WALLAGGA UNIVERSITY

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
WELCOME TO ENTREPRENEURSHIP COURSE

Prepared BY EBISA T.
(MBA)
 As a nurse student why we need to take the
course entrepreneurship
• It aims to bring behavioral changes among
students and support them develop self-
employment mindset in their personal and
professional lives

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 Why Study Entrepreneurship?
There are two primary reasons why studying entrepreneurship makes
sense:
you learn to think like an entrepreneur and you develop a vision for
your life.
1. Think like an entrepreneur when you are an employee
Observe- seek out opportunities to learn new skill and to accept new
responsibility.
listen- pay attention to what other have to say
Think - don’t complain to solve a problem analyze and suggest
possible solution.
2. Learning about entrepreneurship is often inspire people to
develop a vision life.
 Chapter one
core concept
What is meant by Entrepreneur?
What does Entrepreneurship mean?
What is Entrepreneurial?
Who is an entrepreneur?
Characteristics of an Entrepreneur
 The word ‘entrepreneur’ is widely used, both in
everyday conversation
➢ The word entrepreneur originated from a 17th
century French word, Entreprendre, which means,
“to undertake”.

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 Entrepreneur is someone who undertakes certain
projects.
 A number of concepts have been derived from the
idea of the entrepreneur
➢ Entrepreneurship is then what the entrepreneur
does.
➢ Entrepreneurial is an adjective describing how the
entrepreneur undertakes what he or she does
 The entrepreneurial process is in which the
entrepreneur engages is the means through which
new value is created as a result of the project: the
entrepreneurial venture.
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 Definition Of Entrepreneur

➢ There is no universally accepted definition of

entrepreneurship. (Merriam-Webster)

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 Evolution Of Entrepreneurship
• Entrepreneurship is not a one-time phenomenon; it occurs over time….
• It is not a 20th or 21st -century phenomenon; although it is more popular.
• The concept of Entrepreneurship has been around for a long time.
✓Earliest Period a person managing large commercial projects
✓ Middle Ages Entrepreneur used to describe both as an actor and a person
who managed large production projects.
• A typical entrepreneur in the middle age was the priest.
✓ 17th Century a person who signed a contractual agreement with the gov’t to
provide P/S.
✓ 18th Century: A person who is risk taker. i.e. merchants, farmers .. buy
products at a known price and sell it at unknown price
✓ 19th Century & 20th Century
Viewed from economic perspective.
• organizes and operates an enterprise for personal gain.
• Involve in innovation
✓what about 21st century?
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• Entrepreneurship, like an entrepreneur, has no
single definition.
• The main difference between entrepreneur and
entrepreneurship is their attachment.
• Entrepreneur is a person while entrepreneurship
is a process.
• Entrepreneur ship is a systematic innovation of
things
• Entrepreneur ship is the act of becoming an
entrepreneur
• Entrepreneur ship is the process of giving birth to
new venture
 Definitions of Entrepreneurship
1. Entrepreneurship is ….
➢a process of identifying opportunities and investing the
resources to exploit it for a profit.
➢ the processes through which individuals become aware of
business ownership, then develop ideas for, and initiate a
business.
➢ a process of creating something different and better with
value by devoting the necessary time and effort by assuming the
accompanying financial, psychic and social risks and receiving the
resulting monetary reward and personal satisfaction.
➢ is the art of identifying viable business opportunities and
mobilizing resources to convert those opportunities into a
successful enterprise through creativity, innovation, risk taking
and progressive imagination.
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 Continued…
Entrepreneurship is the process of creating
something new with value by devoting;
– the necessary time and effort,
– assuming the accompanying financial, physic,
and social risk, and
– receiving the resulting rewards of monetary and
personal satisfaction and independence.

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In General, the process of entrepreneurship includes five critical elements

• A. The ability to perceive an opportunity.

(Vision)
• B. The ability to commercialize the perceived
opportunity i.e. （ Innovation)
• C. The ability to pursue it on a sustainable basis.
• D. The ability to pursue it through systematic
means. (Organizing )
• E. The acceptance of risk or failure. (Risk taking)
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 Entrepreneur
 An entrepreneur is any person who creates and
develops a business idea and takes the risk of
setting up an enterprise to produce a product or
service which satisfies customer needs.
 An entrepreneur is a professional who discovers
a business opportunity to produce improved or
new goods and services and identifies a way in
which resources required can be mobilized.
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 Who Are Entrepreneurs?
1. People who start and/or operate a business
2. Individuals who discover market needs and
launch new firms to meet those needs
3. Risk-takers who provide an impetus for change,
innovation, and progress
4. Self-driven individuals who seek independence
and/or wealth
5. The driving force behind today’s technological
advances and economic growth
6. All active owner-managers (hands-on managers
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 An entrepreneur is a person who: create the
job not a job-seeker;

 has a dream,

has a vision;

willing to take the risk and

makes something out of nothing

 The Entrepreneurial Process
The entrepreneurial process consists of four steps
Step 1: Deciding to become an entrepreneur.
Step 2: Developing successful business ideas.
Step 3: Moving from an idea to an entrepreneurial
firm.
Step 4: Managing and growing the entrepreneurial
firm.

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 IMPORTANCE OF ENTREPRENEURSHIP

• Entrepreneurship is the life blood of any

economy and it applies more to a developing
economy like Ethiopia.
• Provide large scale employment opportunity
• Bringing social and political change in the society
• Taking to higher rate of economic growth by
creation of value.
• Speed up the process of industrial use of the
factors production
 Folk lore of Entrepreneurship
(a) Entrepreneurs are born, not made
• According to this myth, the characteristics of entrepreneurs
cannot be taught or learned, they are innate traits with which a
person must be born.
– Do you agree with this myth?
– Discuss about the present philosophy of entrepreneur.
(b) Entrepreneurs are academic and social misfits
• The belief that entrepreneurs are academically and socially
ineffective is born of some business owners having started
successful enterprises after dropping out of school or quitting a job.
– What is your view toward present entrepreneurs; socially,
economically and academically?
– Is entrepreneur a professional?
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• Generally it can be category into three
perspective :
1. The individual entrepreneur is someone who
started; acquired or franchised his/her own
independent organization.
2. Intrapreneur is a person who does
entrepreneurial work within large organization.
3. The Entrepreneurial Organization: The
entrepreneurial function need not be embodied in
a physical person. Every social environment has its
own way of filling the entrepreneurial function.
1.7. The Role of an Entrepreneur in the Economy
 Promotes Capital Formation
 Creates Large-Scale Employment Opportunities
 Reduces Concentration of Economic Power
 Promotes Balanced Regional Development
 Wealth Creation and Distribution
 Increasing Gross National Product and Per Capita
Income
 Improvement in the Standard of Living
 Induces Backward and Forward Linkages
 Promotes Country's Export Trade
 Facilitates Overall Development
• .
 Who become an entrepreneur?
• Anyone with the following characteristics can be an
entrepreneur.
• The Young Professional
• The Inventor
• The Excluded: Some people turn to an
entrepreneurial career because nothing is open to
them.
• Eg. Displaced communities and ethnic and
religious minorities have not been invited to join the
wider economic community due to a variety of social,
cultural and political and historical reasons.
Why People Become Entrepreneurs?
• Factors can be grouped in to
– Pull factors – all those reasons that emphasize
entrepreneurship as positive and desirable
alternative that pull the entrepreneurs to their
choice.
– Push factors – characterized by personal or
external factors (including a marriage break-up, or
being passed over for promotion), and often have
negative connotations

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 Pull Influences (opportunity)

• Desire for Independence

– This motive is identified as a key motivator in
several research.
– E.g.. Female entrepreneurs could be motivated by
the need for autonomy
• Desire to exploit an opportunity
– Entrepreneurs may seek to exploit through
special knowledge, product development or hiring
appropriate technology and skill.

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• Turning a hobby or previous experience in to
business
– Many new entrepreneurs seek fulfillment by
spending more time involved in part of their work
that they enjoy.
• Financial incentive
– The promise of long term financial independence
can clearly be a motive in starting new firm.

