ENTREPRENEURSHIP NOTES

THE NATURE AND SCOPE OF ENTREPRENEURSHIP

Objectives

By the end of this topic students should be able to:

1. Demonstrate knowledge and understanding of entrepreneurship

2. Explain the Importance of entrepreneurship in the economy

3. Analyze approaches to the entrepreneurship concept

4. Analyze Entrepreneurial Environment

History of entrepreneurship and definitions

 Being an entrepreneur is associated with starting a business, but this is a very loose
application of a term that has a rich history and a much more significant meaning.

 The term entrepreneur originated in French economics as early as the 17th and 18 th
centuries. In French, it means someone who undertakes, not an undertaker in the sense of
a funeral director, but someone who undertakes a significant project or activity.

 Specifically, it came to be used to identify the venturesome individuals who stimulated

economic progress by finding new and better ways of doing things.

 In the 20th century, the understanding of entrepreneurship owes much to the work of
economist Joseph Schumpeter (in the 1930s) and others such as Carl Menger, Ludwig
von Mises and Friedrich von Hayek.

 The term was used in context of business and economic activities only in the 18th
century. Richard Cantillon, a French Banker, is credited for the use of the word

PAGE \* MERGEFORMAT 1
 ‘Entrepreneur’ for the first time to mean a person who bears uncertainty and risk.
According to Richard Cantillon, “An agent who buys factors of production at certain
prices in order to combine them into a product with a view to selling it at an uncertain
price in future”.

From the above definitions, Entrepreneurship can be summed up as nothing but the process
of creating something new with a value, particularly responding to the opportunities
available. It involves time, efforts and assumption of risk, with the expectation of receiving
the rewards at the end. The rewards can take any form- monetary or non-monetary
(personal contentment).

ENTREPRENEUR

There is no single way of defining an Entrepreneur. Different scholars have defined an

Entrepreneur differently. A look at various definitions will help understand the concept in depth.

 Schumpeter defines an entrepreneur as a person who is willing and able to convert a new
idea or invention into a successful innovation (termed the gale of creative destruction)

 An entrepreneur is the one who always searches for change, responds to it and exploits it
as an opportunity. Peter F. Drucker

 According to Oxford Dictionary, “An entrepreneur is someone “who sets up a business or

businesses, taking on financial risks in the hope of profit”.

 Jean Baptise Say (1767-1832) expanded the ideas of Cantillon and conceptualized an
entrepreneur as “an economic agent who unites all means of production, - land of one,
labour of another and capital of yet another and thus produces a product. By selling the
product in the market he pays rent of land, wages to labour, interest on capital and what
remains is his profit” (Say, 1827).

 Entrepreneur is "one who undertakes innovations, finance and business acumen, in an

effort to transform innovations into economic goods". This may result in new
organizations or may be part of revitalizing mature organizations in response to a
perceived opportunity. The most obvious form of entrepreneurship is that of starting new
businesses.

PAGE \* MERGEFORMAT 61 | Page

  An entrepreneur is the originator of an enterprise (business undertaking) in order to
satisfy an identified need or want profitably. i.e. a person who organizes and manages a
commercial undertaking especially one involving calculated commercial risks.

 In other words an entrepreneur is someone who identifies opportunities in terms of needs

and wants of people and mobilises resources such as land, capital and labour to develop
profit making projects to meet identified needs and wants. Successful entrepreneurs are
not gamblers but take calculated and moderate risks in business.

ENTREPRENEURSHIP

 Frank H. Knight (1921) and Peter Drucker (1970) posit that entrepreneurship is about
taking risk (person willing to put his or her career and financial security on the line ).

 Bob Reiss, successful entrepreneur and author of Low Risk, High Reward: Starting and
Growing Your Small Business With Minimal Risk, says: "Entrepreneurship is the
recognition and pursuit of opportunity without regard to the resources you currently
control, with confidence that you can succeed, with the flexibility to change course as
necessary, and with the will to rebound from setbacks.“

 A key factor in Reiss's definition is that entrepreneurs undertake opportunities regardless

of the resources the entrepreneur currently controls.

 Many of history's greatest entrepreneurs like Michael Dell, who started his computer
company in his college room or Lillian Vernon, who started her mail order business when
she was a housewife looking for extra income, were successful entrepreneurs who didn't
start rich and successful, but ended rich and successful.

 Appleby (1989) define entrepreneurship as the process of bringing together creative and
innovative ideas and coupling these with management and organizational skills in order
to combine people, money and other resources to meet an identified need and thereby
create wealth

 Stoner and Freeman (1992) view entrepreneurship as seemingly a discontinuous process

of combining resources to produce new goods and services.

 "Entrepreneurship is the process of creating or seizing an opportunity and pursuing it

regardless of the resources currently controlled" (Timmons, 1994).
PAGE \* MERGEFORMAT 61 | Page
  Onuoha (2007) is “the practice of starting new organizations or revitalizing mature
organizations, particularly new businesses generally in response to identified
opportunities.”

 Entrepreneurship is the dynamic process of creating in ceremonial wealth. The wealth is

created by individuals who assume the major risks in terms of equity, time and/ or career
commitment or provide value for some product or services. The product or services may
or may not be new unique, but value must somehow be infused by the entrepreneur by
receiving and locating necessary skills and resources (Ronstadt, 1984).

Common Myths about Entrepreneurs

Myth 1: Entrepreneurs Are Born, Not Made

 This myth is based on the mistaken belief that some people are genetically
predisposed to be entrepreneurs.

 The consensus of many studies is that no one is “born” to be an entrepreneur;

everyone has the potential to become one.

 Whether someone does or doesn’t become an entrepreneur is a function of their

environment, life experiences, and personal choices.

Myth 2: Entrepreneurs Are Gamblers

 Most entrepreneurs are moderate risk takers.

 The idea that entrepreneurs are gamblers originates from two sources:

 Entrepreneurs typically have jobs that are less structured, and so they face
a more uncertain set of possibilities than people in traditional jobs.

 Many entrepreneurs have a strong need to achieve and set challenging

goals, a behavior that is often equated with risk taking.

Myth 3: Entrepreneurs Are Motivated Primarily by Money

 While it is naïve to think that entrepreneurs don’t seek financial rewards, money
is rarely the reason entrepreneurs start new firms.

 In fact, some entrepreneurs warn that the pursuit of money can be distracting.

PAGE \* MERGEFORMAT 61 | Page

ECONOMIC IMPACT OF ENTREPRENEURIAL FIRMS

 Increase in the range of products and services available through innovation.

o The innovations of entrepreneurial firms have a dramatic impact on society.

o Think of all the new products and services that make our lives easier, enhance our
productivity at work, improve our health, and entertain us in new ways.

 Employment Creation

– Small businesses create a substantial number of net new jobs

– Firms with 500 or fewer employees create 65% of new jobs on an annual basis.

 Impact on Larger Firms

– Many entrepreneurial firms have built their entire business models around
producing products and services that help larger firms become more efficient and
effective.

 Reduction in antisocial activities such as theft, robbery, promiscuity and burglary.

 Reduction in rural- urban migration as more goods and services and employment become
available.

 Improvement in the standards of living.

 Stabilising the economy through increased employment, reduced prices and improved
standard of living.

 Generation and preservation of foreign currency.

 Contribute to the production of quality and affordable products as there is increased

competition

 Contribute to government revenue through payment of business and employment taxes.

 Contribute to national income of the country (GDP) and the improvement in the Balance
of Payment.

 Infrastructure Development.

 Promotes Women entrepreneurship

PAGE \* MERGEFORMAT 61 | Page

APPROACHES TO THE ENTREPRENEURSHIP CONCEPT

1. Economic perspective- an entrepreneur is one brings resources, labor, materials, and other
assets in to combinations that make their value greater than before, and also one who introduces
changes, innovations, and new order Entrepreneurs bring resources together in unusual
combinations to generate profit.

2. Behavioural perspective - entrepreneurs are achievement oriented individuals driven to seek

challenges and new accomplishments.

3. Marxist perspective - Entrepreneurs are exploitative adventurers representative of all that is

negative in capitalism.

4. Sociological perspective - Individuals often become entrepreneurs by being thrown into

situations that force them to fashion their own means of economic livelihood (e.g.
unemployment, war)

ENTREPRENEURIAL ENVIRONMENT

 This relates to the factors or variables which directly or indirectly affect the activities of
the entrepreneur either positively or negatively. The environment is split into two i.e.
micro and macro environments.

Microenvironment

 The microenvironment is made up of employees, providers of finance, suppliers and

customers.

1. Employees

 They have expectations of the quality of working life including treatment, participation,
working conditions.

 Entrepreneurs should give due consideration to the design of work methods, job
satisfaction, job security.

 If employees are not treated well the entrepreneurs will lose them to his rivals.

2. Providers of finance

 Entrepreneurs need to consider the interest/lending rates and finance charges.

PAGE \* MERGEFORMAT 61 | Page

  These costs have adverse effects on their investment activities.

 Entrepreneurs must also consider return on investments in terms of the funds which they
may need to invest with the financial institutions.

 Entrepreneurs are expected to prove their creditworthiness and credibility by paying back
the borrowed funds(loans) within the contractual time frame as this will enable the
entrepreneurs to receive preferential favour in times of need.

3. Customers

 The entrepreneurs need to understand the needs and wants of customers first before
production activities take place in order to avoid wastage of resources by producing
goods and services for unknown customers.

 Customers must be put first by providing:

 Good value for money

 Safety and durability of products.

 Prompt and courteous attention to queries and complaints.

 Long term satisfaction e.g. serviceability, adequate supply of products and replacement of
parts.

 Full and unambiguous information to potential customers.

o If customers feel that they are ill treated, the entrepreneur loses them to be customer
driven enterprises.

4. Suppliers

 Suppliers of raw materials. These affect the entrepreneur’s activities adversely or

positively in terms of prices, reliability, quality, delivery services and convenience.

 Thus a supplier of competitive prices, quality, delivery services and convenience must be
chosen.

 The entrepreneur should also settle accounts within the contractual time frame to uphold
their creditworthiness for future business transactions.

PAGE \* MERGEFORMAT 61 | Page

Macroenvironment (external environment)

1. Political/ Legal environment

 Political disturbances may result in the closure of business either permanently or

temporary.

 If an entrepreneur is not nationalistic in his business activities he may lose his licence
e.g.. sponsoring foreign media which is anti government.

 Political sanctions may hinder an entrepreneurs progress in business and affect the
entrepreneurs business activities negatively.

2. Economic environment

 Economic conditions that may affect a business positively or negatively e.g. inflation,
exchange rates, lending or interest rates.

 Inflation- is the general up rise of the prices of commodities. If the price of commodities
rise it means that the entrepreneur can now afford to buy less supplies or raw materials or
produce less goods than he used to. If inflation drops then the entrepreneur can now buy
and produce more goods.

 Exchange rates – define the price of getting foreign currency. If exchange rate rises the
entrepreneur will afford to buy less of he foreign currency and vice versa. Foreign
currency is essential for the purchase of foreign products such as spare parts, ingredients,
raw materials and fuel.

3. Socio-cultural environment

 These relates to cultural values, beliefs, and artefacts, religious values of a group of
people or society. These determine the consumption patterns of consumers.

 Thus the products people buy, attributes they value and opinions they have are based on
culture.

 Food consumption, to aspects of culture such as religious beliefs e.g. Christianity – pork
is considered unclean.

4. Technological environment

PAGE \* MERGEFORMAT 61 | Page

  We are living in a global village which requires entrepreneurs to move with technological
breakthroughs and changes.

