Entrepreneurship Study Guide

ENTREPRENEURSHIP
STUDY GUIDE
Compiled By: Jahmel Brown Contains Both Unit: 1&2
Property Of: __________________
1|Page
TABLE OF CONTENTS
INTRODUCTION-------------------------------------------------------------------------------------------------------3 – 28
Unit 1:
Module 1 - The Entrepreneurial Mindset------------------------------------------------------------------------29 - 169
Module 2 -The Entrepreneurial Process-------------------------------------------------------------------------170 - 253
Module 3- Creativity and Innovation------------------------------------------------------------------------------254 – 289
Unit 2:
Module 1 - Essentials of Business Ownership-------------------------------------------------------------------290 – 412
Module 2- New Venture Planning and Creation----------------------------------------------------------------413 – 576
Module 3- Managing and Growing the Venture-----------------------------------------------------------------577 – 653
2|Page
Overview
Entrepreneurship seeks to empower students by providing the knowledge, skills and attitudes to achieve entrepreneurial
success in a variety of settings. It places emphasis on the individual’s acumen to realize opportunity, assess risk, and apply
the skills necessary to transform innovative ideas into viable, sustainable ventures. The CAPE Entrepreneurship syllabus
provides students with the mindset that supports creativity and innovation needed to transform ideas into ventures that
create value and wealth.
In developing this syllabus consideration was given to the relatively high rate of unemployment, constraints on job
creation, the imperatives of globalization in the Region, and the need to inculcate the spirit of entrepreneurism. Recent
research has shown that one of the main obstacles to individuals starting their own business ventures is the lack of
knowledge of how to transform an idea into a successful venture. Most aspiring entrepreneurs lack the ability to analyze
opportunities, assess risk, develop and implement a business plan in order to get their ventures started. The CAPE
Entrepreneurship syllabus seeks to fill that void in the continuum from idea generation to venture creation.
Several governments, as well as many non-governmental organizations in the region have implemented entrepreneurial
initiatives which offer training, tax incentives, funding and start-up support to individuals to assist them in actualizing
entrepreneurial ambitions. The syllabus apprises students of ways to access these training, technical support, funding and
legislative incentives. The syllabus addresses fundamentals of entrepreneurial behaviour and thinking and engages
students in practical experiences through idea generation and opportunity identification to implementing, managing and
harvesting a venture. The syllabus also acquaints students with the essentials of business ownership, legal and regulatory
frameworks, the importance of market research, feasibility analysis and the development of a business model in order to
successfully compete in the global marketplace. It contributes to the development of the Ideal Caribbean person, as agreed
by CARICOM Heads of Government, essentially supporting “the creative imagination in its various manifestations and
nurtures its development in the economic and entrepreneurial spheres in other areas of life”. In keeping with UNESCO
pillars of learning, students will learn to know, to do and transform oneself and society in a sustainable way. The syllabus
provides a good foundation for further studies in Entrepreneurship, starting and operating a venture and/or becoming an
entrepreneurial employee (intrapreneur).
3|Page
The syllabus is divided into two (2) Units:
Unit 1: Entrepreneurship Theory
Module 1 - The Entrepreneurial Mindset

Module 2 - The Entrepreneurial Process
Module 3 - Creativity and Innovation
Unit 2: Entrepreneurship Practice
Module 1 - Essentials of Business Ownership

Module 2 - New Venture Planning and Creation
Module 3 - Managing and Growing the Venture
4|Page
Unit 1: Entrepreneurship Theory
Module 1: The Entrepreneurial Mindset
General Objectives:
On completion of this Module, students should:
1. Develop an understanding of the entrepreneurial mindset;
2. Develop an awareness of the diverse characteristics of an entrepreneur;
3. Understand the best practices of entrepreneurship development.
Specific Objectives:
Students should be able to:
1. Explain the nature and growth of entrepreneurship;
2. Distinguish between entrepreneurship and intrapreneurship;
3. Differentiate between entrepreneurship and small business management;
4. Identify types of entrepreneur;
5. Discuss the characteristics of an entrepreneur;
6. Discuss the work of at least three (3) noted entrepreneurs within and outside the region;
7. Examine the impact of cultural diversity on entrepreneurship development;
8. Identify potential mistakes/pitfalls of entrepreneurship;
9. Assess successes and failures of entrepreneurship;
10. Discuss the myths of entrepreneurship.
5|Page
Content:
1. The nature and growth of entrepreneurship
a) Introduction to the origins and concept of entrepreneurship
i. Evolution: Schumpeter, Drucker, Cantillon;

ii. Culture, tradition;
iii. Poverty;
iv. Desire for wealth.
b) Emerging drivers of contemporary entrepreneurship

– Information and Communication Technology (ICT), Globalization, Changing demands, unemployment, changing
demographics, institutional support, ease of entry in the informal sector;
c) Role of entrepreneurship in national and regional development
– Impact on job creation, growth in GDP, social development (social entrepreneurship);
d) Emerging areas for enterprise development - including the creative and cultural industries, renewable energy; agro-
preneurship, ICT.
2. Entrepreneurship and Intrapreneurship

a) Entrepreneurship vs Intrapreneurship.
b) Types of entrepreneurship:
i. Survival,
ii. Lifestyle,
iii. Dynamic growth,
iv. Speculative.
6|Page
c) Role of the entrepreneur and the Intrapreneur in enterprise development.
i. Factors that contribute to enterprises becoming more entrepreneurial.

ii. Openness and flexibility, innovation, proactivity.
iii. Environment of change, chaos, complexity, competition, uncertainty and contradiction.
3. Entrepreneurship and Small Business Management
a) Innovation as the main difference between entrepreneurship and small business management.
b) Nature and characteristics of small business.
4. Types of Entrepreneur
a) Nascent.
b) Novice.
c) Habitual.
d) Serial.
e) Portfolio.
5. Characteristics of an Entrepreneur
Including, but not limited to:
Innovative, Creative, Calculated risk takers, Systematic planner, Visionary, Achievement oriented, Persistent, Dynamic,
Hard-working, Self-confident, Aggressive, Egotistic and Emotional intelligence.
7|Page
6. Noted regional entrepreneurs
Including but not limited to:
Chris Blackwell, Marley Family, Eddie Grant, Arthur Lok Jack, Thalia Lyn, Vincent Hosang, Audrey Marks, Joan Duncan,
Aleem Mohammed, Anthony Sabga ,Richard Branson, Bill Gates, Mark Zuckerberg, Reno Gajadhar, Jay Z, Oprah Winfrey,
Steve Jobs, Hubert and Helen Bhagwansin, James Husbands, Allen Chastanet, Adrian Augier, Ronald Ramjattan, Edward
Beharry, Sir Charles Williams and Yesu Persaud.
7. Cultural diversity of Entrepreneurship

a) Gender and entrepreneurship.
b) Youth and entrepreneurship.
c) Ethnicity and entrepreneurship.
d) Family and entrepreneurship.
e) Religion and entrepreneurship.
8. Mistakes of Entrepreneurs
a) Human Resource HR/Management failures: lack of leadership, judgement and knowledge, lack of experience.
b) Operation failures: poor inventory management; poor planning.
c) Marketing failures: weak marketing strategy; uncontrolled growth; poor location; incorrect pricing.
d) Financial Failures: poor financial control; inadequate record keeping.
e) Failure as a natural part of the entrepreneurial process.
8|Page
9. Factors that Contribute to the Success of Entrepreneurs
a) Know your business in depth.
b) Develop a solid business plan.
c) Manage financial resources.
d) Understand financial statements.
e) Manage people effectively.
f) Know your strengths and weaknesses.
10. Myths of Entrepreneurship

i. Entrepreneurship ventures and small businesses are the same thing;
ii. All entrepreneurs are rich;
iii. Entrepreneurs are born not made;
iv. Entrepreneurship is easy;
v. All you need is money to start;
vi. Successful entrepreneurship needs only a great idea;
vii. Entrepreneurs always generate new ideas;
viii. All you need is luck;
ix. Entrepreneurs are extreme risk takers.
9|Page
Unit 1 Module 2: The Entrepreneurship Process
General Objectives:
1. Understand the entrepreneurial process;
2. Appreciate the key stages in the process;
3. Understand the process through which business ideas are evaluated.
1. Identify the steps in the entrepreneurial process;
2. Discuss some of the methods of generating ideas;
3. Identify sources of entrepreneurial opportunities;
4. Distinguish between an idea and an opportunity;
5. Evaluate an opportunity from given information;
6. Describe a business concept;
7. Identify sources of business concepts;
8. Develop a business concept from an idea;
9. Determine the required resources for a venture;
10. Identify sources of required resources for a venture;
11. Evaluate the required resources for a venture;
12. Explain the activities involved in implementing and managing a venture;
13. Assess the various options of harvesting a venture.
10 | P a g e
Content:
Steps in the Entrepreneurial Process:
Idea generation, opportunity identification, business concepts, resources, implementing and managing, harvesting.
1. Generating Ideas
a) Methods of generating ideas: brainstorming, focus group, check list methods, problem inventory analysis, scenario
thinking, the note book method, reverse brain storming, Delphi methodology, Gordon method, free association.
b) Screening ideas and selecting among competing ideas.
c) How ideas are linked to opportunity.
2. Opportunity Identification
a) Changing demographics.
b) Emerging markets.
c) New technologies.
d) Regulatory changes.
e) Social changes.
f) Opportunity evaluation: market issues, economic issues, competitive advantage issues and management issues.
3. Business concepts
a) Definition/ description of a business concept.
b) Sources of business concept: New products, new services, new processes, new markets, new organizational
structures/forms, new sales or distribution channels, new development paradigms.
c) Steps in developing a business concept from an idea.
11 | P a g e
4. Resources (Financial, Physical and Human)
a) Determine the required resources: including skilled employees, general management expertise, marketing and sales
expertise, technical expertise, financing, distribution channels, sources of supply, production facilities, licences,
patents and legal protection.
b) Acquiring the required resources: including internal sources (equity, family and friends) and external (debt,
leveraging, outsourcing, leasing, contract labour, angel funding, venture capitalist, temporary staff, supplier
financing, joint ventures, partnerships, barter and gifts.
c) Business and entrepreneurial development organizations: including Caribbean Group of Youth Business Trusts
(Jamaica, Barbados, Guyana, Trinidad and Tobago, St. Lucia, St. Vincent and the Grenadines, Dominica, Belize,
and Antigua and Barbuda), Jamaica Business Development Corporation, HEART Trust/NTA (Jamaica), Institute of
Private Enterprise Development (IPED); National Entrepreneurship Development Company Limited (NEDCO),
Micro, Small and Medium Sized Enterprises (MSME) Alliance (Jamaica); Caribbean Association of Small and
Medium Enterprises (CASME); DFLSA Incorporated (Guyana and Suriname).
5. Implementing and managing the venture

a) Implementation of concept.
b) Monitoring of performance.
c) Payback of resource providers.
d) Reinvestment in the business.
e) Expansion of the business.
f) Achievement of performance goals.
12 | P a g e
6. Harvesting the venture
Harvesting strategies:
i. Absorption of new concept into mainstream operations;
ii. Licensing of rights;
iii. Family succession;
iv. Go public (IPO);
v. Employee share ownership plan (ESOP);
vi. Liquidate (Shut down) venture;
vii. Selling the venture;
viii. Management buy-out (MBO);
ix. Mergers and acquisitions.
Exit Strategies: Note that exit strategies (including selling the venture, liquidation, mergers, acquisitions and management
buyout) can be part of a harvesting plan.
Unit 1 Module 3: Creativity and Innovation

General Objectives:
1) Understand the nature of creativity and innovation;
2) Appreciate the process of nurturing and managing innovation;
3) Appreciate the value of creativity and innovation;
4) Understand the importance of protecting creations and innovations.
13 | P a g e
1. Define creativity;
2. Explain the role and process of creativity in entrepreneurship;
3. Define innovation;
4. Explain the role and process of innovation in entrepreneurship;
5. Discuss the types of innovation in relation to the 4Ps (product, process, position, paradigm);
6. List the core innovation concepts;
7. Identify the sources of innovation;
8. Explain disruptive and incremental innovations;
9. Discuss open innovations;
10. Identify micro factors that would nurture innovation;
11. Identify macro factors that would nurture innovation;
12. Discuss the various methods of protecting innovations and creativity.
Content:
1. Principles of creativity
a) What is creativity?
b) Process of creativity.
c) Roles of creativity.
d) Importance of creativity.
2. Principles of Innovation
a) The meaning of innovation.
b) The importance of innovation.
14 | P a g e
c) Types of Innovation
– The 4Ps, product, process, position and paradigm.
d) Core innovation concepts:
i. Incremental;
ii. Modular;
iii. Discontinuous;
iv. Architectural.
e) Sources of innovation:
i. New markets;
ii. New technologies;
iii. New political rules;
iv. Running out of roads (limited options);
v. Change in sentiments or behaviours;
vi. Deregulations;
vii. Changes in the business models.
3. Disruptive, Incremental and Open innovations

a) Concept of disruptive and incremental innovations.
b) Effect of disruptive and incremental innovations on the entrepreneurial process.
c) The concept of open innovation.
d) Dynamics of open innovation.
e) Impact of open source innovation.
15 | P a g e
4. Nurturing and Managing Innovation
Conditions for effective innovation:
a) Micro/Organizational level:
i. Incentives for innovating;
ii. Internal policy;
iii. Organizational culture: - inspiration; - observation; - listening to consumer; - organizational structure.
b) Macro/National level Policy development:

i. Social (for example, changing demographics);
ii. Political (for example, internal governance, stability);
iii. Economic (for example, entrepreneurship policies, incentives);
iv. Environmental (regulations, environmental responsibility);
v. Cultural (respect for indigenous customs and practices);
vi. Ethical (adherence to sound principles and business practices).
5. Methods of protecting Innovation and creativity

a) Intellectual property rights.
b) Branding.
c) Trademarks.
d) Patents.
e) Copyrights.
f) Registered design protection.
g) Trade secrets (processes, techniques, confidential disclosure agreements).
16 | P a g e
Unit 2 – Entrepreneurship Practice
Module 1: Essentials of Business Ownership
General Objectives:
1. Understand the various types of ventures;
2. Conform to local, regional and international legal and regulatory frameworks;
3. Understand the importance of ethics and social responsibility in operating venture.
1. Describe the various types of ventures;
2. Evaluate the risks and benefits associated with each form of venture;
3. Discuss the importance of observing legal and regulatory practices in operating a venture;
4. Explain the role of ethics and corporate social responsibility.
17 | P a g e
Content:
1. Types of ventures
a) Sole trader.
b) Partnership (Limited and General).
c) Franchise.
d) Limited Liability Company/Corporation (LLC).
e) Private Companies.
f) Non-Governmental Organisation (NGO), including (Community Based Organisations (CBOs), Social Enterprises,
Charities and Endowments/Foundations) and Cooperative Societies.
g) State-owned enterprises (Statutory Organisations).
2. Risk and Benefits

a) Advantages and disadvantages of each type of venture.
3. Legal and Regulatory Framework

a) Registration of a venture.
b) Labour laws.
c) Tax obligations.
d) International Standards and Regulations (ISO Standards); Duty of Care (Occupational Safety and Health
Administration (OSHA) and Hazard Analysis and Critical Control Points (HACCP).
e) Environmental stewardship.
f) Intellectual property.
g) Open innovation.
18 | P a g e
4. Ethics and Social Responsibility
a) Importance of business ethics and integrity.
b) Code of ethics.
c) Business Etiquette (Contextualised professional business practices).
d) Corporate Social Responsibility (CSR).
e) Good corporate governance.
f) Social entrepreneurship (Social Enterprises, Philanthropic Organisations and Individuals).
g) Social Sector Actors/Non-Governmental Organisations (NGOs).
Unit 2 Module 2: New Venture Planning and Creation

General Objectives:
1. Understand the importance of a market research and feasibility analysis;
2. Appreciate the process of determining the viability of a venture;
3. Be aware of the components of a business model and a business plan;
4. Understand the importance of start-up capital and financial statements in venture creation;
5. Understand the importance of a business model and a business plan.
19 | P a g e
1. Explain market research;
2. Conduct a market research for a venture;
3. Explain feasibility analysis;
4. Conduct a feasibility analysis for a venture;
5. Distinguish between market research and feasibility analysis;
6. Identify sources of funding;
7. Discuss the elements of various financial statements;
8. Prepare a Cash Flow Statement (projected inflows and outflows of cash);
9. Identify various savings and investment options;
10. Explain the components of a business model;
11. Develop a business model for a business plan;
12. Identify the components of a business plan.
Content:
1. Market Research (venture opportunity screening)
a) Purpose of market research.
b) Benefits of conducting market research.
c) Key elements of market research:
i. Product characteristics;
ii. Definition of market;
iii. Expected sales trends;
iv. Customer analysis;
v. Promotional strategy;
vi. Nature and level of competition.
d) Cost-benefit analysis approach to market research.
20 | P a g e
2. Feasibility Analysis
a) Purpose of a feasibility analysis.
b) Benefits of a feasibility analysis.
c) Key elements of a feasibility analysis:
i. Personality feasibility (Individual’s SWOT profile);
ii. Management feasibility;
iii. Operational feasibility;
iv. Financial feasibility;
v. Marketing feasibility;
vi. Time feasibility;
vii. Industry feasibility;
viii. Cultural feasibility.
d) Distinguishing features of market research and feasibility analysis
3. Start-up capital and Financial Statements
(a) Sources of funding: equity financing, debt financing (loans, venture funding, angel funding), grants, gifts,
bequests.
(b) Simple review of accounting cycle (including accounting concepts).
(c) Simple Statement Cash Flow (should be used to support the business model).
(d) Statement of Comprehensive Income (Income statement), Statement of Financial Position (Balance Sheet).
(e) Break-even analysis; (appreciate significance of break-even value).
(f) Savings and investments options (including stocks and bonds, fixed deposits, treasury bills).
21 | P a g e
4. Developing the Business Model
a) Description of a business model.
b) Components of a business model:
i. Value proposition (how do you create
value?):- product offering: good, service or combination of both;- standardised or customised;- direct or indi
rect distribution;- internal manufacturing or outsourcing;
ii. Beneficiary (for whom do you create value?):- business to business, business to consumer or both;
- local, regional or international; general or niche market.
iii. Operations (what is your internal source of advantage?): - Internal capabilities of a business, including
unique skills, technologies, resources;
iv. Product differentiation (how do you differentiate your product?): - operational excellence; - product quality;
- innovative leadership; - cost; - networks.
v. Income generation (how do you intend to make money?): - operating leverage (fixed and variable costs); -
volumes (high, medium, low), margins (high, low); - pricing (fixed, flexible); - revenue sources.
vi. Growth (what are the time scope and ambitions of the venture?): - subsistence model; - income model; -
growth model; - speculative model.
22 | P a g e
5. Introduction to the Business Plan (students are not required to produce a business plan)
a) Purpose of a business plan.
b) Benefits of a business plan.
c) Key Sections of a business plan:
i. Executive summary: (Concise summary of various components)
ii. Business description (business concept/value proposition); (What does the business do?)
iii. Management; (Who comprise the team that can make this happen?)
iv. Marketing; (How is revenue potential determined? What/who is my competition? How am I better
different? What will my ideal customer pay? Location?)
v. Operations; (What are resource requirements?)
vi. Financials. (Is the company viable for me or for my investors?)
Unit 2 Module 3: Managing, Growing and Harvesting the Venture

General Objectives:
1. Understand the stages in the venture life cycle;
2. Be aware of various venture models;
3. Understand how E-Commerce can aid in the operations and growth of the venture.
23 | P a g e
1. Identify the stages of a venture life cycle;
2. Explain the stages of a venture life cycle;
3. Distinguish among the venture models;
4. Explain the importance of valuation of ventures;
5. Discuss methods used in venture valuation;
6. Explain how the internet impacts venture development;
7. Identify approaches to E-Commerce;
8. Identify the elements to consider before launching into E-Commerce;
9. Assess the online potential of a venture;
10. Discuss the benefits of selling via the internet;
11. Outline some of the Myths about E-Commerce;
12. Identify strategies for E-Commerce success.
Content:
1. Venture Life Cycle
Stages of the venture life cycle:
a) New venture development;

b) Start-up activities; venture growth;
c) Business stabilization;
d) Innovation or decline.
24 | P a g e
2. Venture Models
Knowledge of how a venture can grow from one model to another over time:
a) Promising start-ups;
b) Venture-backed start-ups;
c) Corporate-supported start-ups.
3. Importance of venture valuation
a) Know the real value of venture (to track increase or decrease in business value).
b) Buying or selling a business/ major asset.
c) Raising growth capital (IPO, sale of stocks).
d) Establishing an employee stock option (ESOP) plan.
e) Tax management (obligations).
f) Structuring a buy, sell or joint venture agreement with stockholders (example, mergers and acquisitions).
g) Attempting to buy-out a partner or shareholder.
4. Venture Valuation Methods
i. Book value (balance sheet value);

ii. Price earnings (multiple earnings value);
iii. Discounted future earnings (discounted cash flow).
25 | P a g e
5. E-Commerce and Growing the Venture
(a) The Internet and its impact on venture development:
i. Speed and flexibility;

ii. Less emphasis on size/space;
iii. High volume;
iv. Low margin.
(b) Approaches to E-Commerce:
i. On-line shopping malls;

ii. Vertical Communities - store-front services;
iii. Internet service providers (partnership with existing online payment facilities (pay pal);
iv. Private Initiative: - hiring a professional to customize a website for the venture; - building a site in-house.
(c) Elements to consider before launching into E-Commerce:
i. Networking potential;
ii. Integration of web into overall strategy;
iii. Importance of lasting relationship with customers;
iv. On-going investment of resources;
v. Data mining.
(d) Assessing the online potential of the venture:
i. Appeal to customers;
ii. Target market;
iii. Distribution cost;
iv. Costs and benefits.
26 | P a g e
(e) The benefits of a website in selling through the Internet:
i. Capacity to enhance customer service;

ii. Interactive communication;
iii. Lower cost of doing business; ability to grow faster;
iv. Track sales results;
v. Ability to spot new business opportunities.
(f) Myths about E-Commerce:
i. Setting up the site is easy and inexpensive;

ii. Customers will flock to my site;
iii. Making money is easy;
iv. Privacy is not an important issue;
v. Technology is the most important element;
vi. Do not need a strategy only a site;
vii. Customer service is not as important as in traditional retail store.
(g) Strategies for E-Commerce Success:
i. Data mining;
ii. Develop an online marketing plan;
iii. Develop a community;
iv. Attract by giving freebies;
v. Creative use of email;
vi. Credibility;
vii. Strategic alliances;
viii. Promote site on and off line.
27 | P a g e
This Study Guide is divided into two units. Each unit is consist of three modules. Which explain and analyze the goal of
this course. Unit one module one will focus on the entrepreneurial mindset, module two explores the entrepreneurial
process, module three looks at creativity and innovation of an entrepreneur. After the completion of unit one comes unit
two. Unit two module one will focus on the essentials of business ownership, module two goes further in depth with new
venture planning and creation and module three addresses the managing and growing of a venture. This study guide
should be used in collaboration with your lecture notes and textbook of your choice. Ensure that you also use past papers
to get sufficient practice as you navigate this course.
28 | P a g e
Unit 1:
The Entrepreneurial
Mindset…
29 | P a g e
OVERVIEW
Module one examines the entrepreneurship mindset and develops an awareness of the diverse characteristics of an
entrepreneur. You will also examine the best practices of entrepreneurship development. The aim of this module is to
develop your understanding of entrepreneurship, business and have you evaluate the success and traits of the
entrepreneurial mindset.
Defining Entrepreneurship
Entrepreneurship is the act of being an entrepreneur or “one who undertakes innovations, finance and business acumen in
an effort to transform innovations into economic goods”. This may result in new organizations or may be part of
revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is
that of starting new businesses (referred as a startup company); however, in recent years, the term has been extended to
include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm
or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spin-
off organizations. An entrepreneur can be considered as an individual with great ideas that can change the world.
Entrepreneurs are considered key to future development and economic growth. Entrepreneurs through partnerships and
collaboration, provide solutions to problems or issues faced by their society. Entrepreneurship requires skills and a
mindset to advocate for a better community with creativity, innovation and leadership to be successful.
Origins of Entrepreneurship
The term entrepreneurship is derived from a French word ‘Entreprendre’ which means ‘to undertake’, ‘to pursue
opportunities’, or ‘to fulfill needs and wants through innovation and starring businesses’. The word was first appeared in
French dictionary in 1723. Is believed that the Irish Banker operating in France, Ricardo Cantilon (Kent, 1984) was the
first person who used the word ‘entreprendre’ in economics as “an agent who assembles material/inputs for producing
goods at a specific price and through coordination of those inputs produces goods whose sales price is uncertain in
comparison with production cost”. It is also believed that the Frenchman J.B. Say (1824) first used the term ‘entrepreneur’
as an economic agent who brought together the factors of production in such a way that new wealth can be created. Oxford
English dictionary adopted the word ‘entreprendre’ as “entrepreneur” in 1897 and meant; “Director or manager of a public
30 | P a g e
musical institution; one who gets up entertainments, especially musical performance”. Webster’s Third New International
Dictionary (1961) takes it as; ‘An organizer of an economic venture, especially one who organizes, owns, manages, and
assumes the risk of a business’. The Robert D. Hisrich and Michael P. Peters (1998) said, “Entrepreneurship is the process
of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial,
psychic and social risks and receiving the resulting rewards of monetary and personal satisfaction and independence.” The
writers conceive entrepreneurship as devoted efforts of individuals for creating something of value to the people or to the
society. They also believe that entrepreneurship is a rewarding activity. It gives not only financial rewards but also
freedom and personal satisfaction that are of immense reinforcement for the furtherance of entrepreneurial action.
Entrepreneurship, in their view, is also a risk hearing activity. Three types risks arc involved with it the financial, psychic
and social risks. Entrepreneurship takes these risks and devoted efforts for having rewards by giving the mankind
something of value. Therefore, entrepreneurship entails missionary efforts that involve risks for the purpose of innovating
something of value from which the entrepreneur will get financial and psychic rewards.
The concept of entrepreneurship was first established in the 1700s, and the meaning has evolved ever since. Many simply
equate it with starting one’s own business. Most economists believe it is more than that. To some economists, the
entrepreneur is one who is willing to bear the risk of a new venture if there is a significant chance for profit. Others
emphasize the entrepreneur’s role as an innovator who markets his innovation. Still other economists say that
entrepreneurs develop new goods or processes that the market demands and are not currently being supplied.
31 | P a g e
In the 20th century, economist Joseph Schumpeter (1883-1950) focused on how the entrepreneur’s drive for innovation
and improvement creates upheaval and change. Schumpeter viewed entrepreneurship as a force of “creative destruction.”
The entrepreneur carries out “new combinations,” thereby helping render old industries obsolete. Established ways of
doing business are destroyed by the creation of new and better ways to do them.
Business expert Peter Drucker (1909-2005) took this idea further, describing the entrepreneur as someone who actually
searches for change, responds to it, and exploits change as an opportunity. A quick look at changes in communications—
from typewriters to personal computers to the Internet— illustrates these ideas. Most economists today agree that
entrepreneurship is a necessary ingredient for stimulating economic growth and employment opportunities in all
societies. In the developing world, successful small businesses are the primary engines of job creation, income growth, and
poverty reduction. Therefore, government support for entrepreneurship is a crucial strategy for economic development.
As the Business and Industry Advisory Committee to the Organization for Economic Cooperation and Development
(OECD) said in 2003, “Policies to foster entrepreneurship are essential to job creation and economic growth.”
Government officials can provide incentives that encourage entrepreneurs to risk attempting new ventures. Among these
are laws to enforce property rights and to promote a competitive market system.
The Concept of Entrepreneurship
Entrepreneur Entrepreneurship Enterprise
Person Process of Action Object
32 | P a g e
Concept of Entrepreneur
Basically an entrepreneur is a person responsible for setting up a business or an enterprise. He has the initiative, skill for
innovation and who looks for high achievements. He is a catalytic agent of change and works for the good of people. He
puts up new green field projects that create wealth, open up many employment opportunities and leads to growth of other
sectors.
Entrepreneur
The word "entrepreneur" is derived from a French root ‘entreprendre’, meaning, "to undertake". The term "entrepreneur"
seems to have been introduced into economic theory by Cantillon (1755) but Say (1803) first accorded the entrepreneur
prominence. It was Schumpeter however, who really launched the field of entrepreneurship by associating it clearly with
innovation. Drucker’s definition of entrepreneurship, namely a systematic, professional discipline, brought a new level of
33 | P a g e
understanding to the domain (Maurer, Shulman, Ruwe & Becherer 1995:526). Sharma and Chrisman (1999:12) identified
two clusters of thought on the meaning of entrepreneurship. One group focused on the characteristics of entrepreneurship
(e.g. innovation, growth, uniqueness) while a second group focused on the outcomes of entrepreneurship (e.g. the creation
of value).
• He is a person who develops and owns his own enterprise
• He is a moderate risk taker and works under uncertainty for achieving the goal.
• He is innovative
• He peruses the deviant pursuits
• Reflects strong urge to be independent.
• Persistently tries to do something better.
• Dissatisfied with routine activities.
• Prepared to withstand the hard life.
• Determined but patient
• Exhibits sense of leadership
• Also exhibits sense of competitiveness
• Takes personals responsibility
• Oriented towards the future.
• Tends to persist in the face to adversity
• Convert a situation into opportunity.
An entrepreneur is a person who starts an enterprise. He searches for change and responds to it. A number of definitions
have been given of an entrepreneur-The economists view him as a fourth factor of production along with land labour and
capital. The sociologists feel that certain communities and cultures promote entrepreneurship like for example in India we
say that Gujaratis and Sindhis are very enterprising. Still others feel that entrepreneurs are innovators who come up with
new ideas for products, markets or techniques. To put it very simply an entrepreneur is someone who perceives
opportunity, organizes resources needed for exploiting that opportunity and exploits it. Computers, mobile phones,
washing machines, ATMs, Credit Cards, Courier Service, and Ready to eat Foods are all examples of entrepreneurial ideas
that got converted into products or services. Convert a situation into opportunity. An entrepreneur is a person who starts
an enterprise. He searches for change and responds to it. A number of definitions have been given of an entrepreneur-
The economists view him as a fourth factor of production along with land labour and capital.
34 | P a g e
The sociologists feel that certain communities and cultures promote entrepreneurship like for example in India we say
that Gujaratis and Sindhis are very enterprising. Still others feel that entrepreneurs are innovators who come up with new
ideas for products, markets or techniques. To put it very simply an entrepreneur is someone who perceives opportunity,
organizes resources needed for exploiting that opportunity and exploits it. Computers, mobile phones, washing machines,
ATMs, Credit Cards, Courier Service, and Ready to eat Foods are all examples of entrepreneurial ideas that got converted
into products or services.
35 | P a g e
36 | P a g e
37 | P a g e
Entrepreneurship Environment
Entrepreneurship is not only about business. It involves other role players that also have an influence on the way we do
business. Entrepreneurship focuses on management tasks and functions, but adds the dimension of a person and the
environment to make a complete picture. Just as an individual cannot survive on his or her own, in the same way, a
business cannot survive on its own.
Who are these other parties (stakeholders) that will interact with a business or play a role in its activities?
1. The owner: The person who manages the business is of vital importance, and we have to look at various issues
regarding him or her.
2. The external environment: The community, customers, other businesses and other stakeholders form the
external environment of the business. No business can survive without taking the environment into consideration.
A business needs the support of the community who will become customers and buy goods and/or services. The business
relies on banks for credit and on suppliers for stock or materials. Because the environment plays a critical role in the
success of the business, it should be carefully scanned for opportunities continuously, always keeping an eye on
competitors and new developments.
Functions of Entrepreneur
Entrepreneur is an opportunity seeker and organizer and coordinator of the factor of production. He not only perceives
the business opportunities but also mobilizes the other resources like – man, money, machine, materials and methods.
According to some economists, the functions of an entrepreneur are establishing coordination. In business enterprise,
risk-taking, controlling the enterprise, innovation for change, motivation and other related activities. In reality, an
entrepreneur has to carry out a combination of these functions in keeping with time and environment. Truly, he has to
consider new ideas, demands and exploit the opportunities, and thereby contribute to technical progress. A successful
entrepreneur recognizes the potential of a product or service, design operating policies in marketing, production, product
development and the organizational structure. He carries out the whole set of activities of the business. He has a high
capacity for taking calculated risks and has faith in his own capabilities.
An entrepreneur performs all the necessary functions which are essential from the point of view of operation and
expansion of the enterprise. We can explain this through the flow diagram described in figure 4.2:
38 | P a g e
39 | P a g e
Figure 4.2: Functions of Entrepreneurs
Kilby identify thirteen functions of an entrepreneur, which included some of the managerial functions also.
Kilby has classified these functions into four groups. These are as follows:
A. Exchange Relationship:
1. Perceiving market opportunities.
2. Gaining command over scarce resources.
3. Purchasing inputs.
4. Marketing of the products and responding to competition.
B. Political Administration:
1. Dealing with the public bureaucracy (concession, licenses & taxes)
2. Managing human relation within the firm.
3. Managing customer and supplier relations.
C. Management Control:
1. Managing finance
2. Managing production
D. Technology:
1. Acquiring and overseeing assembly of the factory.
2. Industrial engineering
3. Upgrading process and product quality.
4. Introducing new production techniques and products.
Kilby suggested these functions may vary according to the size, type and setting of an enterprise and could be augmented
through training and education. By summing up we can say that Entrepreneurs perform the following functions:
• Innovation: A very important function performed by entrepreneur is that of innovation. They analyze the existing state
of company’s affairs and try to reach a new level of equilibrium by trying new and productive combinations of existing
resources. They think of creative ideas and use their managerial and innovative skills to put those ideas into reality. They
combine the productive factors, bring them together and help in the economic development of a nation.
40 | P a g e
According to Schumpeter, innovation can occur in the following forms:
• Introduction of new goods ;