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 Push influences (necessity)
• Redundancy
– This has proved a considerable when other
employment opportunities are low in the locality
• Unemployment
– A study reported that 25% of business founders
in the late 1970s were pushed by job insecurity and
unemployment.
• Disagreement with previous employer
– Uncomfortable relationship at work has also
pushed new entrants in to small business
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• Risks of Being an Entrepreneur
 Potential Business Failure. Being fully responsible
means the success or failure of your business rests
on you.
 Unexpected Obstacles. Problems can happen that
you don’t expect.
 Financial Insecurity. Many new businesses don’t
make much money in the beginning, so you may not
always be able to pay yourself.
 Long Hours and Hard Work. It’s not unusual for
entrepreneurs to work a lot of extra hours to make
their businesses successful. This is especially true
during the initial start-up process.
 Entrepreneurs have the following qualities:

Entrepreneurs have the following qualities:

• Opportunity-seeking
• Strong mental ability, intelligent, creative and analytical
• An entrepreneur must have a goal and an objective which is
SMART.
• Business Secrecy (Ability to guard trade secrets)
• Human relation ability (Entrepreneurs display polished
behavior while dealing with customers, employees, suppliers,
government etc.)
• Communication Skill (Entrepreneurs are excellent
communicators)
• Technical knowledge (Entrepreneurs have sound knowledge
about production process and techniques)
• Entrepreneurial Skills
I. General management skills
 Strategy skill
 Project management skill
 Marketing skill
 Time management skil
II. People management skills
 Communication skill
 Leadership skill
 Delegation skill
 Motivation skill
 The Entrepreneurial Tasks
• Owning Organizations
if an entrepreneur actually owns the business
then he is in fact undertaking two roles at the
same time that of an investor and that of a
manager. Here we can also recognize many
people as entrepreneur even if they do not own
the venture they are managing.
• Founding New Organizations
The entrepreneur is recognized as the person who undertakes
the task of bringing together the different elements of the
organization (people, property, productive resource, etc.) and
giving them a separate legal entity

 Bringing Innovations to Market

 Identification of Market Opportunity

 The entrepreneur as manager: At the end of the day the

entrepreneur is a manager

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 Who Benefits from the entrepreneur’s
Wealth?
• No entrepreneur works in a vacuum.
• Peoples who have a part to play in the
entrepreneurial venture generally are called
stakeholder.
• For their support these groups expect to be
rewarded from the success of the venture.
• The stakeholder groups are; employees, investor,
supplier, customer, the local community and
government
• The stakeholder groups are;
 Employees
 Investor
 supplier
 Customer
 the local community and
 government (taxes individuals and
businesses.)
 Business Environment
• External & Internal environment
• External environments
PESTL Factor & demographic
• Internal environment's
 Raw material
 Production / operation
 Finance
 Human resource
 Environmental factors which hinder
entrepreneurial growth are
Rise in the cost of inputs.
Unfavorable market fluctuations
Unreliable supply of power, materials,
finance, labor and other inputs
Outbreak of war or regional conflicts.
Political instability or hostile Government
attitude towards industry
 Difference between Entrepreneur and
Business man
 The key to difference between entrepreneur and
business man, in the fact that an entrepreneur is a
person who comes with a unique business idea and
starts his own company.
 Creates a new market for his revolutionary and
innovative product where as business man applies
different methods and proven strategies to make his
way an already established market. The real
achievement of a business a man is to gain profit. .
 All entrepreneurs are business persons, but not all
business persons are entrepreneurs
Parameter of comparison between businessman
and entrepreneur
Entrepreneur Business man

Nature Innovative Traditional

Goal Customer oriented Profit oriented

Risk margin High Low

Market position Market leader Market player

❖ Entrepreneur
▪ takes substantial risk
▪ the owner and operator of a business
▪ with expectations of financial profit and other
rewards that the business may generate
❖ Intrapreneuer
▪ is an individual employed by an organization for
remuneration
▪ share the same traits as entrepreneurs such as
conviction, passion and insight.
▪ it will reveal the gap between the philosophy of the
organization
05/13/2024
and the employee. 39
 Distinction between Entrepreneur and Intrapreneur

▪ Entrepreneur raises their funds on his own initiative;

intrapreneur depends upon the industry in which he works
for getting the finance
▪ Entrepreneur takes the profit of the business; intrapreneur
does not take profit out of innovation but he can be
provided with a variety of perquisite for their innovation
▪ Entrepreneur is the real owner of the business;
intrapreneur is not the real owner of the business, rather he
works for the business
▪ Entrepreneur operates from outside an organization;
intrapreneur operates from within the organization
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 Distinction Between Entrepreneur And
Manager
• An entrepreneur is :
– involved with the start-up process
– assumes financial, material, and psychological risks
– is driven by the perception of opportunity
– initiates change
– is his own boss
– gets an uncertain reward
– more concerned with the launching and sustainability of a
business in the face of uncertainty
– are generalist.
– They need to know a little about everything.
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• Manager – The job of a manager begins only after the entrepreneur
has done the groundwork
– are more concerned with the effective and efficient operation of an
ongoing business.
– are thoroughly trained in school in the area of business management.
– To managers, security is the utmost priority
- which comes in the form of a steady paycheck, pension, gratuity, pay
raises, job titles, promotions,
– is simply an employee that works in the entrepreneur’s business
– The manager’s rewards come in form of salaries, payoffs, promotion,
job title, bonus and incentives.
– are conservative and detest risk; they simply avoid it.
– avoid mistakes because it will cost them their job.
– Managers on the other hand are motivated by the next paycheck,
bonus, incentive, pay off, job title and promotion.
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Example of successful entrepreneurs?
• BILL GATES the world largest software business

• WARREN BUFFETS he owns more than 60 company

• MARK ZUKERBERG the founder of CEO of face book
which started in his collage dorm 2004. used by more
than billionaire
• CARLOS SILIM
• RICHARD BRANSON
• MICHAEL DELL
 Definition of enterprise
• An enterprise is the business organization that
provides;
– goods and services, creates jobs, contributes
to national income, exports and overall
economic development.

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 Creativity vs. Innovation

✓ Creativity is thinking new things

• Creativity is the ability to make or otherwise to bring in
to existence some thing new, whether a new solution
to a problem, a new method, or device, or a new
object.
• Creativity is the art of seeing things that every one
around us sees while making connections that no one
else has made.
• Every one has substantial creative ability, including you
the reader. So, you should count your self and believe
it that you are a creative genius.
• You can not innovate with out creativity
 Barriers to Creativity

Roger Von Oech (1990) identifies ten “mental

locks‟ that limit individual creativity
 searching for the one ‘right’ answer
 focusing on being logical
 blindly following the rules
 constantly being practical
 avoiding ambiguity
 fearing looking foolish
 fearing mistakes and failure
 believing that ‘I’m not creative
 Creativity to Entrepreneurship
• Creativity is the ability to develop new ideas
and to discover new ways of looking at
problems and opportunities.
• Innovation is the ability to apply creative
solution to those problems and opportunities
in order to enhance people’s lives or to enrich
society.

• Entrepreneurship = creativity + innovation

 Characteristics of creative persons

• Passion and commitment

• Inquiring
• Seek problems
• Enjoy challenges
• Comfortable with imagination
• Consider problems as opportunities
• Does not give up easily
• Flexibility
• Open and sensitive
• Risk takers
 Innovation
– Ability to apply creative solutions to problems
and opportunities
– Doing new things
– Innovation is intrinsically about identifying and
using opportunities to create new products,
services, or work practices (Van de Ven, 1986)

05/13/2024 49
 Areas of Innovation
• The following are some of the major areas in which
valuable innovation might be made.
A. New product: A new product can be developed
through new or existing technology. The new
product may offer a radically new way of doing
something or it may simply be an improvement on
an existing item. The new product must offer the
customer an advantage if it is to be successful.
B. New Services: A service is an act which is offered
to undertake a particular task or solve a particular
problem.
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C. New Production Techniques: Innovation can be made
in the way in which a product is to be manufactured. A
new production technique should allow the end user to
obtain the product at a lower cost, or a product of higher
quality or better service in the supply of the product.
D. New Way of Delivering the Product or Service to the
Customer: Customer can only use product/service they
can access. A common innovation is to take a more direct
routine by cutting out distributors or middlemen.
E. New Operating Practices: As with innovations in the
production of physical products, innovation in service
delivery must address customers need and offer them
improved
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 Innovation Rules

✓ Don’t kill a project

✓Tolerate failure
✓Keep divisions small
✓Motivate the champions
✓Stay close to the customer
✓Share the wealth

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 Types of innovation
1. Invention: discovery of new things
2. Extension: expansion
3. Duplication: replication of tech
4. Synthesis: combination of old/existing and
new idea

05/13/2024 53
• Creativity to relative to “imagination” but
innovation is related to “Implementation”
“productivity”
 THANK YOU!

.
GALATOOMAA!

By . EBISA T. (MBA)
 INDIVIDUAL ASSIGMENT
•
Evaluate ; criticize and recommend Ethiopian
case entrepreneurship

05/13/2024 56
 CHAPTER TWO
BUSINESS PLAN
• Why Planning is so important?
A Plan is a Bridge Which Takes us from the Present
to the Future.
Before we go into the nitty-gritty (essential) part
of business plan, it is important that every
individual understand the importance of planning
for the success of any venture. As the matter of
fact, in Ethiopia most of us are not used to the
planning process.
 What is Business Plan?