 Use of internet to communicate with suppliers, customers and the general public.

 Technology relates to the processes, techniques, tools and machinery used in business to
produce or offer products to customers.

 Poor technology results in inefficiency and ineffectiveness.

 Entrepreneurs should keep track of the technological trends in the business if they are to
avoid being outcompeted by their rivals.

5. Natural environment

 Natural disaster such as drought, floods, earthquakes, good rains, natural resources, fire
outbreaks. Entrepreneurs are advised to study the natural phenomenon trends as these
provide threats or opportunities to the business.

Support for entrepreneurs- (gvt. efforts to promote self sustainance)

 Ministry of small and medium enterprises

 Ministry of youth development, gender and employment creation.

 Small enterprise development corporation(SMEDCO)

 Infrastructural Development Bank of Zimbabwe (IDBZ)

 Agribank

 Affirmative action group (AAG)

 Zimbabwe Cross borders association

 Zimbabwe tuckshop association.

 Black empowerment and indigenisation policy

 Land redistribution exercise

Activity

‘It is estimated that SMEs operations carry the weight of economic growth and development.’

PAGE \* MERGEFORMAT 61 | Page

a) State and explain any four (4) contributions that SMEs bring to the economy.

b) Identify and explain any three (3) advantages that SMEs have over big corporations.

PAGE \* MERGEFORMAT 61 | Page

ENTREPRENEURIAL PERSONALITY

By the end of this topic students should be able to:

1. Demonstrate knowledge and understanding of characteristic/traits of an Entrepreneur

2. Examine changing demographics of entrepreneurs

3. Distinguishing between a manager and an entrepreneur

4. Evaluate advantages and disadvantages of being an Entrepreneur

CHARACTERISTICS OF AN ENTREPRENEUR

 Persuasive

 Creative

 Self-starter

 Tenacious

 Tolerant of ambiguity

 Visionary

 Optimistic disposition

 A networker

 Alert to opportunities i.e they have a unique “opportunity recognition” capacity and this
capacity grows over time with seasoned entrepreneurs. They are aware of market and
customer needs. Entrepreneurs should be able to see unfilled gaps in the market.
Successful entrepreneurs are able to see and act on new opportunities.

 Self-confident

 Knowledgeable

 Strong commitment and determination to the business. - To succeed in business you must
be committed i.e. You are willing to put your business before everything else. Persistence
in problem solving.

PAGE \* MERGEFORMAT 61 | Page

 Moderate risk takers.(financial, career, psychic risks). Tolerance of risk, uncertainty and
ambiguity.

 Leaders – self starters and team builders. Successful entrepreneurs are self-starters with
an internal locus of control. An entrepreneur has to transmit his vision and passion to the
management team and the employees.

 High need for achievement- Ambitious and likes to set own goals. Motivation to excel-
goal oriented and aware of their weaknesses and strengths.

 Creativity, innovativeness - Effective entrepreneurs have the ability to come up with new
products, methods and techniques of production.

 Self confidence/ self motivation, self esteem-Entrepreneurs with a positive self image are
satisfied to be the type of people they are. Their self confidence is very important
especially when faced with serious setbacks and failure.

 Resilience

 Resilience is seen not only in an entrepreneur’s ability to tolerate and manage risk and
ambiguity on a daily basis, but also in their ability to face failure and recover from it.

 Successful entrepreneurs have often failed in their past, sometimes quite a number of
times. Each failure poses challenges on several levels: emotional, financial and even
social (i.e. reputation) that they have to successfully navigate through.

 A resilient entrepreneur learns to accept and grapple with failure and having dealt with it,

 Self sacrificing and hardworking- high energy level.

 Future oriented/ long term perspective. Successful entrepreneurs can tolerate considerable
amount of frustration and delay in need gratification and they devote their time and effort
in goals that yield profits in the distant future. Entrepreneurs should be able to
accommodate hurdles, difficulties and failures in business.

 Good interpersonal skills.

 Action oriented- want to produce results immediately. A lot of people have ideas but a
few decide to do something about them

PAGE \* MERGEFORMAT 61 | Page

  Optimistic / success oriented – successful entrepreneurs are optimistic. They do not have
‘ifs’ or ‘buts’ about succeeding. They think about how they are going to succeed and not
what they are going to do if they fail.

 Patience.

 Entrepreneurs have the ability to adapt to change. They are creative problem
solvers and can adapt to change.

CHANGING DEMOGRAPHICS OF ENTREPRENEURS

 Women Entrepreneurs

 While men are more likely to start businesses than women, the number of women-owned
businesses is increasing.

 In some industries, women control a significant share of the business.

 Senior Entrepreneurs

 The numbers of seniors (those 50 years old and older) starting businesses is substantial
and growing.

 This increase is attributed to corporate downsizing, an increasing desire among older

people for more personal fulfillment in their lives.

 Young Entrepreneurs

 A desire to pursue an entrepreneurial career is high among young people due to

unemployment.

 Tertiary institutions offer classes on how to start a business.

 Young people say their parents or guardians have started a business, which provides them
a firsthand look at the entrepreneurial lifestyle.

Types of entrepreneurs

 According to the types of business – Trading Entrepreneur – Industrial Entrepreneur –

Agricultural Entrepreneur – Service Entrepreneur

 According the Area – Urban Entrepreneur – Rural Entrepreneur

PAGE \* MERGEFORMAT 61 | Page

  According to gender – Male Entrepreneur – Female Entrepreneur

 Home based entrepreneur- Works from home

 Opportunistic entrepreneurs-Wants results fast. Uses acquisitions/ mergers/ franchising to

get into business.

 Portfolio entrepreneurs- They run several businesses simultaneously. They want power
and influence and want to see their brand everywhere. Growth can be through
acquisitions ,franchising and partnerships.

 Sequential entrepreneurs- run one business at a time but they may well run many
businesses in succession.

 Corporate venturer- works within a large organisation and develops new ventures without
risking own money

DISTINGUISHING A MANAGER AND AN ENTREPRENEUR

M- Is a servant of an entrepreneur and render services in an enterprise established by someone

E – Starts a venture by setting up a new enterprise and is the owner of the enterprise.

M - Does not bear any risk involved in the enterprise.

E – Bears all the risks and uncertainty involved in the enterprise.

M – Receives a salary as reward for service rendered which is fixed and regular and cannot be
negative.

E – Receives profit which is uncertain and irregular and can at times be negative.

M – Executes the plans of the entrepreneur. He translates ideas into practice.

E – Come up with plans, innovates and introduces goods and services to meet changing customer
needs.

ENTREPRENEURIAL CAREER

Advantages

 Opportunity to create own destiny.

 Opportunity to make a difference (social responsibility)

PAGE \* MERGEFORMAT 61 | Page

  Opportunity to reach your full potential.

 Opportunity to reap profits(monetary benefits)

 Opportunity to contribute to society and be recognized for your efforts.

 Opportunity to do what you enjoy and have fun.

 Flexibility

Disadvantages

 Uncertainty of income.

 Risk of losing entire investment as failure rate is very high.

 Long hours and hard work.

 High stress levels.

 Full responsibility in decision making which can lead to success or failure.

 Lower quality of life until the business gets established. Personal life takes a back seat

PUSH AND PULL FACTORS

Push factors

 Redundancy

 Unemployment or threat of unemployment(job insecurity)

 Disagreement/dissatisfaction with employer. Uncomfortable relations at work.

 Limited financial rewards.

 Career limitations (job ceilings)

 Lack of opportunity for innovation.

 Lack of recognition and being a misfit.

Pull factors

 Desire for independence- working for oneself.

 Gaining social standing/status.

PAGE \* MERGEFORMAT 61 | Page

  Flexibility (working hours)

 Desire to exploit an opportunity (market gaps)

 Unlimited financial rewards

 Sense of achievement

 Freedom to be innovative

Activity

For entrepreneurs to succeed they need to have the following characteristics among others

• information seeking

• risk taking

• opportunity seeking

• commitment to work contract

• persistence

• networking

Explain the importance of each.

PAGE \* MERGEFORMAT 61 | Page

ENTREPRENEURIAL PROCESS

By the end of this topic, students should to:

1. Demonstrate knowledge and understanding of Creativity and innovation in

entrepreneurship

2. Evaluate Sources and methods of generating of business ideas

3. Demonstrate knowledge and understanding of Opportunity and its sources.

4. Examine the 5 stage entrepreneurial process

CREATIVITY

 It is the ability to develop new ideas and to discover new ways of looking at problems
and opportunities. i.e. thinking new things.

INNOVATION

 It is the ability to apply creative solutions to those problems and opportunities to enhance
or enrich people’s lives. i.e. doing new things.

 Entrepreneurs succeed by thinking and doing new things or old things in new ways. In an
ever changing environment creativity and innovation are vital to a company’s success and
survival.

Defining the term ‘risk’

 Risk is defined as an event that has a probability of occurring which have either a positive
or negative impact to an enterprise should it occur.
 It can be unanticipated and unpredictable events for example destruction of a building,
the wiping of all the computer files, loss of funds through theft or an injury to a member
or a customer who trips on a slippery floor and decides to sue the organisation. Anything
with the potential to cost or damage the organisation.
 Risk refers to the expression of the likelihood and impact of an event with the potential to
influence the achievement of an organization's objectives.


PAGE \* MERGEFORMAT 61 | Page

Risk management is the art of using lessons from the past in order to mitigate misfortune and
exploit future opportunities.
In other words, it is the art of avoiding the stupid mistakes of yesterday while recognizing that
nature can always create new ways for things to go wrong (T. S. Coleman 2011)

Examples of Risks
 Interruptions of the business cycle or business processes arising from government
regulation, economic conditions, social conditions, weather systems, natural disasters,
and other sources
 Unforeseen changes in existing strategic partnerships, key business relationships, and
vendor/supply sources.
 Changing labour market conditions affecting workforce availability and costs.
 Access to information may be prevented by the government or legal restrictions, privacy
concerns or other frameworks that are put in place.

WHAT IS AN OPPORTUNITY?

An opportunity is a favorable set of circumstances that creates a need for a new product,
service, or business.

CHARACTERISTICS OF OPPORTUNITIES

 Many aspiring entrepreneurs think that the key to a successful start up rests with having a
unique idea.

 A good idea is a necessary starting point for any new business but ideas are not scarce.
What is scarce/ rare is the ability to execute an idea and turn it into a profitable business
opportunity. That's why so many startups fail year after year.

 An opportunity is an idea that's passed the test of planning and has potential.

 An idea is nothing more than a tool in the hands of an entrepreneur. An idea has no
substance. In order for it to be an opportunity, someone must recognize it and take
advantage of it.

PAGE \* MERGEFORMAT 61 | Page

  An opportunity occurs when the right person is at the right place, with the right skills, at
the right time.

 An opportunity is any economically viable idea with a sound market base, but it is
important that there is a fit between the capabilities of the entrepreneur or entrepreneurial
team and the requirements of pursuing the opportunity, and that the necessary resources
are available.

What distinguishes an attractive opportunity from a mere idea?

 It creates or add significant value to a customer or end user. Able to satisfy a need.

 It does so by solving a significant problem, removing a serious pain point, or meeting a

significant want or need for which someone is willing to pay a premium.

 It has robust market, margin, and money-making characteristics that will allow the
entrepreneur to estimate and communicate sustainable value to potential stakeholders:
high growth, high gross margins, high profit potential and attractive realizable returns for
investors.