• The use of new method of production ;
• The opening of a new market ;
• The conquest of a new source of supply of raw materials ; and
• The reorganization of any industry.
According to Robert Wilken entrepreneurs contribute change that can be categorized into five types:
1. Initial Expansion: the original production of goods.
2. Subsequent Expansion: the subsequent change in the amount of goods produced.
3. Factor Innovation: the increase in supply or productivity of the factors of production.
a) Financial: the procurement of capital from new sources or in new form.
b) Labour: the procurement of labour from a new source or of a new type; the upgrading of existing labour.
c) Material: the procurement of old material from a new source or the use of a new material.
4. Production Innovations: changes in the production process.

a) Technological: the use of a new production technique.
b) Organizational: change in the form of structure of relationships among people.
5. Market Innovation: changes in the size or composition of the market.
a) Product: the production of a new good or the change in quality or cost of existing goods.
b) Market: the discovery of a new market.
Innovation involves imagination and creativity. It is so basic that a person cannot be called an entrepreneur unless’ he
creates something new and something different in his venture.
41 | P a g e
• Assumption of Risk: An idea that is put to reality does not guarantee success. Entrepreneurs assume the risk of success
or failure of the enterprise that they wish to launch. Such risks are not insurable. If they materialize, the entrepreneur has
to bear the loss himself. Thus, risk-bearing or uncertainty-bearing still remains the most important function of an
entrepreneur which he tries to reduce by his initiative, skill and good judgement.
• Idea Generation: Entrepreneurs do not immediately think of ideas and put them into practice. Ideas can be generated
through environmental scanning and market survey. It is the function of the entrepreneurs to generate as many ideas as he
can for the purpose of selecting the best business opportunities which can subsequently be taken up by him as a
commercially - viable business venture. They think of a variety of ideas, apply quantitative techniques to test their
applicability, supplement them with empirical findings, arrive at the best alternative and apply it in practice. The selection
of an idea, thus, involves the application of research methodology by the entrepreneurs, vision, insight, observation,
experience, education, training and exposure of the entrepreneur. Idea generation precisely implies product selection and
project identification.
• Organizing and Management: An entrepreneur brings together various resources of production, organizes them
properly and converts them into a productive unit. As regards the proposed projects, an entrepreneur manages the following
activities:
• Scanning of the business environment (SWOT Analysis)
• Measuring the suitability of business idea.
• Market Research and Selection of Product Line: The next important function of the entrepreneur is market
research and product market research is the systematic collection of data regarding the product which the
entrepreneur wants to manufacture. Entrepreneur has to undertake market research persistently in order to know
the details of the intending product, i.e., the demand for the product, selection of product line, the price of the
substitute product, the size of the customer, etc. while starting an enterprise.
• Studying the government rules, regulation and policies.
• Performing government formalities.
• Determination of Objectives: The next function of the entrepreneur is to determine and lay down the mission,
vision, objectives and goals of the business, which should be spelt out on clear terms. In other words, entrepreneur
should be very much clear about future prospect of the venture.
42 | P a g e
• Determination of Form of the Venture: The function of an entrepreneur in determining the form of enterprise
is also important. Entrepreneur has to decide the form of enterprise based upon the nature of the product, volume of
investment, nature of activities, types of product, quality of product, quality of human resources, etc. The major forms
of ownership organizations are sole proprietorship, partnership, joint stock company and cooperative society.
• Managing of Funds: Fund raising is the most important function of an entrepreneur. All the activities of a business
depend upon the finance and its proper management. It is the responsibility of the entrepreneur to raise funds
internally as well as externally.
• Selection of Location:
• Procurement of Raw Material: Entrepreneur has to identify the cheap and regular sources of supply of raw
materials, which will help him to reduce the cost of production and face the competition.
• Procurement of Machinery: The next function of the entrepreneurs is to procure the machineries and
equipments for establishment of the venture. While procuring the machineries, he should specify the following
details:
a) The details of technology
b) Installed capacity of the machines
c) After sales service facilities
• Recruitment Selection and Placement of Manpower : Entrepreneur has to perform the following activities
while undertaking this function :
a) Estimating manpower need of the organization
b) Laying down of selection procedure
c) Placing the employee
Another important function of entrepreneur is ‘financial planning’, which translates all other activities into monetary
terms. Though an entrepreneur is more than a manager, he combines in him some managerial functions. He deals with
day-to-day affairs of a going concern by directing and controlling the employees.
43 | P a g e
• Decision Making: Arther H. Cole has described the entrepreneur as a ‘decision maker’. He takes various decisions
regarding following matters:
❖ The determination of these objectives of the enterprise and the change of those objectives as conditions required or
made advantageous;
❖ The development of an organization, including efficient relations with subordinates and all employees;
❖ Securing adequate financial resources, and maintaining good relations with the existing and potential investors ;
❖ The requisition of efficient technological equipment and the revision of it as new machinery appeared;
❖ The development of a market for the products and the devising of new products to meet or anticipate consumer’s
demand: and
❖ The maintenance of good relations with public authorities and with the society at large.
• Leading: As an entrepreneurial venture florish, an entrepreneur takes on a new role of a leader. He acts as a visionary
leader. The entrepreneur’s leading function is drawing the best out of his human resources. He must create teamwork,
motivation among employees. As a leader, entrepreneurs must shift from the command-and-control style of managing to a
coach-and-collaboration style.
• Managing Growth: The entrepreneur must manage the enterprise’s growth. It includes such activities as developing and
designing appropriate growth strategies, dealing with crises, exploring various ways for financing growth and placing a
value on the venture.
• Support to Social Environment: Social environment is characterized by social customs, culture, values and beliefs.
Changes are not easily acceptable in a given socio-economic environment of a country. Entrepreneurs discover new sources
of materials, new markets, and new opportunities and establish new and more lucrative forms of organizations. This is a
reflection of their will power, enthusiasm and energy and helps in overcoming the society’s resistance to change.
• Economic Development: Entrepreneurs play an important role in accelerating the rate of economic development of
developed and under-developed countries. They exploit the country’s resources (land, labour, capital and technology) and
optimize their utilization to result in development of that country.
44 | P a g e
Idea Organizing and Decision
Generation Managing Making
Assumption Visionary
Of Risk Leadership
Managing
Innovation
Growth
Support to Economic
Entrepreneur
Social Environment Development
Figure 4.3: Functions of an Entrepreneur
An entrepreneur performs many useful functions. He undertakes a venture, assumes risk and earns profit. He is the man
having a strong motivation to achieve success. He is self-confident in his entrepreneurial abilities. He exploits
opportunities wherever and whenever they arise.
As you can tell from the above descriptions, being an entrepreneur is an exciting proposition! Entrepreneurs do a variety
of things and deal with a multitude of challenges. In fact, we can say that entrepreneurial behaviour is complex,
intentional, and passionate. Yet, it’s primarily because or these qualities that it is prudent for you to know, from the start,
the rewards and challenges of being an entrepreneur. The Rewards and Challenges of Being an Entrepreneur
45 | P a g e
Rewards:
– High degree of independence – freedom from constraints

– Get to use a variety of skills and talents
– Freedom to make decisions
– Accountable to only yourself
– Opportunity to tackle challenges
– Feeling of achievement and pride
– Potential for greater financial rewards
Challenges:
– Must be comfortable with change and uncertainty
– Must make a bewildering number of decisions
– May face tough economic choices
– Must be comfortable with taking risks
– Need many different skills and talents
– Must be comfortable with the potential of failure
Entrepreneur vs. Entrepreneurship

The term entrepreneur is often used interchangeably with “entrepreneurship”. But conceptually, they are different yet they
are just like the two sides of a coin. Entrepreneur and entrepreneurship are co-related.
46 | P a g e
Relationship between Entrepreneur and Entrepreneurship
Entrepreneur Entrepreneurship
Refers to a person Refers to a Process / Activity / Action
Leader Leadership
Planner Planning
Programmer Action
Motivator Motivation
Risk-taker Creator Risk-taking
Visionary Creativity Vision
Innovator Innovation
Technologist Technology
Initiator Initiative
Organizer Organization
Decision-maker Decision Making
Administrator Administration
Adopter Adopting
Delegator Delegating
Ethical Ethics
Goal Setter Goal Setting
Imagination Skilled Imagining
Transformer Skills
Wealth Creator Transformation
Economic Developer Promoter Wealth Creation
Economic Development Promotion
From this table it is clear that entrepreneurship refers to a process of action an entrepreneur undertakes to establish his
enterprise. It is a creative and innovative response to the environment. It is thus a cycle of actions to further the interests
of the entrepreneur.
47 | P a g e
Entrepreneurial Failure
Getting success in entrepreneurial venture is not the result of a single person’s efforts. There is always a team involved in
it. The team is made up of other group of people like investors, working partners, employees, vendors, creditors,
customers and clients. All play an important part in the success or failure of the enterprise. Although other people are
involved, but there is a tendency to believe that they play less important roles and at the end of the day, success or failure
of the enterprise will be largely depend on the entrepreneur’s vision, skill, achievement level.
Many entrepreneurs fail due to several barriers and problems. Karl H. Vasper has identified following
reasons:
Lack of a viable concept.
Lack of market knowledge
Lack of technical skills.
Lack of seed capital.
Lack of business know-how.
Competency-lack of motivation.
Social stigma.
Legal constraints and regulations.
Monopoly and protectionism.
Inhibitions due to patents
48 | P a g e
Because of limited productive resources, high levels of uncertainty and risk, in experienced management personnel,
employees, new ventures suffer fear mortality much higher than the, well established firms. There are a number of reasons
for failure of a new venture and these are discussed below:
1. Inadequate Management of Finance: Due to a lot of operational issues sometimes, financial management is likely
to get neglected. Sometimes entrepreneurs are more concerned about raising the fund, they are less concerned about
utilization of funds. Common errors in financial management can be bad receivables management, improper cash
management, unproductive investments, and poor budgeting decisions, poor inventory management.
2. Lack of Professional and Experienced Management Team: One of the main problems faced by new
enterprises in that the management team is usually very new to their role. Due to the lack of professional management the
management of process, management of people go in a wrong direction. Even in some rare cases, when the management
has some individuals who have led a company in the past, they are now faced with a situation where the company itself
has no previous track record. It is a very different kind of situation.
3. Weak Promotional Efforts: Entrepreneurial firms are very reluctant to spend on promotional activities.
Sometimes entrepreneur thinks that investing in this campaign is not going to give assured returns and the link between
the promotional expenditure and the sales is not very easy to establish. This problem is mainly faced by the entrepreneurs
who are in manufacturing business and there target segment is the last customer.
4. Unplanned Rapid Growth: Unplanned growth is not always a desirable situation. Higher growth will put greater
stress on production facilities, manpower, and distribution and working capacity of Venture. These are designed to cater
to the rise in volumes up to a limit and to increase the limit and productivity they might need further capital investments.
It will lead to a stage of continuous firefighting and ultimately, many things may not keep pace with the growth. Most
commonly, the organization may run out of cash.
5. Shortage Trained or Experienced Manpower: Shortage of skilled and experienced manpower, shortage of
technologist is faced by new ventures. Most people prefer to work with a well-established organization employing
hundreds of employees and having a stable track record and experienced manpower has less desire to work with new
venture. New ventures are also reluctant to invest in training and development. Lack of experienced and skilled
manpower can lead to a general drop in productivity and quality of output. The absence of quality manpower is
particularly felt during a crisis.
49 | P a g e
6. Lack of Appropriate Information: Even in this era of free-flowing information, the quality of information
available to large corporations is superior then the information available to new small entrepreneurial ventures. Quality
information is always have some cost and small ventures may not be able to invest so much in getting the high-quality
information. For example, before entering a new market, the new venture may send some sales persons to interview
customers, retailers and wholesalers. On the other hand, the large corporation may here the services of a market research
firm and carries out a thorough investigation of the potentiality of their future product or service and the opportunities of
the new market.
7. Improper Price Management: Price of the product / service plays a pivot role is marketing the product / service.
There are many sophisticated pricing policies a new venture can adopt, taking into account its cost structure, productivity
level, nature of demand, and extent of competition. The entrepreneur can introduce new innovative pricing system also for
example, Deccan Airways revolutionized airline pricing in India by introducing low-priced air ways. But improper
management of price creates a lot problem to entrepreneur as price is directly associated with the volume of sales.
8. Lack of Strong Business Relationship: Relationships with vendors, creditor, venture capitalist, customers, and
others is a huge advantage to established businesses. A new venture will have to establish new relationships and work hard
at strengthening them. Such business linkages help in smooth conduct of business and are invaluable at times of distress.
Otherwise conflict between these relations may create a lot problem to the establishing venture.
9. Less Concerned about Management: Improper inventory management can lead to tough problems. Production
can be halted due to insufficient inventory, whereas excess inventory can lead to wastages and financial loss. In case of
perishable goods, high inventory can lead to expiration of stock. Inflated valuation of inventory can give a very wrong
picture of the financial position of the firm and this may lead to wrong pricing policy.
10. Narrow Vision: A number of small new firms face huge problems on operational issues and these problems can
threaten the very existence of the venture at time of start up. In such circumstances, the management of the venture focus
on surviving the immediate crisis and resolving the conflict and soon the long-term vision and strategy of the firm are
forgotten. If this continues for long, the danger is that long-term plans and strategies are discarded as impractical or
irrelevant. Ultimately, the firm acquires a shape very different from what was originally envisaged by the entrepreneur.
50 | P a g e
Evolution: A Chronological List of the Definition of 'Entrepreneur'
➢ 1734: Richard Cantillon: Entrepreneurs are non-fixed income earners who pay known costs of production but
earn uncertain incomes.
1734: An entrepreneur is a person who pays a certain price for a product to resell it at an uncertain price, thereby
making decisions about obtaining and using the resources while consequently admitting the risk of enterprise.
➢ 1803: Jean-Baptiste Say: An entrepreneur is an economic agent who unites all means of production- land of one,
the labour of another and the capital of yet another and thus produces a product. By selling the product in the
market he pays rent of land, wages to labour, interest on capital and what remains is his profit. He shifts
economic resources out of an area of lower and into an area of higher productivity and greater yield.
➢ 1934: Schumpeter: Entrepreneurs are innovators who use a process of shattering the status quo of the existing
products and services, to set up new products, new services.
➢ 1961: David McClelland: An entrepreneur is a person with a high need for achievement. He is energetic and a
moderate risk taker.
➢ 1964: Peter Drucker: An entrepreneur searches for change, responds to it and exploits opportunities. Innovation
is a specific tool of an entrepreneur hence an effective entrepreneur converts a source into a resource.
➢ 1971: Kilby: Emphasizes the role of an imitator entrepreneur who does not innovate but imitates technologies
innovated by others. Are very important in developing economies.
51 | P a g e
➢ 1975: Howard H. Stevenson of Harvard Business School: entrepreneurship is the pursuit of opportunity without
regard to resources currently controlled.
➢ 1975: Albert Shapero: Entrepreneurs take initiative, accept risk of failure and have an internal locus of control.
➢ 1985: G. Pinchot: Intrapreneur is an entrepreneur within an already established organization.
➢ 2013: Ronald May: An Entrepreneur is someone who commercializes his or her innovation.
Richard Cantillon
Cantillon first used the word “entrepreneur.” He defined an entrepreneur as a person who pays a certain price for a
product and resells it at an uncertain price: "making decisions about obtaining and using the resources while consequently
admitting the risk of enterprise." The word first appeared in the French dictionary entitled "Dictionnaire Universel de
Commerce" compiled by Jacques des Bruslons and published in 1723.
Joseph Schumpeter
According to Schumpeter, an entrepreneur is willing and able to convert a new idea or invention into a successful
innovation. Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in
part inferior offerings across markets and industries, simultaneously creating new products and new business models.
Thus, creative destruction is largely responsible for the dynamism of industry and long-term economic growth. The idea
that entrepreneurship leads to economic growth is an interpretation of the residual in endogenous growth theory and as
such is hotly debated in academic economics. An alternate description posited by Israel Kirzner suggests that the majority
of innovations may be much more incremental improvements such as the replacement of paper with plastic in the
construction of a drinking straw.
52 | P a g e
For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of currently existing inputs.
Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies
to produce the horseless carriage. In this case the innovation, the car, was transformational but did not require the
development of a new technology, merely the application of existing technologies in a novel manner. It did not
immediately replace the horsedrawn carriage, but in time, incremental improvements which reduced the cost and
improved the technology led to the complete practical replacement of beast drawn vehicles in modern transportation.
Despite Schumpeter's early 20th-century contributions, traditional microeconomic theory did not formally consider the
entrepreneur in its theoretical frameworks (instead assuming that resources would find each other through a price
system). In this treatment the entrepreneur was an implied but unspecified actor, but it is consistent with the concept of
the entrepreneur being the agent of x-efficiency.
Different scholars have described entrepreneurs as, among other things, bearing risk. For Schumpeter, the entrepreneur
did not bear risk: the capitalist did. Joseph A. Schumpeter (1934) believed that the equilibrium ideal was imperfect
Schumpeter (1934) demonstrated that changing environment continuously provides new information about the optimum
allocation of resources to enhance profitability some individuals acquire the new information before others, recombine the
resources to gain an entrepreneurial profit (Schumpeter, 1934) Schumpeter of the opinion that entrepreneurs shift the
Production Possibility Carve to a higher level using innovations (Schumpeter, 1934)
Frank Knight and Peter Drucker

For Frank H. Knight (1921) and Peter Drucker (1970), entrepreneurship is about taking risk. The behavior of the
entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the
name of an idea, spending much time as well as capital on an uncertain venture.
53 | P a g e
Knight classified three types of uncertainty.
▪ Risk, which is measurable statistically (such as the probability of drawing a red color ball from a jar containing 5
red balls and 5 white balls).
▪ Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing
5 red balls but with an unknown number of white balls).
▪ True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict statistically, such as the
probability of drawing a red ball from a jar whose number of red balls is unknown as well as the number of other
colored balls.
The acts of entrepreneurship are often associated with true uncertainty, particularly when it involves bringing something
really novel to the world, whose market never exists. However, even if a market already exists, there is no guarantee that a
market exists for a particular new player in the cola category.
54 | P a g e
55 | P a g e
Definition of Entrepreneurs Today
Entrepreneurship is the process of creating something new and assuming the risks and rewards.
Entrepreneurship: What is the Modern Definition of Entrepreneur?

❖ Entrepreneurship is a vital activity to bring about changes in economy and society not only in a country but also of
those in the world.
❖ It causes initiation of all types of human activities in the society. Entrepreneurship is that immense strength and
spirit of human which made possible the great geographical discoveries of the world.
❖ It is that astounding forces of man that indebted our civilization with varieties of products, among technologies,
and breakthrough thoughts.
❖ It affects all aspects of political-legal, sociocultural, technological, economic and demographical environment of life
and society. Entrepreneurship is the pioneer force that connects the world societies with its activity of exchange
from the early period of our human history. It is a basic strength of the business organizations too. The provocation
of change toward future business prosperity is the result of entrepreneurial zeal of the people. Therefore
entrepreneurship is a basic discipline to learn for the student of business.
Four aspects of being an entrepreneur today:

Involves creation process.
Requires devotion of time and effort.
Involves rewards of being an entrepreneur.
Requires assumption of necessary risks.
56 | P a g e
Concept of Entrepreneurship:
Entrepreneurship involves decision making, innovation, implementation, forecasting of the future, independency, and
success first and this is how entrepreneurship developed Entrepreneurship is a discipline with a knowledge base theory. It
is an outcome of complex socio-economic, psychological, technological, legal and other factors. It is a dynamic and risky
process. It involves a fusion of capital, technology and human talent. Entrepreneurship is equally applicable to big and
small businesses, to economic and non-economic activities. Different entrepreneurs might have some common traits but
all of them will have some different and unique features. If we just concentrate on the entrepreneurs then there will be as
many models as there are ventures and we will not be able to predict or plan, how and where, and when these
entrepreneurs will start their ventures. Entrepreneurship is a process. It is not a combination of some stray incidents. It is
the purposeful and organized search for change, conducted after systematic analysis of opportunities in the environment.
Entrepreneurship is a philosophy- it is the way one thinks, one acts and therefore it can exist in any situation be it
business or government or in the field of education, science and technology or poverty alleviation or any others.
Entrepreneurship can be described as a process of action an entrepreneur undertakes to establish his enterprise.
Entrepreneurship is a creative activity. It is the ability to create and build something from practically nothing. It is a knack
of sensing opportunity where others see chaos, contradiction and confusion. Entrepreneurship is the attitude of mind to
seek opportunities, take calculated risks and derive benefits by setting up a venture. It comprises of numerous activities
involved in conception, creation and running an enterprise.
According to Peter Drucker Entrepreneurship is defined as ‘a systematic innovation, which consists in the purposeful and
organized search for changes, and it is the systematic analysis of the opportunities such changes might offer for economic
and social innovation.
Entrepreneurship is a dynamic process of vision, change, and creation. It requires an application of energy and passion
towards the creation and implementation of new ideas and creative solutions. Essential ingredients include the willingness
to take calculated risks- in terms of time, equity, or career; the ability to formulate an effective venture team; the creative
skill to marshall needed resources; the fundamental skills of building a solid business plan; and, finally, the vision to
recognize opportunity where others see chaos, contradiction, and confusion.
57 | P a g e
Enterprise
Entrepreneur is a person who starts an enterprise. The process of creation is called entrepreneurship. The entrepreneur is
the actor and entrepreneurship is the act. The outcome of the actor and the act is called the enterprise. An enterprise is the
business organization that is formed and which provides goods and services, creates jobs, contributes to national income,
exports and overall economic development.
Entrepreneur vs. Manager

The entrepreneur is a person who is motivated to satisfy a high need for
achievement in innovative and creative activities. His creative behaviour
and innovative spirit which forms a process of an endless chain is termed
as entrepreneurship. It is not enough for the entrepreneur to build up the
process, but equally important task for him is to manage the business. He
performs entrepreneurial vis-a-vis managerial functions. The entrepreneur
enters at a transitional stage in which what is initially with innovation
becomes a routine for him the transition from an entrepreneurship to
management. Also, the emphasis switches from techniques and analytical
methods to insight and to involvement with people. The entrepreneur
perceives and exploits opportunity, and the subsequent steps necessary for
organization are pertinent, to management.
The entrepreneur differs from the professional manager in that he undertakes a venture for his personal gratification. As
such he cannot live within the framework of occupational behaviour set by others. He may engage professional manager to
perform some of his functions such as setting of objectives, policies, procedures, rules, strategies, formal communication
network. However, the entrepreneurial functions of innovation, assumption of business risk and commitment to his vision
cannot be delegated to the professional manager. Failure to the professional executive may mean a little more than
locating a new job perhaps even at a higher salary, whereas failure of an entrepreneur in his efforts would mean a
devastating loss to his career. The professional manager has to work within the framework of policy guidelines laid down
by the entrepreneur. Sometimes, the two terms, namely, an entrepreneur and a manager are considered as synonym, i.e.,
meaning the same. In fact, the two terms are two economic concepts meaning two different meanings.
58 | P a g e
Entrepreneurship as Career Option
An educated person has broadly two career options. One is called wage or salary employment, wherein people are
employed in government service, public and private sectors and get fixed wage or salary. The other career option is
entrepreneurial employment under which people set up their new ventures. Wage employment does not generate
resources and is organized within the existing wealth. Wage employment is self-saturating. Once availed, it blocks the
employment opportunity to others for another 10 years. On the other hand, the latter contributes towards national wealth
and has a unique characteristic of self-generation. This starts a chain of activities that create unending employment
opportunities. Entrepreneurship promotes small saving amongst middle class individuals for investment into new
ventures. It also provides an outlet that creates an urge among individuals to attain excellence in product design and
related innovation. Thus, entrepreneurship provides a lasting solution to the acute problem of unemployment. The
difference between wage employment and entrepreneurial employment is shown in Table 1.1.
1. Difference Between Wage Entrepreneurship and Employment
Wage Employment Entrepreneurial

