BAM 2102:

ENTREPRENEURSHIP
PRINCIPLES
 Introduction to Entrepreneurship
 Entrepreneur (Oxford Dictionary): A person who undertakes an
enterprise with chances of profit or loss.
 Entrepreneur (New Encyclopedia Britannica): An individual who bears
the risk of operating business in the face of uncertainty about the future
conditions.
 My understanding: An entrepreneur is a person who undertakes a business
activity of which he has no background and faces considerable risks in the
process. If either of the two elements, i.e., “no background” or
“considerable risk” is missing in the venture, it is no entrepreneurship).
 Enterprise (Oxford Dictionary): Bold Undertaking
 Common Meaning – one who starts his own, new and small business
 Entrepreneurship: It is a philosophy or process through which an
entrepreneur seeks innovation and employment.
Entrepreneur Entrepreneurship Enterprise
Person Process or Philosophy Object
Dissecting the word “Entrepreneur” we get
Entre – Enter Pre – Before Neur – Nerve Centre
 Entrepreneurship can also be described as a creative and innovative
response to the environment.
 The entrepreneur therefore organizes natural resources and capital
goods for production to take place. This is done in anticipation of
demand and supply
 Entrepreneurship Theories
 French verb (1600): Entreprendre – to undertake
 Richard Cantillon (1725): Person bearing risks is different from Capital
Supplier (Risk)
 J. B. Say (1803): Shifts economic resources out from an area of lower
to higher productivity & greater yields (Value Addition)
 Joseph Schumpeter (1934): Innovator and develops untried
technology (Productivity & Innovation)
 David McClelland (1961): Highly motivated, energetic, moderate risk
taker (Need for achievement)
 Peter Drucker (1964): Searches for change, responds to it & exploits
as opportunity (Opportunity Focused)
 Karl Vesper (1980): Behaviour Perceptions– Economists,
Psychologists, Businessmen, Politicians (Environment)
 Gifford Pinchot (1983): Intrapreneur
 Robert Hisrich (1985): Creating something different with value,
devoting time & effort, assuming risks (FPS); results– rewards and
satisfaction (Leadership & Vision)
 Please note that key word in Entrepreneurship is RISK. Any venture
where risk is mitigated due to any reason does not qualify to be called
entrepreneurship.
 Defining an entrepreneur in the 21s t Century
 An entrepreneur of 21st century is a customer focused innovator. He
uses e– knowledge.
 Advantage is speed. He is a global thinker even though he may not
necessarily be a global player.
Standard (New) Definition
 Entrepreneurship is the process of creating something different with
value by devoting the necessary time and effort, assuming the
accompanying financial, psychic, social risks and receiving the resulting
rewards of monetary and personal satisfaction and independence.
New Definition involves four aspects –
(a) The creation process (b) Devotion of time and efforts (c) Assumption
of risks (d) Rewards of independence, satisfaction, money
 Nature of Entrepreneurship
 Entrepreneurship, generally refers to the overall course of action
undertaken by an owner in starting and managing his/her enterprise
for profit. However, the term entrepreneurship continues to be used
in different ways:
 One usage relates entrepreneurship to the process, leading to the
creation and running of any new business regardless of its size,
product, service, potential, a firm of ownership.
 Another view point sees entrepreneurship as being essentially
concerned with developing a new idea, based at which a risk – bearing
unique product, service or method is marketed by means of setting up
a new independent unit or by using a directly existing unit.
 Essential features of entrepreneurship
Essential features that make entrepreneurship fundamentally different
from any other ordinary business. These include:
Identification of Opportunity: In any entrepreneurial endeavor, a
thorough analysis of market potential is the foremost prerequisite. This is
followed by analysis of consumer wants and needs, innovation of
something unconventional and useful, assemblage of resources, strategy
to face competition, and subsequently starting and running an enterprise.
This is why, it is often said that entrepreneurship is a process by which
people tap unutilized opportunities and fulfill much and wants through
innovations. One is inclined to embark in an entrepreneurial venture for
profit must first recognize a potential market opportunity.
 Innovation: Entrepreneurship is primarily concerned with the broad process
through which new products or methods are created and introduced
replacing conventional things or practices.
 Innovation as observed by Schumpeter’s analyses may occur in any of the
following ways:
◦ Introduction of new product/service
◦ Us of a new method of production
◦ Opening up of a new market
◦ Use of a newly found raw material; or
◦ Restructuring of an organization
However, in modern times the concept of innovation stands expanded to a
much wider perspective: Novel changes are being introduced in business
financing, human resource management, inventory control, marketing,
packaging, personal banking etc.
 Entrepreneurial Attitude: Development of entrepreneurship is
essentially dependent on the entrepreneurial attitude, that is to say a
special frame of mind marked by an independent energetic spirit to
assume risks and of course, courage to undertake something new.
 Such individuals visualize new opportunities; risk their own money and
fortune and combine resources in unusual ways to innovate new
products, production techniques, production devices or services.
 These enterprising people who act as change agents play the role of
innovators, mobile resources, establish new industries, create
employment opportunities and contribute to national wealth are
entrepreneurs
 Advantages of Entrepreneurship
To an Individual To the nation
a)Provides Self Employment for the a)Provides larger employment:
entrepreneur Entrepreneurs provide employment for self as
b)Entrepreneur can provide employment for well as other people and is source of
near & dear one as well employment creation.
c)Entrepreneurship often provides an b)Results in wider distribution of wealth: This
employment and livelihood for next is a logical sequel of above issue. Higher the
generations as well. employment, greater the distribution of
d)Freedom to use own ideas: Innovation and wealth
creativity c)Mobilizes local resources, skills and savings
e)Unlimited income / higher retained d)Accelerates the pace of economic
income: Bill Gates has risen to become development: Entrepreneurship is the govt’s
richest in the world in a single life time one of the most trusted vehicles for economic
through entrepreneurship development
f)Independence e)Stimulates innovation & efficiency
g)Satisfaction
 Factors that favour Entrepreneurship
1. Developed Infrastructure Facilities: Availability of infrastructure reduces the
cost & efforts and improves viability of projects through higher profit
margins.
2. Financial Assistance: Easy availability of cheap funds is vital for promoting
entrepreneurship.
3. Protective and Promotional Policies: Most of the entrepreneurship projects
start very small and have no resilience. They are extremely vulnerable to
competitors, market, money markets, etc., for considerable time. Favourable
Govt policies shelter them from such vagaries.
4. Growth of Education: Science, Technology & Management should be
promoting entrepreneurship. However, there are enough examples to
suggest otherwise. A very large proportion of first generation entrepreneurs
are low educated. Take the case of Microsoft Chairman Mr Bill Gates. Any
good examples today……
5. Risk Taking Abilities: Risk taking ability is one of the pillars of entrepreneurial
spirits.
6. Hunger for Success (Capitalistic View): Fire in the belly and dreams of riches is
what drives most entrepreneurs on this risky path. Any person content with
what he has would take the easier route of salaries job.
7. Environment/Cultural Impact: Entrepreneurship is contagious. Some
communities are historically entrepreneurial, i.e. they are known for seeking and
exploiting business opportunities in most remote areas. It is a culture that
propels them
8. Social Security: Social security acts as a safety net against failure of enterprise.
Entrepreneurial spirit of United States is born partly out of this security.
9. Technical/Industrial Training Facilities: – Industrial Training facilities on one hand
generate skilled manpower so vitally required for setting up enterprises
10. Globalization – Globalization has provided another avenue for business. Many
dare devils have taken into this uncharted water and have written new success
stories
 Functions of Entrepreneurs
The general function of an entrepreneur is to achieve one or more of
the following objectives.
Entry of a new venture into an existing system
Survival or expansion of existing ventures
Achieve operation efficiency
Achieve higher productivity
Use non-conational resources
Make optimum use of unutilized or underutilized resources
Add value to existing goods or services
Savings in costs of inputs
For success of an entrepreneur innovatory attitude is fundamental.
 Major Entrepreneurial Functional Areas
1. Understanding own capability: This involves examining dominant aspect of the business
environment that influence survival and growth of an enterprise and establish own
strength, weaknesses and the overall capability to translate a creative ideas into a business
reality.
2. Planning a new venture: This function entails preparation of project report; estimating
technical know-how; plant machinery and supporting services needed and knows their
suppliers. The function also involved establishing legal requirements for setting up a new
unit and working capital needed to start up a venture and immediate future requirement.
3. Organizing a new venture: This function involves among others determining organizational
structure of an organization and ensuring proper maintenance of office records, initiating
steps for observance of related statutory and non-statutory requirements.
4. Identifying a new venture opportunity: This entails identifying market needs and
establishing need for a change. Carrying out market research and analyzing techno-
economic feasibility of an idea conceived in mind and establish answers to internal and
external risk.
5. Managing finance: This function entails arranging own and borrowed capital,
availing grants and subsidies obtainable from government where appropriate,
outlining business credit policy and collection procedure.
6. Managing production operation: This function basically involves formulation of
framework for total quality control and guidelines for production schedule and
ensuring that every component/raw material procured is of right quality from
right source at right price in right quantity and is delivered at right place and in
right time.
7. Managing work force: This function involves among other systematic manpower
planning, preparation of job descriptions for all positions at all level, determining
pay and perquisites for each position, selecting and recruiting personnel for each
position and assigning responsibility.
8. Managing market: This is a function that entails collecting and analyzing regularly
data on customer needs with special references to product quality; function of
the product, pricing and after sale service.
 Distinction between an Entrepreneur and a Manager
Many people believe that there is no difference between a manager and an
entrepreneur. However, there is a significant difference between a manager and an
entrepreneur as below:
The manager avail required personnel machinery and raw materials which are
combined in appropriate proportions to produce outputs, minimize wastages, maximize
resources, and execute contracts and marketing while the entrepreneur is responsible
for combining resources, locating new ideas and converting them into products and
services. Drucker is of the opinion that the entrepreneur has the responsibility of
establishing new products and new markets.
Managers ensure operations are functioning effectively and efficiently while the
entrepreneur must coordinate, direct others to direct the business to a new
development.
An entrepreneur organizes and manages a business undertaking assuming the risk for
the sake of profits while managers fear risks
Comparison of Entrepreneurs and Traditional
managers
FEATURE TRADITIONAL MANAGERS ENTREPRENUERS
Primary motive Promotion and other traditional corporate Independence and ability to advance in
rewards the corporate rewards
Time orientation Short term meeting quotas and budgets Survival and achieving 5 -10 years
growth
Activity Delegates and supervisors more than Direct involvement
direct involvement
Risk Careful Moderate risk taker
Status Concerned about status symbols No concern about status
Failure and mistakes Tries to avoid mistakes and surprises Deals with mistake and failures
Decisions Usually agrees with those in higher Follow dreams with decision
management
Who serves Others Self and customers
Relationship with Hierarchy as basic relationship Transactions and deal making as basic
others relationship
 Intrapreneur vs. Entrepreneurs
Intrapreneur is a person within a large corporation who takes direct responsibility for turning
an idea into a profitable finished product through assertive risk-taking and innovation.