PAGE \* MERGEFORMAT 61 | Page

  It is a good fit with the founder(s) and management team at the time and marketplace.

 An attractive risk-reward balance.

 Durable- lifespan that enables investor to recoup investment. The opportunity must be
available long enough to be exploited.

 Entry into the market must be feasible and the opportunity should be achievable.

 Must achieve a competitive advantage. Every product put on the market compete with
existing products and there must be a competitive advantage to enable it to be unique/
stand out from the rest.

 It should achieve certain economies of scale to be rewarding. Should be able to produce

and sell in certain quantities / volumes to make the project viable. Economies should
allow for growth potential (i.e. product lines and geographical dispersion)

 The timing of the opportunity has to be right. i.e. right product at the right place at the
right time. This ensures you exploit the situation when the opportunity still exists.

Screening opportunities

 After brainstorming your business ideas and narrowed them down to a few that seem
promising. Ask yourself the following questions in order to know if either of these
opportunities is worth pursuing.

 Do I have the skills necessary to succeed with this opportunity?

 Am I passionate about this?

 Can I meet my financial goals?

 Am I creating value for customers?

 Is there a market for this product?

 Can I harvest this opportunity at some point in the future?

DIFFERENT WAYS TO IDENTIFY AN OPPORTUNITY

1. Observing Trends

– Trends create opportunities for entrepreneurs to pursue.

PAGE \* MERGEFORMAT 61 | Page

 – The most important trends are:

• Economic forces

• Social forces

• Technological advances

• Political and regulatory change

– It’s important to be aware of changes in these areas.

Environmental Trends Suggesting Business or Product Opportunity Gaps

2. Solving a Problem

– Sometimes identifying opportunities simply involves noticing a problem and

finding a way to solve it.

– These problems can be pinpointed through observing trends and through more
simple means, such as intuition, serendipity, or change.

PAGE \* MERGEFORMAT 61 | Page

 – Many companies have been started by people who have experienced a problem in
their own lives, and then realized that the solution to the problem represented a
business opportunity.

3. Finding Gaps in the Marketplace

– A third approach to identifying opportunities is to find a gap in the marketplace.

– A gap in the marketplace is often created when a product or service is needed by a

specific group of people but doesn’t represent a large enough market to be of
interest to mainstream retailers or manufacturers.

– Seek ways to improve present offerings.

4. Customers

5. Distribution channels –they are in touch with customers and they know their requirements.

6. Government regulations- might become a business opportunity to exploit. Be on the lookout

for new gvt. regulations.

7. Research and development- carry out R&D to identify customer needs. You will produce
products that customers require.

8. Extensive travelling – by moving from one area to the other you might spot a product not
available in one area.

9. Changes or events in the surroundings – Take note of changes or major events taking place as
you can identify new business ideas.

10. Extensive reading- you become knowledgeable on what is not available and where and this
opens avenues of business opportunity.

11. Workplace, school, college- Ask yourself products not available or that can be improved.

12. Print and electronic media- How can advertised products be improved/ distributed/ marketed
differently.

13. Unlikely places- e.g. churches, funerals, sports meeting.

14. Personal contacts/ social networks. Talk to people and see ways you can improve on existing
products and services.

PAGE \* MERGEFORMAT 61 | Page

15. Trade fairs/ shows.

16. Classified section of the newspaper or yellow pages

PERSONAL CHARACTERISTICS THAT TEND TO MAKE SOME PEOPLE BETTER

AT RECOGNIZING OPPORTUNITIES THAN OTHERS

1. Prior Experience

• Prior Industry Experience

– Several studies have shown that prior experience in an industry helps an

entrepreneur recognize business opportunities.

• By working in an industry, an individual may spot a market niche that is

underserved.

• It is also possible that by working in an industry, an individual builds a

network of social contacts who provide insights that lead to recognizing
new opportunities.

2. Cognitive Factors

– Studies have shown that opportunity recognition may be an innate skill or

cognitive process.

– Some people believe that entrepreneurs have a “sixth sense” that allows them to
see opportunities that others miss.

– This “sixth sense” is called entrepreneurial alertness, which is formally defined as

the ability to notice things without engaging in deliberate search.

3. Social Networks

– The extent and depth of an individual’s social network affects opportunity

recognition.

– People who build a substantial network of social and professional contacts will be
exposed to more opportunities and ideas than people with sparse networks.

– Research results suggest that between 40% and 50% of people who start a
business got their idea via a social contact.

PAGE \* MERGEFORMAT 61 | Page

4. Creativity

– Creativity is the process of generating a novel or useful idea.

– Opportunity recognition may be, at least in part, a creative process.

– For an individual, the creative process can be broken down into five stages, as
shown on the next slide.

TECHNIQUES FOR GENERATING IDEAS

1. Brainstorming

– Is a technique used to generate a large number of ideas and solutions to problems

quickly.

– A brainstorming “session” typically involves a group of people, and should be

targeted to a specific topic.

– Rules for a brainstorming session:

• No criticism.

• Freewheeling is encouraged.

• The session should move quickly.

• Leap-frogging is encouraged.

2. Focus Group

– A focus group is a gathering of five to ten people, who have been selected based
on their common characteristics relative to the issues being discussed.

– These groups are led by a trained moderator, who uses the internal dynamics of
the group environment to gain insight into why people feel the way they do about
a particular issue.

– Although focus groups are used for a variety of purposes, they can be used to help
generate new business ideas.

3. Library Research

PAGE \* MERGEFORMAT 61 | Page

 – Libraries are an often underutilized source of information for generating new
business ideas.

– The best approach is to talk to a reference librarian, who can point out useful
resources, such as industry-specific magazines, trade journals, and industry
reports.

– Simply browsing through several issues of a trade journal or an industry report on

a topic can spark new ideas.

4. Internet Research

– If you are starting from scratch, simply typing “new business ideas” into a search
engine will produce links to newspapers and magazine articles about the “hottest”
new business ideas.

– If you have a specific topic in mind, setting up Google mail alerts will provide
you with links to a constant stream of newspaper articles, blog posts, and news
releases about the topic.

– Targeted searches are also useful.

THE 5 STAGE ENTREPRENEURIAL PROCESS

 An entrepreneur must find, evaluate, and develop an opportunity by overcoming the

forces that resist the creation of something new. The process of starting a new venture is
embodied in the entrepreneurial process which has five distinct phases:

1. Identify and Evaluate the Opportunity:

 Best source of ideas - consumers and business associates, members of the distribution
system, and technical people

 Opportunity must be carefully screened and evaluated (critical)

 Evaluation process involves looking at the length of the opportunity, its real and
perceived value, its risks and returns.

 Opportunity should fit with the personal skills and goals of the entrepreneur.

PAGE \* MERGEFORMAT 61 | Page

  Uniqueness of opportunity or differential advantage is important.

 The market size, competition, technology and capital determine the risks and rewards
involved.

 The amount of capital needed provides the basis for the return and rewards.

2. Developing a Business Plan.

 A good business plan is essential to developing the opportunity and determining the
resources required, obtaining those resources, and successfully managing the resulting
venture.

3. Determine the Resources Required

 The resources needed for addressing the opportunity must also be determined.

 Starts with an appraisal of the entrepreneur’s present resources.

 Care must be taken not to underestimate the amount of variety of resources needed. The
downside risks associated with insufficient or inappropriate resources should also be
assessed.

 Alternative suppliers of these resources, along with their needs and desires, need to be
identified.

 Understand resource supplier needs, then structure a deal that enables the resources to be
acquired at the lowest possible cost.

 An entrepreneur should strive to maintain as large an ownership position as possible,

particularly in the start-up stage.

4. Manage the Enterprise

 Define operational problems i.e. implementing a management style and structure,

determining the key variables for success.

 A control system must be established, so that any problem areas can be quickly identified
and resolved.

 Some entrepreneurs have difficulty managing and growing the venture they created.

5 Harvesting and exit from the venture

PAGE \* MERGEFORMAT 61 | Page
  Harvesting is selling the business outright to an employee or an outsider. Can be done
using any of the 3 options.

 Direct sale – when an entrepreneur steps down and turns over the reins of the company to
someone else.

 Employee Stock Ownership Plan(ESOP) – The business is sold to employees over a

period of time. A trust can be created for employees to purchase stock in their employer’s
company.

 Buyout – Involve a direct sale of the venture for some predetermined price to key
employees.

Activity

Prepare a bankable business plan for an entrepreneurial Venture of your choice.

A business plan is a document designed to provide sufficient information about a new or existing
business to convince different stakeholders to invest in the business. Identify and explain any
five (5) components of the plan and explain the type of information to be included in each
component.

PAGE \* MERGEFORMAT 61 | Page

 STARTING A NEW BUSINESS VENTURE
By the end this topic students should be able to:

1. Demonstrate knowledge and understanding of Forms of business formation

2. Examine business plan, its contexts and role

3. Evaluate a business plan

7 STEPS TO STARTING YOUR OWN BUSINESS QUICKLY AND EFFECTIVELY AS

AN ENTREPRENEUR
Increasing numbers of people are coming to realize that the whole world has changed both
developing to developed countries has changed. Job security is largely a relic, benefits are not
nearly what they used to be, and being an entrepreneur and starting your own business is looking
a lot less risky.
To attain gainful self-employment, here are our seven key steps to starting your own business
without wasting precious time and financial resources.
1)Make Sure Entrepreneurship Is What You Really Want
Starting a business because because you have lost a job or you are having trouble in finding a
new job, somehow is not ideal, you have to look for a career coach or get some training so as to
find a better job. Starting a business is much harder than getting a job, so it's worth the extra
effort to look for employment in a better way if that's your true preference.
Also, think about whether you have what it takes to start a business in these terms: No one will
tell you what to do (except your customers). You have to be self-motivated, willing to make
many sacrifices and be able to last for the long term while your business goes from startup to
maturity. Make sure you really want to face all risks and all challenges that will come your way
as a startup entrepreneur.
2)Decide What Kind of Business You Want
There are a lot of business opportunities that the business environment offers and some
opportunities are being missed just because you don’t find interest in the business line or some
are missed because you don’t see the bigger picture of the business in the coming future. So you

PAGE \* MERGEFORMAT 61 | Page

might choose to go franchise or independent, Service or manufacturing, brick and mortar retail or
online, consumer or business to business. There are a dozen of different types of businesses each
with its own benefits and drawbacks. For example , you want to work with public. A retail
business might be the right for you though you will face tradeoff of having a lot of overhead
(rent and utilities for example). Want to keep your business small with low overhead, and sell
your expertise? Being a consultant might suit you, but there are only 24 hours in a day and that
could limit your income.
3)Research Your Idea
The most important thing to remember if you are considering starting a business is this: It's not a
race. People who rush get penalized in the marketplace much more severely than people who
take their time. You may hear the words "first-mover advantage" the idea that you get a big head
start by being out with a product before anyone else. But that idea is overblown, especially for
small businesses. Emerge too soon and you could squander precious resources.
It's far better to methodically, diligently research your idea. Is anyone else doing it? What's the
competition like? Do consumers and businesses have viable substitutes if they don't choose your
product? Does your product really solve a pesky problem? Is the demand going to be great
enough in the future, not just for a year or two? Once you're completely convinced you have the
virtual better mousetrap, then you can proceed.
4)Write a Business Plan
With the dozens of business-plan-in-a-box resources available online, there is no longer an
excuse not to write a business plan before you launch your business. Why write a plan even if
you are the only person who works in the business? Because it forces you to answer critical
questions that you must not ignore if you want to have a strong chance of success. It doesn't have
to be long.
Make it a single page if you don't have the patience to do more. But it should answer these
questions:

 What is the purpose of the business?