• A business plan is the written document that

details the proposed venture. It must describe
current status, expected needs, and projected
results of the new business. Every aspect of
the venture needs to be covered: the project,
marketing, research and development,
manufacturing, management, critical risks,
financing, and milestones or a timetable.
• With a Plan, at least we know in the
beginning:
• How to do what we want to do,
• How much money required,
• The risks,
• The benefits,
• Who to do what, and try to provide answers
to problems not yet faced.
• Without a Business Plan it’s like driving a car
at night without a head lamp/light!
• Business idea is like saying "Let’s GO“ But go
where, why, how, when, who, what if.
Reasons for Writing a Business Plan
Two main reasons to write a business plan:
• Internal— Forces the founders of the firm to
think through every aspect of their new
venture(An investment that is very risky but
could yield great profits)
• External— Communicates the merits of a new
venture to outsiders, such as investors and
bankers.
 Generally The Business Plan is
• A written summary of:
 An entrepreneur’s proposed business venture
 Its operational and financial details
 Its marketing opportunities and strategy
 Its managers’ skills and abilities and more…
 Why Take the Time to Build a Business
Plan?
• Although building a plan does not guarantee success, it does
increase your chances of succeeding in business.
1. Assessing the feasibility and viable of the business
plan/project: it is in every ones interests to make mistakes on
paper, hypothetically testing for feasibility, before trying the real
thing.
2. Setting objectives and budgets: having a clear financial vision
will believable budgets is a basic requirement of everyone
involved in a plan.
3. Calculating how much money is needed: a detailed cash flow
with assumptions is vital ingredient to precisely quantify earlier
the likely funds required.
 The Business Plan: Essential Functions

1. Guiding the company by charting its future

course and defining its strategy to follow.
2. Attracting lenders and investors who will
provide needed capital.
3. Demonstrating that the entrepreneur
understands the business venture and what will
make it succeed.
• The objectives of a business plan
are to:
• Give directions to the vision formulated by
entrepreneur.
• Objectively evaluate the prospects of business.
• Monitor the progress after implementing the
plan.
• Persuade others to join the business.
• Seek loans from financial institutions
• Users of Business Plan: A business plan has
two primary functions:
• To provide clearly articulated statement of
goals and strategies for internal use and,
• To serve a selling document to be shared to
the outsiders.
 Users of Business Plan
• Internal User of the Business Plan: Internal
users are, firms management and employees
of the venture.
• External Users of the Business Plan:
suppliers investors and lenders
• When the Business Plans are Produced?
1. At the start up of a new business : After the concept
stage of initial ideas and feasibility study, a new business
start up many go through a more detailed planning
stage of which the main output is the business plan.
2. Business Purchase:
Buying an existing business does not neglect the need
for an initial business plan. A detailed plan, which tests
the sensitivity of changes to key business variables,
greatly increases the prospective purchasers
understanding of the level of risk they will be accepting,
and likelihood of rewards being available.
3. Ongoing:
• Ongoing review of progress, against the objectives of
either a start up or small business purchase, is
important in a dynamic environment. An initial
business plan is not a document to be put in a drawer
and forgotten.
4. Major Decisions:
• Even if planning is not carried out on a regular basis, it
is usually investigated at a time of major change. For
example, the need for major new investment in
equipments, or funds to open a new outlet, It may be
linked to failure, such as a recovery plan for an ailing
(or in bad condition) business.
 Who Produced the Business Plan?

Three types of people will be interested in a business plan:

• Managers: are involved in small business planning as both
producers and recipients of the plan. Business plans are
written to aid small business managers.
• Owners: the manager of a small enterprise may also be
the owners and take a keen (eager) interest in the planning
process, wearing their shareholders hat.
• Lenders: the major banks/lenders all encourage the
production of business plans to justify overdrafts and
loans, offering literature and advice on putting together
business plans.
• Why some Business Plan Fails: Generally a
poor prepared business plan can be blamed
on one or more of the following factors:
• Goals set by the entrepreneur are
unreasonable
• Goals are not measurable
• The entrepreneur has not made a total
commitment to the business.
• The entrepreneur does not have experience in
the planned business
 Components of Business Plan (Outline of a Business Plan)

I) Introductory Page
• Name and address of the business
• Name(s) and address(s) of principals
• Nature of business
• Statement of financing needed
• Statement of confidentiality of report
II) Executive Summary
III) Industry Analysis
• Future outlook and trends
• Analysis of competitors
• Market segmentation
• Industry forecast
IV) Description of Venture
• Product(s)
• Service(S)
• Size of business
• Office equipment's and personnel
• Background of entrepreneur
V) Production Plan
• Manufacturing process (amounts sub contracted)
• Physical plant
• Machinery and equipments
• Names of supplier of raw material
• VI) Marketing Plan
• Pricing
• Distribution
• Promotion
• Production forecast
• E. Controls
• VII) Organizational Plan
• Form of owner ship
• Identification of partners and principal share holders
• Authority of partners
• Management team background
• Roles and responsibility of members of organization
• VIII) Assessment of Risks
• Evaluation of weakness of business
• New technologies
• Contingencies plan
IX) Financial Plan
• Pro forma income statement
• Cash flow projections
• Pro forma balance sheet
• Break even analysis
• Source and application of funds
X) Appendix
• letters
• market research data
• price lists from suppliers
 Executive Summary should be

• Clear— identify concept and purpose Concise

— one to two pages long Comprehensive—
answer basic who, what, when, where, and
how questions Compelling— generate
enthusiasm(A feeling of excitement)
• Written last
• Mission, Vision, and Culture Mission, Vision,
and Culture
• Mission— concise communication of strategy
with a business definition and competitive
advantage; expressed in a statement
• Vision— broad “picture” of what you want the
organization to become
• Culture— beliefs, values, and behavioral
norms of the organization which will form the
business “environment”
 Company Description

• If company is already established…

• Summary of company’s founding
• Overview of track record: business progress and
financial success
• If a start-up venture…
• Brief background story
• What has been done so far, and why
• Legal form of the business
• Brief explanation of where the idea for the company
came from
Description of Products/Services
• What are we selling? Is it in demand now, or
in future?
• What is so special about our Product?
• Who wants our Product?
• What’s the Market Share and Demand?
• What are the Competitions? It's a matter of
re-discovering, build a better product, better
tasting chocolates, better computers, etc.
 Marketing Plan
• A Marketing Plan is a careful study of the Market
Situation and will tell you many things:
 Who are our Customers, where are they, how to get
them?
 Who are our Competitors and what makes us special
above them?
 Can we re-engineer and re-brand a saturated product?
 How do we market and package out Product to our
Customers.
 How do we serve our Customers and Employers?
 Budget Plan
• If you don’t have enough money to start, and maintain the
business in short/long term, better not to start.
• Do you have enough money to do the business: (setup
costs, operation costs, maintenance costs), and if not what
are your plans?
• If we spend more than we earn, then we will go bankrupt in
no time, so our Budget Plan will take care of this Sources
and uses of capital Cash flow projections
• Balance sheet projections
• Income statements
• Breakeven analysis
 Management Plan
• All companies will fail if you don’t have good management.
• Management plan will determine the following (in crude
terms) :
• Who is the Boss, the one with the Final Say Who is Money
Man (not accountant but someone or some company who
provide finance)
• Who is the Peddler/dealer
• Who is the Brain
• What is the mechanism, the rules, regulations, terms and
conditions, agreements, roles and functions, etc.
 Production/Operation Plan
• We need a Factory, Workers, Plants &
Machineries, etc…
• If we plan these now, we can have the best
product design in the world but if we don’t
have a product making plant then it's
practically just an idea, useless.
• Legal Issues Legal Issues
• We got everything sorted out, but do we have
the licenses to make our Products? Sell or
export our products? Do we have to comply
with Quality Standards, Regulations, Taxes,
Certifications?
 TE R
H A P
O F C
EN D
TWO A
O O M !
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 Chapter Three
Business Formation
Objectives:
 This chapter discusses the issues of business
development and the different legal forms of
business.
 In addition the concept of MSEs in the Ethiopian
and international context are discussed.
 The importance/roles and set up of MSEs are
discussed very well. Besides the success and
failure factors of MSEs and the common problems
of MSEs in Ethiopia are discussed
 Setting Small Business

• In the first, the product or service that we offer

must satisfy a customer’s unmet need.
• This may mean a brand-new product or service
or it may mean finding a way to provide a
product or service at a lower price than currently
available
• A business formation deals with the

formalization and actual implementation of

business ideas in to practice

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 What is business?
• Business Is defined as an organization or
enterprising entity engaged in commercial,
industrial or professional activities.
• Business can be for profit entities or they can be
nonprofit organization that operate to fulfill a
charitable mission or further a social cause.
• Business is an occupation or trade and the
purchase and sale of products or services to
make a profit. Example farming, house sale

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• Small business is a business that is privately owned and operated, with a
small number of employees and relatively low volume of sales.
• Small businesses are normally privately owned corporations,
partnerships, or sole proprietorships.
• The legal definition of "small" varies by country and by industry, ranging
from fewer than 15 employees under the Australian Fair Work Act 2009,
50 employees in the European Union, and fewer than 500 employees to
qualify for many U.S. Small Business Administration programs. Small
businesses are common in many countries, depending on the economic
system in operation.
• A 'small business' is a separate and distinct business entity, including
cooperative enterprises and non-governmental organizations, which is
managed by one or more owners and which predominantly carries on
business in any sector or subsector of the economy.‖
• There is no universally accepted definition of MSEs both in Ethiopia and
in the rest of the world. Most of the time even definitions in other
countries lack uniformity and usually reflect the relative development of
the respective economies (Beyene, 2000). And in the same way, the
definition employed in Ethiopia is also quite different from others defined
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 Brainstorming !!!!!!!
• What is for profit organization?
• What is nonprofit organization? (Hospital,
charitable org )
• What is not-for- profit organization?
(Recreational org)

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• There are two approaches to define small business. They are: Size Criteria,

and

 Economic/control criteria

 But all may use size and economic criteria as a base to define small business.