Entrepreneur Intrapreneur
Entrepreneurs provide the spark/ catalyst Intrapreneur keep the flame going
Entrepreneurs are found anywhere their vision
Intrapreneur work within the confines of an
takes them organization
Entrepreneurs face many hurdles, and are Intrapreneurs may sometimes have to deal with
sometimes ridiculed and riddled with setbacks
conflict within the organization
Entrepreneurs may find it difficult to get Intrapreneurs have their resources readily
resources available to them
Entrepreneurs may lose everything when they fail
Intrapreneurs still have a paycheck to look
forward to (at least for now) if they fail
Entrepreneurs know the business on a macro Intrapreneurs are highly skilled and specialized
scale
 Opportunities for entrepreneurs in Uganda and abroad
There is certainly no formula to become a successful entrepreneur. Some may succeed and make good profits, others
sink along the way.
Tourism: Tourism is a booming industry in Uganda though yet to be fully tapped. This is one hot sector
entrepreneurs must focus on. Uganda with its diverse culture and rich heritage has a lot to offer to foreign
tourists such as Beaches, mountains, heritage sites, wildlife and rural life.
Automobile: Uganda is now a hot spot for automobiles and auto-components. A cost-effective hub for auto
components sourcing for auto makers, the automotive sector is potential sector for entrepreneurs.
Textiles: A better understanding of the markets and customers' needs can boost growth in this sector.
Social ventures: Many entrepreneurs are taking up social entrepreneurship. Helping the less privileged get into
employment and make a viable business is quite a challenge.
Software: Uganda's software and services exports are likely to rise with export revenue growth. With a growing
pool of software engineers, Entrepreneurs can cash in on the rise in demand for these services with innovative
and cost effective solutions.
Engineering goods: Uganda continues to be one of the fastest growing importers of engineering goods,
growing at a rate of 30.1 per cent. Entrepreneurs must capitalize on the booming demand for products from the
engineering industry.
Woman as Entrepreneur: The ability of women to startup business ventures can’t be overlooked. There is need
to target this segment of the population. Every society depends on entrepreneurs.
Role of Entrepreneurship in Economic Development
 Entrepreneurship other than increasing per capita output and income; it involves
initiating and constituting change in the structure of business and society.
 This exchange is accompanied by growth and increased output, which allows
more growth and increased output, which allows more wealth to be divided by
the various participants.
 The theory of economic growth depicts innovation as the key not only in
developing of new products (or services) for the market but also in stimulating
investment interest in the new ventures being created.
 The new investment work on both the demand and the supply side through
resultant new spending.
 The process through which innovation develops and commercializes through
entrepreneurship activity stimulates economic growth.
 Specifically, entrepreneurs’ contribution include:
 Creation of employment for themselves as well as others who are involved in the
entrepreneurship.
 Activities that generate income that is taxable by the government thus assisting
government to pay public servants
 Providing training grounds to other people who boost their knowledge and gain
experience in many areas of life by working for the entrepreneurship.
 Decentralizing economic activities: This is achieved through location of business in
different parts of the country.
 Conservation and utilization of local redundant but available resources. A few of
such activities includes: recycling of paper; metal and plastics.
 Foreign exchange earnings: Entrepreneurs through participation in international
trade earn foreign exchange for the country.
 Contribution to the development of social amenities, infrastructure and provision of
goods and services entrepreneurs help to raise the living stewards of society.
End of Unit One
 UNIT TWO: EMERGING ISSUES IN
ENTREPRENEURSHIP
Introduction
This lecture is going to cover some of the emerging and controversial
issues in entrepreneurship.
One of the key controversies is whether entrepreneurs are born or are
self made individuals
We will attempt to look at the relationship between culture and
entrepreneurial development, gender and entrepreneurship, ethical and
social responsibilities of entrepreneurs and entrepreneurial careers and
education
 Entrepreneurship Myths
 In Lecture one, we noted that there are many interpretations and definitions
of entrepreneurship.
 According to intellectuals and business experts, the definition of
entrepreneurship is simply the combining of ideas, hard work and adjustment
to the changing business market.
 It also entails meeting market demands.
 More importantly, it describes the key directive of any business as innovation.
 Innovation is by far the primary factor that governs the very creation of a
small business or entrepreneurship.
 When a person chooses to become an entrepreneur, they choose to be an
organizer. However, not everyone is suited to being an entrepreneur – and
not everyone has the necessary skills to do so successfully
 The National commission of Entrepreneurship (NCE) of America has highlighted six (6)
myths about entrepreneurs. These include:-
1.The Risk-Taking Myth: Most successful entrepreneurs take wild, uncalculated risks in
starting their companies. Risk is an essential part of any business venture.
2.The High-Tech Invention Myth: Most successful entrepreneurs start their companies
with a breakthrough invention, usually technological in nature. Having a breakthrough
invention, a unique product or a radically new process is not a necessary element at the
beginning of most successful growth companies.
3.The Expert Myth: Most successful entrepreneurs have strong track records and years of
experience in their industries. Early-stage growth companies are just as likely to be
started by relative amateurs with little background experience in the field for instance:
Jann Wenner started Rolling Stone magazine when he was just 21 and just out of college.
Steve Wozniak, who helped found Apple computers, was an “undistinguished” engineer
at Hewlett-Packard when he built the first Apple computer. The list is endless
4. The Strategic Vision Myth: Most successful entrepreneurs have a well-considered
business plan and have researched and developed their ideas before taking action. For
many start-ups, extensive research and planning are often both unnecessary and
financially impossible. At this early stage, adaptiveness is much more important than a
thorough, rationalized decision making process.
5. The Venture Capital Myth: Most successful entrepreneurs start their companies with
millions in venture capital to develop their idea, buy supplies, and hire employees.
Venture capital is dominant in some industry sectors – biotech, some high-tech start-
ups, Internet where capital requirements force companies to skip the early growth
stages. But it or any other type of formal financial support is surprisingly uncommon
among most successful entrepreneurial growth companies at their early stages of
development.
6. Entrepreneurs are Born: Many people believe that entrepreneurs possess inmate,
genetic, talents. However, experts generally agree that most entrepreneurs were not
born; they learned to become entrepreneurs. Entrepreneurship is currently being
successfully taught.
Home work: Can you identify any other myths about the entrepreneurs?
 Entrepreneurship Development in Africa
 According to an article in the African Executive magazine (2008) some
people such as the Igbos and Ijebus of Nigeria; the Kikuyu of Kenya and
the Baganda are well known within their nations as born entrepreneurs.
 This is because these tribes have cultures which instill entrepreneurial
values on their people right from a tender age.
 These values encourage savings, capital accumulation and investment
for entrepreneurial ventures.
 Some tribes and cultures make it difficult to develop entrepreneurial
tendencies especially among young people as they view small
businesses as an occupation for the uneducated.
 The Case of Uganda
 Due to high poverty levels, Ugandans go into business just for survival.
 Nonetheless, many painstakingly built up fortunes are recklessly
squandered by those who inherit businesses due to inadequacy of
entrepreneurial values (According to Wavamumo Gordon-PAKASA)
 in the story of an Entrepreneur, this behavior is a disease in Uganda.
 Traditional approaches to education fall short of imparting some of the
values entrepreneurs’ posses.
 It is also true that many people in Uganda go to business without clear
goals.
 They have either been forced into it by economic conditions, or they
are ignorant of what it means to run a business.
 Entrepreneurs are widely recognized as the prime movers of economic
development; the people who translate ideas into action.
 An interesting thought not widely accepted definition of an entrepreneur is a
person who has the ability to scan and identify opportunities in his or her
environment, gather the resources necessary to take advantage of the
opportunities and implement successful action to utilize the opportunities.
 Recognizing the prime-mover status of business entrepreneurs, the Uganda
Government has implemented a wide-ranging set of strategies to encourage youth
to initiate their own small businesses. The major focus for this effort is the
Innovation or Incubation fund, Youth Venture Capital (YVC) and the Youth Livelihood
Programme (YLP) among others.
 Small enterprise development in Uganda has traditionally involved establishing an
enabling environment for small enterprise growth including analysis and
adjustments to the regulatory environment that has been a hindrance to
prospective small business owners.
 Entrepreneurship development is primarily aimed at youth in technical training
institutions but is now being expanded to include the Universities. It involves
introducing youth to entrepreneurship and the role of business entrepreneurs in
economic development. They also get an opportunity to analyze the difficult
employment situation in Uganda and are encouraged to consider self-employment as a
career choice.
 One major task of entrepreneurship education trainers is to counter these negative
influences such as business failures in the community, negative attitudes towards
business, and misconceptions about what makes a business succeed with positive ones
such as presentation of successful role models and case studies of successful small
enterprises.
 Students are encouraged to initiate microbusinesses while still in colleges/ institutions
and Universities as a way to enable them to acquire an insight into the operation of a
business. They are also required to identify a potential business as well as prepare and
present a complete Business Plan as their final-year evaluation in the subject.
 Most dynamic societies are those that have the most entrepreneurs plus
the economic and legal structure to encourage and motivate
entrepreneurs. According to Bwisa (1997), most research on
entrepreneurship in Africa (including Uganda) has tended to look at it
unfavorably due to low level of efficiency in the operation. This was said to
be due to lack of relevant entrepreneurial culture and skills.
 National Planning Authority (2017) estimated that approximately 700,000
people join the job market every year regardless of qualification but only
90,000 get something to do. This translates to 87 per cent of people ready
to work but can’t find a job. We must therefore work hard to understand
how and why entrepreneurs succeed, as this is the key in ensuring youth
employment
 Culture and Entrepreneurship
1. Ethnic Entrepreneurship: Understanding the differences in entrepreneurship behavior
of various ethnic groups in the context of the environment and economic opportunities
(or lack of thereof) available in the societal context has been a great challenge.
 Ethnic entrepreneurship is ‘a set of connections and regular patterns of interaction
among people sharing common national background or migration experiences’
(Waldinger et al., 1990a:3).
 Yinger (1985:27) defines an ethnic group as ‘a segment of a larger society whose