 Who are my customers?
 What problem does my product/service solve?
 Who is my competition and why is my product/service's advantage?
 How will I price, position, market and support my product?
PAGE \* MERGEFORMAT 61 | Page
  What are my financial projections for the business for the next 3-5 years?

5)Choose a Business Structure

According to small business CPA Michael Hanley, "The foundation for tax planning begins even
before your first day of business operations. Of all the decisions a business owner will make,
very few will have as great an impact as entity selection.
Deciding whether to become a Sole Proprietorship, a Partnership, a traditional Corporation, an S-
Corporation, or a Limited Liability Company (LLC) will have a long-lasting effect on the future
tax implications of your business.
As an entrepreneur , you should learn about the benefits and tradeoffs of each plan.
6) Assemble Your Team
You need a team to work with. Most successful organizations are because of experienced and
dedicated team members. While your team consists mainly of employees, think more broadly.
You will need trusted advisors including an attorney, a tax accountant, an insurance
advisor/agent. You may want to consider hiring a Virtual Assistant who's experienced in startups
to handle the administrative tasks that come with launching a business.
7) Final Thoughts on Starting Your Own Business
No matter what type of business you start be it selling physical products, offering up your
services on a contract basis, building a digital product, or launching a startup, there are going to
be ups and downs. Starting a business in easy as it requires all your attention. When going into
business for yourself, it's incredibly important to set realistic expectations so that you're not
winding up disappointed with your progress after the first few months of growing your customer
base.
Do your homework on your industry, gain momentum on the side before quitting your full-time
job, and launch once you're already generating revenue for your business. Then, you'll be poised
to grow from there.

Choosing the proper legal, organizational structure for your business is one of the most important
decisions you will make. While it may not have much impact on the day-to-day operations of a
small business, it can have a huge impact come tax time when you want to borrow money or
attract investors, or in the unfortunate event that you get taken to court. While it is possible to

PAGE \* MERGEFORMAT 61 | Page

change your structure at a later date, it can be a difficult and expensive process. Better to make
the right decision in the first place.

Forms of Business
There are three major types of businesses:

1. Service Business

A service type of business provides intangible products (products with no physical form).
Service type firms offer professional skills, expertise, advice, and other similar products.

Examples of service businesses are: schools, repair shops, hair salons, banks, accounting firms,
and law firms.

2. Merchandising Business

This type of business buys products at wholesale price and sells the same at retail price. They are
known as "buy and sell" businesses. They make profit by selling the products at prices higher
than their purchase costs.

A merchandising business sells a product without changing its form. Examples are: grocery
stores, convenience stores, and other resellers.

3. Manufacturing Business

Unlike a merchandising business, a manufacturing business buys products with the intention of
using them as materials in making a new product. Thus there is a transformation of the products
purchased.

Manufacturing businesses combine raw materials, labour, and factory expenses in production.
The manufactured goods will then be sold to customers.

And then

Hybrid Business

Hybrid businesses are companies that may be classified in more than one type of business. A
restaurant, for example, combines ingredients in making a fine meal, sells a cold bottle of wine,
and fills customer orders.

PAGE \* MERGEFORMAT 61 | Page

Nonetheless, these companies may be classified according to their major business interest. In that
case, restaurants are more of the service type -- they provide dining services.

LEGAL FORMS OF OWNERSHIP:

 Partnership

 Sole proprietorship

 Corporation

 Limited liability Company (LLC)

 Cooperatives

Forms of Ownership
One of the first decisions that you will have to make as a business owner is how the company
should be structured. This decision will have long-term implications. In making a choice, you
will want to take into account the following:

 Your vision regarding the size and nature of your business.

 The level of control you wish to have.

 The level of structure you are willing to deal with.

 The business' vulnerability to lawsuits.

 Tax implications of the different ownership structures.

 Expected profit (or loss) of the business.

 Whether or not you need to reinvest earnings into the business.

 Your need for access to cash out of the business for yourself.

LIMITED LIABILITY

PAGE \* MERGEFORMAT 61 | Page

Limited liability is a type of legal structure for an organization where a corporate loss will not
exceed the amount invested in a partnership or limited liability company (LLC). In other words,
investors' and owners' private assets are not at risk if the company fails.
The limited liability feature is one of the biggest advantages of investing in publicly listed
companies. While a shareholder can participate wholly in the growth of a company, their liability
is restricted to the amount of the investment in the company, even if it subsequently goes
bankrupt and has remaining debt obligations.

SOLE PROPRIETORSHIP

The vast majority of small businesses start out as sole proprietorship. These firms are owned by
one person, usually the individual who has day to day responsibilities for running the business.
Sole proprietors own all the assets of the business and the profits generated by it. They also
assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the
public, you are one in the same with the business.

Advantages of a Sole Proprietorship

 Easiest and least expensive form of ownership to organize.

 Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.

 Sole proprietors receive all income generated by the business to keep or reinvest.

 Profits from the business flow directly to the owner's personal tax return.

 The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

 Sole proprietors have unlimited liability and are legally responsible for all debts against the
business. Their business and personal assets are at risk.

 May be at a disadvantage in raising funds and are often limited to using funds from personal
savings or consumer loans.

 May have a hard time attracting high-caliber employees or those that are motivated by the
opportunity to own a part of the business.

PAGE \* MERGEFORMAT 61 | Page

 Some employee benefits such as owner's medical insurance premiums are not directly
deductible from business income (only partially deductible as an adjustment to income).

PARTNERSHIP

It is a business formed when two or more parties join together for a common business purpose. It
can involve two or more people, a person and a corporation, two corporations or even two
partnerships.

Forms of a Partnership

 General partnership

 Limited partnership

The General partnership

It is composed of 2 or more persons usually not married. The partners share the profits, losses,
and management of the business. Each partner is personally and equally liable for debts of the
business. Formal terms of the partnership are usually contained in a written partnership
agreement.

The Limited Partnership

It is composed of one or more general partners and one or more limited partners. General
partners manage the business and share fully in its profits and losses. Limited partners share in
the profits of the business but their losses are limited to the extent of their investment. Limited
partners are usually not involved in the day-to-day operations of the business

The Limited Liability Partnership

A Limited Liability Partnership (LLP) is similar to a General Partnership except that normally a
partner doesn’t have personal liability for the negligence of another partner. It is used most by
professionals, such as accountants and lawyers.

PAGE \* MERGEFORMAT 61 | Page

The Deed of Partnership

It is a legal agreement that sets forth how decisions will be made, profits will be shared, disputes
will be resolved, how future partners will be admitted to the partnership, how partners can be
bought out, or what steps will be taken to dissolve the partnership when needed.

Merits

 Partnerships are relatively easy to establish

 Complementary skills

 Employees may be attracted to the business

 The profits from the business flow directly through to the partners’ personal tax return

 The ability to raise capital may be increased

 Responsibility for management is shared

 Diversity of skills, knowledge, goal accomplishment

 Partners have limited liability

 Raising of capital is better

Demerits

 Partners are jointly and individually liable for the actions of the other partners.

 Profits are shared with others.

 Since decisions are shared, disagreements can occur.

 Some employee benefits are not deductible from business income on tax returns.

 The business may have a limited life

 Unlimited liability in a general partnership.

 Limited input regarding management decision making in a Limited partnership for limited
partners.

 Time should be invested in developing the partnership agreement.

PAGE \* MERGEFORMAT 61 | Page

The Corporation

A corporation is a legal entity created under state law. It can manage its own affairs, hold
property, borrow money and legally do nearly anything an individual can do. Owners of a
corporation are called shareholders and these shareholders elect a board of directors to oversee
the major policies and decisions. It has a life of its own and does not dissolve when ownership
changes. It is an incorporated business. Corporations have a three-tiered control system where
Shareholders elect the directors of the company. In turn, directors elect the managers. The
directors make primary decisions for the corporation and the managers direct day-to-day
operations.

A corporation obtains a charter from the state. Unless the corporation elects to be treated as a
partnership for tax purposes it files a corporate tax return. After paying taxes, most corporations
distribute money to their shareholders in the form of dividends. The shareholders must pay taxes
on the income received. This practice results in double taxation. Shares of a corporation
represent ownership of the corporation. Shares may be through the by-laws of the corporation.
Ownership can be transferred relatively easily. A corporation can exist forever apart from its
founders. It can deduct as business expenses many benefits such as health care and retirement
plans

Forms the corporation

1. The S Corporation

2. The C Corporation

The S Corporation

-Profits pass through to the shareholders who pay income tax on what they receive.

- If shareholder make this decision, the corporation is an S corporation

- Formed to avoid double taxation

PAGE \* MERGEFORMAT 61 | Page

- Certain requirements must be met such as number of shareholders, all shareholders are citizens
of the country, and all of them agree.

- The corporation may elect to be treated as if it were a partnership

Features of the S Corporations

 Independent legal and tax structures separate from their owners.

 Help separate your personal assets from your business debts.

 Owners report their share of profit and loss in the company on their personal tax returns.

 Limits on number of shareholders, who must be citizens or residents of the country.

 Must hold annual meetings and record meeting minutes.

C Corporation

- The C corporation eg NSSA, ZESA, Hwange colliery, OK ZIM

- This is a complex business structure with more startup costs than many other forms.

- A corporation is a legal entity separate from its owners, who own shares of stock in the
company.

- Corporations can be created for profit or nonprofit purposes and may be subject to increased
licensing fees and government regulation than other structures.

Features of the C corporation

 Independent legal and tax structures separate from their owners.

 Help separate your personal assets from your business debts.

 No limit to the number of shareholders unless it is a private company.

 Taxed on corporate profits and shareholder dividends.

 Must hold annual meetings and record meeting minutes

The C corporation : Corporate formalities in the c corporation include:

 Issuing stock certificates

PAGE \* MERGEFORMAT 61 | Page

 Holding annual meetings

 Recording the minutes of the meetings-they set precedence for future activities

 Electing directors or ratifying the status of existing directors

 Corporations should always be assisted by a qualified attorney

 Management is very complex

The Corporation Merits

 Shareholders have limited liability.

 Shareholders can only be held accountable for their investment in stock of the company.

 Corporations can raise additional capital through the sale of stock

The Corporation Demerits

 The process of incorporation requires more time and money than other forms of
organization.

 Corporations are monitored by state, federal and some local agencies.

 May have more paperwork to comply with regulations.

 Incorporating may result in higher overall taxes.

 Dividends paid to shareholders are not deductible from business income; thus it can be taxed
twice.

2.8.4 The Limited Liability company (LLC)

An LLC is a hybrid of a corporation and a partnership and is rapidly becoming the most popular
structure for small businesses due to its flexibility and its low cost to create and maintain, while
still offering most of the advantages of a corporation. The ownership percentages, profit, and loss
distributions, and voting powers of each member are determined by the LLC Articles of
Organization, rather than by stock ownership.

PAGE \* MERGEFORMAT 61 | Page

An LLC can choose to be taxed as a partnership or S Corporation with profits and losses flowing
through to the owners’ tax returns, or taxed as a C Corporation, filing its own return. The owners
and any officers and directors are protected from the liabilities of the company, as in a
corporation. An LLC is generally subject to the franchise tax, though this varies from state to
state.
Formation

 You need to file articles of organization with the secretary of state

 Requires an operating agreement.

 The control of an LLC is in the hands of the owners, called members.