Employment
Nature Self-Saturating Self-Generating/actualization
Scope Limited Unlimited
Orientation • Routine Types • Creative
• Status Quo • Innovative
• Problem Avoiding • Problem Solving
• Dependent • Independent Decisions
Contribution Consumes National Wealth Generates National Wealth
Earning Fixed (Subsistence) Growing (Generating Surplus)
59 | P a g e
In the context of employment generation, the three terms i.e. Income Generation, Self-Employment and Entrepreneurship
are often used interchangeably. Entrepreneurship refers to identification of innovative ideas, setting up of a new
enterprise. Whereas, self-employment refers to full time involvement in one’s own occupation. One may or may not be
bearing the risk, mobilizing inputs, organizing production and marketing the product or service. Income generating
activities, on the other hand, are part time, casual and practiced with a view of raising additional income. All
entrepreneurs are self-employed and income generating persons. But all self-employed and income generating persons
may not be entrepreneurs.
2. Difference Between Trader and An Entrepreneur
Trader Entrepreneur
A trader is not always an entrepreneur An entrepreneur also a trader
Involve in buying and selling Involve in creating new product
Always work out to gain profit Besides profit, also considered about satisfaction
and successful
Not interested in new technology evolvement and Always alert and follow any new changes and
new changes technologies
Selling common stuff Introduce new products
Competition is a common challenge Competition is a challenge that needs further
details
Focus on daily matter Farsighted and try to improve in the future
Short term profit oriented Long term profit oriented
60 | P a g e
Why Entrepreneurship?
What leads a person to strike out on his own and start a business? Sometimes it is a proactive response to a negative
situation. Perhaps a person has been laid off once or more. Sometimes a person is frustrated with his or her current job
and doesn’t see any better career prospects on the horizon. Sometimes a person realizes that his or her job is in jeopardy.
A firm may be contemplating cutbacks that could end a job or limit career or salary prospects. Perhaps a person already
has been passed over for promotion. Perhaps a person sees no opportunities in existing businesses for someone with his or
her interests and skills. Some people are actually repulsed by the idea of working for someone else. They object to a system
where reward is often based on seniority rather than accomplishment, or where they have to conform to a corporate
culture. Other people decide to become entrepreneurs because they are disillusioned by the bureaucracy or politics
involved in getting ahead in an established business or profession. Some are tired of trying to promote a product, service,
or way of doing business that is outside the mainstream operations of a large company.
In contrast, some people are attracted to entrepreneurship simply for the sake of the advantages of starting a business.
These include:
▪ Entrepreneurs are their own bosses. They make the decisions. They choose whom to do business with and what
work they will do. They decide what hours to work, as well as what to pay and whether to take vacations.
▪ Entrepreneurship offers a greater possibility of achieving significant financial rewards than working for someone
else.
▪ It provides the ability to be involved in the total operation of the business, from concept to design and creation,
from sales to business operations and customer response.
▪ It offers the prestige of being the person in charge.
▪ It gives an individual the opportunity to build equity, which can be kept, sold, or passed on to the next generation.
▪ Entrepreneurship creates an opportunity for a person to make a contribution. Most new entrepreneurs help the
local economy. A few—through their innovations—contribute to society as a whole. One example is entrepreneur
Steve Jobs, who co-founded Apple in 1976, and ignited the subsequent revolution in desktop computers.
▪ Some people evaluate the possibilities for jobs and careers where they live and make a conscious decision to pursue
entrepreneurship.
No one reason is more valid than another; none guarantee success. However, a strong desire to start a business, combined
with a good idea, careful planning, and hard work, can lead to a very engaging and profitable endeavor.
61 | P a g e
Theories of Entrepreneurship
An entrepreneur, as described by the Small Business Association, puts together a business and accepts the associated risk
to make a profit. While this definition serves as a simple but accurate description of entrepreneurs, it fails to explain the
phenomena of entrepreneurship itself. A number of theories exist, but all of them fall into one of five main categories:
1. Economic Theories
Economic entrepreneurship theories date back to the first half of the 1700s with the work of Richard Cantillon, who
introduced the idea of entrepreneurs as risk takers. The classic, neoclassical and Austrian Market process schools of
thought all pose explanations for entrepreneurship that focus, for the most part, on economic conditions and the
opportunities they create. Economic theories of entrepreneurship tend to receive significant criticism for failing to
recognize the dynamic, open nature of market systems, ignoring the unique nature of entrepreneurial activity and
downplaying the diverse contexts in which entrepreneurship occurs.
2. Resource-Based Theories
Theories focus on the way individuals leverage different types of resources to get entrepreneurial efforts off the ground.
Access to capital improves the chances of getting a new venture off the ground, but entrepreneurs often start ventures
with little ready capital. Other types of resources entrepreneurs might leverage include social networks and the
information they provide, as well as human resources, such as education. In some cases, the intangible elements of
leadership the entrepreneur adds to the mix operate as resource that a business cannot replace.
3. Psychological Theories
Psychological theories of entrepreneurship focus on the individual and the mental or emotional elements that drive
entrepreneurial individuals. A theory put forward by psychologist David McCLelland, a Harvard emeritus professor,
offers that entrepreneurs possess a need for achievement that drives their activity. Julian Rotter, professor emeritus at
the University of Connecticut, put forward a locus of control theory. Rotter’s theory holds that people with a strong
internal locus of control believe their actions can influence the external world and research suggests most
entrepreneurs possess trait. A final approach, though unsupported by research, suggests personality traits ranging
from creativity and resilience to optimism drive entrepreneurial behavior.
62 | P a g e
4. Sociological/Anthropological Theories
The sociological theory centers its explanation for entrepreneurship on the various social contexts that enable the
opportunities entrepreneurs leverage. Paul D. Reynolds, a George Washington University research professor, singles
out four such contexts: social networks, a desire for a meaningful life, ethnic identification and social-political
environment factors. The anthropological model approaches the question of entrepreneurship by placing it within the
context of culture and examining how cultural forces, such as social attitudes, shape both the perception of
entrepreneurship and the behaviors of entrepreneurs.
5. Opportunity-Based Theory
Prolific business management author, professor and corporate consultant, Peter Drucker put forward an opportunity-
based theory. Drucker contends that entrepreneurs excel at seeing and taking advantage of possibilities created by
social, technological and cultural changes. For example, where a business that caters to senior citizens might view a
sudden influx of younger residents to a neighborhood as a potential death stroke, an entrepreneur might see it as a
chance to open a new club.
The Importance of Entrepreneurship

Entrepreneurship is the dynamic process of creating incremental wealth and innovating things of value that have a
bearing on the welfare of an entrepreneur. It provides civilization with enormous amount of goods and services and
enhances the growth of social welfare. The man behind the entrepreneurship is an action oriented and highly motivated
individual who is ready to achieve goals. M. Kirzner (1973) observes entrepreneurs as; “one who perceives what others
have not seen and acts upon that perception”. Thus, entrepreneurs take the economy and the society that is the whole
civilization to the state of progress and prosperity.
63 | P a g e
Taking this into consideration we can describe the Significance or importance of entrepreneurship which
is stated below.
1. Growth of Entrepreneurship
Entrepreneurship the advent of new venture particularly small ventures in order to materialize the innovative ideas of the
entrepreneurs. Thus, the growth or establishment of small enterprises ii the specific contribution of entrepreneurship in in
every economy of the world. The statistics reveals that in USA economy nearly half a million small enterprise are
established every year. Our country is not an exception in this regard.
2. A Creation of job opportunities

Entrepreneurship firms contributed a large share of new jobs. It provides entry-level jobs so necessary fur training or
gaining experience for unskilled workers.
The small enterprises arc the only sector that generates large portion of total employment every year. Moreover,
entrepreneurial ventures prepare and supply experienced labor to the large industries.
64 | P a g e
3. Innovation
Entrepreneurship is the incubator of the innovation. Innovation creates disequilibria in the present state of order.
It goes beyond discovery and does implementation and commercialization, of innovations. “Leap frog” innovation,
research, and development are being contributed by entrepreneurship. Thus, entrepreneurship nurses innovation that
provides new ventures, product, technology , market, quality of good etc. to the economy that increase Gross Domestic
Products and standard of living of the people.
4. Impact on community development

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

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

Entrepreneurship is the most effective way of integrating those who feel disposed and alienated into the economy.
Minorities, migrants and women are safely integrated into entrepreneurship that will help lo develop a well-composed
plural society.
65 | P a g e
7. Spawns entrepreneurship
Entrepreneurship is the nursing ground for new inexperienced adventurists. It is the field where a person can start his/her
idea of venture, which may be ended up in a giant enterprise. All the large industrial ventures started as a small
entrepreneurial enterprise.
Therefore, entrepreneurship provides wide spectrum of ventures and entrepreneurs in every economy. The vast open
arena of entrepreneurship thus, acts as incubator to entrepreneurs.
8. Enhances standard of living

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

Entrepreneurship is innovation and hence the innovated ideas of goods and services have to be tested by experimentation.
Therefore, entrepreneurship provides funds for research and development with universities and research institutions. This
promotes the general development o:’ research and development in the economy.
Entrepreneurship is the pioneer zeal that provides events in our civilization. We are indebted to it for having prosperity in
every arena of human life- economic, technological and cultural. The above discussion in a nutshell enumerates that
tremendous’ contributions of entrepreneurship.
66 | P a g e
Why Entrepreneurs are Important for the Economy
Entrepreneurs are frequently thought of as national assets to be cultivated, motivated and remunerated to the greatest
possible extent.
Entrepreneurs can change the way we live and work. If successful, their innovations may improve our standard of living.
In short, in addition to creating wealth from their entrepreneurial ventures, they also create jobs and the conditions for a
prosperous society.
The following are six reasons why entrepreneurs are important to the economy:
Entrepreneurs Create New Businesses

Path breaking offerings by entrepreneurs, in the form of new goods & services, result in new employment, which can
produce a cascading effect or virtuous circle in the economy. The stimulation of related businesses or sectors that support
the new venture add to further economic development.
For example, a few IT companies founded the Indian IT industry in the 1990s as a backend programmers' hub. Soon the
industry gathered pace in its own programmers’ domain. But more importantly, millions from other sectors benefited
from it. (For more, see: Top Indian Billionaires and How They Made Their Money.)
67 | P a g e
Businesses in associated industries, like call center operations, network maintenance companies and hardware providers,
flourished. Education and training institutes nurtured a new class of IT workers offering better, high-paying jobs.
Infrastructure development organizations and even real estate companies capitalized on this growth as workers migrated
to employment hubs seeking new improved lives.
Similarly, future development efforts in underdeveloped countries will require robust logistics support, capital investment
from buildings to paper clips and a qualified workforce. From the highly qualified programmer to the construction worker,
the entrepreneur enables benefits across a broad spectrum of the economy.
Entrepreneurs Add to National Income

Entrepreneurial ventures literally generate new wealth. Existing businesses may remain confined to the scope of existing
markets and may hit the glass ceiling in terms of income. New and improved offerings, products or technologies from
entrepreneurs enable new markets to be developed and new wealth created.
Additionally, the cascading effect of increased employment and higher earnings contribute to better national income in
form of higher tax revenue and higher government spending. This revenue can be used by the government to invest in
other, struggling sectors and human capital.
Although it may make a few existing players redundant, the government can soften the blow by redirecting surplus wealth
to retrain workers. (For more, see: Starting a Small Business in Tough Economic Times.)
Entrepreneurs Also Create Social Change

Through their unique offerings of new goods and services, entrepreneurs break away from tradition and indirectly support
freedom by reducing dependence on obsolete systems and technologies. Overall, this results in an improved quality of life,
greater morale and economic freedom.
For example, the water supply in a water-scarce region will, at times, force people to stop working to collect water. This
will impact their business, productivity and income. Imagine an innovative, automatic, low-cost, flow-based pump that
can fill in people's home water containers automatically. Such an installation will ensure people are able to focus on their
68 | P a g e
core jobs without worrying about a basic necessity like carrying water. More time to devote to work means economic
growth.
For a more contemporary example, smartphones and their smart apps have revolutionized work and play across the globe.
Smartphones are not exclusive to rich countries or rich people either. As the growth of China's smartphone market and its
smartphone industry show, technological entrepreneurship will have profound, long lasting impacts on the entire human
race.
Moreover, the globalization of tech means entrepreneurs in lesser-developed countries have access to the same tools as
their counterparts in richer countries. They also have the advantage of a lower cost of living, so a young individual
entrepreneur from an underdeveloped country can take on the might of the multi-million dollar existing product from a
developed country. (For more, see: Time for China’s Smartphone Revolution.)
Community Development
Entrepreneurs regularly nurture entrepreneurial ventures by other like-minded individuals. They also invest in
community projects and provide financial support to local charities. This enables further development beyond their own
ventures.
Some famous entrepreneurs, like Bill Gates, have used their money to finance good causes, from education to public
health. The qualities that make one an entrepreneur are the same qualities that motivate entrepreneurs to pay it forward.
(For more, see: Encouraging Good Habits with an Incentive Trust.)
The Other Side of Entrepreneurs

Are there any drawbacks to cultivating entrepreneurs and entrepreneurship? Is there an “upper limit” for the number of
entrepreneurs a society can hold?
Italy may provide an example of a place where high levels of self-employment have proved to be inefficient for economic
development. Research reveals that Italy has in the past experienced large negative impacts on the growth of its economy
because of self-employment. There may be truth in the old saying, "too many chefs and not enough cooks spoil the soup."
(For more, see: The Real Risks of Entrepreneurship.)
69 | P a g e
The Role of States
Regulations play a crucial role in nurturing entrepreneurship, but regulation requires a fine balancing act on the part of
the regulating authority. Unregulated entrepreneurship may lead to unwanted social outcomes including unfair market
practices, pervasive corruption, financial crisis and even criminal activity.
Findings from United Nations University also indicate the possible implications of “over nurturing" entrepreneurship.
Wim Naudé argues that “while entrepreneurship may raise economic growth and material welfare, it may not always
result in improvements in non-material welfare (or happiness). Promotion of happiness is increasingly seen as an
essential goal.”
Paradoxically, a significantly high number of entrepreneurs may lead to fierce competition and loss of career choices for
individuals. With too many entrepreneurs, levels of aspirations usually rise. Owning to the variability of success in
entrepreneurial ventures, the scenario of having too many entrepreneurs may also lead to income inequalities, making
citizens more – not less – unhappy.
The Bottom Line

The interesting interaction of entrepreneurship and economic development has vital inputs and inferences for policy
makers, development institutes, business owners, change agents and charitable donors. If we understand the benefits and
drawbacks, a balanced approach to nurturing entrepreneurship will definitely result in a positive impact on economy and
society.
Culture, Tradition and Entrepreneurship

Why are some parts of the world more active in entrepreneurship than others? A lot of it has to do with the culture and
whether it encourages risk-taking and innovation. For instance, if a startup fails in the U.S. or Australia, the question is:
What did you learn and what will you do next? That’s in stark contrast to many European countries where the
entrepreneur is labeled a failure when a startup doesn’t succeed.
70 | P a g e
Consequently, when you look at the younger population of 18 to 25 year olds, there is a lower percentage of people in
Europe involved in entrepreneurial activities compared to Latin America, Asia, Africa and North America. Overall, Europe
has the most work to do when it comes to developing a creative spirit.
Here are a few more trends: Of the 400-500 million entrepreneurs in the world (the number depends on the study), about
163 million early-stage entrepreneurs are women and about 165 million are young entrepreneurs (18-25 years old).
With approximately 18 million early-stage entrepreneurs selling 25% of their goods, products or services on a global basis,
cross-cultural communication is becoming more important. This is a critical skill to develop, as there are significant
differences among cultures that can impact a startup. For example, some cultures place a higher value on individual
performance versus team performance. Another cultural aspect to pay attention to is how cultures view success. Is it
profitability, employee morale or market share? Also, how do they view change? Is it continuous and ongoing or a
negative? And what about relationships? In some cultures like China, it’s expected that you develop a relationship with
someone before you get down to business. In other countries like the U.S., you can meet someone and immediately discuss
business. There really are countless cultural differences among not just countries, but also organizations. Entrepreneurs
who pay attention to these differences, understand their environment, and learn how to communicate across cultures can
greatly increase their chances of success.
Poverty and Entrepreneurship

Entrepreneurship and business are rarely accorded a serious place in discussions around drivers of economic
development. A cursory look at the numbers makes this seem very surprising. China has pulled approximately 600 million
people out of absolute poverty since Deng Xiaoping unleashed market reforms in the late 1970s. Never in human history
have so many people been pulled out of grinding poverty in such a short span of time. Similarly, South Korea has gone
from a per-capita income of $291 in 1970 to $20,000 today. Even reform laggards like India have managed to pull a
couple of hundred million people out of grinding poverty since economic reforms were initiated. Across the world, we find
countries that created an entrepreneurship and business friendly environment were successful in reducing poverty
drastically.
Despite the evidence, there are strong lobbies in emerging markets that make the claim that business friendly policies are
anti-poor. One cannot, after all, redistribute poverty. One can only redistribute wealth, and to redistribute it, you have to
create the wealth first. And the only agent of society that can create wealth is business.
71 | P a g e
Desire for Wealth and Entrepreneurship
Desire is the first conception of wealth building. It is the desire for wealth of Warren Buffett to become wealthy that he
started earning and saving money at young age. It is also the same desire why Bill Gates dropped out from Harvard
University. He wants to be wealthy by establishing a software company which makes him the richest American. Burning
desire for wealth is the drive of one person to achieve his or her financial goal in life. It is our burning desires that make us
motivated, focused and determined. Remember, without the desire, we will get easily bored and we procrastinate when
working on our goal. According to Wikipedia, desire is a sense of longing for a person or object or hoping for an outcome.
When a person desires something or someone, their sense of longing is excited by the enjoyment or the thought of the
item or person, and they want to take actions to obtain their goal. The Importance of Wealth Desire in Creating Wealth.
Driving Force to Work Hard

Most of the cases, you cannot achieve your desired wealth without having the driving force internally. It is the driving
force of a person that stimulates him or her to work hard in achieving financial goal.
Chris Gardner was not contented to be a homeless father. He is longing for a lucrative and fulfilling career. He knew that
stock broker is his dream job. He became stock broker even though he doesn't have a college degree. He doesn't mind to
sleep with his son in the toilet or in the parking. His driving force is to work hard in order to get the license and earn
higher salary. He cannot reach his level of financial success now without the driving force from his mind. He creates his
wealth through hard works and dedication towards it. Hard works make him truly a successful stock broker and then top
earner from his company. Then another diving force came to his mind and body. He wants to have his own brokerage
company. Again, because of driving force to be a determined person, it was not impossible to bring his company into a
profitable brokerage. In fact, he builds huge fortune from his company that makes him a truly multi-millionaire. Indeed, it
is his desire that give him energy to strive on reaching his own desired goal and to become a wealthy person.
Motivates to Reach Our Goal in Life

If you have a desire in life, it means that you have the motivation to pursue your dream life. Your burning desire is very
important to motivation. Motivation to do things that will help reaching your goal or financial success. The great owner
and founder of Amazon.com Inc., Jeff Bezos have a very intense desire to put up book buying and placing order online.
72 | P a g e
This was started when he found out that there is an internet commerce opportunity. His desire to be the first book store
online motivates him to learn more about books business. Then he became focused on pursuing his entrepreneurial
journey. He quits from his high paying job and he is motivated to put up his own books buying company. He does not
mind or even worried to leave his secured job in New York and moved with his wife to Seattle, Washington. Now,
Amazon.com Inc. is the most diversified online shopping store. First, it started from the desire of our great online
businessman, Jeff Bezos, and then it became a real online books store. His commitments to his goal and continuous
longing to excel in this line of business makes him more motivated to expand and grow his venture.
Conclusion
Desire for wealth is important in realization of our dream or attaining our goal. This gives us the drive and determination
to move and act.
Emerging Drivers of Contemporary Entrepreneurship
Information Communication Technology (ICT)

With the help of modern business machines such as personal computers, laptops, fax machines, copiers, color printers,
answering machines, and voice mail, even one person working at home can look like a big business. At one time, the high
cost of technological wizardry made it impossible for small businesses to compete with larger companies that could afford
the hardware. Today, however, powerful computers and communication equipment are priced within the budgets of even
the smallest businesses. Although entrepreneurs may not be able to manufacturer heavy equipment in their spare
bedrooms, they can run a service, or information based company from their home, or almost everywhere, very effectively
and look like a Fortune 500 company to customers and clients. Jimbo Wales, founder of Wikipedia says, “Wherever my
laptop is, that’s my office.”
73 | P a g e
E-Commerce and the World Wide Web
The proliferation of the World Wide Web, the vast network that blinks computers around the globe via the Internet and
opens up oceans of information to its users, has spawned thousands of entrepreneurial ventures since its beginning in
1993. Online retail sales, are forecast to continue to grow rapidly, creating many opportunities for Web-savvy
entrepreneurs. Travel services, computer hardware and software, books, music, videos, and consumer electronics are
among the best selling items on the web, but entrepreneurs are learning that they can use this powerful tool to sell just
about anything! In fact, entrepreneurs are using the Web to sell services, such as tours to sites of their favorite television
shows and movies and parties, and products and recordings by musicians.
Unfortunately, many small business owners have not yet tapped the power of the Web. According to a study by the
National Small Business Association, 60% of small businesses have Web sites, nearly double the number that had websites
in 1997. Among these small companies that have created Web sites, only 35% are actually engaging in e-commerce. Small
companies that do conduct e-commerce typically reap benefits quickly, however, in the form of new customers and
increased sales. These “netpreneurs” are using the Web to connect with their existing customers and, ultimately, to attract
new ones.
NB: Netpreneur is a community—both virtual and physical—where tech entrepreneurs can connect, partner and help
one another grow and succeed.
Globalization
Globalization is the worldwide movement toward economic, financial, trade, and communications integration.
Globalization implies the opening of local and nationalistic perspectives to a broader outlook of an interconnected and
interdependent world with free transfer of capital, goods, and services across national frontiers. However, it does not
include unhindered movement of labor and, as suggested by some economists, may hurt smaller or fragile economies if
applied indiscriminately.
As globalization transforms entire industries, even experienced business owners and managers must rethink the rules of
competition on which they have relied for years. To thrive, they know they must develop new business models and new
models of competitive advantages. One survey by management consulting firm Bain and Company reports that 75% of
global executives believe that they will have to revamp their core businesses to remain competitive, and 80% say that the
speed of global business has made maintaining a competitive edge more difficult.
74 | P a g e
Entrepreneurs are discovering that the tools of global business are within their reach, the cost of going global are
decreasing, and the benefits of conducting global business can be substantial. In fact, more than 75% of the world’s
purchasing power lies outside of the borders of the United States. The timing has never been better for small businesses to
get out of their backyards and become “global players” says Laurel Delaney, founder of GlobeTrade.com, a consulting
company.
Changes in Demand
Entrepreneurs must be aware of changing market conditions. Man’s wants are unlimited and therefore if an entrepreneur
is to truly survive, they must keep up with changes in demand. It is important that entrepreneurs engage in market
research to gauge market conditions. Entrepreneurs must also have an understanding of the theoretical basis of demand
and supply and how the price mechanism operates. For example, if demand increases, price usually increases whereas if
supply increases, price usually falls. Demand will therefore have an impact on pricing strategies.
Unemployment
The potential effects of unemployment on new firm formation exist at three different levels, viz.: the personal level,
regional level and national level.1 Both pull and push forces may operate at each of these levels. First, the likelihood of
choosing to found a business is related to the employment status of a worker. Because of the push factors, unemployed
workers may have a greater propensity for becoming self-employed than employed workers (Evans and Leighton 1990;
Storey 1982; Storey 1991; Meager 1992; Audretsch 1993; Thomas and Jungbauer-Gans 1999). There are, of course, pull
forces which drive capable persons to entrepreneurship. Such individuals may have a desire to work for themselves; they
may wish to realize their ambitions; they may feel the need to pursue a career, and so on. But in the case of unemployed
persons, we may suppose that the push factors are dominant forces. The unemployed are explicitly pushed into founding
their own firm by redundancy and income insecurity. Most unemployed individuals are dissatisfied with their present
situation, whereupon some of them may consider entrepreneurship as their best choice. Entrepreneurship is, perhaps, not
their dream, but rather the lesser of two “evils”, the other “evil” being the present unsatisfactory situation. Without
personal unemployment, a “push-entrepreneur” would not start a business.
75 | P a g e
Demographics
Understanding the demographics of your target customers is critical for the success of your business. Not only do you need
to understand them in order to decide exactly what your product and services mixes will include, but this information will
also affect pricing, packaging, promotion and place.
Let's talk about just one of these factors to see how demographics affects your choices. In order to properly evaluate a
community or neighborhood for the best location for your business, you must know the demographic profile of your
potential customers. To see if the community you're considering offers a population with the demographic traits necessary
to support your business, look at the community's:
1. Purchasing power. Find out the degree of disposable income within the community.
2. Residences. Are homes rented or owned?
3. Means of transportation. Do prospective customers in the area own vehicles, ride buses or bicycles, and so on?
4. Age ranges. Does the community consist primarily of young people still approaching their prime earning years,
young professionals, empty nesters or retirees?
5. Family status. Are there lots of families in the area or mostly singles?
6. Leisure activities. What type of hobbies and recreational activities do people in the community participate in?
Detailed demographic information is available from the Census Bureau's website. You can also get this kind of information
from established businesses within your industry or from a trade association. Gale's Dictionary of Associations, available
in most libraries, contains listings for more than 30,000 trade associations' national headquarters. Many associations also
have local or regional chapters that serve members in a variety of ways, with everything from newsletters to lobbying
actions.
In addition, the Bureau of Labor Statistics publishes the Consumer Expenditure Survey (CES), which you can find at the
Bureau's website by clicking on "consumer spending." The CES annually samples 5,000 households through its Quarterly
Interview Survey and its Diary Survey to learn how families and individuals spend their money. Unlike other surveys that
might ask only how much people are spending on household or home appliances, the CES collects data about nearly every
category of expenses--from alcoholic beverages and restaurant meals to pensions and life insurance. Bureau of Labor
Statistics analysts then sort the information and group consumers by income, household size, race, gender and other
characteristics relevant to your business.
76 | P a g e
Institutional Support
There are a number of institutions within Trinidad and Tobago to assist with entrepreneurship:
1. Financial Support
a) Commercial Banks
b) National Entrepreneurship Development Company (NEDCO)
c) Youth Entrepreneurship Success Programme (YES)
d) Business Development Company (BDC)
e) Caribbean Leasing Company
f) The Agricultural Development Bank of Trinidad and Tobago
g) Caribbean Microfinance Trinidad and Tobago (MICROFIN)
h) The Enterprise Assistance Fund (EAF)
i) Credit Unions
j) Youth Business Trinidad and Tobago
k) Micro Enterprise Loan (MEL)
l) Programme for Enterprise Development (PROFED)
m) Venture Capital
n) Helping Ourselves Prosper Economically (HOPE)
o) The Export/Import Bank (Exim bank) of Trinidad and Tobago
p) Women’s Responsive Sou Sou Bank (WRSB)
q) The Point Fortin Business Development Fund
77 | P a g e
2. Sources of Technical Assistance
a) Entrepreneurial Training Institute and Incubation Centre (ETIIC)
b) Small Enterprising Business Association of Trinidad and Tobago (SEBA)
c) The Business Development Unit – Tobago house of Assembly
d) Export Centres Company Limited (ECCL)
e) The Caribbean Industrial Research Institute (CARIRI)
f) The Trinidad and Tobago Bureau of Standards (TTBS)
3. Sources of Training
a) Youth Training and Employment Partnership Programme (YTEPP) Limited
Ease of entry in the informal sector