Size criteria include number of employees and the startup capital.

 Size does not always reflect the true nature of an enterprise; in addition,

qualitative characteristics are used to differentiate small business from other

business.

 The economic/control definition covers market share, independence and

personalized management.

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 1. Size Criteria
• To provide a clearer image of the small firms, the following
general criteria for defining a small business are suggested
by Small Business Administration (SBA).
 Financing of the business is supplied by one individual or
a small group. Only in a rare case would the business
have more than 15 or 20 owners.
 Except for its marketing function, the firm’s operations
are geographically localized.
 Compared to the biggest firms in the industry, the
business is small.
 The number of employees in the business is usually fewer
than 100
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 2. economic criteria
• Size does not always reflect the true nature of an
enterprise. In addition, qualitative characteristics may
be used to differentiate small business from other
business. The economic/control definition covers:
• Market Share (not large enough)
• Independence (owner has control of the business
himself/herself.)
• Personalized Management. (owner actively participates
in all aspects )
• Geographical Area of Operation (small firm is often local)
• Technology: (SB is generally labor intensive)
Technology: 94
 Forms of small Business
• There are three basic legal forms of business
formation with some variations available
depending on the entrepreneurs’ needs.
The three basic legal forms are:-
1) Proprietorship,
2) Partnership, and
3) Corporation, with variations particularly in
partnerships and corporations.
1) Proprietorship Form of business with single
owner who has unlimited liability, controls all
decisions, and receives all profits.
2) Partnership Two or more individuals having
unlimited liability who have pooled resources to
own a business
3) Corporation Separate legal entity that is run by
stockholders having limited liability
• These three basic legal forms are compared
with regard to ownership, liability, start-up
costs, continuity, transferability of interest,
capital requirements, management control,
distribution of profits, and attractiveness for
raising capital.

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 What are the difference between small business vs
entrepreneurial ventures?
• There is a difference between small business owners and entrepreneurial ventures

• An entrepreneurial venture often is a growth-oriented innovative company with

product or service offerings that are new to the market.

• Small businesses could be entrepreneurial ventures.

• Most entrepreneurial ventures start as a small business.

• small businesses owners work with known products and services aimed at

incremental growth, and their innovation is focused on sales, marketing, and

market expansion.

• Entrepreneurial ventures incorporate a different set of strategies. These entities

are aimed at rapid growth and apply innovation and creativity at every node of

the business process.

• They work
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  Specifying size and standard to define small business is necessary

because people adopt different standards for different purposes .

 a business may be described as “small” when compared to larger

firms, but “large” when compared to smaller ones.

 For example, most people would classify independently owned

gasoline stations, neighborhood restaurants, and locally owned

retail stores as small business.

 Similarly, most would agree that the major automobile

manufacturers are big businesses. And firms of in-between sizes

would be classified as medium on the basis of individual viewpoints.
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Classification of Micro and Small
Enterprises
1. In Case of Manufacturing Enterprise
(Manufacturing, Construction and Mining):
a) A Micro Enterprise is one in which the investment in
plant and machinery (total asset) does not exceed birr
100, 000 (one hundred thousand); and operates with 5
people including the owner.
b) Small Enterprises is
 investment in plant and machinery (a paid up capital
of total asset) of birr100, 000
 not more than Birr 1.5 million
 operates with 6-30 persons.
 In Case of Service Enterprise
(Retailing, Transport, Hotel and Tourism, ICT and
Maintenance):
a) A micro enterprise
 total asset is not exceeding Birr 50,000
 operates with 5 persons including the owner
of the enterprise.
b) Small Enterprises
 total asset value or a paid up capital of birr
100, 000
 not more than Birr 1.5 million
 operates with 6-30 persons
 Priority Sectors and Sub-Sectors for
MSEs Engagement In Ethiopia
1. Manufacturing Sector-
• This is the one which comprises textile and garment;
leather and leather products; food processing and
beverage; metal works and engineering wood works
including furniture and ornaments service; and agro-
processing.
2. Construction Sectors-
• This is the one which comprises sub-contracting;
building materials; traditional mining works; cobble
stone; infrastructure sub-contract; and prestigious
goods
• 3. Trade Sectors- This is the one which
comprises whole sale of domestic products; retail
sale of domestic products and raw materials
supply.
• 4. Service Sectors- This is the one which
comprises small and rural transport service; café
and restaurants; store service; tourism service;
canning/packing service; management service;
municipality service; project engineering service;
decoration and internet café
5. Agriculture Sector (Urban
Agriculture) –
This is the one which comprises modern livestock
raring; bee production; poultry; modern forest
development; vegetables and fruits; modern
irrigation; and animal food processing.
 Levels of MSEs in Ethiopia
• Start-up:- Start up level refers to enterprises
that incorporate people who are interested to
establish MSE and those who completed the
required profession/skill from various institutions
and innovated by legally either in the form of
association or private.
• It is a level where an enterprise begins production
and service under legal framework or legal entity.
 Growth Level: -
• An enterprise is said to be at growth level
when an enterprise become competent in
price, quality and supply and profitable using
the support provided.
• At this level, the enterprise man power and
total asset is larger than at startup level; and
use book keeping system.
 Maturity Level: -
• Maturity level means when an enterprise able
to be profitable and invest further by fulfilling
the definition given to the sector and using
the support provided
• Growth- Medium Level:- An enterprise is said
to be transformed from small to medium level
of growth is when it enabled to be competent
in price, quality and supply using the support
given to the level.
 2.10 Steps in Setting Up Small Businesses

• An entrepreneur needs to take the following steps:

1. Search for Business Idea: The task of promotion begins
with the search for a suitable business idea or opportunity.

 Sources of Business ideas

• Work experience
• Hobbies
• Deliberate search
• Observing the market
• Customers
• Government organizations
• Distribution channels, trade fair and exhibitions and mass
medias
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2. Idea Processing/ Screening
• Business ideas/opportunities need to be screened
and assessed for the viability.
• SWOT Analysis
Criteria To Screen Business Ideas Include
 Marketability/demand
 Profitability of the idea if implemented
 Availability of raw materials
 Ease of implementation
 Financial feasibility
 Government support and incentives
 Personal goals and competencies of the entrepreneur
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3. Idea selection
• The feasibility report is analyzed to finally choose the most
promising idea.

4. Assemble the necessary input requirements

• Assembles the necessary resources to launch the enterprise like:
Choose partners/collaborators
Collect the required finance
Acquire land and buildings
Plant and machinery
Furniture and fixtures
Patents
Employees

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5. Establish the Enterprise
The form of ownership is to be decided upon
and the company formed and registered.
Dealing with various government bodies and
other institutions like:
Financial institutions- for finance
Sales tax, Income tax authorities- for
respective registration
Licensing authority- for obtaining industrial
license

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 Cont’d
 Municipal Authorities and Electricity- for requisite
utilities.
Directorate of Industries, Municipal
Authorities etc. for land, factory and shed
etc.
Ordering machineries from suppliers
Recruitment of staff
Arranging supplies of materials
 Arranging for distribution of the product

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 In General…
• The entrepreneurial process of launching a
new venture can be divided into three key
stages of: Discovery; Evaluation; and
Implementation
• Macro environment
• Sectorial analysis
• SWOT analysis
• Product and service

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 Why are MSEs Important in any Countries?

 Providing great Job Opportunities:

 The small business sector can make significant
contribution to employment generation and also
to rural industrialization, because of its low
capital intensity and high labor absorption nature
 Export contribution: Overall small business
production contributes to the growth of export
trade and related business to the country and
improves the foreign trade which would result in
foreign currency income.
• Optimal utilization of local resources
The wide spread dispersal of small businesses also
contributes to an effective and optimal utilization of
local resources. This is augmented by the fact that
the use of traditional or conservative technologies
by the small firms does not require superior inputs.
The servicing of local demands and markets by small
business units enables better utilization of local
resources especially raw material which if
transported outside, will lead to drain of material
from the country. Independence is another
advantage of owning a small business.
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 Continued…
• Protection of Environment: MSEs help to
protect the environment by reducing the
problem of pollution.
• Promotion of Self Employment: MSEs foster
individual skill and initiative and promote self-
employment particularly among the educated
and professional class.
• Introducing Innovations: new
products which originate in the research
laboratories of big businesses make a valuable
contribution to our standard of living.
There is a question, however, as to the relative
importance of big businesses in achieving the
truly significant innovations.
• Aiding Big Businesses: the fact that
some functions are more expertly performed by
small businesses enables small businesses to
contribute to the success for larger ones
• Producing Goods and Services:
• we depend highly on small businesses for the
provision of most goods and services we need
in our lives.
• In fact, if it was not for small businesses, we
would have not been able to find the goods and
services we need at the time
Removing Regional Imbalance
• Moreover, undue concentration of large
industries in urban areas creates several
problems. E.g., pollution, slums, shortage of
civic facilities, etc. due to employment
opportunities in the countryside, people
migrate in large number to big cities
 2.6 Merits and Demerits of Small
Businesses
 Advantages of owning a small business:
i. Independency
ii. Financial Opportunity
iii. Job Security
iv. Community Service
v. To Practice Challenge
Disadvantages of owning a small business:

Competition
Sales Fluctuation
Increased Responsibilities
Risk of Failure
Employee relations
 What are the Problems of Small Business
in Ethiopia?
 Securing finance: One of the primary problems that
could be given priority is the difficulty in securing funds
for the establishment and running of the small
business enterprises.
 Lack of management competence and exposure: The
business activities are to be guided and lead by
competitive personnel to attain the desired financial
and non financial goals
 Non availability of raw materials: One of the serious
problems facing today‘s small entrepreneurs in
Ethiopia is the lack of suitable raw materials
• Widespread corruption:
When the issue of corruption is raised in Ethiopia
almost always we mean the involvement of a
private party that pays, or is ready to pay, money
to a public figure in order to gain advantage. This is
generally referred to as private to public
corruption.
Because this type of corruption is said to impede
the development of markets, drive away
investment, increase the costs of doing business,
and undermine the rule of law
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• Limited government support: The amount of support
provided to the small entrepreneurs and women
business population is not reached the required level.
So the encouragement for people to engage in small
businesses remains to be challenging
• Absence of technological know-how: One of the
serious problem hinders the growth of small business
in Ethiopia is lack of education and especially in the
technical knowhow. Irrespective of the government
steps in increasing the education and training in the
entire needed fields like agriculture, information
technology, health, etc. the problem of poor
knowledge still persists to become a major factor
responsible for the wastage of resources.
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• The small businesses and their revenue are not stable
sometime up and sometime down, also the needs of
the Ethiopian people is very limited
• Small-scale units do not have easy access to the capital
market
• They do not have access to industrial sources of
finance partly because of their size and partly because
of the fact that their surpluses which can be utilized to
repay loans are negligible.
• Small-scale enterprises find it difficult to get raw
materials of good quality and at cheaper rates in the
field of production. Very often they do not get raw
materials in time
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In general…
• Small-scale businesses have not been able to
contribute substantially to the economic
development, particularly because of
financial, production, and marketing
problems.
• These problems are still major handicap to
their development.
• Lack of adequate finance and credit has
always been a major problem of the Ethiopian
small business.
 Brainstorming?
• List Problems facing the Ethiopian
small business industry?
• The role of small business is of
decisive importance in any
economy. List the benefit of
micro and small business for an
economy?

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 Methods of generating Business ideas
market
Careful observation of markets can reveal a
business idea.
 Market can reveal the demand and supply
position for various products.
 unfulfilled demand will open the door for new
product or service Government organization:
 Several government organizations nowadays
assist entrepreneurs in discovering and
evaluating business ideas.
Development in other nations:

People in under developed countries generally

follow the fashion trend of developed countries.
Therefore an entrepreneur can discover good
business idea by keeping in touch with
development in advanced nations.

Sometimes, entrepreneurs visit foreign countries in

search of ideas for new product or service.
  Trade fairs and exhibitions:

 National and international trade fairs are very good sources of business

idea. At these fairs, producers and dealers in the concerned industry

put up their products for display and / for sale

 Social and economic status of people is always dynamic in nature and

offer wide opportunities. An entrepreneur should observe such change

• Emerging new technology: Commercial exploitation of indigenous

or imported technologies and know how is another source of
project idea
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 Development bank, state industrial development corporation,

technical consultancy organization, etc. provide assistance in

technical, financial, marketing and other areas business.

 Government rule, regulation and policy on import and export,

research and training service etc encourage entrepreneurs to think

about the new option

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 Small Business Failure Factors
What Is Business Failure?
• Dun & Bradstreet, a financial research firm,
defines a business failure as a business that
closes as a result of either
• (1) actions such as bankruptcy, foreclosure, or
voluntary withdrawal from the business with a
financial loss to a creditor; or (2) a court action
such as receivership (taken over involuntarily)
or reorganization (receiving protection from
creditors).
 Small Business Failure Factors
• The causes of business failure are many and
complex; however, the most common causes are
inadequate management and financing.
• Inadequate Management: - Business
management is the efficient and effective use of
resources. As a small business manager, you will
probably have to make decisions in areas in
which you have little expertise.
• Small business owners must be generalists; they
do not have the luxury of specialized
management.
• Entrepreneurs are generally correct in pointing
to as the reason for the failure of their
businesses; these factors are the cause of 89
percent of such failures. Internal problems are
80 those more directly under the control of the
manager, such as
• adequate capital,
• cash flow,
• facilities/equipment inventory control,
• human resources, leadership, organizational
structure, and accounting systems.
 Inadequate Financing: -
Business failure due to inadequate financing can
be caused by improper managerial control as
well as shortage of capital.
There are a lot of ways to fail in business. You
can extend too much credit. You can fail to plan
for the future or not have strategic direction.
other common causes of business failure include
 Neglect,
 Fraud, and Disaster.
 Continued…
• Neglect occurs whenever an owner does not
pay a due attention to the enterprise.
• fraud involves intentional misrepresentation
or deception.
• Disaster refers to some unforeseen happening
 IN GENERAL…
• MSEs failure attributing by many factors. These are:
A. External factors
B. Personal (internal) factors
A. External factors
 Business cycles
 Fluctuating
 Interest rate
 Interrupted supplies
 Labor market
 Inflation
 Government regulations
 Unstable financial markets
 B. Personal (internal) factors

 Inexperience
 Arrogance
 Mismanagement
Over investment on fixed assets
Poor financial and inventory control
Poor business philosophy
Lack of planning
 Business Termination versus
Failure
• Mistakes Leading to Business Failure No one
likes to think about failing, yet many small
business owners invite failure by ignoring
basic rules for success. One of the most
common mistakes is to neglect to plan for the
future because planning seems too hard or
time-consuming.
• Planning which is the process of setting
objectives and devising actions to achieve
those objectives, answers such as what
business I have? What is my sales strategy?
Where I can found the needed personnel?
How much profit can I expect? Planning is the
process never ends for a business. For any
given organization, it is possible to find
financial plan, marketing plan, and human
resource plan, production plan, and sale plan,
etc.
Small Business Success Factors

• These success factors are categorized as:-

1. Conducive Environment
 political climate
 Technology
 Economic Environment
2. Adequate Credit Assistance
3. Markets and Marketing Support.
• .

T E R
A P
CH
O F E E
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 Sudden QUIZ 15%
1, What is small business Describe four causes of
small business failure and what can be the
success factor for the SME ?
2, what is intellectual property? list and discuss the
component of IP?
3. What Motivates a Consumer to Take
Action?

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 CHAPTER FOUR
Product and Service Concept
• CONCEPT OF PRODUCT AND ITS CLASSIFICATION
A Product is anything that can be offered to a market
for attention, acquisition(Skill), use, or consumption
and that might satisfy a want or need.
 Physical objects
 – Services – Places
 – Events – Organizations
 – Persons – Ideas
– Mixes of these
• The product policy and strategy is the corner
stone of the marketing mix or 4Ps called
( product, price, place and promotion)
• Product is also a set of tangible and intangible
attributes including packaging, colour, price,
manufacturer’s prestige, retailer’s prestige and
manufacturer’s and retailer’s services which
buyer may accept as offering satisfaction of wants
and services.
• A famous foot ball player like SADIO MANE, is a
product (person) bought by many countries and
clubs.
• Service – any activity or benefit that one
party can offer to another that is essentially
intangible.
• GOODs are a tangible product.
Product are not only includes physical objects
and services but also the supporting services like
brand name, packaging accessories, installation,
after sales service etc. for example computer.
PRODUCT CLASSIFICATION
Product can be broadly classified on the basis of (1) use, (2) durability, and (3)
tangibility
A. Based on use.
1. Consumer products
• Consumer products are products bought by final consumers for personal
consumption.
• These products can be classified on the basis of consumer shopping habits.
A. Convenience products
Bought frequently, immediately, minimum of comparison and buying effort
 Usually low priced, and are readily available from many locations
– E.g. soap, candy, newspapers, ...
B. Shopping products
Less frequently purchased, customers compare carefully on suitability, quality,
price, style, and are ready to spend time and effort in the buying process
– E.g. furniture, clothing, used cars, major appliances, hotel/motel services
C. Specialty products
Products/services with unique characteristics or brand
identification, a significant group of buyers is willing to make a
special purchase effort
– E.g. specific car brands, expensive photographic equipment,
designer clothes, medical or legal specialists
D. Unsought products
Products that the consumer (a) does not know about or (b) knows
about but does not normally think of buying
 Most innovations are unsought goods until consumers become
aware of them through e.g. advertising
 By very nature, require a lot of advertising, personal selling, and
other efforts
– E.g. life insurance, blood donations
2. Based on Durability, the products can be
classified as:
(a) Durable Goods; and
(b) Non-durable Goods.
3. Based on tangibility, the products can be
classified as:
(a) Tangible Goods : GOODs
(b) Intangible Goods Service – any activity or
benefit that one party can offer to another that is
essentially intangible.
• Industrial Product
• Material and parts
• Capital items
• Supplies and services
 Introductory Stage