 Members elect managers from among the membership or from outside.

 The business does not exist perpetually unless the operating agreement provides for its
continued existence.

Merits

 Liability for the debts of the business is limited to the extent of their investment in the
business.

 Ownership is transferrable but requires the unanimous consent of all members unless the
operating agreement provides otherwise.

 It combines the limited personal liability feature of a corporation with the tax advantages of
a partnership and sole proprietorship.

 Profits and losses can be passed through the company to its members

 LLC can elect to be taxed like a corporation.

 LLCs do not have stock and are not required to observe corporate formalities.

 Owners are called members, and the LLC is managed by these members or by appointed
managers.

Demerits

 LLCs do not exist perpetually.

PAGE \* MERGEFORMAT 61 | Page

 Unless the operating agreement provides for its continued existence, the business ends upon
the death of a member.

 Most countries require a stated period of existence.

 It has limitations on raising capital as partnerships

NON-PROFIT CORPORATION/ ORGANIZATION

A non-profit corporation may be an industry association, a social organization, a research firm,
or even a consulting group. It is also known as a non-business entity, not for profit organization
or nonprofit institution. It is also a legal entity organized and operated for a collective, public and
social benefit in contrast with an entity that operates as a business aiming to generate a profit for
it’s owners. However, a nonprofit making organization can even sell products and services.The
difference is that there are no owners, and any "profits" are simply retained by the corporation to
be reinvested for whatever the purpose of the corporation may be. A non-profit can have
employees, and those employees can be paid fair market value for their services. There are many
restrictions on non-profits that make it a challenging choice, but if you're interested in seeing
your vision come to life, it is an option. A wide array of organizations are nonprofit, including
most political organizations, schools, business associations, churches, social clubs, and consumer
cooperatives. Nonprofit entities generally seek approval from governments to be tax-exempt, and
some may also qualify to receive tax-deductible contributions. But an entity may incorporate as a
nonprofit entity without securing tax-exempt status.
WHAT IS A COMPANY?
Forms of a company

 Public company

 Private company

Companies are commercial organisations separate in law from the individual owners
(shareholders) of the business. Companies Acts set out ways in which companies should conduct
their affairs.

PAGE \* MERGEFORMAT 61 | Page

Various documents must be registered at Companies House including a Memorandum and
Articles of Association setting out internal relationships within the company, and external
relationships with third parties.

A Public company

A company that has more than 50 shareholders and the shares are
offered for public subscription.

A public company can only start trading and sell shares on the Stock Exchange once it has
carried out all the required paperwork.

A public company will have Plc Ltd after its name.

The Private company

A company whose shareholders may not exceed 50 in number and shares are not offered on the
exchange for public subscription

A private company does not sell its shares to the wider public. Shares can only be traded with the
permission of the Board of Directors

Shares can only be traded with the permission of the Board of Directors.

A private company will have Pvt Ltd after its name.

BUSINESS PLAN DEFINITIONS

 A written statement setting forth the business mission and objectives, its operational and
financial details, its ownership and management structure and how it hopes to achieve its
objectives.

 A written document describing all relevant internal and external elements and strategies
for achieving objectives of a business.

PAGE \* MERGEFORMAT 61 | Page

 A document designed to provide sufficient information about a new or existing business
to convince financial backers to invest in the business.

Importance of a business plan

 It helps to clarify and focus the business idea.

 Serves as an effective communication tool for attracting and dealing with personnel,
suppliers, customers and providers of finance. It helps them understand your goals and
operations.

 It provides an effective basis for controlling operations so one can monitor progress over
time, to see if actions are following your plans. (Offers a benchmark against which actual
performance can be measured and reviewed).

 It provides a means for assessing viability of a business.

 Help determine capital requirements and provide means for raising capital for the
business.

 Helps entrepreneurs to assess themselves in order to build a team with complementary

skills.

 Used by firms to prospect for new business opportunities.

 Serves as a feasibility study of the business’s chances for success and growth in an
objective, critical and unemotional way. (is there a market, do we have the skills, can the
business make profit) To convince oneself that the new venture is worthwhile before
making a significant financial and personal commitment.

 The finished report serves as an operational tool to define the company’s present status
and future possibilities. It assist in running the business and improves your probability for
success.

 Provides a logical framework within which a business can develop and pursue business
strategies over the next 3-5years.

 Helps the entrepreneur to allocate resources appropriately, handle unexpected problems

and make good business decisions.

PAGE \* MERGEFORMAT 61 | Page

  There is a general misconception that a business plan is used primarily for raising capital.
However the purpose of a business plan is to help entrepreneurs gain a deeper
understanding of the opportunity they envision, It helps the entrepreneur to shape her
original vision into a better opportunity by raising critical questions, researching the
answers for those questions and then answering them.

BUSINESS PLAN

USEFUL TIPS

1. Own the content

By preparing the business plan yourself you will ‘own the content’ and identify problems that
are likely to arise. This will allow consideration of how you will solve them. It is usually not a
good idea to hire outside professionals. In the process of writing the business plan, the
entrepreneur will identify the consequences of different strategies and tactics and the human and
financial requirements for launching and building the venture.

2. Ensure the plan fits you

 The plan should capture your personal motivation and direction, There is no use
preparing a plan that is in direct conflict with what you really want from business over
the coming years. (direction, structure and growth pace)

 Note the importance of the fit between the management team’s skills, experience,
personal goals, aspirations and values, the market potential, risks and rewards of the
opportunity and the financial, people, raw materials and other resources required.

3. Be realistic

 The business plan should be a realistic view of the expectations and long term objectives
for an established business or new venture. Over optimistic forecasts will put your
investment at risk e.g. figures or projections that are clearly at odds with the experience
of others in the same business.

4. Have clear objectives

 The business plan should provide direction therefore the objectives and goals should be
clearly stated, realistic and attainable. (SMART) The objectives set out in the plan should

PAGE \* MERGEFORMAT 61 | Page

 be clear to the reader. The plan must be clearly presented, concise, user friendly and well
structured.

5. Not all things will go exactly as planned

A documented plan will enable you to see clearly the difference between what is actually
happening against what you had planned would happen. This gives you control over the situation
and enables you to decide more clearly the corrective action needed to put yourself back on
course.

6. Presentation

The plan should be typed and bound with a table of contents. It should be written to
communicate rather than to impress, easy and simple to follow with accurate texts and figures.

GENERALLY ACCEPTED GUIDELINES OF A BUSINESS PLAN (Refer to handout for

outline)

EVALUATION OF A BUSINESS PLAN

 The business plan should address the needs of all potential readers/ evaluators.

 These needs may vary considerably and this could result in rejection of the entrepreneurs
request if not addressed in the business plan.

 Suppliers - may want to see BP before signing a contract to supply materials or produce
components/goods for the business.

 Customers – review the plan before buying a product that may require significant long
term commitment.

 Suppliers of capital – ability of new venture to payback the debt within the designated
time period.

Activity

Highlight the importance of a business plan to the following stakeholders:

• employees

• entrepreneur

• supplier
PAGE \* MERGEFORMAT 61 | Page
• customer

• investor

PAGE \* MERGEFORMAT 61 | Page

ENTREPRENEURIAL MARKETING
By the end of this topic students should be able to:

1. Demonstrate knowledge understanding of Marketing concept

2. Assess the benefits of product life cycle

3. Apply Guerrilla marketing concept in a given environment.

 MARKETING is the management process responsible for identifying, anticipating and

satisfying customer requirements profitably.

 Marketing concept holds that the key to achieving organizational goals lies in
determining the needs and wants of target markets and delivering the desired satisfaction
more efficiently and effectively than the competition.

Market research in the pre-start up stage

Good market research provides answers to the following questions:

 Who is the customer? Customer profile - age, gender, income, occupation, education,
religion, ethnic group, marital status. This helps the entrepreneur to clearly define their
market segments.

 Where is the market?

 Who are the market players/ competitors?

 How will the customers be reached?

The marketing mix

 Refer to a set of marketing variables which a firm can use to satisfy the needs of its target
market.

1. PRODUCT

 Product includes physical objects/ service being sold, together with packaging, image,
brand name, and warranty/ guaranty.

PAGE \* MERGEFORMAT 61 | Page

  Product development and enhancement of physical product usually carried out in
conjunction with R&D and production.

 Packaging refers to all the activities of designing and producing the container for a
product. Packaging serves various purposes such as :

 Protection,

 Preservation (freshness),

 Convenience (nozzles/straws),

 Branding(promotion strategy),

 Profitability (larger containers encourage more consumption)

2. PRICE

 Price communicate information about value, image, and it influences decisions about
distribution, market segmentation, product characteristics and related services.

 Factors influencing price include:

 Knowledge of competitors’ prices can be useful in positioning the entrepreneur’s

products/ services.

 Cost of production or procurement is a major consideration in price setting.

 Customer expectations hence carry out research on a reasonable price that consumers
would be willing to pay.

 Business objectives (e.g. Profit maximisation)

PRICING STRATEGIES

 Market penetration- Introducing a product in the market with a low price (just above
total unit cost) in order to gain quick acceptance and extensive distribution in the market.
Its objectives are to break into the market quickly, generate high sales volume as soon as
possible and to build market share.

 Skimming- Used when introducing a new product into a market with little or no
competition. A firm uses higher than normal price in an effort to quickly recover the
initial development and promotional costs of the product. It requires differentiation (high
PAGE \* MERGEFORMAT 61 | Page
 quality and uniqueness) of products/ services from those of competition in order to justify
the above average price.

 Sliding down the demand curve-The company introduces a product at a high price then
technological advances enables the firm to lower its unit costs quickly to reduce the
product’s price before its competition can .

3. PLACE

 Distribution decisions address the question: ‘Where do our customers want to receive
their goods and services?

 Distribution of the product should be consistent with other marketing mix variables e.g.
high quality product will carry a high price but should be distributed in outlets that have a
quality image.

 Use of e-commerce.

 Globalisation strategy. If customers have overseas locations you might consider setting
up distribution facilities or selling the products online. This extend a company’s market
coverage and global reach.

4. PROMOTION

 It is through promotion that a venture attracts customers. Promotion includes advertising,

personal selling, press releases, sales promotion, exhibitions, trade fairs and public
relations. The entrepreneur should carefully evaluate each alternative medium
considering not just the costs but the effectiveness of the medium.

 The medium of communication must also match the message.

If it is a service, please add Physical Evidence, People and

PAGE \* MERGEFORMAT 61 | Page

THE PRODUCT LIFE CYCLE

1. INTRODUCTION

 This stage mainly concerns the development of a new product from the time it was
initially conceptualized to the point it is introduced on the market.

 The corporation having an innovative idea first will often enjoy monopoly until
competitors start to copy and/or improve the product.

2. GROWTH

 If the new product is successful sales will start to grow and new competitors will enter
the market, slowly eroding the market share of the innovative firm.

 The product starts to be exported to other markets and substantial efforts are made to
improve distribution since competition mainly takes place more on the innovative
capabilities of the product than on the price. This level is associated with high profits.

3. MATURITY

 At this stage the product has been standardised, is widely available on the market and its
distribution is well established. Competition increasingly take place.

4. DECLINE

 The product is becoming obsolete, production essentially takes place in low cost
locations.

 Eventually the product will be retired an event that marks the end of its life cycle

???????What strategies can be implemented to extend the life of a product????

GUERRILLA MARKETING CONCEPT

 Unconventional, low cost, creative marketing strategies designed to give small companies
an edge over their larger, richer and more powerful rivals. An effective marketing
campaign does not require an entrepreneur to spend large sums of money but demand
creativity.