members are thought, by themselves or others, to have common origin and to share
important segments of a common culture and who, in addition, participate in shared
activities in which the common origin and culture are significant ingredients.’
 Light and Gold (2000:3) speak of ‘ethnic economy,’ which they define as ‘any ethnic or
immigrant’s self-employed group, its employers, their co-ethnic employees, and their
unpaid family workers.’ They further introduce the concept of ethnic ownership
economy as an economy based on property right and ownership.
2. Culture and Business: As an entrepreneur, you will come into contact with all kinds
of people from cultures different from yours. You will need to become familiar with
and learn to respect other cultures.
 Culture is a set of customs, beliefs, and social attitudes that characterize a particular
group of people. Every society has its own culture, and even culture and its own
characteristics. For instance; Arab culture emphasizes traditional religious belief
and family values. Chinese culture emphasizes respect for older people and
commitment to family.
 Uganda is a multicultural society as people from different cultures live here. As an
entrepreneur, you need to appreciate different cultures because:
a) You need to be comfortable with your customers. If you are open to other cultures
you can attract more customers.
b) People from different cultures may have different needs and wants. Understanding
these can help you market your business more efficiently locally or internationally.
Five things that an entrepreneur does to develop relationships with other people
1.Avoid stereotyping people: Do not assume that all people from a particular ethnic or cultural group
behave the same way or like the same thing.
2.Focus on similarities rather than differences: Most people, regardless of their culture, want the same
things in life.
3.Learn about different cultures: Learning about different cultures will make you more comfortable
around people from that culture.
4.Make friends with someone from a different culture: This can help you begin to appreciate different
cultures.
5.Try to understand and identify with other people’s feelings: Try to understand cultural views that are
different from your own.
Learning about cultures of the countries in which you plan to operate requires one to:
Familiarize yourself with other cultures.
Speak the language.
Research different cultures.
Understand cultural practices.
Develop cultural sensitivity.
 Gender and Entrepreneurship
 Women constitute more than half of the total world population.
 In traditional societies, they were confined to performing household activities.
 In modern societies, they have come out to participate in all sorts of activities.
 Khanka (1999) observes that women have been performing exceedingly well in
different sphere of activities like academics, politics, administration, social work
and have started plunging into industry and also running their enterprises
successfully.
 Women entrepreneur(s) may be defined as a woman or a group of women who
initiate, organize and run a business enterprise.
 In terms of Schumpeterian concept of innovative entrepreneurs, are women who
innovate imitate or adopt a business activity.
 Therefore, women entrepreneurs are those women who think of a business
enterprise, initiate it, organize and combine the factors of production, operate the
enterprise and undertake risks and handle economic uncertainty involved in
running a business enterprise.
 Global entrepreneurship monitor (GEM) reports suggest that Women are the
backbone of economic development in many developing countries because they
create jobs, wealth and innovation across 37 countries surveyed.
 Reynolds, et al (2002) argues that in many of these countries the rate of growth of
women creating new business is greater than the rate of growth for men
entrepreneurs.
 Uganda Women entrepreneurs are creating employment and contributing to general
economic growth 48% of all micro-small and medium sized enterprises (MSMES)
which contribute 20% of Uganda’s GDP have created 462,00 jobs annually since 2000
(UBOS reports)
 In spite of their contribution to the economic development, their freedom to lead and
make strategic business decisions is greatly hampered by among other things culture,
financial status and lack of education.
 The World Bank reports point out that a growing amount of research shows that
countries that fail to address gender are losing out on significant economic growth.
What would Motivate Women to Become Entrepreneurs?
Most women entrepreneurs have similar motivational drives as that of their male counterparts’ such as:
Being one’s own boss
Opportunity to make more money
Belief that running one’s own business is more compatible with balancing ones familiar role.
The fact that corporate worlds have opened up more opportunities for women. It also appears that women
who set up their own business.
 Had become frustrated with demanding but unsatisfying work environment
 Had a need to earn a reasonable living
 The inflexibility and unaccommodating nature of the corporate world to women’s situations
 The problem of discrimination and the glass ceiling effect that deprives women to achieve more senior
executive positions.
Since the family affects aspects of personal development, then; Goal orientation, personality and motivation,
becomes an early and overriding source of influence on career choice.
 In particular, it is proposed that when a child of an entrepreneurial mother perceives his/her parent (the
role model) as positive and successful, then the child is most likely to imitate the entrepreneurial
mother.
 The probability of someone becoming an entrepreneur can be increased by exposing the individual
either vividly or through formal learning experiences to tasks associated with owning a business.
 Challenges/Barriers to Women Entrepreneurs in Uganda
 Unequal access to property and land: In Uganda less than 2% of land titles are owned by women, while 5 to
6% held in joint names. Unequal access to land and property means that women are unable to secure loans
for their businesses.
 Taxes and customs: In a recent World Bank survey, over 60% of women perceived taxes and customers as
constrains to their business growth. This negative perception makes women less likely to register their
businesses and it deprives the government of tax revenue.
 Culture: These are the customs and beliefs, art, way of life and social organization of a particular group.
Most Ugandan cultures look down upon women, and they emphasize that their main role is to take care of
their husbands and children.
 Lack of decision making authority: Women have always been subjected to dependence on men in their lives
when it comes to decision making. Even when they run their own businesses, men always feel like they have
an upper hand in deciding what goes on regardless of how much they understand the business.
 Limited mobility: Women mobility in Uganda is highly limited due to various reasons. Cumbersome exercise
involved in starting an enterprise coupled with the officials’ humiliating attitude towards women compels
them to give up the idea of starting an enterprise.
 Competition from well-established male dominated enterprises: Men take greater risks, and they are more
capable of using rude means e.g. bribery, corruption among other which women shy from.
 Lack of accurate information: Relative lack of exposure to the external world and poor networking
are seen as impediments to Uganda women entrepreneurs.
 Lack of finance for expansion: Women experience in negotiating with banks and their lack of
financial confidence to argue for what they are entitled to are some of the challenges faced by
women entrepreneurs in obtaining loans.
 Lack of risk take propensity: Lack of confidence, strong individual involvement and willingness to
take risks prevent women entrepreneurs in sustaining successful entrepreneurship.
 Domestic commitments: Balancing a woman’s role in the home and enterprise expectations and
Socio-cultural expectations bar them
 Lower education levels: The gender gap in primary education has decreased in the recent years, the
gap remains large at the tertiary education levels. With recent curriculum which now emphasize
entrepreneurship skills hopes to increases the chances that women will have the knowledge needed
to excel in business.
 Stereotyping: Societies views are largely negative about women entrepreneurs and many are
pessimistic about the capabilities and think that they are doomed to fail in a male dominated
environment.
 Poor access to justice: Access to justice is essential for ensuring smooth business operations, and it
spans to issues such as enforcing contracts and employment disputes. Women have difficulties
when accessing justice
 Positive Factors influencing Women entrepreneurs in Uganda
1. Characteristics traits: Studies have shown that women have certain characteristics that could
propel them out of poverty if harnessed. For instance, Jailbert (2000) suggested that women
entrepreneurs have common characteristics such as Sharp communication skills, Intuitive
people skills, Consensus building competencies and Multi-tasking
2. Government policies
a) Recent policy trends in Uganda: The government is looking into increasing representation of
women in all key decisions making organs. There are greater benefits for encouraging
leadership and strategic decision making by women entrepreneurs in the future that in the past.
b) Government initiative to support women: Through the Uganda Women Entrepreneurship
Programme (UWEP), the government has put plans in place to enable women assess funds to
start and also expand their business. However, UWEP is a bit limiting because it mainly targets
women who have micro enterprise.
c) Banks and Loan Services: The banking sector has also improved greatly in its support towards
women’s development issues. Nowadays, women can easily get loans for as long as they can
show that they are capable of paying and if they have collateral.
 Recommendations
 Recognition: Women entrepreneurs need to be recognized as a group contributing
towards economic growth and development of the country.
 Reduce domestic burdens of women: Young non schooling children can pose a great
challenge to a woman entrepreneur hence support day care centers to take care of
young ones
 Access to education: Increasing access to education and training programs are
imperative in helping women in their entrepreneurship, managerial and technical skills.
 Social Responsibilities: As an entrepreneur, you have responsibilities to your customers,
your suppliers, your investors, your creditors, and your community.
 Responsibilities to your Employees: Whenever society changes, businesses have to
respond. In order to attract and retain good employees, you will have to become
sensitive to the needs of the people who work for you
 Respect the Environment: As an entrepreneur, you will have an obligation to do as little
harm as possible to your surroundings. Protect the environment from pollutants.
End of Unit Two
 UNIT THREE: FORMS OF
ENTREPRENEURSHIP
Small Business Entrepreneurship: The term small business connotes a different meaning depending
on the environment and circumstances under which it is sought. We are seriously short of visionary
and opportunistic entrepreneurs that can start and grow entrepreneurs. However, small businesses
can be clearly distinguished from medium and large businesses by considering one or combination of
factors such as:
A small number of employees
A small sale volume or turnover
A small size of assets in comparison with the largest competitors in its industry.
A small market share i.e. the area of operation is primarily local, although the market is not
necessarily local.
A small degree of formalization
A large owner’s equity as capital is supplied and ownership is held by an individual or a few
individuals.
The 1998 policy paper defines small business in Uganda as employing less than 50 people and an
annual turnover of less than $300,000
 Importance of Small Business Sector
1. Encourage Innovation and Flexibility: Smaller enterprises are sources of new ideas, materials,
processes and services that large firms may be unable to provide
2. Maintenance of close Relationships with Customer and the community: Small and local