• High failure rates

• Little competition
• Frequent product modification
• Limited distribution
• High marketing and production costs
• Negative profits
• Promotion focuses on awareness and information
• Intensive personal selling to channels
 Growth stage
• Increasing rate of sales
• Entrance of competitors
• Market consolidation
• Initial healthy profits
• Promotion emphasizes brand ads
• Goal is wider distribution
• Prices normally fall
• Development costs are recovered
 Maturity Stage
• Declining sales growth
• Saturated markets
• Extending product line
• Stylistic product changes
• Heavy promotions to dealers and consumers
• Marginal competitors drop out
• Prices and profits fall
• Niche marketers emerge
 Decline Stage

• Long-run drop in sales

• Large inventories of
unsold items
• Elimination of all nonessential
marketing expenses
 NPD
• Product development is the process through which
companies react to market signals, respond to changes
in customer demand, adopt new technologies, foray
into new areas, and ensure continuous growth.
• It is a core process in achieving strategic objectives,
renewal of the company business model and deterring
competition from displacing the company from its
market position.
• Product/service development process is part of the
overall new-venture creation process.

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These stages can be referred to as:
1. Idea Generation
2. Incubation
3. Implementation
4. Diffusion

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Major stage in new product development

• Idea generation
• Idea screening
• Concept development
• Market strategy
• Business analysis
• Product development
• Test marketing
• commercilazation
 Source of idea

• Some of the more fruitful sources of ideas for

entrepreneurs include consumers, existing
products and services, distribution channels,
the federal government, and research and
development.
• Internal sources
• Customers
• Competitors
 Idea screening

The ideas should be written down and reviewed

each week by an idea committee who should
sort the ideas into three groups- Promising
Ideas, Marginal Ideas, and Rejects: Each
promising idea should be researched by
committee member.
Process to spot good ideas and drop poor ones
 Concept Development and Testing

Attractive ideas must be refined into fast able

product concepts since people do not purchase
ideas but they buy concepts. Any product idea
can be turned into several product concepts
At this stage, the concepts can be in words or
picture description.
 Marketing Strategy Development

• After testing the new product the concerned

body must develop a preliminary marketing
strategy plan for introducing the new product
into the market.
 Business Analysis

The simplest is breakeven analysis

IfIfNo,
No,Eliminate
Eliminate
Product
ProductConcept
Concept
 Product Development

• If product concept passes the business test, it

moves to R&D or engineering to be developed
to one or more physical version of the product
concept
 Market Testing

• After management is satisfied with the

products’ functional and psychological
performance, the product is ready to be
dressed up with the brand name.
 Commercialization

• When (Timing):- In commercializing, market

entry timing is critical. If the company hears
about a competitor nearing the end of its
development work
 What is Intellectual Property?

• Intellectual property is a legal definition of ideas,

inventions, artistic works and other commercially
viable products created out of one's own mental
processes
• Intellectual Property which includes patents,
trademarks, copyrights, and trade secrets
represents important assets to the entrepreneur
and should be understood even before engaging
the services of an attorney.
 Product protection
• What are copy right, patents and trade marks?
• Intellectual property laws
• An intellectual property resulting from mental
processes.
• Protection of the owners right to protect or profit
from the use of his or her property.
• Copyright law
protect authorized works
• Patent laws
protect invention
 Patent
• An entrepreneur who invents a new thing or improves an
existing invention needs to get legal protection for her
invention through a patent right
• Is a contract between the government and an inventor.
• A legal monopoly granted by government
• Allows the inventor an exclusive right to make use and sell
an invention for twenty (20) years
• Non-Patentable Invention: As per the patent regulations
of Ethiopia, the following inventions shall not be granted
patent protections:
• Inventions contrary to public order or morality.
• A patent provides the owner with exclusive rights to
hold, transfer, and license the production and sale of a
product/process.
• It is an intellectual property right and It is issued by
government to the inventor.
• This exclusive property right can be granted for a
number of years depending on the countries laws and
type of property.
• Patents are property rights that can be sold and
transferred, willed as well as licensed and at times
used as collateral
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• Discoveries of scientific theory and mathematical
methods
• Methods for the treatment of the human or
animal body by surgery or therapy, as well as
diagnostic method practice on human or animal
body.
• Major patent issue:
 Human genome
 Pharmaceutical
 Agro chemical products
 Copyrights
• Copyright protect only the expression of ideas as long as its
original. Does not protect the ideas themselves.
• A work is original when its created independently and
 Skill
 Labor
 Judgment are applied to it.
• With the exception, copyright owners have the exclusive right to
make copies of the work
Produce derivative works
Distribute copies
Perform the work in the public
Display the work in public
Author may grant exclusive right to others
 Copyright
• An intangible right to given the author or
originator of certain literary or artistic
production.
• Exist automatically upon creation of an original
work
• Copyright Examples
 computer software writing (novels, books)
 My ppt slides
• Copyright is protected for the life of the author
plus fifty years. Fifty years for the rights of
performers and producers of sound Recordings
and 20 years for the rights of broadcasting
organizations.
• Copy right includes books, articles, computer
programs and other writings; speeches,
lectures, addresses, sermons, and other oral
works; dramatic, dramatic-musical works,
pantomimes, choreographic works, and other
works created for stage production; musical
works, with or without accompanying words;
audiovisual works and sound recordings works of
architecture; works of drawing, painting,
sculpture
 QUIZ 5%
• What advice would you give to a business
colleague who is about to start a new high-
tech firm that has developed a new accessory
for computer tablets? Would you recommend
that s/he seek a patent immediately?
 Trade mark
• A trademark may be a word, symbol, design, or
some combination of such, or it could be a slogan
or even a particular sound that identifies the
source or sponsorship of certain goods or
Services. example Google, IBM, MICROSOFT
• Trademarks unlike patents are periodically
renewed unless invalidated by cancellations,
abandonment, or other technical
registration/renewal issues.
 Trade mark
• Any word phrase, symbol, design , sound, smell,
color, product configuration, group of letters, or
numbers, or combination of this product
adopted and used by company to identify its
product and service and distinguishing them
form products and services made, sold, or
provided by others.
• Help customer to identify a product without
confusion.
 What can be protected as Trade mark?
• Olfactory (Smells such as perfumes)
• Three dimensional signs (like Coca-Cola)
• Audible signs (sounds Nokia )
• Slogan
 Four main function of Trade Mark ?

• Distinguishing the products or services

• Referring to a particular enterprise
• Referring to a particular quality of the product
or service
• Promoting the marketing and sale of the
product and rendering of services.
Benefits of a Registered Trademark
• It provides notice to everyone that you have exclusive rights to
the use of the mark throughout the territorial limits of the
country.
• It entitles you to sue in federal court for trademark
infringement, which can result in recovery of profits, damages,
and costs.
• It establishes incontestable rights regarding the commercial use
of the mark.
• It establishes the right to deposit registration with customs to
prevent importation of goods with a similar mark.
• It entitles you to use the notice of registration (®).
• It provides a basis for filing trademark application in foreign
countries.
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 What cannot be trade marked?
• Personal names, descriptive or generic words
or places name.
• Franchise: It is the right and license to sell a product or
service and possibly the entire business system
developed by another company in return of a royalty and
conformity to a standard operating procedure. It is an
intellectual property which is sold in return of royalty.
• Franchisor: is usually the manufacturer or sole
distributor of a trademarked product or service who has
a considerable experience in that business.
Eg owners of Kodak, Pepsi, etc
• Franchisee: is an individual entrepreneur who purchases
the franchise in return for royalty and conformance to
standard operation and who in the process gets the
opportunity to enter an established entrepreneur.
• End of chapter four
 CHAPTER 5:
MARKETING

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• What is a market?

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• 1. Place concept: A market may be
considered as convenient meeting
place where buyers and seller gather
together for exchange of goods. We go
to buy shoes, clothes, vegetables, fruits,
etc., to nearby places in our city.

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2. Area Concept: It is the economic concept.
Any area providing a set of price-making forces
may become a market; we need three conditions:
1. Unmet wants
2. Products to meet this demand
3. Means of interaction or intercommunications so
that forces of demand and supply can interact to
determine the price without face- to-face
meeting of seller and buyer
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• 3. Demand Concept: Today, a market is
equated with the total demand.

• Hence, market means a group of people

having unmet wants, purchasing power to
make their demand effective and the will to
spend their income to fulfill those wants.

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‘’A market as an area of potential exchanges”
Thus, a market is a group of buyers and sellers
interested in negotiating the terms of purchase/sale
for goods or services.
The negotiation work may be conducted face-to-
face at a certain place or it may be done through
other means of communication, such as
correspondence, phone, cable, or it may be done
through business middlemen, e.g., brokers and
commission agents.