Guerrilla marketing tactics

 Find a niche and fill it rather than compete head on.

PAGE \* MERGEFORMAT 61 | Page
  Don’t just sell but also entertain. Designed to draw customers into the store through
sounds, smells, sights and activities designed to entertain and off course achieve a sale.

 Strive to be unique (Products on offer, promotion, store layout and design)

 Create an identity for your business( who they are, what they stand for, why they exist)

 Connect with customers on an emotional level. Establish a deep relationship with

customers (i.e. building and nurturing an ongoing relationship with customers establishes
a relationship of trust)

 Focus on the customer. The business depends on creating a satisfied customer.

 Devotion to quality. Quality is a prerequisite for success and survival as it gives the
company a competitive advantage.

 Attention to convenience (location, business hours, payment methods e.g. credit/ debit
cards and ATM cards, offering delivery services)

 Concentration on innovation. Stay up to date with market changes and developments.

 Dedication to service and customer satisfaction (handling of customer telephone calls on

time, customer care and service delivery)

 Emphasis on speed (from development, design, manufacturing and delivery of a product,

time spent in a queue, time it takes to process a business transaction)

How small firms can compete with large firms

 Small start up firms are flexible than larger firms and have the capacity to respond
promptly to industry and community developments.

 They are able to innovate and create new products and services more rapidly (make
decisions in days or months) and creatively than larger companies that are bureaucratic.

 Small firms have the ability to modify its products or services in response to unique
customer needs. The entrepreneur or manager of a small business knows his customer
base far better than one large company. (e.g. change in business hours, modification of a
product/ service offered) Customers have a role in product development.

PAGE \* MERGEFORMAT 61 | Page

 Highly skilled personnel. Start ups benefit from having senior partners / managers
working on tasks below their highest skill level. The key managers have stepped back
from much more responsible positions in larger companies and this gives the new
company a competitive advantage.

Activity

Briefly describe the following marketing strategies in relation to the Ansoff Matrix. Use
practical examples in your answers.

• market penetration

• diversification

• market development

• product development

PAGE \* MERGEFORMAT 61 | Page

ENTREPRENEURIAL FINANCING
Objectives

By the end of this topic, students should be able to:

 Know what entrepreneurial finance is

 Evaluate sources of Funding available to entrepreneurs

 Assess criteria used by potential Financors/investors (5Cs)

Entrepreneurial finance is the study of value and resource allocation, applied to new ventures.
It addresses key questions which challenge all entrepreneurs: how much money can and should
be raised; when should it be raised and from whom; what is a reasonable valuation of the startup;
and how should funding contracts and exit decisions be structured.

DETERMINATION OF THE FINANCIAL NEED OF A START-UP

The first step in raising capital is to understand how much capital you need to raise. Successful
businesses anticipate their future cash needs, make plans and execute capital acquisition
strategies well before they find themselves in a cash crunch.

Three axioms guide start-up fund raising:

 As businesses grow, they often go through several rounds or stages of financing. These
rounds are targeted to specific phases of the company's growth and require different
strategies and types of investors.
 Raising capital is an ongoing issue for every venture.
 Capital acquisition takes time and needs to be planned accordingly.

Four critical determinants of the financial need of a venture are generally distinguished:

 Determination of projected sales, their growth and the profitability level

 Calculation of start-up costs (one-time costs)

PAGE \* MERGEFORMAT 61 | Page

  Estimation of recurring costs
 Projection of working capital (inventory, credit and payment policies. This determines
the cash needed to maintain the day-to-day business)

Typically, venture capitalists are part of a fund. Their average size in Europe includes five
investment professionals and two supports. They generate income through management fees (on
average 2.5% annual commission) and carried interest ("Carry", on average 20–30% of the
profits of the fund).

VALUATION IN ENTREPRENEURIAL FINANCE

Financial planning also helps to determine the value of a venture and serves as an important
marketing tool towards prospective investors.

Traditional valuation techniques based on accounting, discounting cash flows (Discounted cash
flow, DCF) or multiples do not reflect the specific characteristics of a start-up. Instead, the
venture capital method, the First Chicago or the fundamental methods are usually applied.

Venture capital method

To determine the future value of a start-up, a venture capital investor is guided by the question:
What percentage of the portfolio company should I have at exit to guarantee that I get the IRR
committed with my investors?

The valuation of the future company can be broken down into four steps:

 Determination of company's value at exit

 Requested fraction (percentage) of the VC at exit?
 Number of shares to be bought in the current round of financing to get the desired
percentage of the company
 Estimation of maximum price per share willing to pay in current round of financing

Usually there is more than one round of financing. Venture capital investors generally prefer
staged investments to reduce the money invested at the higher risk and control entrepreneurs via

PAGE \* MERGEFORMAT 61 | Page

milestones. Entrepreneurs benefit from dilution in future rounds by reducing the price of the
shares to be exchanged for financing.

SOURCES OF FINANCE

Raising finance be it for start-up or an already established venture requires careful planning. The
business owner or an entrepreneur needs to decide:

 How much finance is required?

 When and how long the finance is needed for?
 What security (if any) can be provided?
 Whether the business owner or an entrepreneur is prepared to give up some control
(ownership) of the start-up in return for investment?

The finance needs of a start-up should take account of these key areas:

 Set-up costs (the costs that are incurred before the business starts to trade)
 Starting investment in capacity (the fixed assets that the business needs before it can
begin to trade)
 Working capital (the stocks needed by the business –e.g. r raw materials + allowance for
amounts that will be owed by customers once sales begin)
 Growth and development (e.g. extra investment in capacity)

One way of categorizing the sources of finance for a start-up and or even a already running
business venture is to divide them into sources which are from within the business (internal) and
from outside providers (external).

PAGE \* MERGEFORMAT 61 | Page

Internal sources

The main internal sources of finance for a start-up are as follows:

Personal sources

These are the most important sources of finance for a start-up.

1) Retained profits

This is the cash that is generated by the business when it trades profitably. It is another important
source of finance for any business, large or small. Note that retained profits can generate cash the
moment trading has begun. For example, a start-up sells the first batch of stock for US5,000 cash
which it had bought for US2,000. That means that retained profits are US3,000 which can be
used to finance further expansion or to pay for other trading costs and expenses.

2) Share capital – invested by the founder

The founding business owner especially in family businesses and or even entrepreneur (/s) may
decide to invest in the share capital of a company, founded for the purpose of forming the start-
up. This is a common method of financing a start-up. The founder(s) provides all the share
capital of the company, retaining 100% control over the business.

The advantages of investing in share capital are covered in the section on business structure. The
key point to note here is that the entrepreneur may be using a variety of personal sources to
invest in the shares. Once the investment has been made, it is the company that owns the money
provided. The shareholder obtains a return on this investment through dividends (payments out
of profits) and/or the value of the business when it is eventually sold.

A start-up company can also raise finance by selling shares to external investors – this is covered
further below.

External sources

Loan capital This can take several forms, but the most common are a bank loan or bank
overdraft.

3) A) Small business loans

PAGE \* MERGEFORMAT 61 | Page

Traditional business loans, provided one can get them at a reasonable rate, are still an excellent
way to raise finance for a business venture, particularly if one is already generating revenue.
Remember that any loan is debt finance which a small business owner is obliged to pay back.
When applying for these loans, a Small business owner should carefully review any terms agree
to and, when possible, try to find other forms of finance before one consider taking on any debt.

3 b) Startup loans

The Startup Loans Scheme is a government stimulus package that gives a business owner access
to a low-cost loan. The scheme is an excellent way to fund a new venture or expand an existing
small business. The loan also comes with 12-months free mentoring, which is invaluable for new
entrepreneurs.

3 C) Business overdrafts

Business overdrafts are effectively a super-fast way to set up a loan. When a bank balance hits
zero, one can carry on making payments up to the limit set with the bank, known as the facility.

Having an overdraft facility is a useful option if an business operations include seasonal

activities, where one may have short-term cash flow shortages. If a business needs a constant
loan function to trade, then these are likely the best solution.

4) Small business grants (Government and private)

Most countries do give grants to small businesses, for instance, the UK government and other
governments even here in Zimbabwe, local authorities and private organisations provide funding
and grant opportunities to small businesses across the country. These grants are typically
available for new companies or existing businesses who are supporting economic growth in a
particular area or nationwide, by developing technology in a specific field or helping the
disadvantaged.

5) Business accelerators

A business accelerator is a programme offering developing startups a small investment in

exchange for equity, along with mentorship, office space and network access that will enable
them to become sustainable and self-sufficient in the long-term. This initiative also provides
access to future investors once small business owners or entrepreneurs have completed the
accelerator programme.
PAGE \* MERGEFORMAT 61 | Page
Business accelerators can be a great way to grow a startup business. Do note, however, that the
failure rate beyond the accelerator programme is exceptionally high; many companies face
difficulty transitioning from the high level of support they receive in the programme to complete
autonomy.

6) Crowdfunding

Crowdfunding platforms allow a small business owner or and entrepreneur to raise funds from a
number of small contributions from many individual investors or purchasers. One can either run
an equity-based crowdfunding campaign, where the owner exchange equity for investment, or a
reward-based crowdfunding campaign, where an investors receive perks or rewards in exchange
for their capital. Crowdfunding doubles as effective marketing, as one will effectively drive pre-
sales to fund his or her business/ project. Keep in mind that it usually takes a significant amount
of preparation and marketing to create and run a successful crowdfunding campaign. With that in
mind, it is an excellent form of alternative finance for small businesses.

7) Share capital (outside investors )

For a start-up, the main source of outside (external) investor in the share capital of a company is
friends and family of the business owner or the entrepreneur. Opinions differ on whether friends
and family should be encouraged to invest in a start-up company. They may be prepared to
invest substantial amounts for a longer period of time; they may not want to get too involved in
the day to day operation of the business. Both of these are positives for the entrepreneur.
However, there are pitfalls. Almost inevitably, tensions develop with family and friends as
fellow shareholders.

8) Business angels/ Angel Investors

Business angels are private investors, typically former entrepreneurs or wealthy individuals, who
invest in startups and small companies in return for an equity stake of usually 10-20%. Business
angels are a fantastic way to secure seed money for a project, as they can offer advice, guidance
and mentorship through a project. They prefer to invest in businesses with high growth
prospects. Business angels are advantageous as they are usually willing to take far bigger risks
than banks. There’s also no obligation to pay back the invested capital if the venture flops.

9) Venture capital

PAGE \* MERGEFORMAT 61 | Page

Venture capitalists (VCs) invest huge sums into startups or expanding businesses with
tremendous growth potential and traction, typically investing considerably more capital than
angel investors. VCs are professional investors, responsible for investing and growing some of
the world’s most innovative companies, including Facebook, Spotify and Airbnb.

Personal sources

As mentioned earlier, most start-ups make use of the personal financial arrangements of the
founder. This can be personal savings or other cash balances that have been accumulated. It can
be personal debt facilities which are made available to the business. It can also simply be the
found working for nothing! The following notes explain these in a little more detail.

10) Savings and other "nest-eggs"

An entrepreneur will often invest personal cash balances into a start-up. This is a cheap form of
finance and it is readily available. Often the decision to start a business is prompted by a change
in the personal circumstances of the entrepreneur – e.g. redundancy or an inheritance. Investing
personal savings maximises the control the entrepreneur keeps over the business. It is also a
strong signal of commitment to outside investors or providers of finance. Re-mortgaging is the
most popular way of raising loan-related capital for a start-up. The way this works is simple. The
entrepreneur takes out a second or larger mortgage on a private property and then invests some
or all of this money into the business. The use of mortgaging like this provides access to
relatively low-cost finance, although the risk is that, if the business fails, then the property will
be lost too. .