businesses are able to understand their customers properly: they are in close touch with the
customers, suppliers and communities/stakeholders.
3. Keep large firm Competitive: Through introduction of new products and services, they help
checks the development of monopolies.
4. Job Creation: As small businesses are created and grow, they will require staff to produce, sell
and deliver their products or services thus creating jobs, they use less advanced technology that
uses more labor per unit of capital.
5. Human Resource Development: Small businesses facilitate the mobilization of the human
resource, which could not have been absorbed in agriculture or large scale enterprises, for
productive activities.
6. Poverty Alleviation and Improved Quality of Life: Small businesses are an important source of
income for the lowest income household, providing unsophisticated jobs and affordable entry
point into business.
7. Resource Mobilization: With a poor savings culture in Uganda, small businesses are an
important a venue for mobilizing and utilizing investment capital that could not have
been mobilized by formal financial institutions.
8. Entrepreneurial Development: They provide a productive outlet for energies and
talents of enterprising individuals, providing an affordable entry point into business.
9. Strengthen Economic Linkage: This is because small businesses operate in socially,
economically and geographically diverse sectors of the economy, helping to create and
strengthen forward and backward linkage that result in improve efficiency.
10. International Competitiveness: With the reduction in trade barrier and restrictions in
the cross-border movements, small businesses provide the opportunity for a diversified
and more effective access to the international markets.
11. Economic Growth: Their incomes are taxed to generate government revenue and
products and services contribute to GDP growth.
Problems Facing Small Business Sector in
Uganda
 Inadequate financing.
 Inadequate management.
 Burdensome government regulations and paper work.
 Lack of technical training and advisory services on small business
management.
 Inadequate information on business opportunities, available services,
new technologies, taxes/subsidies rules and regulations.
 Poor physical infrastructure.
 Limited research and development among others.
 Advantages of Small Business
1. Uses affordable machinery and other capital equipment
2. It involves much lesser risk in terms of capital outlay
3. An individual may invest own modest resources and start any suitable business
requiring little capital.
4. It can be started within a short period and without much difficulty, especially where
the licensing regime is flexible.
5. An ancillary unit may get financial and material support from large establishments.
6. Much of wasteful expenditure on purchase, inventory advertisement and marketing
can be avoided.
7. Its products or services may be offered at cheaper prices.
8. It provides employment to more illiterate and unskilled people.
9. It provides goods and services according to the specific needs and wants of the
customers.
10. Attract numerous support and inducements from government.
 Disadvantages of Small Business
1. Inadequacy of capital hinders technological ingratiation, expansion,
diversification or even replacement of old and absolute machinery.
2. Absence of skilled personnel, modern technology and equipment and
professional management often weaken the competitiveness of a unit.
3. Want of stringent quality control mechanism renders its products or services
unacceptable to customers.
4. Power shortages, labour unrest, frequent increases in the costs of power and
fuel, and unrestricted entry of cheaper foreign goods add to the sickness of
small units.
5. Money lenders and middlemen frequently exploit owner-operators who do
not know practical marketing strategies.
 Types of Ownership
1. SOLE PROPRIETOR: This is a one person business
 Such a firm is registered in the name of the entrepreneur, though it can carry a trade
name.
 The sole proprietor invests own and borrowed funds and uses own skills and abilities
in the management of affairs of the firm.
 The abilities (or lack of them) of the entrepreneur determine success or failure of the
business.
 The proprietor is the only person who has the legal right or exclusive title to all the
assets of his/her business and is solely responsible for its operations control of the
business depends on the owner who has to work long hours and hardly takes leave
since there is nobody to relieve him/her.
 In case of proprietor decides to withdraw from all business activities and in the event
of there being none to succeed him/her, more often the business is sold to someone
or closed.
ADVANTAGES OF SOLE DISADVANTAGES OF SOLE
PROPRIETORSHIP PROPRIETORSHIP
1.Easy to start or to close 1.Inadequacy of resources
2.Negligible restrictions
2.Limited manpower
3.Owner’s exclusive control
3.Owner’s unlimited ability
4.Immediate decision and speedy
4.Dearth of managerial skills
action
5.Excessive burden on owner
5.Direct supervision of employees
6.Growth and stability of business
6.Direct dealings with customers
7.Low establishment expenses depend on owner’s health, initiative,
8.Owner enjoys all the profits and business Acumen and
9.Flexibility of operations innovational mentality
2. FAMILY BUSINESS: Broadly, a family business can be defined as a business that
is owned and managed by one or more family members.
 It can also be define as an organization whose direction is influenced through
the exercise of kinship ties, management roles, or ownership rights.
 It is estimated that 60% of businesses in the world start as family ventures
 Whatever the family ties, however, starting a business with a spouse, parents,
siblings, children or other family members presents unique challenges over and
above the usual problems a startup faces
 Mixing business, personal and home life will eventually produce a volatile brew.
 Family members sometimes join the excitement of a business startup without a
clear idea of their role once the business is underway.
 If the family is involved in the startup venture, one should be clear up front
about compensation, exit plans, succession plans and other details before they
become a problem in later stages of business growth.
 Uniqueness of a family business:
1.Ownership control (15 percent or higher) by two or more members of a family or a partnership
of families.
2.Strategic influence by family members on the management of the firm, whether by being active
in management, by continuing to shape the culture, or by serving as advisors or board members.
3.Concern for family relationship
4.The dream (or possibility) of continuity across generations.
The following characteristics define the essence of the distinctiveness of family businesses:
1.The presence of the family
2.The owner’s dream of keeping the business in the family (the objective of business continuity
from generation to generation)
3.The overlap of family, management, and ownership, with its zero-sum (win-lose) propensities,
which render family business particularly vulnerable during succession.
4.The unique sources of competitive advantage derived from the interaction of family,
management, and ownership, especially when family unity is high.
5.Generally stay together and basically have a common goal.
6. Great cohesiveness due to shared background and values of the family members.
7. Great potential for taking risks, developing human resources, access to capital and
provision of continuity particularly in comparison with public sector or large privately
held entities.
8. Charitable services are visibly linked to specific family enterprises which have incentive to
ensure that programs actually work, providing needy groups and individuals with better
opportunities for development and autonomy.
9. Capacity to make long term investments and more inclined to reinvest in itself to support
and perpetuate wealth for future generations.
10. Operating philosophy of a family firm is typically guided by personalized mission to
whom employees can bond and rely upon for their sense of autonomy and personal
security.
11. Founders and their successors in family firms tend to be highly accountable to them and
to maintain both a strong sense of family and responsibility.
 Reasons why family businesses in Uganda fail after the founder dies.
1.Type of Family: Where a family is polygamous.
2.Technical Reasons: There is a misguided connotation that “because they are my sons or
daughters, they have the genes to run a business” This’ false.
3.Legality of the Business: The second generation may not be interested to carry on with
the business their parents did because of its legal status especially illicit trade such as
drug dealing.
4.Social Network Enjoyed by the Founder: Many business partners may shy off working
with the second generation for lack of trust or merely because of the age gap.
5.Debts and Other Liabilities left by the Founder: Often, when the founder dies, that
business is obligated to clear all debts and liabilities entered into by the deceased. This
can greatly affect a venture and may even cause its collapse.
6.The Founder Syndrome: Many business founders have a pattern of clinging to the
business empire they created from scratch and are not willing to let out any information
or control over the business they founded.
7. Culture – The African traditional culture states that only sons should
inherit property, family businesses included. Absurd!!!
8. Lack of Interest: – The sons and daughters may opt to take up other
careers at the expense of the family business.
9. Lack of proper documentation and Record Keeping: Founders may not
keep adequate records of all business transactions in their own
memories.
10. Founder’s Short Term Vision: Some family business founders only
initiate businesses as a means to earn a livelihood to feed family.
11. Lack of Specialization: The founder changing from one business to
another thus the family feel they have no business they can promote.
12. Favoritism: by founder thus the rest rebel against the favored ones once
the founder dies.
 Preparing children to take over the family business after the founder’s
exit
 Involve children in running business: – Children should be treated as partners and this creates a sense of
recognition and ownership among the children for the success of the business even after the parents die.
 Vision, mission and goals shared among all family members: Sharing vision and mission with the rest of the
family members, creates a motivation where children and other family members feel as part of the family
business.
 Ensure family members accrue benefits: It is important to let the family members benefit from the venture
so that they can see and feel its value, thereby committing to drive it to success many years later.
 Appropriate training in relevant technical fields: Different family members should train in different
professional fields for family business to be self-sufficient in terms of technical expertise.
 Branding of family business: – When citing the name of the business, choose a brand name that is all
inclusive and shows recognition and concern of the family lineage as this gives the children some security and
protection.
 Develop a succession plan: The plan should spell out the details of how and when the torch will be passed to
a younger generation. Outside professional advice to draw up a plan is essential.
 Require outside experience first: If your children will be joining the business, make sure they get at least
three to five years business experience elsewhere first.
 Treat family members fairly:. Qualified family members can be a great asset to your business. But avoid
favoritism. Don’t set standards higher or lower for family members that for others.
3. Partnership Business: Is formed when two or more people team up to do business together.
 Where a partnership is formed in Uganda for the purpose of carrying on a profession, the
number of professionals, which constitutes the partnership should not exceed 50 persons.
 In simple words, when by means of a contractual agreement several individuals associate with
common ownership and management of a venture, such a business relationship is termed as
partnership.
 Partnerships are governed in Uganda by the Partnership Act, 2010.