The informal sector or informal economy is that part of an economy that is not taxed, monitored by any form of
government or included in any gross national product (GNP), unlike the formal economy.
Other terms used to refer to the informal sector can include the black market, the shadow economy, the underground
economy, the agora, and System D. Associated idioms include "under the table", "off the books" and "working for cash".
Due to the fact that there are hardly any regulations governing this industry, it is easier to engage in and set up
entrepreneurial ventures.
78 | P a g e
Role of Entrepreneurship in national and regional development
Economic development is mostly characterized by increasing gross domestic product, GDP in nations and GDP per capita.
It also means the distribution of income. Economic development ideally refers to the sustained, concerted actions of
communities and policymakers that improve the standard of living and economic health of a specific locality.
The terms “economic development” and “economic growth” are often

used interchangeably but in fact, there is a great difference between the
two. Economic growth can be viewed as a subcategory of economic
development. When social mobilization increases expectations and
ambitions, economic development increases the capacity of society to
satisfy their ambitions and therefore should tend to reduce social
frustrations and any resulting political instability. Economic
development can also be referred to as the quantitative and qualitative
changes in an existing economy. Economic development involves the
development of human capital, increasing the literacy ratio, improving
essential infrastructure, improvement of health and safety and other
areas that aim at increasing the general welfare of the citizens. Economic
development today involves far more than just traditional manufacturing industry; the key drivers of growth in the future
will be the innovation economy and environmental protection-related demand. The last few years have seen a pronounced
trend towards the formation of multilateral and bilateral free trade agreements (FTAs) and comprehensive economic
partnership agreements (CEPAs).
Entrepreneurs build for-profit and non-profit ventures. The most well-known type of entrepreneurial venture is the for-
profit, or commercial, venture, which sells products or services for a profit. Entrepreneurs can also launch a non-profit
venture whose purpose is to fulfil a social mission rather than to make money. For example, nonprofits often work to
improve societal issues such as health care, the environment, and underserved populations. Entrepreneurs who launch
these kinds of non-profit ventures are often referred to as social entrepreneurs. Social entrepreneurs look for and
implement innovative solutions to societal problems. Social entrepreneurs apply the same tools and skill sets as other
entrepreneurs—seizing opportunities, organizing and managing tasks and people, improving how something is done—but
their focus is to solve a social problem or create a benefit to humanity.
79 | P a g e
Entrepreneurial insights are profit opportunities that had previously gone unnoticed. Entrepreneurs act upon these
insights, and the economy becomes more productive because it can produce more consumer satisfaction at a lower cost.
The connection between entrepreneurship and economic growth is that these previously unnoticed profit opportunities
must come from somewhere, and the most common source of profit opportunities is the insights of other entrepreneurs.
Entrepreneurial ideas arise when an entrepreneur sees that the ideas developed by earlier entrepreneurs can be combined
to produce a new process and/or output. Entrepreneurial opportunities tend to appear within the context of a specific time
and place. A decentralized economy allows individuals to act on their entrepreneurial insights, and rewards them for doing
so, produces an environment where additional entrepreneurial insights are likely to be produced. Look at it in this way,
entrepreneurship is the foundation for economic growth. Entrepreneurial insights lay the foundation for additional
entrepreneurial insights, which drive the growth process.
Successful entrepreneurs thrive in favourable economic and institutional environments that enhance the expected
returns of innovation. When an enabling environment exists, entrepreneurs take risks and invest in innovation, spurring
productivity gains through the dynamics of firm entry and exit and innovation by incumbent firms, thus fostering
economic development. Why should policymakers care about entrepreneurs, who tend to be among the better off in the
population? The answer is simple: entrepreneurship is a fundamental driver of growth and development. Indeed, the basic
premise of this report—one that is shared by most economists since Adam Smith and was greatly strengthened by the
seminal work of Joseph Schumpeter—is that creative entrepreneurs are not just by-products of the development process
but necessary drivers of such a process. Entrepreneurs are the key players in the transformation of low-income societies
characterized by low productivity and often subsistence self-employment into dynamic economies characterized by
innovation and a rising number of well-remunerated workers. To the extent that causal links from entrepreneurship to
productivity growth are at work, there is room for using policy levers to quicken the development process by improving
the incentives and supportive institutions that facilitate innovation by entrepreneurs.
80 | P a g e
The role of entrepreneurship in national and economic development
Several dynamic forces, such as technological disruption, fluctuating economies or demographic changes, have brought
new opportunities and threats for organizations, and transformed societies from all over the world. To cope with these
shifting forces, governments, public and private organizations, and the public are more and more aware of the significance
of entrepreneurship. The role of entrepreneurship in society has become prominent since the end of the last century. In
modern open economies, it has become essential for economic growth and development than it has ever been. Economic
experts have abandoned their traditional approach to economic development based mainly on recruiting large companies
with different financial and fiscal inducements. Today they are relying more on the small and medium enterprises (SMEs)
and new ventures than in the past. Entrepreneurship is spreading recognized by government officials throughout the
world not only as “a key mechanism for enhancing economic development, particularly in regions where entrepreneurial
activity was once vibrant and is now lagging”, but also as “a good solution because it provides a relatively non-
controversial way to increase the proverbial pie, creating jobs and enhancing per capita income growth” (Shane, 2005, p.
1). That is why “entrepreneurs need access to resources and markets to succeed, and this is where national policies play a
vital role” (Kressel and Lento, 2012, p. 6).
Understanding the role of entrepreneurship and entrepreneurs in the process of economic development requires the
decomposition of the concepts. The progress achieved in understanding entrepreneurship is mainly due to J. A.
Schumpeter. He adopted a different approach, underlying the role of innovation. Entrepreneurs are not only innovators
and, therefore, agents of change, but also the coordinators of production. He suggested that entrepreneurship occurs fewer
than five conditions of newness: new goods, new production methods, new markets, new sources of materials, or new
organizations (Schumpeter, 1911). According to the Schumpeterian view, the entrepreneurial process constitutes one of
the key factors in the economic development of a region/country.
Social entrepreneurship needs to be defined in a way that is consistent with what is known about entrepreneurship.
Entrepreneurship is an exceptional set of activities carried out by individuals with an exceptional mindset to maximize
profit. Therefore, the process is closely tied to success. We use “exceptional mindset” as a broader term to encapsulate the
characteristics that shape the entrepreneurial activities of those individuals. Although the utilisation of the term social
entrepreneur is growing rapidly, the field of social entrepreneurship lacks rigour and is in its infancy compared to the
wider field of entrepreneurship. Success stories of individuals solving complex social problems are being used to legitimize
the field of social entrepreneurship.
81 | P a g e
The social entrepreneur is a mission-driven individual who uses a set of entrepreneurial behaviours to deliver a social
value to the less privileged, all through an entrepreneurially oriented entity that is financially independent, self-sufficient,
or sustainable.
Definition combines four factors that make social entrepreneurship distinct from other forms of entrepreneurship. Social
entrepreneurs:
1. Are mission-driven. They have dedicated to serving their mission of delivering a social value to the underserved.
2. Act entrepreneurially through a combination of characteristics that set them apart from other types of
entrepreneurs.
3. Act within entrepreneurially oriented organizations that have a strong culture of innovation and openness.
4. Act within financially independent organizations that plan and execute earned-income strategies. The objective
is to deliver the intended social value while remaining financially self-sufficient.
Economic Development and Entrepreneurship

Economic development can be described regarding goals (e.g., Creation of jobs, Improvement of the quality of life) or as a
process that influences growth to enhance the economic well -being of a community/society. In this respect, the economic
development represents “the process of structural transformation of an economy towards a modern, technologically
advanced economy based on services and manufacturing” (Naudé, 2008, p. 18). In other words, economic development
refers to “sustainable improvements in the material well - being of society, as measured, for instance by GDP per capita,
GDP growth, productivity, and employment”. In its broadest sense, economic development encompasses the following
three major areas:
▪ The policies that government undertakes to meet broad economic objectives including inflation control, high
employment, and sustainable growth.
▪ Policies and programs to provide services including building highways, managing parks and providing medical
access to the disadvantage
▪ Policies and programmes, explicitly directed at improving the business climate through specific efforts, business
finance, marketing, neighbourhood development, business retention and expansion, technology transfer, real estate
development, and others
82 | P a g e
Entrepreneurship has to do with individuals, people with their own traits and actions (roles). The various roles of the
entrepreneur can be distinguished in the business world. To express the connection between entrepreneurship and
economic growth and development, two major roles of the entrepreneur can be singled out. The first has to do with ‘new
entry’ and the second with ‘newness’ in general. Firstly, the entrepreneur is the founder of a new business, someone who
creates and then, perhaps, organizes and operates a new business firm, whether or not there is anything innovative in
those acts”. Secondly, the entrepreneur plays a more general innovative role in economic life: “... The entrepreneur as the
innovator – as the one who transforms inventions and ideas into economically viable entities, whether or not, in the
course of doing so, they create or operate a firm” (Wennekers and Thurik, 1999). Thus, newness through start-ups and
innovations are some of the most relevant factors linking entrepreneurship to economic growth.
The relationship between entrepreneurship and innovation and their role in economic development was very well
highlighted by Schumpeter, one of the most influential economists of the twentieth century The Theory of Economic
Development. Subsequent studies have increasingly emphasized the link between innovation, underlying research and
entrepreneurial effort aimed at commercializing the results of R&D, in many instances innovations being considered a
precondition for an enterprise acquiring a competitive advantage UN, 2012.
Factors affecting Entrepreneurship Development

Is the entrepreneur who we have been acquainted with, in the first lesson, a machine that calculates the probabilities of
profits? Not at all. He, like every one of us is very much a part of the society. Therefore, the motivation, the modes of
conduct, and the effectiveness of entrepreneurs need to be understood with reference to the general environment in which
we live. What does the term ‘environment’ mean? In any society, the environment includes the economic, social,
psychological and political aspect of life. In other words, it is true that an economic activity expansion depends on certain
environmental forces that promote or retard the entrepreneurial thinking, behaviour and efforts. In this lesson, we are
going to look at such factors that tend to influence entrepreneurship.
83 | P a g e
The countries of the world are experiencing an unprecedented burst of inventions. Even the underdeveloped countries are
making conscious efforts in encouraging research and development. While the developed countries have the record of
commercializing the inventions to their fullest advantage, the less developed ones find their innovations either lying idle
or flowing out to the more prosperous nations. The proverbial “brain-drain” that is affecting countries, like India is due to
absence of the necessary infrastructure to capitalize on the numerous inventions that are taking place. The secret of the
success of most developed countries is the presence of a large member of dynamic entrepreneurs who provide the fillip for
newer and better inventions. The less developed countries, on the other hand, are confronted by a situation where the
entrepreneurs just do not seem to come and the existing tend to leave their countries in search of better opportunities.
The economically backward nations are characterized by the scarcity of entrepreneurship. Several inimical factors are
affecting the growth of this important factor of production. Some societies – notably in the United States, South Korea and
many South East Asian Counties like Thailand and Singapore- are bound with entrepreneurs. Others like China and India
have fewer entrepreneurs, although these countries recently changed their laws to encourage entrepreneurship. Countries
like England, where many companies such as airlines and automobile manufactures used to be operated by the
Government, have in recent times turned these firms to the private sector, encouraging entrepreneurship through, new
opportunities in private ownership. Other nations, such as Japan, though are bound by strong traditions, have in recent
times started favouring entrepreneurship. From above, it can be said that economic and non-economic factors can affect
the level of entrepreneurship within any society.
Entrepreneurship is influenced by four distinct factors: economic development, culture, technological development and
education. In areas where these factors are present, you can expect to see strong and consistent entrepreneurial growth.
These conditions may have both positive and negative influences on the emergence of entrepreneurship. Positive
influences constitute facilitative and conducive conditions for the emergence of entrepreneurship, whereas negative
influences create inhibiting milieu to the emergence of entrepreneurship.
84 | P a g e
Various researchers world over have identified the factors that contribute to the development of
entrepreneurship as are summarized below:
Researcher Factors
1. Schumpeter Suitable environment, Institution in grasping the essential facts.
2. Weber Protestant Ethics which emerged from the religious belief system ‘of Calvinistic puritanism
and which is absent in oriental religious belief system.
3. Levine Status mobility system where status is attained through outstanding performance, initiative,
industriousness, and foresight through self-reliance and achievement training.
4. Hagen Creative personality. High need achievement need order and need autonomy. Fairly
widespread, creative problem solving ability and a tendency to use it. Positive attitudes
towards manual and technical labour and the physical world.
5. Cochran Attitude towards occupation, the role expectations held by sanctioning groups and the
operational requirements of the job.
6. McClelland Need for achievement through self-study, goal setting and inter-personal support. Keen
interest in situations involving moderate risk, desire for taking personal responsibility,
concentrate measures of task performance, anticipation of future possibilities, organizational
skills, energetic and/or novel instrumental activity.
7. Kilby Perception of market opportunities, gaining command over scarce resources, and marketing
& Papanek of products. Dealing with public, bureaucratic concessions, licenses, taxes, management of
human relations within the firm and with customers and suppliers. Financial and production
management technical knowledge (Kilby gives, low priority to need for achievement and
moderate risk taking?
8. Christopher High demand for product and experience in the lines of business/industry.
85 | P a g e
9. Kunkel Values, attitudes and personality are meaningless variables leading to blind alleys of theory
and action.
10. Nafziger Perceived challenge to status, migrants, new religious sects and reformed groups.
11. Staley & Morse Quality of services in industrial advice, managerial training and industrial research.
12. Fox, Mine Economic opportunities and political conditions.
13.Nandy Supportive community, self-image which gives meaning, value and status to an
entrepreneurial career.
14. Singer Traditional system of occupational culture which facilitates the process of modernization,
special opportunities, motivation, experience, training or knowledge. Traditional belief and
value system which are flexible to allow for reinterpretation with changing conditions.
Economic Factors
Economic environment exercises the most direct and immediate influence on entrepreneurship. This is likely because
people become entrepreneurs due to necessity when there are no other jobs or because of opportunity.
The economic factors that affect the growth of entrepreneurship are the following:
1. Capital
Capital is one of the most important factors of production for the establishment of an enterprise. Increase in capital
investment in viable projects results in increase in profits which help in accelerating the process of capital formation.
Entrepreneurship activity too gets a boost with the easy availability of funds for investment.
Availability of capital facilitates for the entrepreneur to bring together the land of one, machine of another and raw
material of yet another to combine them to produce goods. Capital is therefore, regarded as lubricant to the process of
production.
France and Russia exemplify how the lack of capital for industrial pursuits impeded the process of entrepreneurship and
an adequate supply of capital promoted it.
86 | P a g e
2. Labor
Availability of right type of workers also effect entrepreneurship. The quality rather than quantity of labor influences the
emergence and growth of entrepreneurship. The problem of labor immobility can be solved by providing infrastructural
facilities including efficient transportation.
The quality rather quantity of labor is another factor which influences the emergence of entrepreneurship. Most less
developed countries are labor rich nations owing to a dense and even increasing population. But entrepreneurship is
encouraged if there is a mobile and flexible labor force. And, the potential advantages of low-cost labor are regulated by
the deleterious effects of labor immobility. The considerations of economic and emotional security inhibit labor mobility.
Entrepreneurs, therefore, often find difficulty to secure sufficient labor.
3. Raw Materials
The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and its influence in the
emergence of entrepreneurship. In the absence of raw materials, neither any enterprise can be established nor can an
entrepreneur be emerged
It is one of the basic ingredients required for production. Shortage of raw material can adversely affect entrepreneurial
environment. Without adequate supply of raw materials no industry can function properly and emergence of
entrepreneurship to is adversely affected.
In fact, the supply of raw materials is not influenced by themselves but becomes influential depending upon other
opportunity conditions. The more favorable these conditions are, the more likely is the raw material to have its influence
of entrepreneurial emergence.
4. Market
The role and importance of market and marketing is very important for the growth of entrepreneurship. In modern
competitive world no entrepreneur can think of surviving in the absence of latest knowledge about market and various
marketing techniques.
The fact remains that the potential of the market constitutes the major determinant of probable rewards from
entrepreneurial function. Frankly speaking, if the proof of pudding lies in eating, the proof of all production lies in
consumption, i.e., marketing.
87 | P a g e
The size and composition of market both influence entrepreneurship in their own ways. Practically, monopoly in a
particular product in a market becomes more influential for entrepreneurship than a competitive market. However, the
disadvantage of a competitive market can be cancelled to some extent by improvement in transportation system
facilitating the movement of raw material and finished goods, and increasing the demand for producer goods.
5. Infrastructure
Expansion of entrepreneurship presupposes properly developed communication and transportation facilities. It not only
helps to enlarge the market, but expand the horizons of business too. Take for instance, the establishment of post and
telegraph system and construction of roads and highways in India. It helped considerable entrepreneurial activities which
took place in the 1850s. Apart from the above factors, institutions like trade/ business associations, business schools,
libraries, etc. also make valuable contribution towards promoting and sustaining entrepreneurship’ in the economy. You
can gather all the information you want from these bodies. They also act as a forum for communication and joint action.
Social Factors
Social factors can go a long way in encouraging entrepreneurship. In fact it was the highly helpful society that made the
industrial revolution a glorious success in Europe. Strongly affect the entrepreneurial behavior, which contribute to
entrepreneurial growth. The social setting in which the people grow, shapes their basic beliefs, values and norms.
The main components of social environment are as follows:
1. Caste Factor
There are certain cultural practices and values in every society which influence the’ actions of individuals. These practices
and value have evolved over hundreds of years. For instance, consider the caste system (the varna system) among the
Hindus in India. It has divided the population on the basis of caste into four division. The Brahmana (priest), the
Kshatriya (warrior), the Vaishya (trade) and the Shudra (artisan): It has also defined limits to the social mobility of
individuals.
88 | P a g e
By social mobility’ we mean the freedom to move from one caste to another. The caste system does not permit an
individual who is born a Shridra to move to a higher caste. Thus, commercial activities were the monopoly of the Vaishyas.
Members of the three other Hindu Varnas did not become interested in trade and commence, even when India had
extensive commercial inter-relations with many foreign countries. Dominance of certain ethnical groups in
entrepreneurship is a global phenomenon
2. Family Background
This factor includes size of family, type of family and economic status of family. In a study by Hadimani, it has been
revealed that Zamindar family helped to gain access to political power and exhibit higher level of entrepreneurship.
Background of a family in manufacturing provided a source of industrial entrepreneurship. Occupational and social status
of the family influenced mobility. There are certain circumstances where very few people would have to be venturesome.
For example in a society where the joint family system is in vogue, those members of joint family who gain wealth by their
hard work denied the opportunity to enjoy the fruits of their labor because they have to share their wealth with the other
members of the family.
3. Education
Education enables one to understand the outside world and equips him with the basic knowledge and skills to deal with
day-to-day problems. In any society, the system of education has a significant role to play in inculcating entrepreneurial
values.
In India, the system of education prior to the 20th century was based on religion. In this rigid system, critical and
questioning attitudes towards society were discouraged. The caste system and the resultant occupational structure were
reinforced by such education. It promoted the idea that business is not a respectable occupation. Later, when the British
came to our country, they introduced an education system, just to produce clerks and accountants for the East India
Company, The base of such a system, as you can well see, is very anti-entrepreneurial.
Our educational methods have not changed much even today. The emphasis is till on preparing students for standard jobs,
rather than marking them capable enough to stand on their feet.
89 | P a g e
4. Attitude of the Society
A related aspect to these is the attitude of the society towards entrepreneurship. Certain societies encourage innovations
and novelties, and thus approve entrepreneurs’ actions and rewards like profits. Certain others do not tolerate changes
and in such circumstances, entrepreneurship cannot take root and grow. Similarly, some societies have an inherent dislike
for any money-making activity. It is said, that in Russia, in the nineteenth century, the upper classes did not like
entrepreneurs. For them, cultivating the land meant a good life. They believed that rand belongs to God and the produce
of the land was nothing but god’s blessing. Russian folk-tales, proverbs and songs during this period carried the message
that making wealth through business was not right.
5. Cultural Value
Motives impel men to action. Entrepreneurial growth requires proper motives like profit-making, acquisition of prestige
and attainment of social status. Ambitious and talented men would take risks and innovate if these motives are strong.
The strength of these motives depends upon the culture of the society. If the culture is economically or monetarily
oriented, entrepreneurship would be applauded and praised; wealth accumulation as a way of life would be appreciated.
In the less developed countries, people are not economically motivated. Monetary incentives have relatively less attraction.
People have ample opportunities of attaining social distinction by non-economic pursuits. Men with organizational
abilities are, therefore, not dragged into business. They use their talents for non-economic end.
Psychological Factors
Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate especially upon
psychological factors. These are as follows:
1. Need Achievement
The most important psychological theories of entrepreneurship was put forward in the early) 960s by David McClelland.
According to McClelland ‘need achievement’ is social motive to excel that tends to characterize successful entrepreneurs,
especially when reinforced by cultural factors. He found that certain kinds of people, especially those who became
entrepreneurs, had this characteristic. Moreover, some societies tend to reproduce a larger percentage of people with high
‘need achievement’ than other societies. McClelland attributed this to sociological factors. Differences among societies and
individuals accounted for ‘need achievement’ being greater in some societies and less in certain others.
90 | P a g e
The theory states that people with high need-achievement are distinctive in several ways. They like to take risks and these
risks stimulate them to greater effort. The theory identifies the factors that produce such people. Initially McClelland
attributed the role of parents, especially the mother, in mustering her son or daughter to be masterful and self-reliant.
Later he put less emphasis on the parent-child relationship and gave more importance to social and cultural factors. He
concluded that the ‘need achievement’ is conditioned more by social and cultural reinforcement rather than by parental
influence and such related factors.
2. Withdrawal of Status Respect
There are several other researchers who have tried to understand the psychological roots of entrepreneurship. One such
individual is Everett Hagen who stresses the-psychological consequences of social change. Hagen says, at some point
many social groups experience a radical loss of status. Hagen attributed the withdrawal of status respect of a group to the
genesis of entrepreneurship.
Hagen believes that the initial condition leading to eventual entrepreneurial behavior is the loss of status by a group. He
postulates that four types of events can produce status withdrawal:
1. The group may be displaced by force;

2. It may have its valued symbols denigrated;
3. It may drift into a situation of status inconsistency; and
4. It may not be accepted the expected status on migration in a new society.
3. Motives
Other psychological theories of entrepreneurship stress the motives or goals of the entrepreneur. Cole is of the opinion
that besides wealth, entrepreneurs seek power, prestige, security and service to society. Stepanek points particularly to
non-monetary aspects such as independence, persons’ self-esteem, power and regard of the society.
On the same subject, Evans distinguishes motive by three kinds of entrepreneurs
1. Managing entrepreneurs whose chief motive is security.

2. Innovating entrepreneurs, who are interested only in excitement.
3. Controlling entrepreneurs, who above all otter motives, want power and authority.
91 | P a g e
Finally, Rostow has examined inter gradational changes in the families of entrepreneurs. He believes that the first
generation seeks wealth, the second prestige and the third art and beauty.
4. Others
Thomas Begley and David P. Boyd studied in detail the psychological roots of entrepreneurship in the mid-1980s. They
came to the conclusion that entrepreneurial attitudes based on psychological considerations have five dimensions:
1. First came ‘need-achievement’ as described by McClelland. In all studies of successful entrepreneurs a high
achievement orientation is invariably present.
2. The second dimension that Begley and Boyd call ‘locus of control’ This means that the entrepreneur follows the idea
that he can control his own life and is not influenced by factors like luck, fate and so on. Need-achievement logically
implies that people can control their own lives and are not influenced by external forces.
3. The third dimension is the willingness to take risks. These two researchers have come to the conclusion that
entrepreneurs who take moderate risks earn higher returns on their assets than those who take no risks at all or who
take extravagant risks.
4. Tolerance is the next dimension of this study. Very few decisions are made with complete information. So all
business executives must, have a certain amount of tolerance for ambiguity.
5. Finally, here is what psychologists call ‘Type A’ behavior. This is nothing but “a chronic, incessant struggle to achieve
more and more in less and less of time” Entrepreneurs are characterize by the presence of ‘Type A’ behavior in all
their endeavors.
Political Factors
A football player might possess exceptional talent. But, his contribution to the nation and the world of sports would
remain negligible, if his performance is restricted to the courtyard of his own house. He needs a football ground to practice
on and resources to buy the accessories. He also requires encouragement and support from those in authority so that he
could freely play with others and prove his talent. In the same way, an entrepreneur, however creative he/she may be,
cannot function without the supportive actions of the Government. It is for the government/society to ensure the
availability of required resources for the entrepreneurs and also the accessibility to them. This is because the successful
entrepreneur contributes to the wellbeing of the society. Policies relating to various-economic aspects like prices,
availability of capital, labour and other inputs, demand structure, taxation, income distribution, etc. affect growth of
92 | P a g e
entrepreneurship to a large extent. Promotive government activities such as incentives and subsidies contribute
substantially to entrepreneurial performance. At the same time, Government policies like licenses, regulations,
favouritism, government monopolies, etc. are undesirable for the growth of business enterprises. Above all, a Government
that is politically stable and united can effect entrepreneurial activities in a significant manner. Is there a business
entrepreneur in your neighbourhood? Try to gather information on his/her views on various government policies, for
example, on taxation, finance, labour etc. Also ask him/her about the opportunities and growth prospects of a business
unit.
India, all the above mentioned environmental forces have turned in favour of enterprising men and women. There is a
visible change for the better in the highly inactive entrepreneurial field in the country. The tight grip of religious and
traditional, ideas and practices have begun to loosen. Dogmas (settled opinions) and superstitions have lost the hold they
earlier had. It is encouraging the ‘non-commercial’ classes to consider economic opportunities more sympathetically. As a
result, occupational division based on caste system has undergone tremendous traditional activities, social approval etc.
have become less important. More important now, are the economic factors such as access to capital and possession of
entrepreneurial attitudes and business I knowledge. Development of infrastructure, changes in government policies in
favour of business and industry and of course, rise in demand for products manufactured are some of the other factors
that have led the Indian entrepreneurs to look for new business opportunities.
Types of entrepreneurship: Survival, Lifestyle, Dynamic Growth and Speculative
According to Dollinger (2003), the entrepreneur creates an innovative business or organization or network for profit or
growth under conditions of risk and or uncertainty. While this is a general definition that captures the essence of
entrepreneurship, it does not capture the psychological reasons for wanting to be an entrepreneur.
93 | P a g e
Lifestyle entrepreneurship
From an economic theory view, lifestyle firms are set up to undertake an activity the owner enjoys or achieve a level of
productive activity that affords sufficient income to the owner (Burns 2001). Moreover, Shaw and Williams (2003)
believed that small sized businesses provide an avenue for the development of specific entrepreneurial cultures such as,
the lifestyle entrepreneur. Characteristics of lifestyle entrepreneurship include:
- An entrepreneurial process motivated by quality of life rather than growth. The main reason for existence is lifestyle
with limited growth focus.
- The undertaking of a lifestyle entrepreneurship orientation may result in the underutilization of resources.
- Management activities in lifestyle entrepreneurship may be characterized as irrational.
- There is a lack of focus on marketing and product development.
- There is a failure to capitalize on information and communication technology opportunities in the market. The
lifestyle entrepreneur may be unprepared for external threats.
- According to Komppula (2004), lifestyle entrepreneurship is motivated by survival and the need to maintain the
way of life.
- Examples of lifestyle entrepreneurship ventures include: ‘mom and pop stores’, gas stations, small retail stores and
mini marts.
- Investment in fixed assets is modest.
- Owners tend to invest long hours of work in the venture.
- Lifestyle ventures tend to have a high risk of failure and profits from reselling the business tends to be low
94 | P a g e
Survival Entrepreneurship
The basic goal of this venture activity is to survive and meet the venture’s financial obligations. Many startup ventures
engage in survival entrepreneurship where their long term goal is to stay in business. Survival entrepreneurship is
characterized by:
- Cutting costs
- Laying off employees
- Employment freeze
- A mindset of preservation of the present state of affairs
- A fear of committing to future plans
Dynamic Growth
This type of entrepreneurship is characterized by a high initial investment. The entrepreneur engages in reinvestment as
growth is the objective. The aim is to increase the capital gain for investors. Profits can be achieved from the sale of the
goods and services or from the sale of the existing business. Penrose (1959) like Schumpeter viewed the firm as a profit –
seeker. According to Penrose, successful firms want profits to create further profits .The growth orientation is
characterized by:
- Expanding operations
- Facilities such as a cash flow or credit line to finance growth prospects
- Human resources that possess the skills, abilities and competences to perpetuate a growth culture
95 | P a g e
Speculative Model
This type of entrepreneurship is where the venture’s time frame is shorter. The objective is to show the potential of the
business and then sell it. Research shows that speculative entrepreneurship results in opportunities even when there is no
new information. Mises (1949) describes the entrepreneur as recognizing opportunities in the environment for profit. The
entrepreneur uses these opportunities to restore market equilibrium by ‘promoting and speculating’.
Differentiate between the Entrepreneurs and Intrapreneurs

The terms Entrepreneur and the Intrapreneur might seem the same words to hear, but both the terms have much
differences including their spelling and characteristics. The differences between these two terms have been shortly gleaned
below:-
Differences Entrepreneur Intrapreneur
Dependency An entrepreneur is independent in his operations An intraprenuer is dependent on the entrepreneur, i.e.
the owner.
Raising of An entrepreneur himself raises funds required for Funds are not raised by the Intrapreneur.
Funds the enterprise.
Risk Entrepreneur bears the risk involved in the business. An intraprenuer does not fully bear the risk involved in
the enterprise.
Operation An entrepreneur operates from out side On the contrary, an intraprenuer operates from within
the organization itself.
Orientation An entrepreneur begins his business with a newly set An intrapreneur sets up his enterprise after working
up enterprise. someone else’s organization.
Experience As an entrepreneur establishes new business, so he An intrapreneur establishes his business after gathering
does not possess any experience over the business. experiences through working in the other organizations.
96 | P a g e
According to the above table, anyone can differentiate between the entrepreneur and intrapreneur as both the terms are
heterogeneous.
Entrepreneurship versus Intrapreneurship: Introduction

Why are entrepreneurs and intrapreneurs suddenly more important today than before? An explanation to this question
would be that the world is changing nowadays more rapidly under the influence of new technologies. The increasing
competition hinders our work. It does not suffice anymore to stand before our competitors simply driven by our will of
competing; we have to bring something new to the market. Entrepreneurs and intrapreneurs play a decisive role as they
help the company (newly established or existing) to engage in new business and enter new markets. The concept of
entrepreneurship is seen as the process of uncovering and developing an opportunity to create value through innovation
and seizing that opportunity without regard to either resources (human and capital) or the location of the entrepreneur –
in a new or existing company (Churchill, 1992).
Keywords:
a) Entrepreneurship
b) Intrapreneurship
c) Human capital
d) Business
e) Leadership
Intrapreneurship represent the initiation and implementation of innovative systems and practices within an organization,
by some of its staff under the supervision of a manager who takes the role of an intrapreneur, in order to improve the
economical performance of the organization, by using a part of its resources, namely those that previously have not been
used in an appropriate manner. Intrapreneurship improves the economical and financial performance of the company, by
applying a more efficient use of the resources and by using a suitable motivational system for its employees (Istocescu,
2003).
97 | P a g e
Similarities and Differences between Entrepreneurship and Intrapreneurship
Unlike the entrepreneur, the intrapreneur acts within an existing organization. The intrapreneur is the revolutionary
inside the organization, who fights for change and renewal from within the system. This may give rise to conflicts within
the organization, so respect is the necessary key in order to channel these conflicts and transform them into positive
aspects for the organization. Even though intrapreneurs benefit from using the resources of the organization for the
implementation of the emerging opportunities, there are several motives why innovation is more difficult to implement in
an existing organization, such as (Malek & Ilbach, 2004):
• The size: the bigger the organization the more difficult it is to have an overview of the actions of every employee
• Lack of communication: Specialization and separation, help in concentrating on the areas of interest, but
hinder communication.
• Internal competition: Internal competition amplifies the problem because instead of sharing the knowledge
with others it borders the knowledge sharing. Everyone wants to keep the information for themselves.
• Feedback received in case of success/mistake: Costs in case of failure are too great and the reward for a
successful outcome too small. Intrapreneurs must be allowed to commit mistakes, because such mistakes are an
inevitable part in the entrepreneurial process. The recognition of success is also very rare. No company provides
payment in advance for what an entrepreneur might accomplish, but a lot of them like to talk about the concept of
intapreneurship and expected their employees to get involved and assume their risk. But finally, when motivated
employees get involves and have success their only reward is a small bonus.
• Dullness: Many companies are slow and reluctant to change. Intrapreneurs bump many times into the well-
known sentence “We always did it this way”, which leaves little or no space to creativity. The willingness to try new
things appears only when the company's shortcomings become apparent, but even so they don’t give room to an
innovative leadership.
• Hierarchies: Organizational hierarchies compel employees to ask permission for actions that fall outside their
daily duties. The more complex the hierarchy the more difficult it is to impose change. Hierarchies have also tended
to create a short-term thinking. Employees on lower hierarchical levels have a “Victim-Mentality” due to a reduced
area of action and reduced responsibilities. Those who wish to implement innovative ideas should first consider
what the best option for them is: as an intrapreneur, as part of an existing organization, or an entrepreneur in a
newly established company. In order to give an answer to this question an analysis of the advantages and
disadvantages of both concepts is required. The table below helps someone decide what type of business best suits
him after confronting him with the advantages and disadvantages that await him.
98 | P a g e
Principles of Intrapreneurship
Gifford Pinchot’s book Intrapreneuring: Why you do not Have to Leave the Corporation to Become an Entrepreneur
(1985) provides ‘ten commandments’ for intrapreneur:
1. Do any job needed to make your project work, regardless of your job description.
2. Share credit wisely.
3. Remember, it is easier to ask for forgiveness than permission.
4. Come to work each day willing to be fired.
5. Ask for advice before asking for resources.
6. Follow your intuition about people; build a team of the best.
7. Build a quiet coalition for your idea; early publicity triggers the corporate immune system.
8. Never bet on a race unless you are running in it.
9. Be true to your goals, but realistic about ways to achieve them.
10. Honor your sponsors.
The Entrepreneurial Organization