11) Borrowing from friends and family

This is also common. Friends and family who are supportive of the business idea provide money
either directly to the entrepreneur or into the business. This can be quicker and cheaper to
arrange (certainly compared with a standard bank loan) and the interest and repayment terms
may be more flexible than a bank loan. However, borrowing in this way can add to the stress
faced by an entrepreneur, particularly if the business gets into difficulties.

12) Business credit cards

PAGE \* MERGEFORMAT 61 | Page

Business credits cards can be a handy source of finance for trading small business and or
entrepreneurs. In other countries, credit card limits can reach US$10,000, which is effectively
free money provided one pay off the debt within the interest-free period.

There are so many other different sources of finance an entrepreneur can use, So it is very wise
fo all entrepreneur before sourcing funds to look at the sources with less risk as well as sources
suitable with the type of business venture.

Activity

A financial organization, which provides loan facilities to aspiring entrepreneurs, is conducting a

seminar on entrepreneurship to assist successful loan applicants. Upon realisation that you are a
student on attachment from ZEGU whose mandate is entrepreneurship, innovation and wealth
creation, your CEO has requested you to be one of the facilitators. Make a convincing and
comprehensive presentation on principles of entrepreneurship.

PAGE \* MERGEFORMAT 61 | Page

CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS
ETHICS
By the end of this topic, students should be able to:

1. Demonstrate knowledge and understanding of business ethics issues.

2. Assess the concept of Corporate Social responsibility

INTRODUCTION TO ETHICS

What is ethics?

 Is the study of right and wrong actions and how conduct should be judged as to be good
and bad

 Ethics is about how we should live our lives and how we should behave towards other
people.

 Ethics are a system of moral principles which defines what is good for individuals and
society and which guide thinking, decision making and action.

 Entrepreneurs should be aware of the general principles of ethics and be capable of

applying them in their everyday work.

IMPORTANCE OF ETHICS

 Provides a moral map i.e. a framework that we can use to find our way through difficult
issues/ ethical dilemmas.

 It’s a set of principles that can be applied to particular cases to give those involved some
clear choices. Ethics removes confusion and clarifies issues. After that it’s up to each
individual to come to their own conclusions.

 Ethics build laws that govern operations of the business as they determine right/ wrong.

 It determines success or failure of a business as it can lead to company closures

 Ethics give direction to be followed by businesses

PAGE \* MERGEFORMAT 61 | Page

  Helps address unethical practices by businesses. Businesses become more ethical and
law abiding.

 Leads to social developments as everyone is aware of his responsibilities.

 Improves service delivery as businesses provide high standard products ( no expired/

substandard goods)

 It harmonises people’s behaviour in organisations as they come from different

backgrounds hence have different ways of doing things.

 It constrains actions of a business. (it defines what the business can’t do)

 Gives the entrepreneur a competitive advantage. (differentiates the business from its
competitors)

 Ensures that the business operates in a fair and equitable manner.

 It is core to long term business success as it results in successful business and personal
relationships.

ETHICS ISSUES IN BUSINESS

1. PRODUCT

 Quality. Violating quality control standards of a product so as to meet or exceed a

particular sales or profit goal.

 Safety

 Failure to provide adequate information to the customer/ omission of uncomfortable facts

in product literature to deliberate deception.

 Product specifications are changed/ varied to reduce cost.

 Selling expired/ substandard products

2. PROMOTION

 Potential to exaggerate, conceal, distort and falsify information in adverts & personal
selling.

PAGE \* MERGEFORMAT 61 | Page

  Extortion- e.g. Co. might be threatened with closure if they don’t pay specified amounts
of money especially to gvt officials.

 Bribery – e.g. Payment to obtain a service.

 Gifts – used as part of a negotiation process.

3. PRICING

 Price fixing by suppliers.

 Predatory pricing- Established suppliers sell at prices that newcomers into the market
cannot match due to economies of scale and their cash reserves forcing newcomers out of
business.

 Failure to disclose the full price especially where there is intention to deceive.

4. PLACE

Conduct by manufacturers to distributors

 Requiring high levels of stock holding by intermediaries.

 Manipulating discount structures to the detriment of distributors.

 Ending distribution agreements on short notice.

 Dealing direct with end users.

 Hoarding.

5. FINANCIAL STATEMENTS

 Misleading financial statements and analysis.

 Creative / Cosmetic accounting ( novel ways to influence readers towards interpretation

desired by the authors)

IMPLICATIONS OF UNETHICAL BUSINESS PRACTICES ON A CORPORATION

 Dissatisfied customer. Without satisfied customers, the game is over. It ends up with the
loss of a valuable customer

 An unethical decision could also result in accounts receivables being extended resulting
in poor cash flow.

PAGE \* MERGEFORMAT 61 | Page

  Potential return of the product

 Loss of goodwill.

ETHICS CHECKLIST

 The Golden Rule: Would I want people to do this to me?

 The Fairness Test: Who might be affected and how? Is this fair to everyone?

 The ‘What if everybody did this?’ Test: Would I want everyone to do this? Would I
want to live in that kind of world?

 The Truth Test: Does this action represent the whole truth and nothing but the truth?

 The Parents Test: How would my parents feel if they found out about this? What advice
would they give me?

 The Children Test: Would I be willing to explain everything about this to my kids and
expect them to act in the same way?

 The Religion Test: Does this go against my religion?

 The Conscience Test: Does this go against my conscience? Will I feel guilty?

 The Consequences Test: Are there possible consequences of this action that would be
bad? Would I regret doing this?

 The Front Page Test: How would I feel if my action were reported on the front page of
my hometown paper?

CORPORATE SOCIAL RESPONSIBILITY

Is the personal obligation of everyone as he acts in his own interest to assure that the rights and
legitimate interests of all others are not infringed.

 Ethics deals with a business morality rather than society’s interests. On the other hand,
social responsibility relates to society at large. These terms are often used
interchangeably.

 There is a growing feeling that the concerns of the community ought to be concerns of
business.

PAGE \* MERGEFORMAT 61 | Page

  Businesses therefore have a moral obligation to assist in solving problems which it
causes. They should take a lead in addressing the problems of society.

 Examples of SR include education programmes/ scholarships, public health, employee

welfare, environmental protection, resource conservation, land reclamation and
infrastructure dvpt. ( schools, health facilities, housing)

 Arguments for and against CSR.

STRATEGIES FOR CORPORATE SOCIAL RESPONSIBILITY

1. PROACTIVE STRATEGY

 Taking action before there is outside pressure to do so and without the need for gvt or
other regulatory intervention e.g. A co. which recalls a product after discovering a fault in
a product without being forced to, before any injury or damage is caused.

2. REACTIVE STRATEGY

 Involves allowing a situation to continue unresolved until the public, government or

consumer groups find out about it.

 The company might already know about the problem.

 When challenged it will deny responsibility but at the same time attempting to resolve the
problem.

 In this way, it seeks to minimise any detrimental impact.

3. DEFENSIVE STRATEGY

 Involves minimising or attempting to avoid additional obligations arising from a

particular problem. Defence tactics include:

 Legal manoeuvering ( through the courts)

 Obtaining support from trade unions.

 Lobbying government.

4. ACCOMODATION STRATEGY

 Involves acknowledging responsibility for actions.

PAGE \* MERGEFORMAT 61 | Page

  The essence of the strategy is action to stall more harmful pressure. This approach lies in
between the proactive and reactive strategy.

Activity

Giving practical examples come up with CSR strategies being done in your area.

Does Corporate Social responsibility benefit businesses or society?

PAGE \* MERGEFORMAT 61 | Page

CORPORATE ENTREPRENEURSHIP/ INTRAPRENEURSHIP
By the end of the topic, students should be able to:

1. Distinguish between Entrepreneur and Entrepreneur

2. Assess the Importance of Corporate Entrepreneurship

3. Assess factors that make organisations entrepreneurial

4. Evaluate reasons for engaging in intrapreneurship

 The Intrapreneur (Corporate Entrepreneur) unlike the entrepreneur who creates a new
organization, acts as an entrepreneur within an existing organization, also referred to as
corporate entrepreneur.

 The term is derived from a combination of "intra" which means internal, and
"entrepreneur." The Intrapreneurs are highly innovative, self-motivated, proactive and
action-oriented people who take the initiatives within the confines of an organization, in
the pursuit of a novel product or service.

 An Intrapreneur may be defined as “a person within a large organization who takes

direct responsibility for turning an idea into a profitable finished product through
assertive risk taking and innovation”.

 Intrapreneurs possess entrepreneurial skills blended with managerial skills but operate
within the boundaries of an organization.

 Corporate entrepreneurship is the process of encouraging innovation within existing

companies through motivated employees who are supported with company resources.

 It is the establishment and fostering of entrepreneurial activities in large organisations

which result in incremental improvements to existing products and services and
occasionally to brand new products.

PAGE \* MERGEFORMAT 61 | Page

  Process of creating new business within established firms or the strategic renewal of
existing business to improve organisational profitability and enhance a firm’s
competitive position.

DIFFERENCES BETWEEN ENTREPRENEUR AND INTRAPRENEUR

 An entrepreneur is an independent person who starts his own venture and bears full risk
of its failure, at the same time enjoys the success as owner whereas intrapreneur is a
partially independent person who applies innovative practices to the processes but is not
liable to bear the losses in case of any failures.

 An entrepreneur himself raises the finance from various sources and also guarantees the
return to investors and creditors. On the other hand, the Intrapreneur neither raises the
capital nor guarantee any returns to the suppliers of capital.

 An entrepreneur operates from outside whereas an Intrapreneur operates within the

organization, where he is working.

CORPORATE ENTREPRENEURSHIP CONSISTS OF FIVE KEY ELEMENTS AS

FOLLOWS:

NEW BUSINESS VENTURING

 Is the creation of new business within an existing organisation. Entrepreneurial activities

consist of creating something new of value either by redefining the company’s current
products or services, by developing new markets or by forming more formally
autonomous or semi autonomous units or firms.

SELF RENEWAL

 This reflects the transformation of organisations through the renewal of the key ideas on
which they are built. It has strategic and organisational change connotations and includes
a redefinition of the business concept, reorganisation and introduction of system wide
changes to increase innovation.

 It involves entrepreneurial effort that result in significant changes to the organisation,

business or corporate level strategy or structure and these changes should alter pre-

PAGE \* MERGEFORMAT 61 | Page

 existing relationships within the organisation and between the organisation and its
external environment.

 Reconfiguration of the business.

PROACTIVENESS

 An proactive organisation takes initiative and is bold and aggressive in pursuing

opportunities.

 Proactive organisations lead rather than follow competitors in such key business areas as
introduction of new products and services and operating technologies.

 They act on rather than react to the environment.

 Proactiveness is about implementation which means bringing entrepreneurship concept to

fruition.

RISK TAKING

 Involves willingness to pursue opportunities that have a likelihood of producing losses or

significant performance discrepancies.

 A risk taking organisation is inclined to take risks by conducting experiments.

 Entrepreneurship is not about reckless decision making but it involves a realistic

awareness of risks involved by engaging in numerous experiments, testing the markets,
trial runs.

 The entrepreneur is better able to determine what works and what does not.