Some of the significant features of partnership are:

3. The primary objective of partnership is to share profit or losses.
4. A relation without profit motive is not regarded as partnership.
5. A partnership venture must be managed by all partners or by anyone among them acting for all.
6.

7. Types of Partnership
8. Partnership is broadly classified in two groups:
9. 1. General or ordinary; and
10. 2. Limited partnership
a) General partnerships: General partnerships carrying on business in Uganda
under a business name not consisting of the true surnames of all partners who
are individuals must register their name under the Business Names Registration
Act.
All partners have unlimited liability in respect of the debts and obligations
incurred by the partnership.
Partner’s personal assets are liable to the partnership obligations and all
partners can be sued for the entirety of a partnership’s business debts.
This is because each partner has agency powers to enter into a binding
agreement, contract or business deal that all partners are obliged to adhere to.
General partnerships may be dissolved when one of the partners dies,
becomes disabled or leaves the partnership unless stated otherwise in the
partnership deed.
b) Limited Liability Partnerships (LLP): are governed under the provisions of the
Partnership Act and consist of not more than 20 persons but have one or more persons
called general partners.
The general partners are those responsible for the day-to-day management of the
limited partnership and are liable for the company’s financial obligations, including debts
and litigation.
An LLP must additionally have two or more persons called limited liability partners who
must contribute a stated amount of capital to the firm and are not liable for the debts or
obligations of the firm beyond the amount of the capital contributed.
A limited liability partnership must be registered with the registrar of companies and if
not so registered is taken to be a general partnership and all its members general
partners.
A partnership registered as a limited liability partnership must add at the end of its
name the letters “(LLP)”. The name of the partnership must be reserved before the
registrar pending its registration.
Comparative matrix with the legal and tax implications of doing business as a
branch, local company or partnership in Uganda
Issue Branch Local company Partnerships
Legal personality A branch is not a separate legal A local company is a separate legal entity
The partners in a general partnership are
entity but is an extension of its from the foreign company even if the jointly and severally liable to each other
immediate parent company or foreign company holds 100% shareholding.
for partnership debts and liabilities.
head office. Limited partners are however only liable
to the extent of their capital contribution.
Business A branch being an extension of Local companies can perform any activity Partnerships may carry out such business
activities its parent company may only set out in its object clause even if different activities set out in the partnership deed
carry on activities defined in the from the parent company
head office constitution
documents.
Annual returns Annual returns filed by local Local companies need to file annual Need not file annual returns but updates
companies need not be returns with the registrar of companies of changes to the partnership need to be
prepared by branch office submitted periodically
except for designated changes
with the parent company which
need to be updated periodically
Issue Branch Local company Partnerships
Tax residence Branches are non-resident Locally incorporated companies are A partnership is resident for tax purposes
persons for tax purposes unless resident persons for tax purposes in if at any time during a year, a partner in
management and control is Uganda the partnership is a resident person.
exercised in Uganda or majority
of its operations during a year of
income are undertaken in
Uganda.
Accounts There is the requirement to Directors need to prepare books of Every partner is bound to render true
submit to the registrar of accounts showing sales, receipts and accounts and full information of
companies audited books of expenses. It is mandatory for the books of all things affecting the partnership to any
account for the head office accounts of public companies to be partner
unless the exemptions for audited. No need to prepare audited books of
commonwealth incorporated The annual return for public companies accounts though the Tax Procedure Code
companies apply. must be submitted together with the Act requires taxpayers whose annual
The Tax Procedures Code Act audited books. turnover exceeds UGX 500 million to
requires taxpayers whose The books of private companies need not prepare audited financial statements for
annual turnover exceeds be audited though the Tax Procedures tax return preparation
Uganda Shilling (UGX) 500 Code Act requires taxpayers whose annual
million to prepare audited books turnover exceeds Uganda Shilling (UGX)
for tax return preparation. 500 million to prepare audited books for
tax return preparation.
Rate of Income Rate of income tax on profits is Rate of corporation tax on taxable income Partnerships do not have to pay income
Tax 30% but there is a further tax of is 30%. However, there is WHT at the rate tax but instead the profits and losses are
15% on repatriation of branch of 15% on dividends paid to shareholders “passed through” to the individual
profits to its head office. unless double tax treaties provide oth- partners. Individual tax rates in Uganda
erwise. are on a graduated scale from 0 to 40%.
Issue Branch Local company Partnerships
Intra group Interest, royalties, professional Intra group interest, royalties, Not Applicable
recharges and management fees paid by professional and management fees
the branch to the head office are deductible for income tax
are not deductible for purposes though the same are
corporate income tax subject to WHT if applicable.
purposes. They are also not
subject to WHT.
Meetings No meetings are required for a Board and General Meetings must As determined by the partnership
branch be held for making decisions for the
company.
Bringing to an Fairly easy The life of a company can last in its The life of a partnership can come to an
end entirety. This therefore makes end under the following circumstances
winding up of a company a lengthy unless provided otherwise. These include
process. the death of one of the members,
insolvency, or insanity of any one of the
partner
Excess capital Excess capital can easily be Reduction of issued share capital is Easy to repatriate except for limited
repatriated when not required a lengthy process as court sanction partners
but taxation can arise. is required.
VAT Yes if registration thresholds Yes if registration thresholds are Yes if registration thresholds are met
registration are met met
Trading Yes unless exempted Yes unless exempted Yes unless exempted
license
4. A COOPERATIVE SOCIETY: is a voluntary association of ten or more individuals who
come together for the benefit of their common economic interests.
 It is a joint enterprise where all the members contribute capital and labour and who
manage its affairs with an understanding to primarily distribute among themselves
equally the profits earned or benefits derived out of that venture.
 Some of the major areas of operation include:
a) Individual or producers’ cooperatives: organized and managed by small producers
who join human to effectively meet the competition form large producers.
b) Agricultural cooperatives: formed by to obtain necessary inputs and assistance
(seeds, fertilizers, implements, finance etc), for production as well as marketing
purposes.
c) Credit cooperatives: are formed to collect and accumulate members’ own small
savings that they distribute among members, requiring immediate financial aid on
loans.
d) Service cooperatives: are run with a view to rendering varied service facilities to own
members at no-profit-no-loss basis.
 Advantages of Cooperative
1.It is relatively easy and simple to form and establish
2.Ordinarily talented individuals lacking much of material possessions may benefit by
becoming its member
3.Liability to each member is limited to the extent of one’s investment in it.
4.Retirement, death or insolvency of any member does not in any way affect its continuity.
5.It is managed by a committee directly elected by its members.
6.Members are entitled to get quality goods or services at fair prices or loans at
concessional interests and on affordable terms of security and repayment.
7.Generally members render voluntary services for daily operations and as a result its
productivity may be better and establishment expenses much less.
8.Shares held by members are easily transferable.
9.Members are assured of prompt marketability of their products affording quick and
reasonable returns.
10.Moneyless members are freed from being exploited by middlemen and financers
Disadvantages of Cooperative
1.Generally people having technical skills or managerial expertise are not
admitted as members or appointed as employees.
2.Want of skilled personnel or absence of coordination among members
adversely affects operational efficiency.
3.Groupism, rivalry and mismanagement by vested interests often lead to
inefficiencies or closure 0f a unit.
5. LIMITED COMPANY: This is an association of many individuals, who contribute to a
common capital to conduct a business for gain.
The common capital is divided into equal parts, each of a certain fixed uniform
value, known as shares and the individuals so contributing are members commonly
known as shareholders.

Important Features of Limited Companies.

A limited company has a separate and independent legal entity as if an artificial
person.
Its existence continues indefinitely so much so that it is not to be dissolved due to
the retirement, death or insolvency of any member.
Any of its shareholders can freely sell and transfer own shares without the consent
of others.
Its management is controlled by a Board of Directors elected by and from the
shareholders
5. Its shareholders have no right to participate in the general conduct and
management of business and affairs of the company.
6. It has a right to acquire and transfer property in its own name.
7. It can sue others and be sued by others in its own name.
8. It can admit equity as well as preferential shareholders. Preference
shareholders will have preferential rights to profits and also to refund of
capital, in the event of its dissolution, but will not have any voting right.
The right of equity shareholders to profits and refund of capital will
come next to that of preference shareholders, but they will have the
voting rights.
9. It can take up any risky venture, because its liability is limited to the
aggregate face value of its total number of shares.
10. Its shareholders are not responsible for the acts of the company.
Advantages of limited company Disadvantages of Limited Company
1.Liability of every shareholder is limited. 1.Burdensome procedure to be completed
2.Shares are transferable freely for formation and registration.
3.Continuity of existence is certain 2.Numerous statutory requirements make
4.Sufficient capital is obtainable the operation difficult and expensive.
5.Technical and managerial experts may be 3.Few shareholders control the management
employed and enjoy most of the benefits.
6.Advance technology may be introduced 4.Majority of shareholders do not have any
to improve operational efficiency. control over the general conduct of
7.Risky ventures having higher profit business.
possibilities may be undertaken. 5.With a large workforce, confrontation with
8.Significant economies of large scale management and labour unrest become
production is achievable. unavoidable.
9.Significant economies of large scale
production is achievable.
6. FRANCHISE: Is a right granted to an individual or group to market a company’s goods
or services within a certain territory or location.
The franchisor (the company owner) sells the rights to the franchisee and then typically
receives a fee for ongoing support, therefore having a vested interest in the success of
each franchise.
In other words it is an agreement or license between two parties which gives a person or
group of people the right to market a product or service using the trademark of another
business.
Franchising began back in the 1850’s when Isaac Singer invented the sewing machine.
In short, franchise implies a contractual arrangement between a principal and its Agent
or Agents for mutual benefits from a business established by the Principal in exchange
for certain payments.
In franchise system, a Principal (usually an individual or an enterprise) is commonly
known as a franchisor or licensor and its agent (also an Individual or an Enterprise) as a
franchisee or licensee.
 Important Features of Franchise
1.Franchisee manages own affairs with autonomy and assumes all risks
2.Franchisor plays the role of entrepreneur, starts a new venture
3.Franchisor requires that every would-be franchisee must pay non-refundable license
(entry) fee and refundable security deposit
4.Franchisee is appointed for a specified location keeping in view the business
possibility that can be developed in that area.
5.Reputable franchisor attracts customers because of the general belief that the
quality of the products or services belonging to a well-known name.
6.Franchisor usually provides franchisee with necessary expertise, implements,
materials as well as sales promotional supports
7.Franchisee pays from time to time a predetermined share of the profit, termed as
loyalty, to franchisor.
8.Franchisee’s success is very much dependent on franchisor’s business integrity and
above all customers’ confidence in franchisor’s products or services.
Advantages for Franchisee
There is a higher likelihood of success since a proven business formula is in place
Bankers usually look at successful franchise chains as having a lower risk of
repayment default
The corporate image and brand awareness is already recognized hence trust
Franchise companies usually provide extensive training and support to their
franchisees in effort to help them succeed.
Franchisee can tap the services of the parent company anytime he needs
assistance.
Compared to a non-franchise business, less capital is needed in a franchised
business
A franchisee is the beneficiary of an extensive marketing campaign made possible
by the sharing of the costs by the franchises.
Continuous research and development programs improve the existing products
and develop new ones to offer to the consumer.
Disadvantages for Franchisee
Franchises can be costly to implement. Also, many franchises charge ongoing royalties cutting into the profits of
franchisees.
Franchisors usually require franchisees to follow their operations manual to a tee in order to ensure consistency.
This limits any creativity on the part of the franchisee.
Franchisees must be very good at following directions in order to maintain the image and level of service already
established. If the franchisee is not capable of running a quality business or does not have proper funding, this could
curtail success.
Exceedingly high initial payments on account of license (entry) fee and security deposit.
Substantial block capital needed for our business accommodation, office decoration, furniture and equipment, etc.
Sizable amount of working capital required for staff and day-to-day operation.
Sometimes franchisors may be lax on their commitment to support the franchisee. Also, they may make poor
decisions that would have an ill effect on the franchisee. Therefore, it is important to research any franchise concept
thoroughly before signing any agreements.
Sharing of cost extravagant centralized publicity sponsored by franchisor.
Uncertainty of adequate return on investment in the long run.
Considerable portion of the profit payable to franchisor.
Risk of dishonest franchisor taking over business of an unwatchful; franchise.
Probability of being deceived by false promise of franchisor.
 Types of Franchise Methods
There are two types of Franchisee methods (i) Business format Franchising product
and (ii) trade name franchising.
1.Business Format Franchising: offers a variety of services to the franchisees such as
use of trademarks and logos, as well as a complete system of doing business. They
will assist the franchisee with site, selection, interior layout and design, hiring and
training, advertising and marketing, product supply and more.
The type involves three characteristics
1.The franchisee sells goods or services which meet the franchisor’s quality standards or
which are identified by the franchisor’s mark;
2.The franchisor exercise significant assistance in, the franchisee’s method of operation;
3.The franchisee is required to make a payment to the franchisor at any time before or
within six months after the business opens.
2. Product and Trade Name Franchising: Product and trade name franchising generally is associated
with industries such as automotive, petroleum and soft drink.
 This type of franchising does not include royalty fees.
 The franchiser provides trademarks and logos, national advertising campaigns, but most
importantly, product.