An entrepreneurial organization is one that seeks systematically to promote the spirit of intrapreneurship in targeted parts
of the organization. The stellar innovation track records of firms like Merck & Co., 3M, Motorola, Newell Rubbermaid,
Johnson & Johnson, Corning Incorporated, General Electric, Hewlett-Packard, Walmart, and many others demonstrate
that bigness isn’t in itself antithetical to intrapreneurship. At the same time, these are but a few of the thousands of large
firms around the world. Understanding the obstacles to entrepreneurship in large, established firms will put you on firmer
ground when it comes time to translate what you know about entrepreneurship in general in the process of corporate
intrapreneurship. As you may have guessed by now, intrapreneurs have helped increase the speed and cost-effectiveness
of technology transfer from research and development to the marketplace. The following are some methods that have been
used by businesses to foster intrapreneurship:
• Entrepreneurial employees can participate in the rewards of what they create, such as being granted something like
ownership rights in the internal enterprises they create.
• The firm treats intrapreneurial teams as a profit centre, rather than as a cost centre (i.e., Teams are expected to
make money). Some companies give their intrapreneurial teams their own internal bank accounts.
99 | P a g e
• Team members can choose the projects on which they work or the alliances they join.
• Employees have access to training to help them learn new skills.
• Internal enterprises are recognized within the organization and have official standing.
• The organization defines and supports a system of contractual agreements between internal enterprises.
• The intrapreneurship plan includes a method of settling disputes that may arise around the internal enterprise and
employees.
Companies that want to gain the benefits of intrapreneurism create systems for identifying employees with intrapreneurial
traits and help develop those employees through training and reward them through incentives. The intrapreneurial
organization can take on one or a combination of two forms: coexistence or structural separation.
Table 1: Entrepreneurship and Intrapreneurship: advantages and disadvantage

ENTREPRENEURSHIP
Advantages Disadvantages
• You are your own boss - independency • Money pressure – giving up on the security of a
• The income increases regular paycheck
• You have the chance to be original • Less benefits as the business is new
• You have part of excitement and adventure • Long working hours
• There are a lot of possibilities • Mistakes are magnified
• Salary potential – you decide upon your own salary • All decisions must be made alone
INTRAPRENEURSHIP
• Ability to stay in a friendly, well known • Reward may not be up to expectation
environment • Innovation may not be appreciated accordingly
• Practicing your skills within an organization • You can be innovative but to a certain limit – you
– lower risk are not your own boss
• Using companies resources, good name, knowledge
• Access to customers, infrastructure
100 | P a g e
After seeing the pros and the cons of each concept we think that it is useful to see also the similarities and differences
between these two concepts. Morris & Kuratko (2002) are of the opinion that the literature is sometimes confusing in
underlining what exactly makes an entrepreneur different from an intrapreneur and what they have in common. This is
why they point out a serious a similarities and differences:
Table 2: Entrepreneurship and intrapreneurship: Similarities and Differences
Similarities Differences
• Both involve opportunity recognition and definition. • In start-up entrepreneurship, the entrepreneur takes the
• Both require a unique business concept that takes the risk in intrapreneurship and the company takes the risk
form of a product, process, or service. other than career-related risk.
• Both are driven by an individual champion who • In start-up the individual entrepreneur owns the concept
works with a team to bring the concept to fruition. and business in intrapreneurship; the company typically
• Both require that the entrepreneur be able to balance owns the concept and intellectual rights with the
vision with managerial skill, passion with individual entrepreneur having little or no equity in the
pragmatism, and proactiveness with patience. venture at all.
• Both involve concepts that are most vulnerable in the • In a start-up potential rewards for the individual
formative stage, and that require adaptation over entrepreneur are theoretically unlimited where in
time. intrapreneurship an organizational structure is in place to
• Both entail a window of opportunity within which the limit rewards/compensation to the
concept can be successfully capitalized upon. entrepreneur/employee.
• Both are predicated on value creation and • In a start-up venture, one strategic gaffe could mean
accountability to a customer. instant failure; in intrapreneurship the organization has
• Both entail risk and require risk management more flexibility for management errors. In a start-up the
strategies. entrepreneur is subject or more susceptible to outside
• Both require the entrepreneur to develop creative influences; in intrapreneurship the organization is more
strategies for leveraging resources. insulated from outside forces or influence.
• Both involve significant ambiguity.
• Both require harvesting strategies.
101 | P a g e
Entrepreneurship and Small Business Management
A small business can be described as one which employs a relatively small number of persons. This is however contingent
on situational factors such as the country or industry. A small business is usually characterized by ownership (inclusive of
owner’s equity) and asset base (cash, land, equipment, stock inventory) and yearly sales revenue. Kuratko (2014) describes
entrepreneurship as a process of innovation and new-venture creation. It is a dynamic process that is aimed toward the
creation of ‘new ideas and creative solutions’. Kuratko explains that the entrepreneurial process is achieved through the
dimensions of the individual, organizational, environmental and process.
The following table outlines the key distinctions between small business and entrepreneurial ventures (based on Coulter
2003).
SMALL BUSINESS ENTREPRENEURSHIP
A small business can be defined as one that is An entrepreneurial venture is characterized as an organization
‘independently owned, operated and financed.’ engaged in pursuing opportunities.
The small business is characterized as having less than The entrepreneurial venture pursues growth and profit.
100 employees (U.S.).
The small business is not oriented towards new or The entrepreneurial activity is motivated by innovation and
innovative practice; new start- ups; and job creation... seeks out new opportunities in the environment.
Small businesses are not dominant players in the The venture is characterized by new start-ups where ideas
industry. propel the new business.
Owners may tend to prefer stability therefore the Entrepreneurial ventures have greater potential for becoming
small business is less likely to grow. big employers based on growth and profit motives.
102 | P a g e
Nature of Small Business
Small businesses are privately owned corporations, partnerships, or sole proprietorships that have fewer employees
and/or less annual revenue than a regular-sized business or corporation. What businesses are defined as "small" regarding
being able to apply for government support and qualify for preferential tax policy varies depending on the country and
industry. Small businesses can also be classified according to other methods such as annual revenues, sales, assets, or net
profits. Small businesses in many countries include service or retail operations such as convenience stores, small grocery
stores, a bakery or delicatessen, hairdressers or trades people (carpenter), restaurants, guest houses, photographers, very
small-scale manufacturing, and Internet-related businesses such as web design and computer programming. Some
professionals operate as small businesses, such as lawyers, accountants, dentists and medical doctors (although these
professionals can also work for large organizations or companies). Small businesses vary a great deal regarding size,
revenues, and regulatory authorization, both within a country and from country to country. Some small businesses, such
as a home accounting, business, may only require a business license. On the other hand, other small businesses, such as a
restaurant may require inspection and certification from a public health board or other authority.57A small business is a
business employing fewer than 20 people. Categories of small businesses include:
• Non-employing businesses (sole proprietorships and partnerships without employees)
• Micro-businesses (businesses employing between 1 and 4 people, including non-employing businesses)
• Other small businesses (businesses that employ between 5 and 19 employees)
• Small businesses are more likely to have independent ownership and be operated independently. Owners or
managers of small businesses tend to have close control of operations, undertake principal decision making and contribute
most of the operating capital.
103 | P a g e
Small Business
Small businesses come in all shapes and sizes. One thing that they all share, however, is
experience with common problems that arise at similar stages in their growth and organizational
evolution. Predictable patterns can be seen. These patterns “tend to be sequential, occur as a
hierarchical progression that is not easily reversed, and involve a broad range of organizational
activities and structures.” The industry life cycle adds further complications. The success of any
small business will depend on its ability to adapt to evolutionary changes, each of which will be
characterized by different requirements, opportunities, challenges, risks, and internal and external
threats. The decisions that need to be made and the priorities that are established will differ
through this evolution.
Characteristics of small business:

Small business is a fundamental part of the total business scene in any country. Through small in size such business
activities cover almost any area of business viz. manufacturing, mining, wholesaling, retailing, service and the like. Now a
days small business owners are mostly produce fashion item, they are mainly involved in different business such as:
women and children clothes, accessories, jewelry, jute products, soil product, tie dye, block- batik, beauty parlor,
boutiques, floral business etc. A small business is usually organized and managed by the owned and or his family
members.
Small business means the size of which is not large- the size again depends on the yardstick one uses to measure. What is
small to one may be medium or even big to some others.
104 | P a g e
There are different essential characteristics of small business. The forms of small businesses are totally different from the
medium and larger business organizations. The widely identified characteristics of small business are as follows:
▪ Business managed by the owner.
▪ Family workers and some other workers are hired.
▪ Mostly owner financed and limited borrowed funds are used.
▪ No scope for specialist service.
▪ Little emphasis on long term planning.
▪ Good relation between labor and owner.
▪ No or limited use of innovative production / marketing or promotion.
▪ Business is housed in small establishment.
▪ Rational cost possible to control.
▪ Business secrets are possible to safe.
▪ Main target is the local market and or limited non local market.
▪ Size of investment is relatively smaller.
▪ Quantity of sales relatively smaller.
▪ Unable to adopt modern technology.
▪ Mostly handicraft items are produce.
▪ Fashionable women and children dress are also produce.
▪ Minimum legal formalities are must be filling up to open a small business.
Types of Entrepreneurs
Introduction
The role of entrepreneurs in economic development varies from economy to economy, country to country, depending
upon its material resources, industrial climate and more importantly, the responsiveness of the political system to the
growth of entrepreneurs. Liberalization and the new economic policy have thrown upon the doors for every entrepreneur
to seek its own fortunes and thus contribute to the growth of the economy. And entrepreneur is an important input of
economic development. He is a catalyst of development. Only the entrepreneurs create capital, wealth and resources in a
country by their inventive and risk-taking behaviour. They are the prime movers of industrial development in a country.
Entrepreneurs are found in every economic system and in every type of economic activity. Artisans, traders, importers,
105 | P a g e
engineers, exporters, bankers, industrialists, farmers, forest workers, tribal’s, professionals, politicians, and bureaucrats,
any one from these could be entrepreneur. The nature of entrepreneurs differs according to their functions.
Researchers who have studied entrepreneurial behaviour suggest that there are different types of entrepreneurs.
Classifying entrepreneurs into various categories is a tricky issue. The taxonomy of entrepreneurs can be carried out in
various ways. Entrepreneurs can be classified on various basis. Clarence Denhof Classifies entrepreneurs on the basis of
stage of economic development: some others have classified on the basis of their functions and characteristics. In the
initial stages of economic development, entrepreneurs tend to have less initiative and drive. As development proceeds,
they become more innovating and enthusiastic. The various types of entrepreneurs are classified on certain parameters.
Some important classifications are described below:
1. On the Basis of Economic Development: Clarence Danhof classified entrepreneurs into four groups on the basis of
economic development.
A. Innovating Entrepreneurs: This type of entrepreneurship is characterized by aggressive assemblage of
information and the analysis of results deriving from novel combination of factors of production. Entrepreneurs
falling in this class are generally aggressive in experimentation and exhibited shrewdness in putting attractive
possibilities into practice.
They are the entrepreneurs who have creative and innovative ideas of starting a new business. An innovating
entrepreneur sees the opportunity for introducing a new technique or a new product or a new market. He may raise
money to launch an enterprise, assemble the various factors, and choose top executives and the set the organization
going. Schumpeter’s entrepreneur was of this type. Innovative entrepreneurs thus, results in the creation of
something new. They are the contributors to the economic development of a country.
Innovating entrepreneurs are very commonly frond in undeveloped countries. There is dearth of such
entrepreneurs in developed countries. Innovating entrepreneurs played the key role in the rise of modern
capitalism, through their enterprising sprit, hope of moneymaking, ability to recognize and exploit opportunities,
etc.
B. Adoptive or Imitative Entrepreneur: There is a second group of entrepreneurs generally referred as imitative
entrepreneurs. The imitative entrepreneurs copy or adopt suitable innovations made by the innovative
entrepreneurs. They does not innovate the changes himself. They only imitates technology innovated by others.
106 | P a g e
Such entrepreneurs are particularly important in developing courtiers because they contribute significantly to the
development of such economies. Imitative entrepreneurs are most suitable for the developing regions because in
such countries people prefer to imitate the technology, knowledge and skill already available in more advanced
countries. In highly backward countries there is shortage of imitative entrepreneurs also. People who can imitate
the technologies and products to the particular conditions prevailing in these countries are needed.
Sometimes, there is a need to adjust and adopt the new technologies to their special conditions. Imitative
entrepreneurs help to transform the system with the limited resources available. However; these entrepreneurs
face lesser risks and uncertainty then innovative entrepreneurs. While innovative entrepreneurs are creative,
imitative entrepreneurs are adoptive.
C. Fabian Entrepreneur: The third type is Fabian entrepreneur. By nature these entrepreneurs are shy and lazy.
This type of entrepreneurs have neither will to introduce new changes nor desire to adopt new methods of production
innovated by the most entrepreneurs. They follow the set procedures, customs, traditions and religions. They are not
much interested in taking risk and they try to follow the footsteps of their predecessors. Usually they are second
generation entrepreneur in a business family enterprise.
D. Drone Entrepreneur: The fourth type is Drone entrepreneurs who refuse to copy or use opportunities that come
on their way. They are conventional in their approach and stick to their set practices products, production methods
and ideas. They struggle to survive not to grow. They may be termed as Laggards. In such cases the organization loses
market, their operations become uneconomical and they may be pushed out of the market.
2. On the Basis of Type of Business: Under this category we can classify entrepreneurs as described below:
A. Business Entrepreneurs: They are the entrepreneurs who conceive an idea for a new product or service and then
create a business to materialize their idea into reality. They tap the entire factor of production to develop a new
business opportunity. They may set up a big enterprise or a small scale business. When they establish small business
units they are called small business entrepreneurs.
In a majority of cases, entrepreneurs are found in small trading and manufacturing business.
B. Trading Entrepreneur: There entrepreneurs undertake trading activities and are not concerned with the
manufacturing work. They identifies potentiality of their product in markets, stimulates demand for their product
107 | P a g e
line among buyers. They may go for both domestic and overseas trade. These entrepreneurs demonstrated their
ability in pushing many ideas ahead which promoted their business.
C. Industrial Entrepreneur: Industrial entrepreneur is essentially a manufacturer who identifies the needs of
customers and creates products or services to serve them. He is product-oriented who starts through an industrial
unit to create a product like electronic industry, textile unit, machine tools.
D. Corporate Entrepreneur: These entrepreneurs used his innovative skill in organizing and managing a corporate
undertaking. A corporate undertaking is a form of business organization which is registered under some statute or
Act like a trust registered under the Trust Act, or a company registered under the Companies Act. These corporate
work as separate legal entity. He is thus an individual who plans, develops and manages a corporate body.
E. Agricultural Entrepreneur: Agricultural entrepreneurs are those who undertake agricultural activities as
through mechanization, irrigation and application of technologies to produce the crop. They cover a broad spectrum
of the agricultural sector and include agriculture and allied occupations.
3. According to the Use of Technology: The application of new technology in various sectors of the national economy
is essential for the future growth of business. We may broadly classify these entrepreneurs on the basis of the use of
technology as follows:
A. Technical Entrepreneurs: With the decline of joint family business and the rise of scientific and technical
institutions, technically qualified persons have entered the field of business. These entrepreneurs may enter business
to commercially exploit their inventions and discoveries. Their main asset is technical expertise. They raise the
necessary capital and employ experts in financial, legal- marketing and other areas of business. Their success
depends upon how they start production and on the acceptance of their products in the market.
B. Non-technical Entrepreneur: Non-technical entrepreneurs are those who are not concerned with the technical
aspects of the product or service in which they deal. They are concerned only with developing alternative marketing
and promotional strategies for their product or service.
108 | P a g e
C. Professional Entrepreneur: Professional entrepreneur is an entrepreneur who is interested in establishing a
business but does not have interest in managing it after establishment. A professional entrepreneur sells out the
existing business on good returns and starts another business with a new idea. Such an entrepreneur is dynamic and
conceives new ideas to develop alternative projects.
4. According to Motivation: Motivation is the main force that promotes the efforts of the entrepreneur to achieve his
goals. An entrepreneur is motivated to achieve or prove his excellence in their performance.
According to motivation we can classify entrepreneur as:
A. Pure Entrepreneur: A pure entrepreneur is the one who is motivated by psychological economical, ethical
considerations. He undertakes an entrepreneurial activity for his personal satisfaction in work, ego or status.
B. Induced Entrepreneur: This type of entrepreneur is one who induced to take up an entrepreneurial task due to
the policy reforms of the government that provides assistance, incentives, concessions and other facilities to start a
venture. Most of the small scale entrepreneurs belong to this category and enter business due to financial, technical
and several other facilities provided to them by the various agency of Govt. to promote entrepreneurship. Today,
import restrictions and allocation of production quotas to small units have induced many people to start a small scale
unit.
C. Motivated Entrepreneur: New entrepreneurs are motivated by the desire for self-fulfillment. They come into
being because of the possibility of making and marketing some new products for the use of consumers. They are
motivated through reward like profit.
5. According to Growth: The industrial units are identified as high growth, medium growth and low growth industries
and as such we have ‘Growth Entrepreneur’ and ‘Super Growth Entrepreneur.’
A. Growth Entrepreneur: He necessarily takes up a high growth industry and chooses an industry which has
sustained growth prospects. Growth entrepreneurs have both the desire and ability to grow as fast as large as possible.
109 | P a g e
B. Super-Growth Entrepreneur: This category of entrepreneurs is those who have shown enormous growth of
performance in their venture. The growth performance is identified by the high turnover of sales, liquidity of funds,
and profitability.
6. According to Entrepreneurial Activity: Based on entrepreneurial activity, entrepreneurs are classified as novice,
serial, and portfolio entrepreneur.
A. Novice Entrepreneur: A novice is someone who has started his/her first entrepreneurial venture. A novice
entrepreneur is an individual who has no prior business ownership experience as a business founder, inheritor of a
business, or a purchaser of a business. It is not similar to early starter; a novice can also be a 50 year old with over
25 years of experience in the industry.
B. A Serial Entrepreneur: A Serial Entrepreneur is someone who is devoted to one venture at a time but ultimately
starts many. It is the process of starting that excites the starter. Once the business is established, the serial
entrepreneur may lose interest and think of selling and moving on.
C. Portfolio Entrepreneur: A portfolio entrepreneur is an individual who retains an original business and builds a
portfolio of additional businesses through inheriting, establishing, or purchasing them. A portfolio entrepreneur
starts and runs a number of businesses. It may be a strategy of spreading risk or it may be that the entrepreneur is
simultaneously excited by a variety of opportunities. Also, the entrepreneur may see some synergies between the
ventures.
7. Other Entrepreneurs:
A. First-Generation Entrepreneurs: This category consists of those entrepreneurs whose parents or family had not
been into business and was into salaried service. The booming economy of India has led to a multitude of business
opportunities, and with deregulation, it has become easier to set up businesses. Also, with a change in the mindset
of the middle class, it is now more acceptable to become an entrepreneur. A first-generation entrepreneur is one who
starts an industrial unit by means of an innovative skill. He is essentially an innovator, combining different
technologies to produce a marketable product or service.
110 | P a g e
B. Modern Entrepreneur: A modern entrepreneur is one who undertakes those businesses which go well along with
the changing scenario in the market and suits the current marketing needs.
C. Women Entrepreneurs: Women as entrepreneurs have been a recent phenomenon in India. The social norms in
India had made it difficult for women to have a professional life. Now this has changed. Progressive laws and other
incentives have also boosted the presence of women in entrepreneurial activity in diverse fields. In 1988, for the first
time, the definition of Women Entrepreneurs’ enterprise was evolved that termed an SSI unit/industry-related
service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which
she/they individually or jointly have a share capital of not less than 51 per cent as partners / shareholders / directors
of a private limited company / members of a cooperative society, as a Woman Enterprise.
D. Nascent Entrepreneur: A nascent entrepreneur is an individual who is in the process of starting a new business.
E. Habitual Entrepreneur: A habitual entrepreneur is an individual who has prior business ownership experience.
The nascent entrepreneur can either be a novice or a habitual entrepreneur.
F. Lifestyle Entrepreneurs: Lifestyle entrepreneurs have developed an enterprise that fits their individual
circumstances and style of life. Their basic intention is to ear an income for themselves and their families.
G. Copreneurs: It is related to the married couples working together in a business. When a married couple share
ownership, commitment and responsibility for a’ business, they are called “copreneurs”. As copreneurs, couples
struggle in ventures to establish equality in. their relationships. Such couples represent the dynamic interaction of
the systems of love and work.
H. IT Entrepreneurs: IT entrepreneurs are creating a new business platform that takes them straight to the top. They
are confident, ambitious innovative and acquired creativity in the competitive global environment and created a
niche of their self. They are the brave new bunch of entrepreneurs who are raring to take on the world of information
technology.
I. Social Entrepreneur: Social entrepreneur is one who recognizes the part of society which is stuck and provides
new ways to get it unstuck. Be it dedicated efforts for child upliftment, fighting for the conservation of Assam’s
rainforests, working for the betterment of the blind or initiatives to empower women, the entrepreneur’s passion is
very strong. Freedom, wealth, exposure, social mobility and greater individual confidence are driving this huge wave
111 | P a g e
of social innovation and entrepreneurship. After all are tired with the Inefficiency of governments and the
indifference of corporate, and want to make a change and this is the case everywhere.
J. Forced Entrepreneurs: The money-lenders of yesterday, who are thrown out of their family business because of
govern-ment legislation, the neo-rich Indians returning from abroad and the educated unemployed seeking self-
employment form this class of entrepreneurs.
K. Individual and Institutional Entrepreneurs: In the small scale sector individual entrepreneurs are dominant.
Small enterprises outnumber the large ones in every country. Such entrepreneurs have the advantage of flexibility,
quick decision making. But a single individual can establish, operate and control an organization up to a limit.
Thereafter, it becomes necessary to institutionalize entrepreneurship. The business will have to acquire a number of
new entrepreneurial skills through a corporate body. A group of entrepreneurs has to be developed to handle the
increasingly complex network of decision making. The central function of the entrepreneur remains the same but the
basic decisions like the line of business, the amount of capital employed, etc. are taken collectively by the promoters
at the helm of affairs. Thus, individual entrepreneur and institutional entrepreneur coexist and support each other.
Corporate sector the symbol of institutionalized entrepreneurship.
L. Entrepreneurs by Inheritance: At times, people become entrepreneurs when they inherit the family business.
In India, there are a large number of family controlled business houses. Firms in these houses are passed from one
generation to another.
112 | P a g e
Figure 4.1: Types of Entrepreneurs
113 | P a g e
There are various Types of Entrepreneurs. But the Cape Entrepreneurship Syllabus only focuses on five
(5) different Types of Entrepreneurs:
Introduction
In the lesson, we will examine five types of entrepreneurs identify two components of a successful start-up and describe
what motivate these types of entrepreneurs in their pursuit of success. An understanding of the type of entrepreneur as a
person aspires to be based on what he/she is driven by and provides insight on the nature and type of investment that is
required for the venture, the organizational structure to be established and the competitive strategy to be employed.
1. Nascent Entrepreneurs
The creation of a new venture is a process, and if the new venture can be considered as an independent start-up, it is called
a nascent entrepreneur. Nascent entrepreneurs are people who are engaged in creating new ventures. Starting a business
is often viewed by nascent entrepreneurs as a positive way to balance family needs with the need to produce an income.
The nascent stage is marked by the individual not only making a choice to behave entrepreneurially (through starting a
new venture) but also manifesting that choice by undertaking the relevant venture creation activities or actions. Nascent
activities leading venture start-up include registering the business entity, doing a business plan and seeking funding,
partners, and resource. Having the skills and knowledge of what to do, where to go and whom to approach at this stage is
paramount for successful venture birth.
2. Novice Entrepreneurs
A novice entrepreneur is someone who has just started to run his or her own business or venture and is still learning new
things to make it work successfully.
114 | P a g e
3. Habitual Entrepreneurs
Habitual entrepreneurs are individuals who gain tremendous entrepreneurial experience and skills from acquiring major
or minor equity stake in two or more businesses.
4. Serial Entrepreneurs
These individuals invest in innovative ideas, build powerful corporations and then sell them for profit. Some serial
entrepreneurs can achieve enormous success either in one specific field or by mixing up their investments a bit to try and
get a wide range of experience.
5. Portfolio Entrepreneurs
Portfolio entrepreneurs are individuals who own several businesses simultaneously, as an earlier entrepreneurial activity
provides an experience that will be helpful in establishing and running a new business.
First-time vs. Serial Entrepreneur
There are two main components of every successful start-up: a good idea and strong execution. When Venture Capitalists
(VC’s) invest in serial entrepreneurs, it is usually early on, and the entrepreneur has usually already proven their ability to
execute effectively on a good idea. However, companies started by first-time entrepreneurs have yet to demonstrate that
they either have a good idea or can execute it effectively. A lot of these companies will fail before ever getting to the stage
when they could catch a VC's attention. However, if they make it past this point, they have already proven their idea works
in the market and needs the VC for significant amounts of capital to scale their idea effectively. With these two points in
mind, it makes sense that serial entrepreneurs require more help with the idea and product/market fit, while the first time
entrepreneur needs more help with scaling the business (recruiting, managing teams, etc.)
115 | P a g e
What motivate these entrepreneurs?
Serial entrepreneurs have been found to be more concerned with personal development and the pursuit of an idea for a
product (in some cases following a family tradition) than portfolio entrepreneurs. Portfolio entrepreneurs, on the other
hand, tend to report more often the need for security and have an instrumental view of some of the ventures in their
portfolios, which were starting to benefit from tax exemptions. Novice and portfolio entrepreneurs seemed to be more
reactive, i.e. they reported more often than serial entrepreneurs ‘the exploitation of an opportunity that appeared’ as a
motivation. The second interesting issue is that the motivations of habitual entrepreneurs seem to change between the
first and subsequent venture. While first ventures.
Characteristics of Entrepreneurship
An entrepreneur is a businessperson who not only conceives and organizes ventures but also frequently takes risks in
doing so. Not all independent business people are true entrepreneurs, and not all entrepreneurs are created equal.
Different degrees or levels of entrepreneurial intensity and drive depend upon how much independence one exhibits, the
level of leadership and innovation they demonstrate, how much responsibility they shoulder, and how creative they
become in envisioning and executing their business plans.
The Five Levels of Entrepreneurial Development

Brad Sugars, a world-renowned business author and founder of his own international franchise with nearly 1,000 offices
worldwide, identifies five different types or levels of entrepreneurial mindsets, patterns of thinking, and belief systems.
They begin with the basic level of the employee – and an understanding that good employees often evolve into great
entrepreneurs but that to become an entrepreneur one has to first adopt a perspective and seek out a role above and
beyond that of an employee.
• The employee sets goals mainly to impress others, to avoid confronting fears – including the fear of personal
freedom and success – and to conform to a comfort zone rather than pushing to learn more and gain new
experiences.
116 | P a g e
• Because of self-imposed limitations, employees prefer to follow someone else’s game plan, and they lack the desire
to become a self-motivated and self-reliant entrepreneur.
• They focus primarily on personal security and their emotional motivation derives from a fear of insecurity and a
desire to be within the comfort zone of a secure situation. Those who want a greater sense of responsibility and
control over their lives and have the confidence to experiment with that possibility often rise up from the ground
level of employee status to the first level of entrepreneurship. They do this by becoming self-employed.
Level One: The Self-Employed Mindset

The emotional driving force behind the self-employed person is not security but a desire for greater control over his or her
life, career, and destiny. Relinquishing that control to a boss every day from nine to five is not their idea of happiness, and
they believe that they could do their job just as well without an employer – and perhaps without the need for other
employees. They want more autonomy. They want to do things their own way. And they usually begin by creating a
situation where they do the same type of work they did while an employee, but they figure out how to do it by themselves
and for themselves.
Unfortunately, many of the primary objectives of the person setting off to become an entrepreneur with the self-
employment mindset are pitfalls or traps. Because they want to go it alone, they often do so at their own peril. By not
taking help from others they not only cut themselves off from valuable talent, intelligence, feedback, and experience that
others could offer in the form of assistance, but they also create a situation where they will never experience freedom.
Many small business owners with a strong do-it-yourself attitude only succeed at creating a new job for themselves, not a
new career or profitable company. And as a solo performer, their job becomes all-consuming. They never get a day off,
they always bring work home with them, and they work overtime with no financial compensation. Their motto is “Why
have someone else do it when you can do it better yourself?” and they often promote their business by telling customers
“When you deal with this outfit you only deal directly with me.” Soon they get burned-out, and a great majority of these
self-employed people fail in a short amount of time and wind up going back to work for someone else.
117 | P a g e
They make the mistake of not envisioning a business that will run by itself without their constant supervision and
handholding, and they don’t picture creating an enterprise that thrives on involving others in a teamwork effort. One of
the greatest blunders is that these self-employed entrepreneurs try to replicate the same job they had before, in the same
area of experience, selling a product or service they already know. While it may seem counterintuitive to strike out in a
different direction and into unfamiliar territory, that trajectory puts one into a position of learning, being open-minded,
and relying upon others for help. Those ingredients contribute to a recipe for entrepreneurial success because they force
one to evaluate the entire business system from a new and fresh perspective. And they set the stage for working on the
business without having to actually be physically in the business on a day-to-day basis.
That premise of designing a business that works for its owner – rather than the owner working for it all the time – is vital
for becoming a real entrepreneur versus becoming simply the most important employee of one’s own self-employed
venture. Those who understand that fact can rise to the next level of entrepreneurship.
Level Two: The Managerial Perspective