 Companies that don’t innovate are likely to face a higher risk of not perceiving market
and technological shifts that are capitalised by competitors.

INNOVATIVENESS

 Refers to product or services innovation with an emphasis on development and

innovation in technology. It includes new product development, product improvements
and new production methods procedures.

 Emphasis is on departure from what’s currently being done.

PAGE \* MERGEFORMAT 61 | Page

  The fundamental question is to what extent is the company doing things that are novel,
unique/ different.

 The concept should address a need that has not been addressed previously.

 A dramatic improvement of conventional solutions

IMPORTANCE OF CORPORATE ENTREPRENEURSHIP

 The market place and customer needs change at a faster rate. Therefore organisations
need to change to suit the environment.

 Organisations are able to move away from its core business through diversification,
mergers and acquisitions.

 It adds value to established businesses.

 It opens/ creates new channels of distribution.

 It enhances the organisation’s profitability.

 It gives the corporation the opportunity to conduct market experiments and thereby select
viable business opportunities which allow them to grow into large and profitable
company.

BARRIERS TO CORPORATE ENTREPRENEURSHIP

1. Bureaucracy- Rules, procedures, systems and processes which are in place slow down the
implementation of ideas. Intrapreneurs can easily lose interest to come up with new processes
and discover new ideas because of bureaucracy.

2. Organisations are attached to their products and new ventures are viewed as threats to existing
products so managers put up resistance.

3. New ventures require new ways of doing things and new skills thus there is fear of change and
people don’t want the status quo to be challenged. Resistance to change.

4.Absence of funding and intrapreneurship can fail. Intrapreneurship activities are not captured
by the corporate budget.

5. Employee commitment- Intrapreneurship offers little ownership or benefits to individuals so

there can be lack of commitment. Intrapreneurs need to be rewarded for their efforts.

PAGE \* MERGEFORMAT 61 | Page

6. Lack of support from top management. Lack of vision and commitment from top
management.

7. Fear of failure.

8. Culture- ill defined values (what you stand for), intrapreneurship is not a priority area.

FACTORS THAT MAKE AN ORGANISATION ENTREPRENEURIAL

 The right to make decisions and not to have decisions made by managers on behalf of
intrapreneurs. Intrapreneurs will be on the ground hence have more knowledge to make
sound decisions

 The right to appoint oneself an intrapreneeur.- having self initiative to be an intrapreneur

and not waiting for the organisation.

 The right to start small and eventually grow. In most ventures projects that generate
profits that are below the profit threshold are discarded.

 The right to make mistakes and fail. There should be no punishment for failure as people
won’t be willing to take risk/ chances.

 The right to take enough time to succeed -Deadlines and timeframes are not appropriate
with intrapreneuship activities. Everything has to have its own timing. Need for patience,

 The right to cross borders/ functional areas - Intrapreneurs should get the necessary
expertise from the right functional areas and so there should be no boundaries.

 The right to recruit team members- Each intrapreneur know the people who are able to
pull the weight and fill the gaps hence should assemble their own teams.

 The right to choose suppliers, customer groups, personnel in a way that suits their
venture. The intrapreneur should not be forced to work with available resources that
might not fit the venture.

Activity

Discuss five factors that make an organisation entrepreneurial

PAGE \* MERGEFORMAT 61 | Page

INTERNATIONAL ENTREPRENEURSHIP AND
GLOBALIZATION

By the end of this topic, students should be able to:

1. Assess International environment in relation to Entrepreneurship.
2. Evaluate strategies to be used when going global
3. Evaluate Benefits of going global

THE NATURE OF INTERNATIONAL ENTREPRENEURSHIP

 As more countries become market oriented and developed, the distinction between
foreign and domestic markets is becoming less pronounced.
 International entrepreneurship is the process of an entrepreneur conducting business
activities across national boundaries. It is exporting, licensing, or opening a sales office in
another country.
 When an entrepreneur executes his or her business in more than one country,
international entrepreneurship occurs.

INTERNATIONAL VERSUS DOMESTIC ENTREPRENEURSHIP

 Whether international or domestic, an entrepreneur is concerned about the same basic
issues- sales, costs, and profits.
 What varies is the relative importance of the factors being considered. International
entrepreneurial decisions are more complex due to uncontrollable factors such as the
following.
Economic Environment
 A domestic business strategy is designed under a single economic system.
 Creating a business strategy for multiple countries means dealing with different levels of
economic development and different distribution systems. This economic variable will
affect how companies do business in other countries.

PAGE \* MERGEFORMAT 61 | Page

Political-Legal Environment
 Multiple political and legal environments create different business problems.
 Laws governing business arrangements vary greatly in different legal systems and sets of
national laws.

Cultural Environment
 The impact of culture on entrepreneurs and strategies is significant. Understanding the
local culture is necessary when developing worldwide plans.

Technological Environment
 Technology varies significantly across countries.
 New products in a country are created based on the conditions and infrastructure of that
country.

ENTREPRENEURIAL ENTRY STRATEGIES INTO INTERNATIONAL MARKET

The choice of entry method depends on the goals of the entrepreneur and the company’s
strengths and weaknesses.

1. Exporting
As a general rule, an entrepreneur starts doing international business through exporting.

2. Licensing
Involves a manufacturer giving a foreign manufacturer the right to use a patent, trademark, or
technology in return for a royalty. This arrangement is most appropriate when the entrepreneur
has no prospect of entering the market through exporting or direct investment. The process is
usually low risk and an easy way to generate incremental income. Without careful analysis,
licensing arrangements have several pitfalls.

3. Foreign Direct Investment

PAGE \* MERGEFORMAT 61 | Page

The wholly owned foreign subsidiary has been the preferred mode of ownership for direct
investment.
 Minority interests before making a major investment.
 Joint ventures: Two firms get together and form a third company in which they share
the equity. This is done to:
a. To share the costs and risks of an uncertain project.
b. To gain synergy between the two firms.
c. To obtain a competitive advantage.
d. To enter markets that pose entrance difficulties.

 Majority interest: purchase a majority interest in a foreign business (anything over 50%
of the equity of the firm is majority interest).
 100 percent ownership: One hundred percent ownership assures control. One form of
100 percent ownership is mergers and acquisitions.
 Mergers are a sound strategic option for an entrepreneur when synergy is present.
Economies of scale are the most common reason for mergers and also benefits received
in combining complementary resources.
Activity
Highlight various options for entrepreneurs to enter into international business and state the
advantages and disadvantages of each option.

Discuss support for SME internationalization?

PAGE \* MERGEFORMAT 61 | Page

INTELLECTUAL PROPERTY RIGHTS

By the end of this topic, students should be able to:

1. Demonstrate knowledge and understanding Intellectual property rights

What is intellectual Property

It refers to creations of the mind, such as inventions; literally and artistic works; designs and
symbols, names and images used in Commerce.

1. PATENTS: A patent is a contract between the government and an inventor. The government
grants the inventor exclusivity for a specified amount of time. At the end, the government
publishes the invention, and it becomes part of the public domain. The patent gives the owners a
right, preventing anyone from making, using, or selling the invention.

2. TRADEMARKS: A trademark may be a word, symbol, design, or some combination that

identifies the source of certain goods. A trademark can last indefinitely, as long as it continues to
perform its indicated function. The trademark is given a 20-year registration with 20-year
renewable terms. Registering a trademark can offer significant advantages to the entrepreneur.

3. COPYRIGHT: A copyright protects original works of authorship. The protection does not
protect the idea itself. It allows someone else to use the idea in a different manner. Protection of
material on the Internet has become an important issue. The term of the copyright is the life of
the author plus 50 years.

4. TRADE SECRETS:
 Employees may be asked to sign a confidential information agreement.
 The holder of the trade secret has the right to sue any signee who breaks the agreement.
 Non-protected ideas could become a serious problem in the future unless the entrepreneur
takes precautions. To maintain secrecy the following should be done:
1. Train employees to refer sensitive questions to one person.

PAGE \* MERGEFORMAT 61 | Page

2. Provide escorts for all office visitors.
3. Avoid discussing business in public places.
4. Control information that might be presented by employees at conferences or in journals.
5. Use simple security such as locked file cabinets and shredders.
6. Have employees and consultants sign non-disclosure agreements.
7. Debrief departing employees.
8. Avoid faxing any sensitive information.
9. Mark documents "confidential" that need to be.

LICENSING: Licensing is an arrangement between two parties, where one party has proprietary
rights protected by a patent, trademark, or copyright. This requires the licensee to pay a royalty
to the holder of the proprietary rights in return for permission to copy the patent. Licensing has
significant value as a marketing strategy to holders of patents. Licensing can increase revenues,
without the risk and costly start-up investment.

PAGE \* MERGEFORMAT 61 | Page

ENTREPRENEURS AND THE INTERNET (DISCUSSIONS)

By the end of this topic, students should be able to:

1. Evaluate benefits enjoyed by business through the use of internet

2. Analyse Internet related opportunities for creating of new business

Advantages How can businesses benefit from using the internet?

 Visibility through advertising on the website. However it is only limited to those with
internet connectivity hence its selective.
 It offers operational flexibility [i.e where (location) it can sell and people it can reach]
 Gain wide customer base- reach out to a number of people
 Gain safe data storage
 Enhance research capabilities about competitors, business opportunities and business
owner become more prepared for changes in the industry.
 Offers marketing options (to sell products and services through the internet). Cut costs for
employing people responsible for that.
 Workplace and business efficiency (Using internet eliminates the need to maintain a
physical building that will need rentals, fittings, receptionist and office orderlies who will
need to be paid.
 Networking and net weaving opportunities (business links with other businesses).
 Monitor customer buying trends and interests. Customer feedback (what they think about
certain products).
 Communication with customers.
 Finding new customers (reach out to potential customers).
 Cost savings (Cheaper advertising)
 Open 24/7 no limit on operating hours.
 Access to a wide range of business tools and business applications.

Disadvantages

PAGE \* MERGEFORMAT 61 | Page

  Competitors will easily copy your ideas which are available on the public domain.
 Subject to several laws to conduct business online
 Impersonal relationship with customers.
 Customers are reluctant to do online transactions (items advertised and items delivered
might differ, fear of losing their money)

Activity
How can businesses benefit from using the internet?

PAGE \* MERGEFORMAT 61 | Page

Module References
1. Hisrich, R.D and Peter, M.D. (2002) Entrepreneurship 5th edition. New York: McGraw-
Hill
2. Batra G.S. (2004) Development of entrepreneurship. New Delhi, Deep and Deep
Publications
3. Holt D.H. (2005) Entrepreneurship: New Venture Creation, New Delhi, Prentice Hall
4. Saxena A. (2005) Entrepreneurship, Deep and Deep publications, New Delhi
5. Kaplan R. (2003) Patterns of entrepreneurship. John Wiley and sons, USA.
6. Lambing P and Kuehl C.(1997) Entrepreneurship ,Prentice Hall, New Jersey
7. Hisrich, D. R, Peters, M. P. and Shephard, D. A. (2013) Entrepreneurship, 9 th edition.
McGraw-Hill international edition. USA.
8. Roy, R. (2013), Entrepreneurship. 2nd Edition, Oxford University Press. India
9. Stokes, D. Wilson, N. and Mador, M. (2010). Entrepreneurship. Cengage Learning, United
Kingdom
10.Thomas W. Zimmerer and Norman M. Scarborough, Essentials of Entrepreneurship and
Small Business Management, Prentice Hall India, New Delhi

PAGE \* MERGEFORMAT 61 | Page