This type, also offers three characteristics

2. The franchisee sells goods or services which are supplied by the franchisor
3. The franchisor assists the franchisee in any way with respect to securing accounts for the
franchisee
4. The franchisee is required to make a payment to the at any time before or within six months after
the business opens.
Note:
 Franchising may seem like an easy way to start one’s own business and many times it is just that.
However, investing in a franchise is no guarantee that you will be successful.
 Your success in franchising will depend on three key factors; (i) your ability to raise the cash to buy
the franchise and open it for business, (ii) the care with which you select the franchise, and (iii) most
importantly your drive and ambition to make your franchise a success.
7. Corporate entrepreneurship/ Intrapreneurship: is a process used to
develop new businesses, products, services or processes inside of an existing
organization to create value and generate new revenue growth through
entrepreneurial thought and action.

Goal: Is to build capabilities that enable organizations to accelerate new

business growth.

Systems View of Corporate Entrepreneurship: Corporate entrepreneurship

sets the context for innovation and growth.
It provides a systems view of the resources, processes and environment
that are needed to support, motivate and engage the organization in
entrepreneurial thinking and action.
 General Forms of Entrepreneurship
1. Corporate Venturing: entails creating new businesses within a corporation.
 internal corporate venturing: they typically operate within the corporate structure), creating
new businesses together with another external partner
 Cooperative corporate venturing: they exist as external entities that operate outside the
organizational boundaries of the partners)
1. Organizational renewal: is a more expansive way of organizations that are changing the way
resources are specified and distributed in order to achieve better and sustainable overall
economic. Organizational renewal entails doing business in a completely different way than
before.
2. Innovation: means behavior transforming the company and the competitive environment or
industry into something completely different than what it used to be. It is all about changing
the rules of competition for the organization’s industry. They should also be considered as
sequences of stages.
Note: In stage one, corporate venturing is prevalent, renewal follows and this eventually will
result in innovation.
 General Forms of
Corporate Five Forms of Corporate
Entrepreneurship Entrepreneurship
Corporate Organizational
Venturing Rejuvination
Unlike the forms
Organizational
corporate venturing
Strategic Renewal
Corporate Renewal and organizational
Entrepreneurship
renewal, the form
Innovation Sustained innovation permits
(Entrepreneurial regenaration
orientation)
the whole
organization, and not
Domain just a few individuals,
redefinition
to act
entrepreneurial
Business model
reconstruction
 Organizational rejuvenation: is the process whereby the organization tries to
‘sustain or improve its competitive standing by altering its internal processes,
structures, and/or capabilities,’ where the aim is to improve the implementation
of the firm’s strategy.
 It entails redesigning the organization in a fundamental way, a single innovation
or multiple smaller innovations that collectively ‘contribute to significantly
increased organizational efficiency or effectiveness at strategy implementation.
 Strategic renewal: is a form of corporate entrepreneurship in which the firm
‘seeks to redefine its relationship with its markets or industry competitors by
fundamentally altering how it competes,’ with the focus on the firm’s strategy.
 it is considered strategic renewal when they ‘represent fundamental
repositioning efforts by the firm within its competitive space,’ or nww ventures
that are based on ‘unique value propositions’ that deviate from accepted industry
strategic recipes
 Sustained regeneration: is the process where organizations ‘regularly and
continuously introduce new products and services or enter new markets,’ the
firm is in constant pursuit of entrepreneurial opportunities.
 Sustained regeneration is an ongoing process of introducing new products and
services or entering a new market.
 Domain redefinition: Is whereby the organization proactively creates a new
product-market arena that others have not recognized or actively sought to
exploit.
 Firms redefining its domain are proactive and they engage in strong
entrepreneurial orientation
 Business model reconstruction: entails ‘designing or redesigning the core
business model(s) in order to improve operational efficiencies or otherwise
differentiate itself from industry competition in ways valued by the market.
 Business model are the ‘stories that explain how enterprises work
End of Unit Three
 LECTURE FOUR: MICRO & SMALL SCALE
ENTERPRISES
 Business firms are classified as micro scale, small scale and medium-sized.
 It is important to note that there are no standard criteria or classification on
businesses
 Classification of business at times considers statutory regulatory measures,
statistical records and numbers of volumes of employees or sales turnover and
amount of capital invested.
Classification of businesses in Uganda
CLASSIFICATION NUMBER OF EMPLOYEES
Micro Scale Business Less than 6 employees
Small Enterprises Between 7 to 10 employees
Medium size firm Between 11 to 50 employees
Large Scale Organization More than 50 employees
 The Role of MSE in Economic Development
 Creation of employment: Entrepreneurs create employment for
themselves and others by starting business all over the country.
 Providing services and product: MSES produce goods and services
that they avail to the public.
 MSEs provide training ground for new entrepreneurs: Entrepreneurs
help others boost their knowledge and get experience in many areas
of life.
 Increase the gross domestic product (GDP) through: Paying taxes to
the government, Creation of employment and Multiplier effect.
 SME is important for agriculture: Dependent nations transitioning to
an industrial and service oriented economy.
 Challenges to the Development of MSES in Uganda
 Unfavourable Policy Environment: Inappropriate policy design, weak
implementation framework and failure to institute and effectively monitor
policy implementation.
 Inhibitive Legal and Regulatory Environment: Specifically the bylaws applied
by many Local governments are not standardized and appear in most cases,
punitive instead of facilitative. Further the bureaucratic and lengthy process of
transacting business with the Government agencies adversely impacts on their
operations.
 Unfavorable Taxation Regime: The existing tax regime is not only cumbersome
but is also a deterrent factor in the growth of MSEs. For instance, Value Added
Tax which is applicable to most products and services is costly for businesses
to administer, increases transaction costs and inhibits cash flow for all
categories of enterprises.
 Entry Barriers (Formal and Informal): Formal barriers are well
understood, informal barriers are not are not well known. For instance,
in Taxi business self-regulatory bodies (cartels) control this industry
and greatly hinder entry of new entrepreneurs into the market.
 Health and Safety in Workplace: Occupational health and safety is
critical for enhanced productivity, enterprise growth and expansion.
Currently the MSE sector is adversely affected by limited access and
adherence to the health and safety regulations.
 HIV/AIDS: In addition to the above HIV/AIDS pandemic has great
economic impact on all sectors of production in terms of productivity,
skilled man power, and increased cost of labour as a result of high
absenteeism.
Role of Government in the Development of MSEs in
Uganda
 Monitoring potential applications: reduces unnecessary competition. Through licensing the
government is able to determine the number of a particular type of business operating in a
particular region at a time.
 New product ideas can come in response to government regulations: For example the
requirement for vehicles to be fitted with speed governors led to the production and
distribution of speed governors gadgets in the country.
 Sometimes the government has been seen to be influencing the startup and growth of MSEs
negatively: The aim of the government to keep order could be genuine but the outcome
affects adversely the growth of MSES.
 The government also regulates and controls economic activities leaving no room for MSES to
operate successfully.
 Lack of capital has also been raised as a major problem facing MSES in Uganda: It takes a long
time (procedures) to obtain a license and to meet all obligations required to be compliant.
 The government also influences MSES operations through taxation: The component of
taxation has impacted negatively MSEs especially VAT
End of Unit Four
 LECTURE FIVE: CREATING/ STARTING A
BUSINESS, FINANCING & GROWING A
NEW VENTURE
 Most people will be driven into entrepreneurship either as a necessity or as an
opportunity.
 Those who start due to necessity will be driven by “push” factors, such as retrenchment,
unfavorable conditions at the present employment, redundancy, government policies, etc.
they enter into entrepreneurship as their last resort.
 On the other hand, there might be an opportunity that has yet been identified and
exploited.
 A fore sighted entrepreneur would take such an advantage to exploit such an opportunity.
 Such a person would be encouraged by “pull” factors to join entrepreneurship as an
opportunity, such “pull factors include: the need for achievement, need for
independence, desire to start something new, need for autonomy, etc.
Proposal Evaluation: New business proposals are difficult to judge
and evaluate. Many businesses fail in their early stages (Mason,
1989). There are certain key factors to be address during the
process of the business startups. Some of them are:
i) The Mair Model (This is a Mnemonic Standing for)
M - Motivation and commitment
A - Abilities and ideas
I - Idea in relation to the market needs
R- Resources
When the above factors are present, any business will succeed if it
has a business plan.
 The Start Up Model