Those with a managerial outlook are often in a great position to succeed as entrepreneurs, expect for two big
misconceptions that lead to massive problems. Many managers believe that if a business is not working, the solution lies
in hiring more employees. They throw extra bodies at the problem, but this only aggravates the situation because it fails to
address the underlying root cause of the difficulty or lack of profitability. Another mistaken belief that is common to this
mindset is that the route to success is through growth – not profit growth but overall structural growth of the enterprise
itself. Once again, bigger is not necessarily better unless and until the fundamentals are sound and efficient. Growing
larger to fix the problems of a small business only generates a much bigger company with problems that are expanded,
magnified, and much more expensive to remedy. Many managerial entrepreneurs go into bankruptcy thanks to vigorous
growth, but they never figure out why. A third misstep common to the managerial attitude is that the entrepreneur wants
to be the boss, even if that means sacrificing the talent or potential of employees. To give orders and be in charge requires
no great skill or aptitude, but to be a leader – one who knows how to inspire and train others to rise to greater heights – is
a rare quality. Managers who become leaders succeed because they accept the challenge and responsibility of ensuring that
others under their wings also succeed and flourish.
118 | P a g e
By getting the most out of employees, managers themselves are able to delegate aspects of their business to others and set
higher goals. Those who say they can’t find good employees usually mean they lack what it takes to attract or create good
employees – and as a consequence they also lack what it takes to succeed as an entrepreneur. But those who not only
manage but also lead can rise to the next level and become owner/leaders – one step closer to the real definition of an
entrepreneur.
Level Three: The Attitude of Owner/Leader

The entrepreneur who attains the level of an owner/leader enjoys remarkable benefits by knowing how to step aside and
let the business – and those employees working in it – operate as a profit center not reliant upon the owner’s constant
hands-on participation. This kind of entrepreneur has created an organization that is more self-sufficient and self-
sustaining, and by doing so has created more wealth, personal freedom, and free time.
Rather than being the only person who could get the job done the best, this leader has passed that torch of responsibility
and expertise along to others who now enjoy for themselves a greater level of career achievement. The owner/leader can
therefore focus not so much on sales and revenues, but on net profits. While the business continues to run smoothly – and
generate more transactions – the owner/leader concentrates on fine tuning it for increased profitability while letting
others handle the day-to-day operational details.
Level Four: The Entrepreneurial Investor

With a business that generates profits, the entrepreneur who has succeeded this far can begin to accept another exciting
challenge, that of managing money so that it works to produce more money. Investing for maximum returns involves
smart leverage of assets, and the entrepreneurial investor will often leverage the success of the first business to create a
second or third company based on the same model or system.
119 | P a g e
By franchising the original venture or buying other healthy businesses, the investor can get into the career of not just
selling basic products and services, but of selling entire businesses. The goal, of course, is still to turn a profit. So rather
than remaining at the helm of these companies the investor will buy them, ensure that they have valuable equity or
attractive allure and potential, and then sell them to other entrepreneurs or would-be entrepreneurs. The focus becomes
finding, buying (and perhaps refurbishing) businesses, in the same way that a real estate investor locates homes, rehabs
them, and then flips them for a profit. The challenge is to avoid falling back into the role of running a business as an
administrator or manager, and to meet this problem with a viable solution the entrepreneur will typically appoint
someone else to take the reins of the company as the president or CEO. Then the investor becomes more of a director or
silent partner who shares in the profits while enjoying the relief of not having to share the routine responsibilities of
running the business from the inside.
This all becomes possible because the entrepreneur has not just created a business but has also designed excellent systems
for keeping it going. Rather than dealing on the level of isolated actions and reactionary tactics, in other words, the
entrepreneurial investor has risen to the level of broad and comprehensive strategies that work across all sorts of
products, services, and economic cycles. Working smart replaces working hard, and the rewards – both financial and
personal – are abundant.
Level Five: The True Entrepreneur

Having learned new things every step of the way and evolved through various stages of entrepreneurial accomplishment
and insight, it is possible to reach the ultimate goal and realize one’s dreams in a really life-changing way. The true
entrepreneur experiences a paradigm shift that involves a four-step process of changed thinking:
#1: Idealization – Imagine gigantic, all-encompassing dreams for creating the ideal world.
#2: Visualization – Picture the ideal world as a reality and begin to clarify this vision on a daily basis, filling in more
details each day.
120 | P a g e
#3: Verbalization – Begin to put words to the dream and talk of it as if it was already happening. Talk about it to others
as if it were real and continue to have a personal dialog with the ideal to make it come true.
#4: Materialization – Because the effort and intention of designing and believing in the ideal and the dream, things
begin to fall into place and happen in a natural and automatic way. The idea becomes a real and tangible fact that
materializes in the world and influences others while opening new doors to fresh opportunities and the birth of more
dreams.
The true entrepreneur is a dreamer whose dreams come true, and an income earner whose income is passive. Money
comes automatically from profitable ventures that feed success with more success but do not require extraneous work. The
money made does all the work for the entrepreneur to create more money with a snowballing effect. These women and
men profit in all situations and add to their wealth by acquiring more paper assets, more profit centers, and more
entrepreneurial power.
A Dozen Characteristics Essential for Entrepreneurs

By examining the five phases or levels of entrepreneurship we gain a better understanding of
the fundamentals that distinguish ordinary entrepreneurs from the extraordinary ones. And
we begin to notice certain traits that are common to all successful entrepreneurs.
While – quite naturally – individual entrepreneurs have many unique traits that are not
common to other entrepreneurs, all entrepreneurs do share a kindred spirit, a certain type of
constitution and outlook, and a special drive and willingness. Rather than elaborating on the
many differences within this broadly diverse demographic, it is more helpful to look at those
aspects of similarity.
121 | P a g e
Here are 12 characteristics that are found within all successful entrepreneurs – and without which most people will fall
short of what it takes to succeed in an entrepreneurial enterprise.
#1) Confident
Confidence is a hallmark of the entrepreneur. Not all of us are born with confidence, but that does not mean we are not
capable of it. Many confident women and men gain their sense of self-esteem and faith in their ability to greet challenges
by acting – even when they lack the confidence – and then gaining strength and belief in themselves by seeing the results
and gaining the praise and respect of others.
#2) Feels a Sense of Ownership
Taking responsibility for getting things done – and doing them with care and attention – means to act like an owner.
Rather than viewing a problem as someone else’s, the entrepreneur sees it as his or her own and takes pride in finding a
solution, leaving things in better shape than they were before encountering them, and improving upon situations rather
than leaving them unattended. While a sense of ownership makes for a stellar employee, the entrepreneur knows that the
goal is not to be owned by the enslavement of too much responsibility. Rather than controlling situations in an attempt to
possess them, the entrepreneur teaches other people how to take charge. In that way the clever entrepreneur uses
individual accountability in the ultimate pursuit of profitability, teamwork, and overall success.
#3) Able to Communicate
Entrepreneurs recognize that the most important part of any business is the human element. Human resources – whether
in the form of clients, employees, or strategic partners – are what makes or breaks a business, and communication is the
key to successful relationships with people. The entrepreneur works to hone communication skills, whether those are
written, spoken, or non-verbal messages conveyed through body language. And to support communication, he or she will
take advantage of all available tools and resources. Those might include foreign language or public speaking classes,
computer and telecom technology, search engine optimization or neurolinguistic programming as it relates to sales and
marketing, or specialized writing such as that needed for grants, business proposals, mission statements, or policy
manuals. Above all, the entrepreneur develops a keen ability to listen and hear what others are trying to say, because the
best communicators got that way by first being the best listeners.
122 | P a g e
#4) Passionate about Learning
Entrepreneurs are often “autodidactic” learners, which means that much of what they know they learned not in a formal
classroom setting but instead on their own by seeking out information, asking questions, and doing personal reading and
research. They also are quick to learn from their own mistakes, which means they are less prone to keep repeating them
due to arrogance, ego, or a blindness to one’s own faults, shortcomings, or errors in judgement. To teach is to learn. And to
lead, train, and impart experience to others the entrepreneur is constantly striving to learn more and get better educated.
Because of the passion for education, true entrepreneurs surround themselves with people who either know more than
they do or know things that are different from what they know. They entertain the views of others and perspectives that
may be unlike their own, for instance, in order to be better students of human nature. In this way they continue to enrich
themselves with knowledge while also making a concerted effort to grow that knowledge by sharing it with others who are
also front row students of life’s valuable and unlimited lessons.
#5) Team Player
Those who go into business for themselves but do not utilize teamwork wind up without the team but still have all the
work to get done. They shoulder the whole burden for themselves, and wind up just trading their old job for a new and
more demanding one – in an attempt to be self-employed. But the new venture carries greater personal and financial
risks. On the other hand, team players know how to succeed by employing the physics of interpersonal synergy and
dynamic relationships. One twig can be easily snapped, but a bundle of those small twigs becomes stronger than the sum
of its individual parts and can be impossible to bend, much less break. The same goes for businesses, and successful
entrepreneurs leverage teamwork to get the heavy lifting done without breaking stride.
#6) System-Oriented
Like mathematical formulas, good systems allow us to reproduce great results every time – with less and less exertion of
energy or resources. Entrepreneurs rely upon systems before they rely upon people, and they look for system based
solutions before searching for human resource solutions. If the person gets the job done but falls sick or leaves, the job is
threatened. But if a system is created to get the job done, anyone can step in and follow the blueprint to get the desired
result. Similarly, when troubleshooting and problem solving, the entrepreneur will first examine and study the system –
because a flaw in the system will produce a flawed outcome each and every time. Designing, implementing, and perfecting
systems is one of the most useful and rewarding skills of an entrepreneur.
123 | P a g e
#7) Dedicated
Entrepreneurs dedicate themselves to the fulfillment of their plans, visions, and dreams, and that tenacity of purpose
generates electricity throughout the whole organization. One of the biggest reasons that companies fail is because they lose
focus. Target a goal, clarify the objective, refine the brand, and narrow the margin of error. Regardless of what the effort
might involve, an entrepreneur brings a single-minded dedication to the task by being committed to a positive outcome
and ready and willing to do the needful. No matter what that might mean in terms of rising to meet a challenge or acting
above and beyond the call of duty, the entrepreneur shows steadfast dedication.
#8) Grateful
Being grateful for what we have opens us up to receive more, and one reason that is true is because those who are grateful
appreciate what they are given. They respect it and nurture it. They do their best to make it grow instead of allowing it to
dwindle away due to neglect. Entrepreneurs learn to take nothing for granted in this world. That gives them the agility and
flexibility to adapt to changes and demands, while it also invests in them a thankfulness that reminds them that riches and
wealth are not about “stuff”, but are about fulfillment, satisfaction, and the pleasure that comes from one’s
accomplishments and contributions.
#9) Optimistic
A positive outlook is essential for the entrepreneur, who learns to see setbacks as bargain priced tuition for the valuable
business lessons gained through firsthand experience. Past shortcomings, failures, or disappointments are relegated to the
past so that they cannot continue to haunt the present or obstruct the future. And when things go right and business
prospers, this further fuels the optimism and positive mindset of an entrepreneur, helping to give impetus and momentum
for greater accomplishments and increased hopefulness.
#10) Gregarious
Because business is all about people, entrepreneurs tend to be socially outgoing. They get excited about sharing ideas,
products, and services, and that excitement is contagious to their employees, clients, friends, and other contacts both
within and beyond the business sphere. But women and men who work hard as entrepreneurs also relish the unique
opportunity to have fun doing something that they love as their primary vocation. Human resource experts, career
counselors, and business psychologists all agree that those who do jobs they enjoy and are good at have higher rates of
success and broader measures of satisfaction. Entrepreneurs know that firsthand, from their own experience, and they
tend to be a fun-loving group of people both on and off the job.
124 | P a g e
#11) A Leader by Example
Entrepreneurs not only lead themselves through self-motivation as self-starters who jump into tasks with enthusiasm, but
they are also skilled at leading others. They know the importance of teamwork, and they understand the need to
appreciate others, support them, and reward them accordingly. True leaders do not become indispensable, otherwise
things fall apart in their absence and they can never rise to the highest level of entrepreneurial freedom and prosperity.
Neither do they squander the potential of those working under their guidance. As renowned business consultant and
retired United States Air Force Major General Perry M. Smith once wrote, “Leaders who share their power and their time
can accomplish extraordinary things. The best leaders understand that leadership is the liberation of talent; hence they
gain power not only by constantly giving it away, but also by not grabbing it back.
#12) Not Afraid of Risk or Success
Many people could be successful if they only took chances. And many people who do take chances and become somewhat
successful find the realization of their dreams an overwhelming possibility, so they sabotage their continued success by
retreating back into a comfort zone of smallness. As discussed earlier, the employee mindset is preoccupied with a need
for security. Those who cling to what is familiar to them – even if it means the denial of their dreams – lack the
perseverance and ambition that the real entrepreneur exhibits. Entrepreneurs are not immune to fear. But they prioritize
their approach to life so that the fear of failure, frustration, boredom, drudgery, and dissatisfaction far outweighs the
lingering fear of success.
Recognizing the Entrepreneur Within

Many different types of people are drawn to entrepreneurship and a wide variety of talents, aptitudes, and personal traits
help to contribute to an entrepreneurial spirit, personality, and vision. The attitude, mindset, passion, and character that
define the successful entrepreneur are sometimes hard to pinpoint, specify, or sum up in a profile. But it is always easy to
recognize in an individual or spot in action within the business arena.
By examining some of the more predominant qualities of the true entrepreneur it is possible to emulate them, nurture and
develop them, or to acknowledge whether or not we are actually suited to an entrepreneurial career. Not everyone is cut
out to be an entrepreneur, and it is important to understand that fact. Otherwise a man or woman may risk time, energy,
effort, and money trying to go into business for themselves – only to discover that it is not what they want out of life or
125 | P a g e
what they are best suited to do. People who take the wrong path because they lack insight or understanding can waste
valuable months, years, and financial resources in pursuit of the wrong career path.
For others who are ideally fitted for an entrepreneurial career – and for whom it represents the fulfillment of their
potential, desire, and personal and financial dreams – knowing how to verbalize, list, and define the fundamental essential
temperament or nature of an entrepreneur can help tremendously.
Learning about the symptoms and traits of the entrepreneur can give added hope, fuel, and impetus as it resonates with
what potential entrepreneurs already know about themselves and their personal aspirations. Having an inventory or
checklist of particularly desirable qualities to refer to as a guideline can offer a way to better clarify our sense of purpose. It
can help us reach objectives in route to greater attainment of higher goals and bigger benchmarks. And grasping in a
practical and tangible way the disposition of the successful entrepreneur can give us a wonderfully inspiring boost of
confidence, foresight, and determination when we realize that we, too, share that winning attitude.
Characteristics of Successful Entrepreneurs

1. Self-confident and optimistic
2. Able to take calculated risk
3. Respond positively to challenges
4. Flexible and able to adapt
5. Knowledgeable of various markets
6. Able to get along well with others
7. Independent-minded
8. Versatile knowledge
9. Energetic and diligent
10. Creative, need to achieve
11. Dynamic leader
12. Responsive to suggestions
13. Take initiative
14. Resourceful and persevering
15. Perceptive with foresight
16. Responsive to criticism
126 | P a g e
How many of the above traits do you possess? While some of them are subjective in scope, many of these are crystal clear
and demonstrable from one’s actions. Most of the traits on the list provided are not something intrinsic to our personality,
but are in fact something we can choose to do or choose to be.
Our behaviour, largely, is a choice. A great entrepreneur knows that choosing most of the behaviours listed above, allows
for one to know who they are increasingly better, as time passes, and also allows for growth.
However, being an entrepreneur allows for continuous personal growth, development of new relationships and learning
about new things I know little about; which doesn’t allow time for me to be bored.
Noted Entrepreneurs
Introduction
In this lesson, we will research and view series resources that highlight successful regional entrepreneurs. Listen to their
stories and evaluate how their success may impact your business venture. This lesson will require you to engage your
critical thinking and problem-solving skills to identify and analyze successful entrepreneurs locally, the region and
internationally. To assist you with this probe a series of activities will initiate your research.
What does it take to become a famous entrepreneur? Well, it’s one thing to be successful; but it is a different ball game to
be famous. There are a lot of successful entrepreneurs around the globe but there are only a handful of famous
entrepreneurs; I mean entrepreneurs that changed the world with their businesses.
Today, I decided to compile my list of famous entrepreneurs that have impacted my life and thousands of others. I am
listing famous entrepreneurs that have revolutionized the way we think and act. If you are ready to be inspired, then below
is my list of famous entrepreneurs in no particular order.
127 | P a g e
My List of Famous Entrepreneurs that Changed the World
1. John D. Rockefeller: – He started from scratch and built Standard oil to become one of the largest oil and
gas distribution companies worldwide. John D. Rockefeller during his time was the richest man in the world and he still
remains one of the richest men in history. The foundation he founded “Rockefeller foundation” is one of the largest
foundations in terms of funds distributed.
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” –
John D. Rockefeller
2. Henry Ford: – After experiencing two business failures, Henry Ford went on to become the richest man in the
world in his time. But that is not his greatest achievement; Henry Ford will forever be remembered for democratizing the
automobile by making it available for the masses.
“Thinking is the hardest work to do, that’s why so few people are engaged in it.” – Henry Ford
3. Andrew Carnegie: – After experiencing extreme poverty in his early life, Andrew Carnegie went on to
build Carnegie Steel; one of the largest steel companies of its time. But what stands Andrew Carnegie out was that he
gave away everything he had before his death.
“I began to learn what poverty meant. It was burnt in my heart then that my father had to beg for work and there
came the resolve that I would cure that when I got to be a man.” – Andrew Carnegie
4. Steve Jobs: – When computers were bulky and expensive, with IBM stating clearly that a small computer was
impractical; Steve Jobs made a resolve to put a computer on every table and today, his resolve is now a reality. Steve Jobs
started Apple from scratch and built it to become one of the world’s most valuable brands. Respected as an innovator and
a stickler for quality and perfection; Steve Jobs will forever be remembered for his passion towards technology; he ran
Apple successfully until his death.
“Being the richest man in the cemetery doesn’t matter to me… Going to bed at night saying we’ve done something
wonderful… that’s what matters to me.” – Steve Jobs
128 | P a g e
5. Sir Richard Branson: – What will say of an entrepreneur who owns 400+ companies worldwide? Well, you’ve
just met Richard Branson, the founder of Virgin Group. A down-to-earth drop out billionaire and bestselling author;
Richard Branson is most respected for his love for adventurous ventures.
“My interest in life comes from setting myself huge, apparently accepting unachievable challenges and trying to
rise above them.” – Richard Branson
6. Donald Trump: – He is one of the biggest real estate developers in the U.S, a billionaire and celebrity host
of The Apprentice. Donald Trump is popular for his “Thinking big” philosophy and his magnificent buildings.
“Most people think small because most people are afraid of success, afraid of making decisions, afraid of winning.
And that gives people like me a great advantage.” – Donald Trump
7. Warren Buffett: – Warren Buffett is the world’s richest investor and founder of Berkshire Hathaway. His
investment philosophy has revolutionized the way people invest and he plans to give away all his wealth upon his death.
“Risk comes from not knowing what you are doing.” – Warren Buffett
8. Aliko Dangote: – He is the richest black man in the world and has a goal to be Africa’s greatest industrialist.
9. Bill Gates: – He is the co-founder of Microsoft and the revolutionary of the software industry. He held the
position of the world richest man for 13 consecutive years. He is currently the running the largest foundation in the world
“Bill and Melinda Gates foundation.”
“To win big, you sometimes have to take big risks.” – Bill Gates
10. Mark Zuckerberg: – He changed the way people socialized with “Facebook” and went on to become the
youngest billionaire in the world.
11. Robert Kiyosaki: – A self-help and personal finance expert, Robert is an entrepreneur that has transformed
millions of life throughout the world with his teachings; and I am a living testimony to the result of his teachings. Robert is
the famous controversial author of the book “Rich Dad Poor Dad” and other books.
129 | P a g e
“In today’s rapidly changing world, the people who are not taking risk are the risk takers.” – Robert Kiyosaki
12. Jeff Bezos: – Jeff gave up the security of his plum job and started selling books online from his garage and from
that humble beginning; Amazon, the world largest bookstore was born. But Jeff has shunned conventional wisdom and
taken Amazon beyond books to becoming the biggest online retail outlet. Little wonder Jeff Bezos is a billionaire.
“If there’s one reason we have done better than of our peers in the Internet space over the last six years, it is
because we have focused like a laser on customer experience, and that really does matter, I think, in any business.
It certainly matters online, where word of mouth is so very, very powerful.” – Jeff Bezos
13. Larry Page and Sergey Brin: – These two started out as friends, founded Google; the dominant player on the
internet and went on to become billionaires. But aside the billions of dollars, Larry and Sergey have changed the way we
access information because they’ve made it available to us at the speed of web.
14. Thomas Edison: – He is responsible for the invention of the light bulb and other electrical appliances. From
being labeled dumb by his school teachers to dropping out of school; he founded General Electric, one of the most
powerful companies in the world.
“I have friends in overalls whose friendship I would not swap for the favor of the kings of the world.” – Thomas
Edison
15. Michael Dell: – Dropped out of college to pursue his dream to sell assembled computer directly to the
customers; Michael has made a name in the computer industry and is worth a billion dollars.
16. Oprah Winfrey: – She discovered her passion for speaking and created a billion dollar empire out of it. She’s
the richest black woman in the world but more important is the way she affected lives around the world through her show
“The Oprah Winfrey Show.”
“You know you are on the road to success if you would do your job and not get paid for it.” – Oprah Winfrey
17. Ray Kroc: – Take a look around and you will observe that’s there’s a McDonald’s at every corner. Well, that’s the
vision of Ray Kroc when he bought out the company from the founders. Today, McDonald’s is a billion dollar company.
Not bad for a milkshake salesman that recognized opportunity that others could not see.
130 | P a g e
18. Mary Kay Ash: – The brand “Mary Kay” is one of the most recognized brands in the cosmetic industry but
Mary Kay Ash didn’t just build a cosmetic company; she empowered women, raised multimillionaires and gave a lot of
women a purpose to live.
“When you reach an obstacle, turn it into an opportunity. You have the choice. You can overcome and be a winner,
or you can allow it to overcome you and be a loser. The choice is yours and yours alone. Refuse to throw in the
towel. Go that extra mile that failures refuse to travel. It is far better to be exhausted from success than to be rested
from failure.” – Mary Kay Ash
19. J. Paul Getty: – This entrepreneur controlled two hundred companies in his lifetime and was the richest man in
his time. He founded Getty Company and the billion dollar foundation “Getty Foundation.”
“Without the element of uncertainty, the bringing off of even, the greatest business triumph would be dull, routine
and eminently unsatisfying.” – J. Paul Getty
20. Larry Ellison: – A long standing rival of Bill Gates, Larry Ellison is the founder of Oracle; the second largest
software company in the world. He’s famous for his flamboyant lifestyle.
“The most important aspect of my personality as far as determining my success goes; has been my questioning
conventional wisdom, doubting experts and questioning authority. While that can be painful in your relationships with
your parents and teachers, it’s enormously useful in life.” – Larry Ellison
Cultural diversity of Entrepreneurship

Introduction
This topic explores culture diversity in relations to entrepreneurial activities as well as the importance of embracing
diversity within the workplace. Also, the prominent entrepreneurs learn the definition of culture, diversity, and cultural
diversity as well as, the elements of culture, barriers of culture and the challenges the entrepreneur encounters. Also, you
will learn the importance of developing a positive culture in the workplace, discover the importance of youths in the
entrepreneurial process, and explore the effects of ethnicity, family, and religion in entrepreneurship. We will begin by
brainstorming and coining a definition of culture and diversity. Moreover, cultural diversity as well as other related terms
that will broaden your knowledge and provide assistance for the analysis and interpretation of data shared.
131 | P a g e
Culture: shared beliefs, values, and assumptions of a group of people who learn from one another and teach to others
that their behaviours, attitudes, and perspectives are the correct ways to think, act, and feel.
Diversity: distinct and unlike elements or qualities (interests, people, ideas, perspectives, ability, region); can be visible
and invisible. Now that you are exposed to the definition of both culture and diversity let us brainstorm a definition that is
suitable for cultural diversity.
Culture, in the broadest sense, refers to how and why we think and function. It encompasses all sorts of things—how we
eat, play, dress, work, think, interact, and communicate. Everything we do, in essence, has been shaped by the cultures in
which we are raised. Similarly, a person in another country is also shaped by his or her cultural influences. These
Cultural influences impact how we think and communicate. Cultural intelligence (CI) principles help to facilitate
awareness for, and understanding of, cultural frames. When applied, they bring our frameworks to a conscious level. At a
level where we can see the frames, we can then identify what it will take to learn new patterns of thought—new ways to
reframe. To be culturally intelligent is to reframe or rewire your brain. You create new patterns and new frames by
suspending your judgments and assumptions, by considering the old patterns in the face of the new or unfamiliar, and by
choosing to change your behaviour and attitudes based on reflection and new interpretation. Cultural intelligence is the
openness to emerge, not just about the unfamiliar and new culture, but about you—who you are and whom you could
become.
132 | P a g e
Cultural Diversity
The changes we see in societies around the globe necessitate a new and different paradigm for how we come to think about
culture. All this makes it harder and more challenging to think and practice cultural competence in the same way. Gardner
says we need to approach the challenges that differences bring through acceptance, respect, and learning—a frame that he
calls the “respectful mind.” We must engage in intercultural situations and activities fully; we need to immerse ourselves
and experience the “flow” to harness the emotions required to perform and learn from our cultural interactions. Leaders
must be willing to explore and create new ways of thinking and interacting with the flow of culture.
In this age of social transformation, cultural intelligence is a topic of

urgency for organizational leaders. Environmental, political, and
technological factors are quickly shifting the ways we work and interrelate
with one another. Cultural shifts are happening at a faster rate than
organizations are ready for and capable of managing, thus creating mental
and emotional havoc in managing and leading through cultural transitions.
In many cases, the result is a tighter hold on the invisible aspects of culture
and stronger emphasis on “the ‘right’ way to do the work.” More and more,
people ask for the tools and information that help carry them through
intercultural and cross-cultural interactions. There are multitudes of tools
and methodologies that are useful for managing and leading on a global
level—the cultural intelligence framework is one of them. It is only one component in the equation for improving the
management and leadership of cultural interactions. I tell leaders, “You need to recognize that no matter what tool or
method you use, who you are and how you use the tool or method is the biggest part of the equation.” There are external
factors that also constitute a culture—manners, mindsets, values, rituals, religious beliefs, laws, arts, ideas, customs,
beliefs, ceremonies, social institutions, myths and legends, language, individual identity, and behaviours, to name a few.
While these factors are less structured and do not provide a comparative framework, they are helpful in completing our
understanding of what impacts a particular culture. When we look at these additional factors, we are seeking to
understand how each culture views and incorporates each of them. For example, are there specific ceremonies or customs
that impact the culture and for our purposes its business culture?
133 | P a g e
Cultural Diversity of Entrepreneurship
Cultural diversity encompasses a multitude of sub cultures or societies. It consists of elements such as religion, language,
age, gender, family, sexual orientation, ethnicity and social status. In contemporary societies, the emerging trend of
entrepreneurship is impacted upon by key issues in cultural diversity.
1. Ethnicity and Entrepreneurship

Ethnicity refers to a particular group of people or social group with a common, distinguishing and shared culture.
According to the American Heritage New Dictionary of Cultural Literacy, ethnicity refers to, ‘identity with or membership
in a particular racial, national, or cultural group and observance of that group’s customs, beliefs and language’. Some
research on ethnicity and entrepreneurship are highlighted:
▪ Fratoe (1986) point out that ethnic enterprise »» can be considered a ‘group level phenomena’. He argues that this
is because of the business’ dependence on group resources.
▪ Other researchers contend that the organization’s business strategy should be aligned to the environment. When
the environment entails group values for example ‘collectivism, duty, loyalty’ for instance, the business strategy
alignment is influenced greatly by the ethnic group values. Enz et al (1990) contends that the alignment to group
values influences the business operations more than it does in the mainstream national culture.
▪ Landau (2007) argues that the role of the family as an agent of culture and cultural values. The family as a social
structure is seen as integral to ‘understanding the management process of ethnic-family businesses than
mainstream businesses’.
Entrepreneurship is not only about the job creation, but also about enhancing upward mobility, developing social
leadership, increasing individuals’ self-confidence by enabling them to become active agents of their own destiny,
increasing the social cohesion of ethnic communities, and revitalising streets and neighbourhoods through innovation of
social and cultural life. Ethnic entrepreneurship has not played a role in the strategy of cities to support the employment
and societal integration of immigrants into local communities.
134 | P a g e
The ethnic and socio-cultural make-up of many advanced economies have significantly changed as flows of long-distance
migration from ever more locations increased in the second half of the twentieth century. Immigrants from both
developed and less-developed countries moved to advanced economies, embodying the complex process of globalization in
a very palpable sense. These two highly visible aspects of globalization – the international mobility of capital and labour –
are often directly related as immigrants themselves introduce their products and services to far-off places. They start
businesses in their countries of settlement and become ‘self-employed’, ‘new entrepreneurs’, ‘immigrant entrepreneurs’ or
‘ethnic entrepreneurs’.
Importance of ethnic entrepreneurship