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• Marketing is a societal process by which
individuals and groups obtain what they need
and want through creating, offering, and
exchanging products and services of value
freely with others(Philip Kotler,2012).
• Marketing is the process of planning and
executing the conception, pricing, promotion,
and distribution of ideas, goods, and services
to create exchanges that satisfy individual and
organizational goals.
• The above definitions of marketing reset on the
following core concepts
• needs, wants and demands; products (Goods,
Services and Idea), value, cost and satisfaction:
exchange and transaction; Relationship and
Networks; market; and marketers and prospects.
• Marketing answers the following questions
• Who are my customers?
• What are my customer’s needs and wants?
• How can I satisfy my customers’?
• How do I make a profit as I satisfy my customers?
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• Value: - is the consumer’s estimate of the products
overall capacity to satisfy his or her needs.
• According to DeRose, value is “the satisfaction of
customer requirement at the lowest cost of acquisition,
ownership and use”.
• Cost: - is the amount of money that are going to be
expended or already incurred to acquire a product.
• Exchange: - is the act of obtaining a desired product
from someone by offering something in return.
• Transaction: - is the trade of values between two parties.
• Market: - consists of all the potential customers sharing a
particular need or want who might be willing and able to
engage in exchange to satisfy their need or want :
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 How can I satisfy my customers’?
 How do I make a profit as I satisfy my
customers?
 Who are your customers?
Your customers are the people or other businesses
that want your products/ services and are willing to
pay for them.
They include; People who are buying from you now.
People you hope will buy from you in the future.
People who stopped buying from you but you hope
to get them back.
Marketing core • Transaction
concepts: • Relationship and
• needs Networks
• wants • market; and marketers
• Demands and prospects.
• products (Goods, Marketing answers the
Services and Idea), following questions:
• Value  Who are my
• cost customers?
• Satisfaction  What are my
customer’s needs and
• exchange
wants?
The core concepts of marketing answers the
following questions:
• What Motivates a Consumer to Take Action?
• What Will Satisfy Consumer’s Needs and Wants?
• How Do Consumers Choose Among Products
and Services?
• How do Consumers Obtain Products and
Services?
• Where to obtain?

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What Motivates a Consumer to Take Action?
• Needs - state of felt deprivation for basic items such as
food and clothing and complex needs such as for
belonging. i.e. I am thirsty
• Abram mass low theory of motivation

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• Physiological Needs
The physiological needs include those that are vital to survival. Some examples of physiological needs
include:
Food, Water, Breathing & Homeostasis
 security and Safety Needs
 At the second level of Maslow’s hierarchy, the needs start to become a bit more complex. At this
level, the needs for security and safety become primary.
 People want control and order in their lives. Some of the basic security and safety needs include:
 Financial security, Health and wellness & Safety against accidents and injury
• Social Needs
The social needs in Maslow’s hierarchy include love, acceptance, and belonging. At this level, the need for emotional
relationships drives human behavior. Some of the things that satisfy this need include:
Friendships, Romantic attachments, Family relationships, Social groups, Community groups & Churches and
religious organizations
• Esteem Needs
At the fourth level in Maslow’s hierarchy is the need for appreciation and respect.

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 Continued…
• Self-Actualization Needs
There are many motivations behind the need for self-actualisation. From a high level they can be
categorized as any need for knowledge, beauty, and creativity. Some of these are the need for:

Wholeness (unity),
Perfection (balance and harmony)
Completion (ending)
Justice (fairness)
Richness (complexity)
Simplicity ( essence)
Liveliness (spontaneity)
Beauty (rightness of form)
Goodness (benevolence)
Uniqueness (individuality)
Playfulness (ease)
Truth (reality)
Autonomy (self-sufficiency)
Meaningfulness
05/13/2024 (values 200
 Continued…..
• Wants - form that a human need takes as shaped by
culture and individual personality. i.e. I want a Coca-
Cola. –
 Wants are desires for specific satisfiers of needs.
 Human wants are continually shaped and reshaped by
social forces and institutions including churches,
schools, families and business cooperation. Eg. A person
needs food but wants
• Demands - Demands are wants for specific products
that are backed by ability and willingness to buy them.
 Wants become demand when supported by purchasing
power.
 human wants backed by buying power. i.e. I have
money
05/13/2024 to buy a Coca-Cola 201
What Motivates a Consumer to Take Action?

05/13/2024 202
How
How Do
Do Consumers
Consumers Choose
ChooseAmong
Among
Products
Products and
and Services?
Services?
• Customer Value - benefit that the customer gains
from owning and using a product compared to
the cost of obtaining the product.
• Customer Satisfaction - depends on the
product’s perceived performance in delivering
value relative to a buyer’s expectations. Linked
to Quality and Total Quality Management
(TQM).

05/13/2024 203
How
How dodo Consumers
Consumers Obtain
Obtain Products
Products and
and
Services?
Services?
• Exchanges - act of obtaining a desired object from
someone by offering something in return.

• Transactions - trade of values between parties.

Usually involves money and a response.

• Relationships - building long-term relationships

with consumers, distributors, dealers, and suppliers.

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 Importance of Marketing

• A customer purchases a product because it

provides satisfaction.
• That something that makes a product capable of
satisfying want is its utility. And it is through
marketing that much of a products utility is
created.
• Then potential buyers must be informed about
the products existence and the benefits it offers
through various forms of promotion.
• The kinds of utility that marketing provides in the
process are as follows:
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• Form Utility: Form utility is associated primarily
with production- the physical or chemical
changes that make a product more valuable
includes product design, color, quantities
produced, or some other aspect of a product.
• All of these things contribute to the product’s
form utility.
• Place Utility: Place utility exists when a product
is readily accessible to potential customers. So
physically moving the products to a store near
the customers add to its value.
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• Time Utility:
Time utility means having a product available when
you want it.
• Information Utility:
Information utility is created by informing potential
buyers that a product exists.
• Possession Utility:
Possession utility is created when a customer buys
the product-that is, ownership is transferred to the
buyer

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 Origin of marketing concept
• There are five competing concepts under which
organizations can choose to conduct their
marketing activities:
namely, the
• production concepts,
• the product concept,
• the selling/sales concept,
• the marketing concept,
• the societal marketing concept and
• the Relationship Marketing Concept

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Marketing concepts /Marketing philosophies
• Companies can adopt one of five orientations toward the
marketplace.
 The production concept assumes that consumers want widely
available, affordable products;
 The product concept assumes that consumers want products with
the most quality, performance, or innovative features;
 The selling concept assumes that customers will not buy enough
products without an aggressive selling and promotion effort;
 The marketing concept assumes the firm must be better than
competitors in creating, delivering, and communicating customer
value to its chosen target markets; and
 The societal marketing concept assumes that the firm must
satisfy customers more effectively and efficiently than competitors
while still preserving the consumer’s and the society’s wellbeing.
1. Production concept
 is one of the oldest concepts
 Focus on the means of production, and assumes customers will
want the product/service.
 consumers will favor products that are widely available and low in
cost.
 concentrate on achieving high production efficiency and wide
distribution.
 company focuses on the internal capability of the firm rather than
on the desire and needs of the customer so as to secure production
efficiency and low cost.
the assumption: consumers are primarily interested in product
availability and low price holds.
What are the Situations for this concept:
 When demand is far greater than supply or
 When product cost is very high and has to decrease to expand the market
05/13/2024
customers are very much concerned with lower prices. 210
2. Product concept
 The product concept holds that consumers will favor those products
that offer the most quality, performance or innovative features.
 In such situation, customers are ready to pay high prices for product
extra features
 When the managers Focus their energy on making superior products and
improving them over time
 Under the concept, mangers assume that buyers admire well-made
products and can appraise product quality and performance.
 Focus on the technical perfection of the product/service seen through the
producer’s (firm) eyes.
 Assumes customers will perceive product/service in the same way and thus
buy. The assumption: consumers will favor those products that offer the
most quality, performance or innovative features.
 Product-oriented companies often design their products with little or no
customer input.
 They trust that their engineers will know how to design or improve the
product.
Orientation towards making continuous product improvement.
 05/13/2024 211
 The problem of this philosophy is that the company
concentrates on the product rather than the needs of
customer.
Situations:
 when competition is weak. (eg. Apple company)
 as competition began to increase,
 When products of many companies fell short off demand
and thus loss for the respective companies.

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3. Selling concept
 The selling concept holds that consumers, if left alone, will ordinarily not buy
enough of the organization product.
 The organization must therefore undertake an aggressive selling and promotion
effort. customers to buy products which do not usually match their
requirements.
 This is unlikely to lead to repeat buy/business.
 Their aim is to sell what they make rather than make what the market wants
 assumes that consumers typically show buying inertia or resistance and must be
coaxed into buying.
 It also assumes that the company has made available a whole battery of effective
selling and promotion tools to stimulate more buying
At this stage: the problem is not to produce or grow enough, but rather to sell the
output.
 Offering a good product was no assurance market success.
 Managers began to realize:
 To sell their product in an environment where consumers had the opportunity to
choose from among many alternatives required substantial promotional effort.
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 To such firms marketing means selling things and collecting money
4. Marketing concept
• The marketing concept is a business philosophy that
challenges the three concepts we just discussed
• Marketing concept holds that the key to achieving
organizational goals consists of being more effective
than competitors in integrating marketing activities
toward determining and satisfying the needs and
wants of target markets
• Focus on the identification of customers needs,
organizational resources and objectives.
• Achieve effective match through market
segmentation, targeting, positioning and resource
development (see also Role of Marketing).
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• The marketing concept has been expressed in
many colorful ways:
• “Meeting needs profitably”
• “Find wants and fills them”
• “Love the customers, not the product etc.”