1. Motivation: is very varied. For instance, the need for independence may be as important
as any need for money.
 Family background and support can be crucial.
 Sometimes there are “push” factors such as redundancy or frustration in the existing
career.
 There might also be “pull” factors (need for independence or the invention of a new
idea.
 Starting a business is a difficult process and the necessary drive and commitment are a
prerequisite.
2. Abilities: Abilities, skills and experience also vary considerably. They need to be
related to the idea.
 There are probably three areas of skills which are: craft or technical skills;
managerial skills and interpersonal or behavior skills.
 Very often an individual will not have all three in particular, technical ability may not
be matched by management skills most especially those relating to the market.
3. Idea: The key to any start-up is to relate the business idea to the need in the market.
It is crucial to understand the nature of the need being met:
4. The single most important question for a start-up is “exactly what business are you
in?
Resources: Resources include physical items, such as premises, plant and furniture.
They also include human resources such as employees of different levels. Resources
also include finance which often perceived as the main need although; this may not
in fact be a key problem.
 Creativity and Innovation
Creativity: Is defined as the process of creating something different by devoting the necessary time and effort.
This is accompanied by financial, psychological and social risks
Proctor (1995) considers creativity to the phenomenon of a working new thoughts, raising old learning and
examining assumption to formulate new theories or create awareness.
Creativity is therefore the generation of ideas that results in improved efficiency and effectiveness of a system.

The Process of Creativity

Creativity is a process which is influenced by many external factors such as the business environment, social
forces and individual attributes.
In 1926 Graham identified four stages of the creative process as preparation, incubation, insight and
evaluation.
1. Preparation: This refers to the base of experience and knowledge that precedes the creative
ideals. Preparation includes perception of idea and development of interest. During this
phase one becomes immersed and develops sensitivity to the issues and problems in a field
of interest
2. Incubation: This refers to that part of the opportunity recognitions process in which an
individual is contemplating an idea or a specific problem. Discussions of the incubation
phase often make reference to a specific problem that someone is trying to solve.
3. Insight: This is also called the illumination stage. Insight refers to a moment of recognition.
It’s the point at which the whole answer or core solution springs into awareness suddenly
and spontaneously. This stage, however is not necessarily one that pushes the process
forward, but instead may feed back to the incubation and preparation stages for further
consideration.
4. Evaluation: Is the phase in the creativity process when insights are analyzed for them
viability. This stage is also referred to as the verification or confirmation stage since it
involves deeper analysis into whether a concept is workable, whether the creator has the
skills necessary to accomplish it, and whether it’s truly profitable enough to undertake.
 Methods of generating new ideas for entrepreneurs
1. Focus Groups: are the groups of (between 6-12) individuals providing information in a
structural format.
 A moderator leads a group of people through an open, in-depth discussion rather than simply
asking questions to solicit participant response.
 The focus group is an excellent source for initially screening ideas and concept.
1. Brainstorming: it is a group method for obtaining new ideas and solutions.
 It is based on the fact that people can be stimulated to greater creativity by meeting with
others and participating in organized group experiences.
 The characteristics of this method are keeping criticism away; freewheeling of idea, high
quantity of ideas, combinations and improvements of ideas.
 Such type of session should be fun with no scope for domination and inhibition.
1. Problem inventory analysis: it is a method for obtaining new ideas and solutions by focusing
on problems.
 Instead of generating new ideas, the consumers are provided with list of problems and then
asked to have discussion over it and it ultimately results in an entirely new product idea.
 Creative Problem Solving
 Creative Problem Solving (CPS) is a process, method, or system for approaching a problem in
an imaginative way and resulting in effective action.

The Osborn-Parnes problem-solving model. This particular model uses the following steps:
1. Mess finding: an effort to identify a situation that presents a challenge.
2. Data finding: an effort to identify all known facts related to the situation;
3. Problem Finding: an effort to identify all the possible problem statements and then to isolate
the most important or underlying problem.
4. Idea finding: an effort to identify as many solutions to the problem statement as possible.
5. Solution finding: using a list of selected criteria to choose the best solution(s) for action.
6. Acceptance Finding: making every effort to gain acceptance for the solution, determine a plan
of action, and implement the solution.
 Although CPS can be applied individually, problems are often most effectively solved in a team,
where brainstorming allows for more ideas to be generated. Thinking of many ideas is critical
to effective problem solving using the Osborn-Parnes model.
 Innovation
Innovation: Innovation is a process of developing an idea into a new product or
service that adds value, creates market and increases customer satisfaction.
Innovation is any practice perceived to be new by the relevant unit in
production.
Drucker (1985), defined innovation as: ‘the act that endows resources with a
new capacity to create wealth’. It also refers to purposeful and organized
search for changes and exploiting opportunities arising from such changes for
either economic or social change.
Drucker argues that innovation should be a systematic, organized and
purposeful activity.
Balunya (1997), defined innovation as the act of introducing something new in
this case can be anything ranging from products, organization structures, etc.
 The Innovation Process
 Timmons (1999) suggested the following steps in the innovation process: Identifying
an idea, developing the idea into a thorough opportunity, evaluation and finally
implementation.
 According to Balunywa (1997) the process of innovation begins with perception of a
new idea, conceptualizing the idea by thinking about it and refining it. The next stage
is the development stage where for big organization experience are undertaken and
finally the implementation stage where the innovation is operationalized
The stages of innovation are illustrated below:
1. Perception: At the first stage the entrepreneur perceives an idea, an opportunity or
need for innovation. The entrepreneur thinks about the idea and may necessitate
going through the creativity process.
2. Conceptualization: Here the idea is refined, thought about and made more explicit.
This is a stage for providing answers to such question like how will the product or
service be produced? Who are the users? How is the organization to be structured?
3. Development Stage: This is the stage when full conditions for the innovation are
now defined and experiments undertaken to see if the product or service or product
will work. At this stage a strategy to implement the innovation is evolved if it
works.
4. Operation stage: This is the implementation stage decision are taken on
investment, the production team marketing mix decision and the structure to
implement the innovation.
Note: For small entrepreneurs, the development stage is combined with the operation
stage.
 Types of Innovation
Timmons (1994) Summarizes Innovations into Three broad Categories
a)Incremental Innovation: This is the most common and features the introduction of a
product involving some level of newness and some value creation. An example is the
introduction of Mobile telephone facilities
b)Substantial Innovation: This is where there is a significant degree of product newness and
important value creation for the customer. For example introduction of carried soft drinks,
carried beer etc.
c)Transformational Innovation: This is the least common and involves radical new products
that create substantial value creation from the customer. For instance World Wide Web
(www)
d)Moving from incremental to transformational types of innovation, the degree of product
newness and value delivered to customer’s increases and so does the potential to earn high
profits.
e)Concurrently, the degree of business risk can also rise as one move up the innovation ladder.
 Factors Leading to Innovations in Organizations
1. Customers are more Sophisticated and Expect More: Customers are looking for products that
are better designed to meet their individual needs customers expect high quality and better
price products. In respects the customer is the driving force to innovation.
2. Customers have more choice: As the number of suppliers to the end market is generally rising
customer loyalty to particular suppliers is disappearing.
3. Ideas Make up More of the Value Chain: In today’s production process, physical inputs are
being substituted by intellectual input. Wealth creation is increasingly about capturing and
applying new ideas to create new products that exploit identified opportunities.
4. Shorter Product Life Cycles: Two decades ago, most motor vehicle manufacturing companies
were developing vehicles with an estimated life span of more than 10years. Today, this has
drastically reduced. With tastes and technology rapidly changing and good ideas being quickly
and superseded, there is continual pressure to devise new and better products at a faster rate,
for instance the use of fiber car body instead of steal.
5. Target Market Strategy: To be able to enter, survive and win the market, often new or better
product package is required to win against entrenched competition.
 Sources of Innovation in Business Enterprises
1. The Unexpected Occurrence: This is a system of fundamental change in behavior,
expectation of a great number of customers, which requires relegation
understanding analysis, support and exploitation to the value and yield. It’s the
diversion from the normal business trend happening in an organization.
2. Unexpected Failure: Many failures arise out of mistakes, negligence, greed,
stupidity thoughtless band wagon –climbing or incompetence whether in design or
expectation. Unexpected failure calls for more study and more analysis most
importantly it should be considered as a symptom of innovative opportunity and be
taken seriously.
3. Unexpected Outside Event: Unexpected outside event, may be above all an
opportunity to apply already existing expertise to a new application that does not
change the nature of the “business” the organization is in. It may be an extension
rather than diversification.
 Principles of Innovation
a) The Do’s b) The Don’ts
Purposeful, systematic innovation begins with Try not to be clever: Innovations have to
the analysis of the opportunities.
Innovation is both conceptual and perceptual. be handled by ordinary human beings,
The most important issue about innovation is anything too clever, whether in design or
therefore to go out, to ask and to listen. expectation is almost bound to fail?
An innovation to be effective has to be simple Don’t diversify, don’t splitter, don’t try to
and it has to be focused. Everything new runs into do too many things at once: An innovation
trouble, if complicated it cannot be repaired or
fixed.
needs the concentrated energy of a unified
Effective innovation starts small. Innovations effort behind it.
should better be capable of being started small, Do not innovate for the future, innovate for
requiring at first little money, few people and only the present: An innovation may have long–
a small and limited market. range impact or not, for instance invention
A successful innovation aims at leadership. In
fact no one can foretell whether a given innovation
of computer and its uses.
will end up as a big business or a modest
achievement.
 FINANCING AND MANAGING THE NEW VENTURE
 Finance is one of the important prerequisite to start an enterprise
 Capital work as lubricant in a production process. The success of new venture is very
much depend on availability of finance or capital.
 This taken by the entrepreneur well in advance Regarding the future financial aspects
of his/her enterprise is called financial planning or it deals with following questions
like Amount of money needed, Sources of money, Time when money required.