The self-employment of immigrants is (or can be) important for several reasons. This is first of all related to the fact that
they play a different role from immigrant workers.
• By starting their own business, ethnic entrepreneurs create their own jobs. This enables them to circumvent some
of the barriers they may encounter in looking for a job. Immigrants from less-developed countries were particularly
likely to come up against these obstacles. They may lack or be felt to lack educational qualifications; they may not
have sufficient access to relevant social networks for transmitting information on vacancies, or local employers may
simply discriminate against them. Becoming self-employed does not mean all these barriers have become
irrelevant, but entrepreneurs seem to be less vulnerable.
• If they are successful, ethnic entrepreneurs can create jobs for others as well. This can benefit relatives, friends and
acquaintances and, more generally, co-ethnics, as social networks are often interfaced for information on the
recruitment of new workers in small firms. Creating jobs – even poor jobs – helps alleviate unemployment among
immigrants. The same holds for providing apprenticeships, which in some countries is seen as an important vehicle
for a labour market career. This does not exclude, of course, the creation of jobs for people from other ethnic
groups, including the native mainstream.
• Ethnic entrepreneurs can also contribute different forms of social capital to ethnic immigrant communities.
Because of their links to suppliers and customers, ethnic entrepreneurs can be useful in constructing bridges to
other networks outside the inner circle, thus improving chances of upward mobility.
• Ethnic entrepreneurs show that immigrants from less-developed countries are not necessarily restricted to filling
vacancies on the job market. They can be active agents and shape their own destinies by setting up their own
businesses.
135 | P a g e
Secondly, ethnic entrepreneurs don't only differ from immigrant workers, but can also be different from indigenous
entrepreneurs.
• They may provide goods and services that indigenous entrepreneurs are less likely to offer. Ethnic entrepreneurs
may have expert knowledge of specific demands or specific sources of supply relating to foreign products, as in the
case of foodstuffs. By introducing new products and new ways of marketing, even ethnic entrepreneurs at the
bottom end of a market can be innovators. Ethnic entrepreneurs may thus broaden the range of goods and services
in a country and hence expand the consumers’ choice. The flip side, of course, is that ethnic entrepreneurs
sometimes gravitate to the same economic sectors and, in doing so, undermine their competitiveness.
• Analogous to the last point, ethnic entrepreneurs can be instrumental in giving certain sectors a new lease of life. In
some industries, because of their specific skills, knowledge or social capital, ethnic businesses can be at a
comparative advantage.
Notwithstanding the apparent diversity of both the origins of the entrepreneurs and the types of businesses they have been
established in various countries, there are clearly similar underlying processes. Lacking, in most cases, access to
significant funds of (financial) capital and also deemed lacking in appropriate educational qualifications, most fledgling
ethnic entrepreneurs can, so it seems, only set up shop in markets with low barriers to entry regarding capital outlays and
required educational qualifications. In these markets, production is mainly small-scale, low in added value, and usually
very labour intensive. Consequently, earnings are typically relatively low, and days are long and hard for many ethnic
entrepreneurs. This very fact, to be sure, points to a distinct divergence of forms of ethnic entrepreneurship, and this
makes it harder to get a sharp and coherent profile of ethnic entrepreneurship.
136 | P a g e
2. Gender and Entrepreneurship
According to www.businessdictionary.com, gender can be defined as ‘culturally and socially constructed difference
between men and women’. Some research on gender and entrepreneurship are highlighted:
▪ Research on gender differences in the inclination of an individual to become an entrepreneur tends to show that
males have a greater predisposition to start a venture. This, according to Cowling (2003) does not hold true for
every society. He highlighted that in Finland, there is a greater inclination for females to start their own business.
▪ Research by Marlow et al. (2008) argues that the pervasiveness of female entrepreneurship is strongly influenced
by history and culture.
▪ Other research on gender tends to focus on the aspect of discrimination. Moore (1983) and Sowell (1981) argue that
female propensity to enter into entrepreneurship is as a result of labour market discrimination in the ‘formal waged
sector’.
▪ Further research focus on the effect of the family on the propensity of females to enter into entrepreneurship.
Moreover, women seek employment that complement/counterbalance with child care responsibilities.
▪ While Verheul et al. (2006) found that both male and female entrepreneurs tend to be influenced by the same
factors; Wagner (2007) showed that the ‘fear of failure’ discourages women from pursuing entrepreneurship.
When we talk about masculine or feminine cultures, we are not talking about diversity issues. It is about how society views
traits that are considered masculine or feminine.
This value dimension refers to how a culture ranks on traditionally perceived “masculine” values: assertiveness,
materialism, and less concern for others. In masculine-oriented cultures, gender roles are usually crisply defined. Men
tend to be more focused on performance, ambition, and material success. They cut through an independent persona, while
women cultivate modesty and quality of life. Cultures in Japan and Latin American are examples of masculine-oriented
cultures.
137 | P a g e
In contrast, feminine cultures are thought to emphasize “feminine” values: concern for all, an emphasis on the quality of
life, and an emphasis on relationships. In feminine-oriented cultures, both gender swap roles, with the focus on the quality
of life, service, and independence. The Scandinavian cultures rank as feminine cultures, as does cultures in Switzerland
and New Zealand. The United States is actually more moderate, and its score is ranked in the middle between masculine
and feminine classifications. For all these factors, it is important to remember that cultures do not necessarily fall neatly
into one camp or the other.
Women play a major role in entrepreneurship, although feminine entrepreneurship is lower than masculine
entrepreneurship. However, the distance between both entrepreneurship rates (male–female) varies across countries
because of the influence of different roles and stereotypes on entrepreneurial behaviour.
Since entrepreneurship is considered as a source of economic development, innovation, and growth, the study of factors
that influence rates by creating new companies have become an important issue on the agendas of economists,
researchers, and politicians in most countries. Understanding the role played by the social, cultural and economic factors
in entrepreneurship is key to comprehend how to encourage culture and entrepreneurial behaviour.
Secondly and closely related to the above, understanding the national culture is essential to analyze how each country
values and rewards the behaviours that promote entrepreneurial behaviour. In this sense, in those countries where social
roles are closer to competitiveness, ambition and achievement, that is to say, where to highlight the roles attributed to the
male group would be expected lower rates of female entrepreneurship.
138 | P a g e
3. Youth and Entrepreneurship
According to UNESCO (www.unesco.org) the term youth is characterized as ‘a period of transition from the dependence of
childhood to adulthood’s independence and awareness of our interdependence as members of a community’. UNESCO
further describes ‘youth’ as a person ‘between the age where he/she may leave compulsory education, and the age at which
he/she finds his/her first employment’. Some research on youth and entrepreneurship are highlighted:
▪ Research conducted by the International Labour Organization (ILO) in a paper entitled, ‘How to build an enabling
environment for youth entrepreneurship and sustainable enterprises’ highlighted challenges facing sustainable
youth enterprise. These challenges include the global economic crisis and its impact on the labour market in
developing countries. Also, environmental sustainability issues such as waste and greenhouse gases as well as,
climate changes while they result in increased risk to the earth, they also provide opportunities for creativity and
innovation for youth enterprise. Further, there is an ‘employment crisis’ for young persons.
▪ The ILO research paper further points out that when a scarcity for jobs exists, young people are more vulnerable to
unemployment. Research suggests that many youths are ‘pushed’ into entrepreneurship. The paper states that they
become ‘entrepreneurs by necessity’ rather than ’entrepreneurs by choice’. Research underscores the point that
some young people enter the ‘informal sector’ without acquiring the necessary entrepreneurial know how or
funding to sustain a venture. Governments are becoming increasingly aware of the need to develop and promote
youth entrepreneurship.
▪ Research indicates that there are barriers to youth entrepreneurship: these include some countries lack of
‘enterprise culture’; unfavourable/adverse ‘legal policy and regulatory frameworks’ toward youth entrepreneurship;
lack of ‘entrepreneurial education’; lack of ‘access to affordable financing and business development services’.
▪ Consequently, the ILO research paper emphasizes that for policies on youth entrepreneurship to be effective they
should be considered in the broader context of employment policies and programmes. Moreover, interventions
should be designed to overcome the challenges of youth entrepreneurship. These interventions include the creation
and promotion of a culture of youth entrepreneurship. This would include strategies such as campaigns promoting
successful youth entrepreneurs; business idea and business plan competitions; youth business conferences and
publicity. Another intervention is the fostering of entrepreneurship education, training and development at all
levels of the education system. This would include for example school based assessment at the secondary school
level based on creating a business plan; training for school leavers in the elements of starting a venture.
139 | P a g e
Interventions would also include improving the legal environment to facilitate youth entrepreneurs e.g. reducing
the time and costs involved in registering a business. Further, access to financing and business development
services should be made easier for young entrepreneurs e.g. access to venture capital, low interest loans, start-up
training such as writing a business plan and financial recording.
One potential way of integrating young people into the labour market is to increase youth entrepreneurship. Becoming an
entrepreneur potentially offers benefits to the young person through deepening their human capital attributes (self-
reliance, skill development) and increasing their levels of happiness. It also provides societal benefits. Entrepreneurs
create jobs, increase innovation, raise competition and are responsive to changing economic opportunities and trends.
Entrepreneurship offers other positive externalities. A young person setting up a new business may provide
‘demonstration’ or learning externalities in that they may act as a role model for other young people. This may be
particularly advantageous in deprived communities because setting up a new business – especially if it goes on to be
successful – may signal that entrepreneurship is a mechanism for helping disadvantaged people break out of social
exclusion. Indeed, one of the reasons why youth entrepreneurship is so attractive is that it offers an indigenous solution to
economic disadvantage. Youth entrepreneurship is also attractive to policy makers because of the high rates of latent
entrepreneurship amongst young people. The entrepreneurial outcomes of youth entrepreneurs are often explained by the
presence of market failures, push and pull factors and a lack of human, social and financial capital.
Youth business characteristics

Because the labour market experiences of young people have become increasingly delayed and fractured, one expectation
might be that young people have increasingly adopted differing forms of work and business activity. Regarding
entrepreneurship, this may have led to the adoption of differing ‘business models’ such as part-time self-employment;
some form of the co-operative or social enterprise; or a focus on a particular (innovative) sector.
On average, the typical new business focuses on sectors in which the entrepreneur has prior experience of; tend to be
service rather than manufacturing orientated; and have relatively low entry barriers and low capital requirements.
140 | P a g e
4. Family and Entrepreneurship
Andersen and Taylor (2009) and Newman (2009) refer to the family as a ‘social institution’. It is seen as having an
organized system of behaviour and a specific purpose. The family is seen as serving various social functions. These include
reproduction, caring for members, providing legal rights and preservation of cultural traditions. The family also has to
adhere to legal and cultural obligations. In analyzing the interrelationship between the family structure and
entrepreneurship some research points are highlighted:
▪ Aldrich and Cliff (2003) points out that ‘family and business dynamics’ are interrelated.
▪ Researchers such as Aldrich and Waldinger (1990) as well as, Steier and Greenwood (2000) argue that the family is
integral to a start- up business process as it is a source of financial resources to the entrepreneur. Other researchers
contend that the family also provides human resources and at times a physical space to conduct the business
venture.
Economy, business, and entrepreneurship are related to the world of men. Home, nurturing, and the family belongs to
women's world, so the story goes. On the other hand, family entrepreneurship and its outcome, the family business, are
probably the most traditional way of conducting business, being thus a universal phenomenon. However, in comparison to
other economic and entrepreneurial activities, the field of family entrepreneurship has been only recently addressed by
economists, researchers, and academicians.
Family business makes possible the idea of perpetuating the founder's name and actions over time. It permits, if well
managed, to preserve and amplify assets accumulated in life, entrusting the economic potential associated with the
business entity for future generations.
Family businesses are the engines of both industrialized countries and developing economies. They contribute to the
socioeconomic development impact on the entrepreneurial drive and represent major employment opportunities. Above
all, family businesses represent ‘life projects’, vigorous centres that combine entrepreneurial skills and activities with
typical traits of the family as a community of values and strong relationships.
141 | P a g e
The natural and innate idea of family businesses to persist beyond the founders, in a continuity of values and
intergenerational wealth, is based on a concept of ‘sustainable family’. The search for new market models emphasizes
approaches based on cooperation and enhances emotional investments, the sense of belonging, and the social and
economic continuity over time.
Family business sustainability is the ability to ensure the persistence of the family over time, combining the continuity of
the family myth with social responsibility and creating a community of values and intentions. The theme of longevity or
persistence of the family is one of the main topics on which to focus the theoretical and empirical contributions to the
family business.
5. Religion and Entrepreneurship

The research highlighted seeks to introduce the student to some aspects of how religion impacts the entrepreneurial
orientation.
The following key issues were highlighted in research done by Audretsch, Boente and Tamvada in ‘Religion and
Entrepreneurship’ (2007):
▪ The paper was based on data collected from approximately 90 000 workers in India. The research concluded that
religion shaped entrepreneurial decisions.
▪ The researchers contend that religions such as Christianity and Islam were conducive to entrepreneurship. They
found that Hinduism inhibited the development of entrepreneurship. The caste system influenced the ‘propensity’
of the individual to engage in entrepreneurial activity. Moreover, the lower caste exhibited a ‘lower propensity’ to
entrepreneurship.
Max Weber (1905) in his work, ‘The Protestant Ethic and the Spirit of Capitalism’ provided a study of the relationship
between Protestantism (especially Calvinist) and capitalism. He pointed out the following:
o Religious ideals of groups such as the Calvinist influenced the development of capitalism.
o Protestantism provided a favourable base for enterprise.
o The Protestant emphasis on individualism helps to facilitate capitalism.
o The Calvinist valued material success and profit as demonstrating God’s favour.
142 | P a g e
Religious economy refers to religious persons and organizations interacting within a market framework of competing
groups and ideologies. An economy makes it possible for religious suppliers to meet the demands of different religious
consumers. By offering an array of religions and religious products, a competitive religious economy stimulates such
activity in a market-type setting. The idea of religious economy frames religion as a product and as those who practice or
identify with any particular religion as a consumer. However, when the idea of belief is brought into the equation, this
definition expands, and ideology affects the "product" and who "consumes" it. When examining depictions of religious
identity in a global world, it is easy to see how ideology affects the religious economy.
Religion impacts many different areas of a person’s life, such as the family; politics, and gender roles. Though a few strong
perspectives have emerged in the area of work and religion, this relationship has been marginalized by sociologists. Work
is something that plays a central role in the everyday lives of people. Entrepreneurial behaviour as a particular kind of
work has increased and can be seen as the driving force behind the capitalist system. Entrepreneurs, articulate a
relationship in which their faith frames their entrepreneurial activity. The entrepreneurs described a tension that existed
between their previous jobs and their faith due to conflicting values. In setting up their own businesses, they strove to
create a work environment which focused on reflecting and incorporating these values. The entrepreneurial activity is
shaped by the need for these entrepreneurs to reinterpret their work in religious terms, ending the tension between them
between faith and work.
143 | P a g e
Mistakes of Entrepreneurship
Introduction
As an entrepreneur, there are many tasks involved in managing a business. In
this lesson, you will learn about some of the challenges experienced in
operating a business. Therefore, to facilitate smooth operations, there are
several mistakes an entrepreneur must be wary that can affect the profitability
and sustainability of the venture. The lesson will discuss some of the areas in
managing of the business where these challenges or mistakes can occur.
The entrepreneurial process encounters challenges that affect the sustainability
of the business and lead to business failure. The entrepreneur must be vigilant
in observing areas of the managing aspect of the business that may hinder efficiency and the ability of the venture to
remain competitive and profitable.
The growing stages of the venture require the entrepreneur to transition to manager. This transition requires the
entrepreneur to transfer creative and innovative skills and incorporate these into the planning and organizing of the
venture process. The entrepreneur must, therefore, balance these attributes as failure to do so will reduce competitiveness
and productivity.
144 | P a g e
Some areas within the business where challenges/mistakes can occur are:
Management:
• The absentee manager who believes the business will run itself
• Lack of proper leadership
• Poor planning strategies
• Lack of knowledge and managerial experience Human Resources:
• Improper allocation of human resources within the organization
• Lack of training and expertise of employees
• Conflict Marketing:
• Failure to conduct a market research
• Failure to focus on a target market
• Failure to advertise the product
• Lack of the proper location of the business/ accessibility
• Failure to recognize customer service as a priority
Human Resources:
• Improper allocation of human resources within the organization
• Lack of training and expertise of employees
• Conflict
Marketing:
• Failure to conduct a market research
• Failure to focus on a target market
• Failure to advertise the product
• Lack of the proper location of the business/ accessibility
• Failure to recognize customer service as a priority
145 | P a g e
Product:
• Failure to develop new products to attract existing and new customers
• Ability to maintain a quality product
• Lack of creativity
• Inability to meet customers’ needs Financial:
• Poor recordkeeping
• Limited or no financial control management
• Using business funds for personal use
• Uncontrollable costs, cash flow issues
• Limited capital Operational:
• Poor inventory control
• Lack of technical training/competence
• Wastage of resources
• Failure to monitor performance and productivity checks.
Financial:
• Poor recordkeeping
• Limited or no financial control management
• Using business funds for personal use
• Uncontrollable costs, cash flow issues
• Limited capital
Operational:
• Poor inventory control
• Lack of technical training/competence
• Wastage of resources
• Failure to monitor performance and productivity checks.
146 | P a g e
Legal:
• Tax regulations of host country
• Failure to hire expertise in handling legal issues
Economic:
• Inability to monitor and identify changes in the economy that may affect or be advantageous in the strategic
decision-making of the business.
Mistakes of Entrepreneurs:
1. Entrepreneurial biases
We all fall in love with our ideas. It is a natural phenomenon: we invest our time and money in an idea because we think it
will be successful, and we are reluctant to admit anything otherwise. While faith in an idea is good, it becomes problematic
when confirmation bias starts, especially in areas such as customer validation.
So what is this dangerous confirmation bias? It is when we have a preconceived idea of what customers want and how our
product is a perfect solution, and we search for and interpret data to fit with these beliefs. It is one of the most significant
hurdles our teams have had to battle through – confronting the feeling of weakness that comes when your assumptions do
not match the data is a terrifying prospect.
2. Not fully validating the market

It seems logical that if we provide something that solves a problem, everyone with that problem will automatically want to
buy it. When people ask questions like, ‘how do you know?’ I hear time and time again, ‘because it just makes sense.'
However, the assumptions we rely on being the biggest threat to the success of a company. Things that seem intuitive,
such as, ‘everyone wants to pay for convenience’ may not apply to those who, for example, are not tech savvy, or are set in
their ways. In fact, we’ve seen some pivots in the Lightning Lab, which resulted from conversations with customers.
Companies realized they were solving the wrong problem, or not solving it in a way that customers want to buy into.
147 | P a g e
3. Not asking for and accepting help
We all like to think we know what we are doing. No one wants to be told that his or her strategy is not working – that
pesky ego gets in the way, as asking for help can be seen as a sign of failure. One of the most well-worn pieces of advice
from entrepreneurs is to leverage the skills of those around you by asking other people for help. Afraid that they’ll turn you
down?
4. Confused pitches
When you pour your days and weeks into creating a company and know everything about it and your industry, it can be
very hard to distil that down into a 30-second pitch to give to someone who knows nothing. 30 seconds drags out, and by
the end the listener sometimes still isn’t sure what your product does! Pitches are so, so important, as we are learning in
the Lightning Lab. The whole programme culminates in Demo Day, where teams deliver a 7-minute pitch to hundreds of
investors – which pitch can make or break your company.
5. Working as a team
No one can succeed alone. Having a strong, tight-knit team makes such a difference: if you’re away sick, others can keep
everything moving forward; if you need advice or other skill sets, you have them on-hand; when it’s Friday evening, and
you’re working late in the office, you have people around you to crack a joke and get you smiling again. Teams are no easy
feat to assemble – it has taken some of our companies weeks and weeks to find the right people.
6. Not looking after yourself

When we find ourselves in situations of stress, our health usually drops to the lowest level of priority. We skip lunch
because we think our time is more productively spent working, or stay up late, because who needs sleep? We place
immense pressure on ourselves without giving our body a chance to recover. Here’s the thing: as an entrepreneur, you
cannot afford to let the pace or the level of intensity fall – you have to find a way to keep yourself healthy while
maintaining a high-pressure, high-performance lifestyle.
148 | P a g e
Mistakes to avoid
Running a business means making many decisions. Some decisions come easily and obviously; others require more
complex analysis, offering a variety of best outcomes. When trying to process all the relevant information to come to the
best decision, it is easy to get overwhelmed. It is easy to make flawed decisions when we fail to realize that many of our
preconceptions are based on what outside institutions teach us, and not what we know to be true.
Here are three common mistakes that small business owners often encounter in the decision-making
process:
1. Underestimating or overestimating the value of information received from others.
People have a tendency to overestimate the value of some individuals and underestimate the value of others, without good
cause. For example, it is easy to place too much credence in the opinion of experts, authority figures, and high-status
groups.
In matters of opinion, even experts can have a flawed analysis. Similarly, it is easy to discount information received from
perceived lower status groups. Entry-level employees, for example, may still have penetrating insights to another side of
the problem which you had never considered.
Make sure that you seek out information from a wide variety of sources, and always double check your reasons for
accepting or disregarding outside opinions.
2. Hearing only what you want to hear or seeing what you want to see.
Run a quick psychological experiment. Tell a friend or colleague to look around and try to remember everything that is
green. Then have them close their eyes, and ask them about the red objects in their surroundings. Chances are they will
not be able to tell you very much. Our perceptions work in a similar manner. We see what we expect to see, so it is critical
to be aware of your biases and preconceived ideas to mitigate them and come to an objective decision-making process.
149 | P a g e
3. Not listening to your feelings or gut reactions:
Sometimes things seem like a very good idea, but you still feel bad about it for one reason or another. Don’t ignore these
feelings! We are constantly processing more information than we are ever aware of. If something “feels” wrong, stop and
take a minute to consider why. By tuning into your intuition, you will be equipped to make much better decisions in the
long run.
Challenges for Entrepreneurship

Setting up a business is not an easy or smooth process. The process involves different decisions to be made with
accompanying plans and implementation after that. Challenges can involve:
• Finding the right idea and opportunity to break into the market
• Difficulties acquiring the resources (including land or raw materials, financial resources, labour and
entrepreneurial ability) necessary for the production and distribution of goods and services
• The high costs of creating internal roles, relationships and operating routines in new organizations
• The time and investment required to establish external relationships that are conditioned on experience,
reputation, and trust, and competition, often with very limited resources, with mature organizations that already
have goods or services in the marketplace and that enjoy established customer relationships.
Many entrepreneurs have been successful despite these challenges. However, entrepreneurship does not only have
challenges.
150 | P a g e
Factors of Successful Entrepreneurs
Introduction
Management is a combination of activities such as planning, organizing, directing and controlling to achieve the objectives
defined by and through the efforts of others. Hence, with this understanding, the four management functions include
planning, organizing, directing and controlling. In SMEs, entrepreneurs often carry all the above management functions.
In addition to the general characteristics of management, SMEs entrepreneurs’ management has specific characteristics.
Firstly, SMEs entrepreneurs have close relationships with employees; they are interested in training as well as motivating
employees at work. Secondly, the corporate communication mechanism is usually simple, based on the relationship
between individuals. Thirdly, power is centralized, i.e., the director is the decision-maker of all internal and external
operations of the company. Fourthly, because the organizational structure is not too complex, specialization in
Management of SMEs is relatively low. Fifthly, the operational direction for SMEs dominates the management of a
company. Thus, as an entrepreneur, he conducts general management activities, operational exploitations, and
management of human resources in the company. Small enterprises can be considered viable, or to be making a positive
contribution, if the returns generated from it are greater than having not started the business at all.
A successful entrepreneur needs to have certain qualities. It is obvious that the entrepreneurs named in our examples
possess these qualities. Let’s take a look at the qualities individually:
1. Seeking opportunity
The key to coming up with a successful business idea for new products is to identify a market need that is not being met.
Many entrepreneurs have an eye for opportunity. They start by finding a need and then set out to provide goods and/or
services to satisfy the need. What most of us see as problems can sometimes become an excellent business opportunity. All
you have to do is look around and ask yourself, “How can this situation be improved? Seeking information before you start
up a business, you have to request information about customers, suppliers and competitors that will enable you to make
informed decisions. A lack of information about various role players in the market might result in the business not being
successful. There are different sources of information. These include advertisements (television, radio, the Internet,
magazines, and newspapers), questionnaires, libraries, courses and existing business people.
151 | P a g e
2. Determination and persistence
People learn from their mistakes. Do you remember what happened when you learned to ride a bicycle? You fell, but kept
getting on again until you learned to ride it. An entrepreneur is someone who does not give up, but tries over and over
again until they can solve a challenge. Entrepreneurs will even make personal sacrifices like neglecting their families to be
able to succeed. Entrepreneurs have the persistence and the ability to bounce back after rough times.
3. Persuasiveness
When you are persuasive, you have the ability to keep trying to convince people to buy your products or services to become
customers and always support and follow you. Commitment As an entrepreneur, to be successful requires commitment
and determination to do everything possible to make a success of his or her business. Family and friends sometimes take
second place until the entrepreneur has finished what he or she has set to do. Are you sure you are willing to make this
commitment?
4. Perseverance
Persistence and perseverance go hand in hand since when we persevere, we refuse to give up until we have found a
solution for any challenge. An entrepreneur, who has perseverance, keeps his or her goals in sight and tries to reach such
goals even if he or she experiences obstacles along the way. Being a true entrepreneur experiences obstacles along the way.
Being a true entrepreneur means not giving up and learning from previous mistakes and failures.
5. Creativity/ Originality
Entrepreneurs are always thinking of new ideas and new ways of making money or increasing the size of their businesses.
They are not afraid to put these ideas to use. Creativity drives the development of new products, services or ways of doing
business. We have to use our creative minds to develop solutions that other people have not developed. Let’s look around
us. What are people doing?
152 | P a g e
6. Innovativeness
The entrepreneurs are highly innovative and creative individuals with vision. An entrepreneur can spot opportunities and
act upon them. To be innovative means, you can come up with new ideas and inventions to solve problems and not give up
until you have found an effective solution.
7. Initiative
We find people in life who act like natural leaders. When we are in groups or participating in group work, there is always
someone to whom all the others look up to. We also have to initiate opportunities by developing them.
8. Independence
They need to be one’s own boss is one of the biggest reasons why people become entrepreneurs. They are tired of working
for somebody else and therefore establish their own venture. Entrepreneurs need to make decisions on their own that are
in the best interest of themselves and their business enterprises. You can request people who are knowledgeable and
informed about entrepreneurship to assist you with guidance and advice, but at the end the decision to become an
entrepreneur rest entirely with you. We, however, would like to caution that freedom goes with taking responsibility.
9. Problem-solving skills
We always tend to see problems and raise such problems without thinking about or developing solutions to solve such
problems. It is rather a new trend to call problems, challenges and so change our mindset to think of the challenges
(problems) as issues that can be solved. These issues represent possible opportunities.
153 | P a g e
10. Taking risks Entrepreneurs are risk-takers
People are too afraid to take risks. This simply means that we fear that if the business fails, we will lose all our
investments. This implies that we do not have the courage to leave our comfort zones and become independent
entrepreneurs. If we work for the government or someone else, we are sure we will receive a salary at the end of the
month. It is true that we should not just start any business or jump into an opportunity, just because we would like to be
independent or work for ourselves. We have to make an excellent study of the possible risks and compare these with the
advantages. If there are too many risks, we might decide not go into such a business. Hence, as we become more
experienced, we will be able to identify risks well in advance and take the necessary steps to minimize or avoid them. What
stands to reason is that from time to time we have to take calculated risks.
11. Setting goals

Setting goals are vital in any business or even in our own lives. We have to decide what our destiny and achievements will
be. If we do not have goals, we are like a ship on a big ocean without a compass. Do you know what the purpose of the
compass is? Yes, to give us direction. In business, your compass will be your goals. When you set goals for your business,
you have to be creative, but also so very realistic. We have to set smart goals for ourselves and our business.
• Simple goals are easy to understand and achieve with the minimum effort for the maximum output.
• Measurable goals are measurable regarding output. For example, how many shoes we would like to sell in a day.
• Attainable goals are not complicated to achieve or above our own abilities. For example, if I am a slow worker, I will
possibly make fewer shoes in a day than my colleague.
• Relevant goals are directly related to what I want to achieve.
• Time-bound goals are achievable within a specific time frame.
Entrepreneurs have these qualities in different degrees. The question that arises is: “What if the person lacks one or more
of these qualities?” Don't worry, because many of these skills can be learned or the entrepreneur can employ someone who
has the skills, which he or she lacks.
154 | P a g e
Financing a new business idea
Because new businesses usually need to borrow money in order to get off the ground, good financial management is
particularly important to start-ups. Let’s suppose that you’re about to start up a company that you intend to run from your
dorm room. You thought of the idea while rummaging through a pile of previously worn clothes to find something that
wasn’t about to get up and walk to the laundry all by itself. “Wouldn’t it be great,” you thought, “if there was an on-campus
laundry service that would come and pick up my dirty clothes and bring them back to me washed and folded.” Because you
were also in the habit of running out of cash at inopportune times, you were highly motivated to start some sort of money-
making enterprise, and the laundry service seemed to fit the bill (even though washing and folding clothes wasn’t among
your favourite activities—or skills).
In order to understand an organizational structure, one also needs to understand the meaning of authority, delegation,
responsibility and accountability. Authority, is the right to act in a specific manner, allocated or delegated to a specific
person by virtue of his/her qualities and capabilities. The school principal has legal authority by virtue of his or her
position. Responsibility is the duty that rests upon a person to carry out his/her appointed task, while Accountability is
reporting on the control and use of resources, by those to whom the responsibility has been delegated. Accountability
involves the responsibility to undertake certain actions and to provide an account of those actions. For example: the
principal of a school has a responsibility to manage resources (financial and non-financial) entrusted to him/her by the
department and/or community, as well as a responsibility to provide an account of the management. An annual report and
the financial statements are mechanisms for discharging accountability. Delegation is closely associated with effective
administration. It occurs when management grants certain management responsibilities and authority to a person at a
lower level. Set rules and procedures need to be laid down for them to report to management.
Financing the Business during the Growth Stage

