONS MODEL OF ENTREPRENEURSHIP
 NEW VENTURE EXPANSION STRATEGIES

 Methods of Growth
 The Ansoff Matrix – Growth Strategy
 The Ansoff Matrix is a strategic-planning tool that provides a framework to help executives, senior
managers, and marketers devise strategies for future growth. It is named after Russian American
Igor Ansoff, who came up with the concept. Ansoff suggested that there were effectively only two
approaches to developing a growth strategy; through varying what is sold (product growth) and who
it is sold to (market growth).
 Igor Ansoff created the product/market matrix to illustrate the inherent risks in four generic growth
strategies as summarized here below:
 Market penetration / consumption – the firm seeks to achieve growth with existing products in
their current market segments, aiming to increase market share. This is a low risk strategy because
of the high experience of the entrepreneur with the product and market.
 Market development – the firm seeks growth by pushing its existing products into new market
segments. Market development has medium to high risk.
 Product development – the firm develops new products targeted to its existing market segments.
This alternative growth strategy is characterized by medium to high risk due to lack of experience
about the new product.
 Diversification – the firm grows by developing new products for new markets. This is high risk
option as entrepreneurs do not have experience about the product and the market.
THE ANSOFF MATRIX – GROWTH STRATEGY
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
 Three theoretical approaches to these new responsibilities:
 Corporate social responsibility (CSR)
 The triple bottom line
 Stakeholder theory
 corporate social responsibility (CSR) is composed of four obligations:
 The economic responsibility to make money. Companies that don‘t
make profits are in a modern market economy doomed to perish. Without
profit, there‘s no business and no business ethics.
 The legal responsibility to adhere to rules and regulations.
 The ethical responsibility to do what‘s right even when not required by the
letter or spirit of the law. This is the theory‘s keystone obligation, and it
depends on a coherent corporate culture that views the business itself as a
citizen in society, with the kind of obligations that citizenship normally entails.
 The philanthropic responsibility to contribute to society‘s projects even
when they‘re independent of the particular business. Everyone in the world,
have some obligation to support the general welfare in ways determined by
the needs of the surrounding community.
TRIPLE BOTTOM LINES
 BUSINESS ETHICS PRINCIPLES
 Honesty.
 Integrity.
 Promise-Keeping & Trustworthiness.
 Loyalty.
 Concern for Others.
 Respect for Others.
 Law Abiding.
 Commitment to Excellence.
 Leadership.
 Reputation and Morale.
 Accountability.
NEW VENTURE EXPANSION
STRATEGIES
Mergers & acquisitions
 Licensing
 Franchising

-------The end------