SOURCES OF FINANCE
Finance/capital can be arranged from two major Sources:
 Internal Source: Refer to the owner’s own money known as equity. This amount
fulfill very limited requirement of enterprise or it is very thin.
 External source: Arranged from financial institutions complete requirement of
enterprise and generally taken for long period
CLASSIFICATION OF FINANCIAL NEEDS
ON THE BASIS OF EXTENT of PERFORMANCE
Fixed Capital: The money invested in current assets like raw material, finished goods, machinery,
equipment, furniture etc.
Working Capital: Money required for day to day operations of business/enterprise.

ON THE BASIS OF PERIOD OF USE

Long Term Capital: Money whose repayment is arranged for more than five years in future.
Short Term Capital: Borrowed capital/money that is to be repaid within one year.

Internal Source of Business Finance

Retained Profit: Profit earned by entrepreneur may be used to finance the future needs of firm.
Reducing Working Capital: By judging the exact requirement, part of working capital may be used for
financing the enterprise.
Sale of Assets: By selling fixed assets which are of little use, fund may obtained.
Personal Savings of the Owner: insurance policy, investment, building may be used for fund.
Deferred Credit: goods, machine, plant may be taken on credit basis for a particular time period by
giving bank security to supplier.
 External sources of capital
1.Trade or supplier credit: Payment terms offered by your suppliers are a potential source of credit. Study the
discounts for early payment and the penalty for late payment to determine the true cost of the credit.
2.Life insurance policies: A standard feature of most life insurance policies is the owner’s ability to borrow against the
cash value of the policy. You may borrow up to 95 percent of the cash value of the policy for an indefinite period of
time. As long as you continue to pay the insurance premiums, the interest can frequently be deferred indefinitely.
3.Friends and relatives: It is best not to borrow from friends and relatives, but many people do. If you must borrow
from a friend or relative, do it on a business basis by putting the agreement in writing. Unrealistic and/or naive
investment expectations have ruined many friendships and family relationships.
4.Customers: When customers pay for work in installments as it is completed or provide some of the materials, they
are, in effect, financing the business.
5.Leasing companies: Leasing business equipment is another way to reduce capital needs but it is very expensive. In
many cases, you have the option to buy the equipment for an agreed upon amount at the end of the lease period.
6.Commercial finance companies: They are concerned with your ability to repay the loan; however, they are more
willing to rely on the quality of the collateral rather than your track record or profit projections as compared to
Banks.
7.Commercial banks: are by far the most visible lenders and make the greatest number and variety of loans.
However, banks are generally conservative lenders, loan approval rests on your ability to repay the loan as shown by
your profit projections, management skills and your personal record.
 The five Cs of credit: What do lenders look for in a loan package?
1.Character: To the potential lender, character means that you will make every possible effort
to repay the loan. Therefore, it is important to be honest about your personal strengths and
weaknesses.
2.Capacity: Will your new business generate the cash flow to repay the loan? Do you have the
capacity to repay the loan? Lenders not only look at the business’s financial projections, but
also your ability to repay the loan if the business does not work out as planned.
3.Collateral: Is the collateral adequately insured? Is the collateral marketable so as to cover the
loan lifespan?
4.Conditions: Conditions are those factors over which you have little or no control. The lender
will look at the conditions, or trends, in the overall business economy, the trends in your
community, the seasonal character of your business, and the nature of your product or service.
5.Capital: Knowledgeable lenders will not put money into a new business unless they have
concrete evidence that you have personally made a sizable financial commitment to the
business.
 VENTURE CAPITAL
Venture Capital is defined as providing seed, start-up and first stage finance to
companies and also funding expansion of companies that have demonstrated
business potential but do not have access to public securities market or other
credit oriented funding institutions.

Venture Capital is generally provided to firms with the following characteristics:

a)Newly floated companies that do not have access to sources such as equity
capital and/or other related instruments.
b)Firms, manufacturing products or services that have vast growth potential.
c)Firms with above average profitability.
d)Novel products that are in the early stages of their life cycle.
e)Projects involving above-average risk.
f)Turnaround of companies
Venture Capital derives its value from the brand equity, professional image,
constructive criticism, domain knowledge, industry contacts; they bring to table
at a significantly lower management agency cost.

A Venture Capital Fund (VCF) strives to provide entrepreneurs with the support
they need to create up-scalable business with sustainable growth, while providing
their contributors with outstanding returns on investment, for the higher risks
they assume.

The three primary characteristics of venture capital funds which make them
eminently suitable as a source of risk finance are:
That it is equity or quasi equity investment
It is long term investment and
It is an active form of investment
 Difference between a Venture Capitalist and Bankers/Money
Managers
1. Banker is a manager of other people’s money while the venture capitalist is basically an
investor.
2. Venture capitalist generally invests in new ventures started by technocrats who generally
are in need of entrepreneurial aid and funds.
3. Venture capitalists generally invest in companies that are not listed on any stock exchanges.
They make profits only after the company obtains listing.
4. Venture capitalist differs from conventional investors and mutual funds in that he is a
specialist and lends management support in;
 Financial and strategic planning
 Recruitment of key personnel
 Obtain bank and debt financing
 Access to international markets and technology
 Introduction to strategic partners and acquisition targets in the region
 Regional expansion of manufacturing and marketing operations
 Obtain a public listing
 Stages of Financing by Venture Capitalist
I. Early- stage Financing
Seed Financing: is provided for product development & research and to build a management
team that primarily develops the business plan.
Startup Financing: is provided to companies to organize their business, before the commercial
launch of their products.
First Stage Financing: Is provided to those companies that have exhausted their initial capital
and require funds to commence large-scale manufacturing and sales.
II. Expansion Financing
Second Stage Financing: provide working capital for initial expansion of companies, that are
experiencing growth in accounts receivable and inventories, and is on the path of profitability.
Bridge Financing: provided to companies that plan to go public within six to twelve months.
Bridge financing is repaid from underwriting (supporting) proceeds.
III. Acquisition Financing
Is provided to companies to acquire another company. This type of financing is also known as
buyout financing.
 Angel Investment
 An investor who provides financial backing for small startups or entrepreneurs.
 Angel investors are usually found among an entrepreneur's family and friends.
 The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.

Advantages of business angel (BA) Disadvantages of business angel financing

financing The disadvantages of BA funding for your
BAs are free to make investment business can include:
decisions quickly Not suitable for investments below Ugx
No need for collateral - i.e. personal
35M
assets
Takes longer to find a suitable BA investor
Access to your investor's sector
Giving up a share of your business
knowledge and contacts
Better discipline due to outside scrutiny Less structural support available from a
Access to BA mentoring or management BA than from an investing company
skills
No repayments or interest
Stages of Growth
 Growth Strategies for Entrepreneurs
 Intensive growth strategies: Exploit opportunity in the current market
 Integrative growth strategies: Exploit growth within the industry as a whole
 Diversification strategies: Exploit opportunities outside the current market/industry
 Global strategies: Exploit opportunities in the international arena
 Implications of Growth for the Firm
 Pressures on Existing Financial Resources: Growth has a large appetite for cash.
Investing in growth means that the firm’s resources can become stretched quite thin.
Therefore, resource slack is required to ensure against most environmental shocks and to
foster further innovation.
 Pressures on Human Resources: Growth is also fueled by the work of employee. If
employees are spread too thin by the pursuit of growth, then the firm will face problems
of employee morale, employee burn out, and an increase in employee turnover.
 Pressures on the Management of Employees: Many entrepreneurs find that as the
venture grows, they need to change their management style that is change the way the
entrepreneur deals with employees. Management decision making that is the exclusive
domain of the entrepreneur can be dangerous to the success of a growing venture.
 Pressures on the Entrepreneur’s Time: One of the biggest problems in growing a firm is
captured in the phrase “If I only had more time”. While this is a common problem for all
manages, it is particularly applicable to entrepreneurs who are growing their businesses.
 GOING PUBLIC
 In a private placement, such as to angels or VCs, securities are sold
to a few investors rather than to the public at large.
 In a public offering, securities are offered to the public and must be
registered with Securities Exchange Council/ Board
 Privately placed stock is not registered, so sales must be to
“accredited” (high net worth) investors.
 Send out “offering memorandum” with 20-30 pages of data
and information, prepared by securities lawyers.
 Buyers certify that they meet net worth/income requirements
and they will not sell to unqualified investors.
Advantages of going public Disadvantages of Going Public
 Current stockholders can  Must file numerous reports.
diversify.  Operating data must be disclosed.
 Liquidity is increased.  Officers must disclose holdings.
 Easier to raise capital in the  Special “deals” to insiders will be
more difficult to undertake.
future.
 A small new issue may not be
 Going public establishes firm
actively traded, so market-
value. determined price may not reflect
 Makes it more feasible to use true value.
stock as employee incentives.  Managing investor relations is
 Increases customer recognition. time-consuming.
Modes of Public issues

8
 Modes of Capital Issuances
• Initial Public Offering.
• Done by unlisted company.
IPO • Fresh issue of securities/ offers its existing securities for sale/ Combination of both.
• Securities issued for the first time to the public.
• Paves way for listing and trading of the issuer’s securities in the Stock Exchange(s).

• Further Public Offer / Follow-on Offer.

FPO • Done by already listed company.
• Fresh issue of securities / Offer for sale of securities to public .

• Done by already listed company.

• Issue of securities to its existing shareholders (as on a Record date).
Rights Issue • Record Date is fixed by the issuer.
• The rights offered in a particular ratio to the number of securities held by existing
shareholders as on the record date.

9
 Modes of Capital Issuances Cont…

• Done by already listed company.

• Issue of shares to existing shareholders (as on a record date).
Bonus Issue • Existing shareholders need not make any payment for “Bonus” shares.
• Shares are issued out of the company’s free reserve or share premium account.
• Issued in a particular ratio to the number of securities held on record date.

• Done by already listed company.

• Issue of shares / convertible securities (like warrants) to a select group of persons.
Preferential Issue • Subject to prescribed norms such as minimum pricing, minimum public shareholding and lock-in.

• Qualified Institutional Placement.

• Done by already listed company.
QIP • Issue of shares / convertible securities (like warrants) to Qualified Institutional Buyers (QIBs).
• Subject to prescribed norms such as minimum pricing and minimum public shareholding.

10
 IPO - Initial Public Offering
Process of a company to be publicly listed and traded company.
IPO: Fresh issue of shares / Offer for Sale of shares by existing investors/ Combination of
both.
Process of IPO is as follows:

11
End of Unit Five