05/13/2024 215
The marketing concept rests on four pillars
• Target market
• customer needs
• Integrated marketing and
• Profitability.

05/13/2024 216
05/13/2024 217
5. Societal marketing concept
• The societal marketing concept is the newest of the five marketing management
philosophies.
• Company recognizes that its market includes not only the buyers of its products but
also anyone directly affected by its operations.
• The societal marketing concept holds that the organization’s task is to determine the
needs, want, and interests of target markets and to deliver the desired satisfactions
• Three considerations underlying the societal marketing concept are :
• A, society,
• B, customers
• C, company itself.
The management strives over the long run to;
• Satisfy the wants of customers.
• Meet the societal needs to others affected by the firm’s activities, and
• 05/13/2024
Achieve the Co. objectives. 218
• Marketing research is the systematic design,
collection, analysis, and reporting of data and
findings relevant to a specific marketing situation
facing the company.
• A marketing information system (MIS) consists
of people, equipment, and procedures to
gather, sort, analyze, evaluate, and distribute
needed, timely, and accurate information to
marketing decision makers.
• The marketing research process includes five P’s
five
(1) Purpose of the research,
(2) Plan of the research,
(3) Performance of the research,
(4) Processing of research data, and
(5) Preparation of a research report
Steps in conducting Marketing Research
Step 1: Define the Problem and Research Objectives
Step 2: Develop the Research Plan
Step 3: Collect the Information
Step4: Analyze the Information
Step 5: Present the findings
5.2 A marketing intelligence system is a set of procedures
and sources used by managers to obtain everyday information
about developments in the marketing environment.
• Marketing managers collect marketing intelligence by
reading books, newspapers, and trade publications; talking
to customers, suppliers, and distributors; and meeting with
other company managers..
 READING ASSIGMENT!!!!!!!
• The Role (Significance) Of Marketing Research
In Decision Making
• Marketing Research Component
• Customer Satisfaction Research
• Marketing Research Process

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 Marketing Mix Four Ps

• The marketing mix is the set of controllable

variables that must be managed to satisfy the
target market and achieve organizational
objectives.
• These controllable variables are usually
classified according to four major decision areas
four Ps: product , price , place and channels of
distribution), and promotion
 PRODUCT
• refers to goods/services produced for sale, the product /service
should relate to the needs and wants of the customers. Some
important questions you need to ask yourself include:
a) What products/services do I sell?
b) Why did I decide to sell these products?
c) Do I have the products customers want?
d) Do any of my products not sell well?
e) Do I stock products that do not sell well?
• Always listen to what your customers like and don’t like. When
their needs change, change your products and services to satisfy
the new needs.
• Do more market research in order to provide those products or
services and increase your sales
05/13/2024 224
 Price
• Price: is what the customer pays for the product.
• Pricing: refers to the process of setting a price for a
product/service.
• To set your price you need to:
 Know your costs.
 Know how much customers are willing to pay.
 Know your competitors price.
 Know how to make your prices more attractive
• Four pricing schemes are introduced here:
• 1. Cost Cost-plus pricing,
• 2. Fair/parity pricing,
• 3. Skimming pricing, and
• 4. Penetration pricing
 1. Pricing Strategy
• Price is often the only element the marketer can
change quickly in response to demand shifts.
• It relates directly to total revenue
TR = Price * Quantity
Profit = TR – TC
Where, TR=Total Revenue, TC=Total Cost
A company sets no single price, but rather a pricing
structure that covers different items in its line.
This pricing structure changes through time as
products pass through their life cycles
05/13/2024 226
 A. Skimming Price
• this is a type of marketing strategy that firms use by
charging a high price relative to other brands within
the product class. The success depends on the high
product quality and differentiated performance.
(E.g. quality and differentiated performance.
(E.g. Sony’s products sell well even when the price is
20% higher than other brand products.
in this case, consumers’ demand must be in-elastic one
in which the change in quantity demanded due to a
change in price is small
 B. Penetration Price
• In this strategy, prices of products are reduced compared to
competitors’ price for the same product to penetrate into markets and to
increase sales.
• This scheme involves charging a low price on the assumption of selling
the brand in enormous quantities.
• high Most high-tech entrepreneurs will accept a tech entrepreneurs will
accept a compromise between the skimming price and cost plus price.
• This is appropriate when the demand is elastic.
• price elasticity of demand is fundamentally about substitutes.
• If it’s easy to find a substitute product when the price of a
product increases, the demand will be more elastic.
• If there are few or no alternatives, demand will be less elastic.
Eg gasoline and coffee

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C. markup pricing
 A certain percentage of the selling price is added to unit
cost.
 For example, if a product sells for $125 and costs
$100, the additional price increase is ($125 – $100) /
$100) x 100 = 25%
D. Cost-plus pricing:
 Cost-plus pricing is also known as markup pricing
 Any amount that is above unit cost may be considered.
 The seller calculates all costs, fixed and variable, that have
been or will be incurred in manufacturing the product, and
then applies a markup percentage to these costs to
estimate the asking price
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 E. Odd-even pricing:
• This is Psychological pricing method based on
the belief that certain prices or price ranges
are more appealing to buyers.
• This method involves setting a price in odd
numbers (just under round even numbers)
such as BIRR 49.95 instead of BIRR 50.00.

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 Place
Place means the product’s channels of distribution
or how it is from the producer to the end user.
Its functions producer to the end user. Its functions
include manufacturing, transportation,
warehousing, wholesaling, and retailing.
The more the intermediate functions or channels
are involved, the higher the percentage of selling
price it can command.
• If an organization controls all the channels of
distribution for its product, it is vertically
integrated .
• If the manufacturer acquires a company to
access the raw materials, it is backward
integrated . .
• If the wholesaler acquires a retailer to expand
distribution, it is called forward integrated
 CONTINUED…
 Place: means the different ways of getting your
products or services to your customers.
 It is also referred to as distribution.
 If your business is not located near your customers,
you must find ways to get your products/services to
where it is easy for customers to buy.
 You can distribute your products to your customers
through:
 Selling directly to the consumers of the products.
 Retail distribution and wholesale distribution.
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 Promotion
 Promotion: Refers informing your customers of
your products and services and attracting them
to buy them. Promotion includes advertising,
sales promotion, publicity (non-paid promotion)
and personal selling.
 Promotion involves communication of the
product attributes and the corporate image in
the most favorable light possible to intermediary
sellers (i.e., trade advertising and trade
promotion) and to end users (i.e., consumer
advertising and consumer promotion).
 2. Promotion Strategies
• Promotion is the communication of the company and
its products to customers. Promotional strategy is
choosing a target market and formulating the most
appropriate promotion mix to influence it.
• An organization’s promotional strategy can consist:
i) Advertising: It is any paid form of non-personal, one-
way, mass communication about an organization,
good, service, or idea by an identified sponsor.
ii) Personal selling: This is the two-way flow of
communication between a buyer and seller, often in a
face to face encounter, designed to influence a
person’s or group’s purchase decision
05/13/2024 235
III) Public relations:
 Public relation is a form of communication that seeks to
change the perceptions of customers, shareholders,
suppliers, employees and other publics about a company
and its products.
iv) Sales promotion (short term incentives):
 This promotion type involves short term incentives of value
such as discounts, free samples, and prizes to be offered to
arouse interest of customers in buying the good/service.
 Businesses may use one of the above promotional mix
elements to arouse the interest of customers and make
them take action by informing, persuading and reminding
about the goods and services that they provide to the
market.
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• Marketing Channels are individuals/organizations
involved in the process of making the product
available for use or consumption by consumers.
Channels are used to improve exchange efficiency. It is
divided into Direct and Indirect channels.
• Direct channels: In this type of channel, producers
and end users directly interact.
• Indirect channels: In this type of channel
intermediaries are inserted between seller and buyer.
• Intermediaries include Merchant Wholesalers,
retailers, dealers, agents, brokers and manufacturer’s
branches and office
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 3. Distribution Strategies

• The following factors should be considered to

select the best channel under the condition of
using best distribution strategy.
• Company Factors: financial, human and
technological capabilities of a company to do its
business activities.
• Market Characteristics: Geography, market
density, market size, target market
• Product Attributes: perishability, value and
sophistication of the product
• Environmental Forces: those forces that affect the
business like competition, technology and culture.
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 reasons to lose customers
• take into account that the major reasons to
lose customers are:
 Poor service,
 Poor quality and
 Rude behavior

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• Thank you for uninterpted

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