Flash-forward two and a half years: much to your delight, your laundry business took off. You had your projected five
hundred customers within six months, and over the next few years, you expanded to four other colleges in the
geographical area. Now you’re serving five colleges and some three thousand customers a week. Your management team
has expanded, but you’re still in charge of the company’s finances. In the next sections, we’ll review the tasks involved in
managing the finances of a high-growth business.
155 | P a g e
Managing Cash
Cash-flow management means monitoring cash inflows and outflows to ensure that your company has sufficient—but not
excessive—cash on hand to meet its obligations. When projected cash flows indicate a future shortage, you go to the bank
for additional funds. When projections show that there’s going to be idle cash, you take action to invest it and earn a
return for your company.
Managing Accounts Receivable

Because you bill your customers every week, you generate sizable accounts receivable—money that you’ll receive from
customers to whom you’ve sold your service. You make substantial efforts to collect receivables on a timely basis and to
keeping nonpayment to a minimum.
Managing Accounts Payable

Accounts payable are records of cash that you owe to the suppliers of products that you use. You generate them when you
buy supplies with trade credit—credit given you by your suppliers. You’re careful to pay your bills on time, but not ahead
of time (because it’s in your best interest to hold on to your cash as long as possible).
Budgeting
A budget is a preliminary financial plan for a given time period, generally a year. At the end of
the stated period, you compare actual and projected results and then you investigate any
significant discrepancies. You prepare several types of budgets: projected financial
statements, a cash budget that projects cash flows, and a capital budget that shows
anticipated expenditures for major equipment.
156 | P a g e
The Business Plan
A business plan is a written document covering all aspects of business, beginning with the objectives of the business and
explaining in detail how the business will be run. The business plan is a roadmap outlining every aspect of the proposed
venture. It describes the what, how, where and why with regard to the new venture and is thus a structured guideline for
achieving your objectives.
To secure start-up financing and launch the new product, many entrepreneurs
draw up a formal business plan that brings all the elements of the new venture
together for a specific purpose—namely, to ensure key stakeholders that the
firm has a well-considered strategy and managerial expertise. A business plan
is a formal statement of business goals, the reasons why they are attainable,
and the plan for reaching those goals. It may also contain background
information about the organization or team attempting to reach the goals.
Even if such a plan is not necessary for communicating with external
stakeholders, preparing one is still a good idea. At the very least, it will help
you re-examine the five elements of your strategy and prompt you to look for
ways to bring them together to create a viable and profitable firm. Also, a business plan provides a vehicle for sharing your
goals and objectives—and your plans for implementing them—with members of your entrepreneurial team.
Focusing on the staging component of the five elements of strategy, for example, is a good way to set milestones and
timelines and otherwise manage the scale and pace of your company’s growth.
Creating a business plan will help you achieve your entrepreneurial goals. A clear and compelling business plan provides
you with a guide to building a successful enterprise focused on achieving your personal and financial goals. It can also help
persuade others, including banks, to invest in what you are creating. Finally, when it does come time to seek external
funding to support the firm’s growth, the plan provides a solid basis for engaging professionals who can both help you get
financing and advise you on strengthening customer relationships and finding strategic suppliers.
157 | P a g e
Components of the Business Plan
Organize all the relevant information about your business. Begin creating section headings and putting the
appropriate information under the appropriate headings. Effectively separating your business' unique approach to each of
these headings will organize your plan in a way investors find useful:
• Title Page and Table of Contents
• Executive Summary, in which you summarize your vision for the company
• General Company Description, in which you provide an overview of your company and the service it provides
to its market
• Products and Services, in which you describe, in detail, your unique product or service
• Marketing Plan, in which you describe how you'll bring your product to its consumers
• Operational Plan, in which you describe how the business will be operated on a day-to-day basis
• Management and Organization, in which you describe the structure of your organization and the philosophy
that governs it
• Financial Plan, in which you illustrate your working model for finances and your need from investors
Basic Components of a Business Plan

It is essential for any entrepreneur to know what basic elements should be included in a business plan, as well as what a
good business plan should look like.
The exact points that you include in a business plan can vary depending on your needs and specific situation. However,
there are a few main sections or components that should always be included. Let’s briefly look at the different
components of a business plan.
158 | P a g e
Background/Introduction
This section of your plan involves giving a full description of your business such as the name, type of ownership and
detailed description of the qualities and/or skills that the entrepreneur possesses. This section also includes your vision
statement, mission, goals, and objectives.
1. Market
Market research is the process of finding out if there is a market for a specific product or service.
2. Input materials
After conducting the market research, you will know what your customers want. You then have to find out what
input materials you need for the business, where to get them and what they cost.
3. Location
There are some factors will influence your choice of a location for a business. To find a location is not easy and you
have to consider the following: Is it close to the market? Is the input materials close by? Are there skilled workers
in that vicinity? Are there, services like electricity available?
4. Technical Planning
This part of a business plan must determine the business’ requirements for equipment, land and buildings and
infrastructure. That means the owner must put down in writing what is needed for the specific business, e.g., a saw,
a sewing machine. A detailed list of all equipment with their specifications as well as offers from suppliers must
accompany the business plan. Is there a building available? Does it have running water and electricity? Are there
facilities for waste disposal? These are also questions that need to be tackled in this part of the business plan.
5. Marketing
Your marketing plan provides a description of your target market and your marketing mix. In this part of the
business plan, you have to explain how you are going to use the (four) 4 P’s (product, price, place and promotion) to
let people know about your product.
159 | P a g e
6. Production
This section includes methods that will be followed in manufacturing the product or service. Remember to give
thought to quality control standards and methods. Suppliers are important to the success of your business and your
relationship with them should be discussed.
7. Organization/Management
An organizational plan shows the number of people that will be employed and their responsibilities. Experience has
shown that entrepreneurs often need a good management team to manage and grow the business, and therefore
they need to appoint people who have the necessary skills.
8. Finances
A financial plan for your business is very important and needs time and attention. You must be realistic with your
financial planning and plan to make a profit. Statistics have shown that many new businesses experience serious
financial difficulties in the beginning and fail because no financial planning was done.
9. Action Plan
This involves strategies that will be used to achieve goals and targets. This plan will indicate specific actions to be
taken at specific times. However, before we come to actually draw up the business plan, let’s quickly look at factors
involved that you should consider.
160 | P a g e
Myths of Entrepreneurship
Introduction
We often hear of factors of what makes an entrepreneurship business a success. However, are all these factors true and
what impact they have in determining a successful business venture. In this lesson, we will examine some these myths of
entrepreneurship and discuss their relevance and relation of our business venture.
Entrepreneurs work hard and are driven by an intense commitment and determined perseverance; they see the cup half
full, rather than half empty; they strive for integrity; they burn with the competitive desire to excel and win; they are
dissatisfied with the status quo and seek opportunities to improve almost any situation they encounter; they use failure as
a tool for learning and eschew perfection in favour of effectiveness; and they believe they can personally make an
enormous difference in the outcome of their ventures and their lives.
The 10 Myths of Entrepreneurship
Myth 1: Entrepreneurs are doers, not thinkers

• Reality: Although entrepreneurs are action oriented, but they are also a thinkers
• They make careful plan & strategy.
• Entrepreneur will try to come out with alternative action towards a solution.
• In the era of globalization & hyper-competition, entrepreneurs need to be good thinkers.
161 | P a g e
Myth 2: Entrepreneurs are born, not made
• The idea that the characteristics of entrepreneurs cannot be taught or learned. Entrepreneurs are born with special
traits or characteristics.
• Traits such as include aggressiveness, initiative, drive, a willingness to take risks, analytical ability, and skill in human
relations.
• Reality: Like all disciplines, entrepreneurship has models, processes, and case studies that allow the traits to be
acquired through learning.
• Reality: Research has proven that entrepreneurs can be produced, and it is not limited to certain race, group or
individuals.
Myth 3: Entrepreneurs are always inventors

• Not all inventors are entrepreneurs.
• Reality: Many successful entrepreneurs are not inventors, but rather use creative ideas in doing something. They will
modify & innovate to suit the market demand.
Myth 4: Entrepreneurs are academic and social misfits

• This myth results from people who have started successful enterprises after dropping out of school or quitting a job.
• Long time ago, educational and social organizations did not recognize the entrepreneur.
• Reality: The entrepreneur is now viewed as a highly educated professional, who is well versed and sociable with
excellent communication skills, and strives in economic development of the community & the country.
Myth 5: Entrepreneurs must fit the "profile"

• Many books & articles have presented checklists of characteristics of the successful entrepreneur
• Reality: It is not necessary for the individual to have ALL the characteristics, as described previously, to become a
success (only some will do).
162 | P a g e
Myth 6: All Entrepreneurs Need Is Money
• Every business venture needs capital to survive
• Large number of business failures occur because of lack of financing
• Failure due to lack of financing indicates other problems
• Managerial incompetence;
• Lack of financial understanding;
• Poor investments;
• Poor planning;
• Reality: Money is a resource, not the ultimate objective.
Myth 7: All Entrepreneurs Need Is Luck

• Being in the right place at the right time is always an advantage
• "Luck" happens when preparation meets opportunity
• What appears to be lucky could really be several other factors
a) Preparation & hard works
b) Determination
c) Desire
d) Knowledge
e) Innovativeness
Myth 8: Ignorance is bliss for an entrepreneur

• The myth that too much planning and evaluating will give rise to problems. In the competitive world of business,
which demanded detailed planning & preparation, entrepreneur should be equipped with solid knowledge and
strategies, which would be keys to success.
• Reality: Careful planning- Not ignorance is regarded as beneficial, since Key success factors are;
a) ability to identify strengths and weaknesses of a venture
b) Setting up clear timetables with contingencies for handling problems
c) Minimizing problems through careful strategy formulation
- Careful planning is the mark of an accomplished entrepreneur
163 | P a g e
Myth 9: Entrepreneurs seek success but experience high failure rates.
1. Many entrepreneurs suffer a number of failures before they are successful
2. Failure can teach many lessons to those who are willing to learn and failure often leads to future success
Myth 10: Entrepreneurs are extreme risk takers (gamblers)

• The concept of risk is a major element in the entrepreneurship process
• While it may appear that an entrepreneur is "gambling" on a wild chance, the fact is that the entrepreneur is usually
working on a moderate or "calculated" risk
• Reality: Most successful entrepreneurs work hard through planning & preparation to minimize the risk involved.
Entrepreneurship Content Review

Unit One Module One
Let us now apply this information to the context.
1. What is Entrepreneurship?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
164 | P a g e
2. Who is an Entrepreneur?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
3. Why is Entrepreneurship Important?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
165 | P a g e
4. How does an entrepreneur contribute to economy of a country?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
6. Explain the importance of youths in the entrepreneurship process.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
166 | P a g e
7. Identify three (3) major challenges youths encounter as entrepreneurs.
___________________________________________________________________________________
___________________________________________________________________________________
8. Discuss three (3) motivating factors that contribute to a successful young entrepreneur.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
167 | P a g e
9. Identify four (4) myths of entrepreneurship.
___________________________________________________________________________________
___________________________________________________________________________________
10. Discuss the relevance and impact of understanding myths in the entrepreneurial process.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
168 | P a g e
11. Name TWO noted Entrepreneurs and state what they contribute to society.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
12. State the benefits of being an noted or successful entrepreneur.
___________________________________________________________________________________
___________________________________________________________________________________
169 | P a g e
Module 2:
The Entrepreneurial Process
170 | P a g e
OVERVIEW
The focus of this module is to develop an understanding of how business ideas are generated. At the end of this module
you should be able to identify different methods of generating business ideas and opportunity identification; examine
business concepts; identify different resources essential for business success; and how to implement and manage a
business venture.
Introduction
Scanning the business environment means that the prospective entrepreneur needs to do some research. If research
proves the business idea to be a viable business opportunity you can start drawing up your business. Let's examine how
business ideas are generated.
Idea Generation
The process of creating, developing, and communicating ideas which are abstract, concrete, or visual. The process includes
the process of constructing through the idea, innovating the concept, developing the process, and bringing the concept to
reality.
171 | P a g e
Generating Ideas
Where do great ideas come from? Some may argue that a great idea just appears, others maintain that ideas should be
generated in a structured way. Generating an idea should be an innovative process. This process should be structured and
systematic.
THE PROCESS OF IDEAS GENERATION
• Intrapersonal sources Include: Interests, likes, skills, abilities,

competencies, experiences
• Opportunities In the external environment such as technology,
culture, economic, political
• Knowledge of products and market structure
• Brainstorming; focus groups; checklists method; problem Inventory

analysis; scenario thinking
• Notebook method; reverse brainstorming; Delphi method; Gordon
method; free association
• Screening Ideas; feasibility

• Selecting among competing Ideas
172 | P a g e
Method Description Advantages Disadvantages
Brainstorming • Encouraging as many options • One person’s idea can • The process can be
or alternatives as possible stimulate other ideas chaotic and it may be
• No criticisms of the • Results in an array of ideas necessary to lay ground
alternatives/ideas are rules
permitted
• All ideas are recorded for
further discussion and
analysis
• The issue must be stated and
understood by all participants
Focus Group • A structured grouping • Provides a good way to • One person can
• Individuals provide screen ideas dominate discussion if
information on the • More structured than the moderator is not
products brainstorming experienced in
• A moderator informs on • Moderator can handling group
what is to be examined by encourage participation discussion
the group • Group interaction can • May not be the ideal
generate more ideas and technique in dealing
discussion with sensitive issues
Check List • Series of questions with a • Can be used in • Proper record keeping
Method focus point collaboration with is necessary
• A series of stimulating brainstorming • Can be closed ended
questions (Osborn 1957) • Comprehensively deals
such as “Put to other uses? with the issue through
Modify? series of questions
• The checklist should meet
the needs of the situation
173 | P a g e
Problem • A method of arriving at • Useful in testing a new The idea generated may not
Inventory new ideas by focusing on product idea reflect and entrepreneurial
Analysis problems • The group may be able opportunity
• Similar to a focus group to generate new ideas
where consumers a given a based on existing
list of problems to discuss products and problems
Scenario • A strategic planning tool • Provides alternative • Some scenarios may

Thinking for making long term views of the future lack scope
plans • Can be creative yet • Scenario planners
• Different scenarios allow structured should be well
us to explore how to deal • Encourages knowledge experienced
with a variety of situations exchange in
in the future understanding the
future
The Note Book • Ideas are generated by • All members can • Time consuming
Method group members who participate • Can lead to too many
regularly record the • Can be adapted for use ideas to assess
findings on a computer
• Team members build on
each other’s ideas
Reverse • Brainstorming using a • Generate ways to • Should not be used if

Brainstorming group that focuses on the overcome potential individuals are not
negative e.g. finding problems through able to conceptually
problems or faults with a discussion reverse the problem
particular suggestion/idea • Extend the use of
• Identify what is wrong brainstorming to bring
with an idea out more ideas
174 | P a g e
Delphi • Method used to explore an • Used to move the group • Difficulty in
Methodology issue with a group of toward census developing an accurate
people, usually experts in a • Benefit from the ideas of questionnaire to
field individuals in the group initiate the process
Gordon Method • Method of developing new • Can result in many new • Dependent on the
ideas when individuals are ideas being presented competencies of the
unware of the problem group
• The general concept is
presented and the group
responds with a number of
ideas
Free • Developing a new idea • Useful with other Needs proper management to
Association through a chain of word methods such as avoid being time consuming
associations brainstorming or lacking in focus
Screening Ideas and Selecting Among Options or Alternatives

It is important to assess whether the ideas will meet one’s aspirations as an entrepreneur. He/she needs to evaluate
whether the goals will be achieved through the option/idea that is chosen.
Screening ideas is an important process for number of reasons. It is necessary to consider the following:
➢ Will the idea meet the goals that the entrepreneur wants to achieve?
➢ Each idea will be screened against its strengths and weaknesses and compared to that of the other option.
➢ Can the idea be realized with the existing level of technology and resources available to the entrepreneur?
➢ Screening the idea helps to reduce the level of risk and uncertainty associated with the idea.
➢ Entrepreneurs should consider the return to be gained from that idea.
175 | P a g e
EVALUATING IDEAS
The following diagram figure 2.22 outlines areas for consideration when evaluating ideas.
After screening the ideas, the entrepreneur can develop a short list of remaining ideas for deeper evaluation and selection.
176 | P a g e
How ideas are linked to opportunity
According to Coulter (2003), an opportunity is an optimistic possibility or positive trend. It can also be a change that
provides a distinct possibility for value creation. An idea is ‘a plan or thought formed in the mind (Oxford School
Dictionary).’ Consequently, at the core of every opportunity there is a potential idea. Ideas need to be screened and
evaluated since not all ideas generated will be viable.
The following diagram illustrates an example of how an idea is born out of an opportunity.
177 | P a g e
178 | P a g e
Generating New Ideas
Think Differently and Spark Creativity
"We need to think differently!" "This needs some fresh ideas!" "We have got to be more creative around here!" Are
messages like these popping up more and more in your workplace?
Faced with complex, open-ended, ever-changing challenges, organizations realize that constant, ongoing innovation is
critical to stay ahead of the competition. This is why we need to be on the lookout for new ideas that can drive innovation,
and it's why the ability to think differently, generate new ideas, and spark creativity within a team becomes an important
skill. You need to work actively on building and cultivating this skill, and it can be done!
Often, though, we make the mistake of assuming that good ideas just happen. Or worse still, we get caught in the mind
trap that creativity is an aptitude; some people have it, others don't. Then there is the other self-defeating belief – "I am
not intelligent enough to come up with good ideas."
These assumptions are rarely true. Everyone can come up with fresh, radical ideas – you just need to learn to open your
mind and think differently. This article shows you how to do so.
179 | P a g e
How to Generate New Ideas
Standard idea – generation techniques concentrate on combining or adapting existing ideas. This can certainly generate
results. But here, our focus is on equipping you with tools that help you leap onto a totally different plane. These
approaches push your mind to forge new connections, think differently and consider new perspectives.
A word of caution – while these techniques are extremely effective, they will only succeed if they are backed by rich
knowledge of the area you're working on. This means that if you are not prepared with adequate information about the
issue, you are unlikely to come up with a great idea even by using the techniques listed here.
Incidentally, these techniques can be applied to spark creativity in group settings and brainstorming sessions as well.
Breaking Thought Patterns
All of us can tend to get stuck in certain thinking patterns. Breaking these thought patterns can help you get your mind
unstuck and generate new ideas. There are several techniques you can use to break established thought patterns:
Challenge assumptions: For every situation, you have a set of key assumptions. Challenging these assumptions gives
you a whole new spin on possibilities.
180 | P a g e
You want to buy a house but can't since you assume you don't have the money to make a down payment on the loan.
Challenge the assumption. Sure, you don't have cash in the bank but couldn't you sell some of your other assets to raise the
money? Could you dip into your retirement fund? Could you work overtime and build up the kitty in six months?
Suddenly the picture starts looking brighter.
Reword the problem: Stating the problem differently often leads to different ideas. To reword the problem look at the
issue from different angles. "Why do we need to solve the problem?", "What's the roadblock here?", "What will happen if
we don't solve the problem?" These questions will give you new insights. You might come up with new ideas to solve your
new problem.
In the mid-1950s, shipping companies were losing money on freighters. They decided they needed to focus on building
faster and more efficient ships. However, the problem persisted. Then one consultant defined the problem differently. He
said the problem the industry should consider was "how can we reduce cost?" The new problem statement generated new
ideas. All aspects of shipping, including storage of cargo and loading time, were considered. The outcome of this shift in
focus resulted in the container ship and the roll-on/roll-off freighter.
Think in reverse: If you feel you cannot think of anything new, try turning things upside-down. Instead of focusing on
how you could solve a problem/improve operations/enhance a product, consider how could you create the
problem/worsen operations/downgrade the product. The reverse ideas will come flowing in. Consider these ideas – once
you've reversed them again – as possible solutions for the original challenge.
181 | P a g e
Express yourself through different media: We have multiple intelligences but somehow, when faced with workplace
challenges we just tend to use our verbal reasoning ability. How about expressing the challenge through different media?
Clay, music, word association games, paint, there are several ways you can express the challenge. Don't bother about
solving the challenge at this point. Just express it. Different expression might spark off different thought patterns. And
these new thought patterns may yield new ideas.
Connect the Unconnected
Some of the best ideas seem to occur just by chance. You see something or you hear someone, often totally unconnected to
the situation you are trying to resolve, and the penny drops in place. Newton and the apple, Archimedes in the bath tub;
examples abound.
Learn new career skills every week, and get our Personal Development Plan Workbook FREE when you subscribe.
Why does this happen? The random element provides a new stimulus and gets our brain cells ticking. You can capitalize
on this knowledge by consciously trying to connect the unconnected.
Actively seek stimuli from unexpected places and then see if you can use these stimuli to build a connection with your
situation. Some techniques you could use are:
182 | P a g e
Use random input: Choose a word from the dictionary and look for novel connections between the word and your
problem.
Mind map possible ideas: Put a key word or phrase in the middle of the page. Write whatever else comes in your mind
on the same page. See if you can make any connections.
Pick up a picture. Consider how you can relate it to your situation.
Take an item. Ask yourself questions such as "How could this item help in addressing the challenge?", or "What attributes
of this item could help us solve our challenge?"
Shift Perspective
Over the years we all build a certain type of perspective and this perspective yields a certain type of idea. If you want
different ideas, you will have to shift your perspective. To do so:
Get someone else's perspective: Ask different people what they would do if faced with your challenge. You could
approach friends engaged in different kind of work, your spouse, a nine-year old child, customers, suppliers, senior
citizens, someone from a different culture; in essence anyone who might see things differently.
Play the "If I were" game: Ask yourself "If I were ..." how would I address this challenge? You could be anyone: a
millionaire, Tiger Woods, anyone.
183 | P a g e
The idea is the person you decide to be has certain identifiable traits. And you have to use these traits to address the
challenge. For instance, if you decide to play the millionaire, you might want to bring traits such as flamboyance, big
thinking and risk-taking when formulating an idea. If you are Tiger Woods you would focus on things such as perfection,
persistence and execution detail.
Employ Enablers
Enablers are activities and actions that assist with, rather than directly provoke, idea generation. They create a positive
atmosphere. Some of the enablers that can help you get your creative juices flowing are:
Belief in yourself: Believe that you are creative, believe that ideas will come to you; positive reinforcement helps you
perform better.
Creative loafing time: Nap, go for a walk, listen to music, play with your child, take a break from formal idea-
generating. Your mind needs the rest, and will often come up with connections precisely when it isn't trying to make them.
Change of environment: Sometimes changing the setting changes your thought process. Go to a nearby coffee shop
instead of the conference room in your office, or hold your discussion while walking together round a local park.
Shutting out distractions: Keep your thinking space both literally and mentally clutter-free. Shut off the Blackberry,
close the door, divert your phone calls and then think.
Fun and humor: These are essential ingredients, especially in team settings.
184 | P a g e
Key Points
The ability to generate new ideas is an essential work skill today. You can acquire this skill by consciously practicing
techniques that force your mind to forge new connections, break old thought patterns and consider new perspectives.
Along with practicing these techniques, you need to adopt enabling strategies too. These enabling strategies help in
creating a positive atmosphere that boosts creativity
How to Identify Business Opportunities
A business opportunity starts with a business idea. A prospective entrepreneur must look for a creative idea that can be
transformed into a business opportunity by scanning the business environment. Working through the next part will help
you to understand how to identify business opportunities and generate business ideas much better.
How to Generate Business Ideas
Scanning the business environment will help the entrepreneur to identify business ideas.
A business idea is the starting point of the journey to setting up a business. Business ideas are based on given situations
and will differ from place to place and also from entrepreneur to entrepreneur.
185 | P a g e
We can, therefore, see business ideas as:
❖ Dreams about creative ways of meeting the community's needs/wants

❖ Dreams of creative solutions to the communities’ problems
❖ Innovative ways of improving on what is already being done, and
❖ A creative means of meeting the fantasies and dreams of community members for luxury and a better life.
Business ideas may come from problem situations, needs and wants, our interests and hobbies, as well as the natural
resources around us. Coming up with a good business idea or even just changing old ideas into new ones, however,
requires some creativity from the prospective entrepreneur.
186 | P a g e
What is Creative Thinking and how can it be enhanced?
Creativity is a way of thinking, coming up with new and innovative ways of solving problems. It is the mental attitude of
always trying to improve on existing products and services. Remember that we said earlier that creativity is something
that can be developed.
187 | P a g e
Remember that generating ideas or identifying opportunities can be improved by using the creativity methods.
Creativity Explanation
Methods
Brainstorming Decide what the problem is and give ideas on ways to solve it. Just let the ideas flow and
write down all of it.
Do not comment on whether they are good or bad.
Attribute Make a list of a few existing products and services and create a list of attributes
analysis (characteristics) for each of them. By combining various attributes, you may be able to come
up with an entirely new product or service.
Problem Define a problem that you or others experience and write it down. Think of ways in which the
redefinition problem could be solved by introducing a new product or service.
Manipulation Make a list of some new products and services and think of ways in which you can change
them, e.g., make it smaller, and change the colour, shape or package.
Forced Take two ideas or products that have little or nothing in common and try to make a
connections connection between the two, e.g., bed + food = bed and breakfast.
Mind mapping Mind mapping is a way to help you think creatively and gives you a picture of groups of ideas
that you can examine without losing your main idea.
For example: Choose a word or group of words and write them down in the centre of a page.
Think of anything that has some link with the word. Write it down and draw a line connecting
it to the central word(s).
188 | P a g e
Good viable business ideas:
➢ Focus on the needs and wants of consumers;
➢ Must be able to provide consumers with the necessary goods and services;
➢ Improve on the existing product and;
➢ Make it more attractive for consumers.
Turning Ideas into Business Opportunities
By now, you should have at least one idea for a new business venture. Maybe, you are wondering when an idea becomes an
opportunity. Considering the wants and needs of people in your community is only the first step towards identifying a
business opportunity. There are many other issues that you need to take into account as well. Remember that we said
earlier in the unit that good ideas are not necessarily good opportunities. Opportunities are ideas that work, and that can
be turned into successful businesses.
189 | P a g e
Look at the following example:
Do you think Saima’s idea presents a good business opportunity?
190 | P a g e
There are many potentially profitable business opportunities in the business environment, and any individual can enter
into business. What about you? Do you also possess the quality of being creative and turning a business idea into an
opportunity?
The followings are indicators/characteristics of a good business opportunity:
★ There should be an actual market or a demand for the product and/or service.
★ The business should have the capacity to generate profits.
★ The business should be able to get the factor inputs it requires for operation.
★ The business should be acceptable in the community.
Potential entrepreneurs should, therefore, look at factors that will have an impact on the business, such as government
regulations, how much tax they need to pay, the current interest rates, social and cultural trends which might influence
consumer demand, new innovations, available infrastructure, potential competitors, available resources needed, potential
suppliers and potential customers. When all these factors prove to be positive and in favour of the entrepreneur, it means
that his or her business idea can be a viable business opportunity. Keep in mind that changes in the business environment
can present good business opportunities. As soon as the idea has been assessed and you have come up with the most
promising business opportunities, you must proceed to evaluate them and identify the one that meets your business
expectations and abilities.
191 | P a g e
When you have identified a potentially successful opportunity, you should assess whether it is indeed an attractive
opportunity. Turning an opportunity into a successful business makes specific demands on the entrepreneur. You will
now be introduced to sources of information that could be of value to you in evaluating your opportunity.
A lot of work goes into starting a business: you need to draw up a business plan, find investors, get loans, and look for
employees. Before all that, however, you have to come up with your idea for a business. This could be a new product,
service, or, method, but it has to be something that customers will pay money for. Finding that very good idea takes
thought, creativity, and research. If you are looking to be an entrepreneur, keep the following in mind when trying to come
up with your business idea.
The entrepreneur can use several methods to help generate and test new ideas, including focus groups, brainstorming, and
problem inventory analysis.
METHODS OF GENERATING NEW IDEAS
Even with the wide variety of sources available, coming up with an idea to serve as the basis for the new venture can still
be a difficult problem. The entrepreneur can use several methods to help generate and test new ideas, including focus
groups, brainstorming, and problem inventory analysis.
192 | P a g e
Focus groups
Group of individuals providing information in a structured format is called a focus group. The group of 8
to 14 participants is simulated by comments from other team members in creatively conceptualizing and
developing new product ideas to fulfil a market need.
Brainstorming
A group method of obtaining new ideas and solutions is called brainstorming. The brainstorming method for generating
new ideas is based on the fact that people can be stimulated to greater creativity by meeting with others and participating
in organized group experiences. Although most of the ideas generated from the group have no basis for further
development, often a good idea emerges.
Problem inventory analysis
Problem inventory analysis uses individuals in a manner that is analogous to focus groups on generating new product
ideas. However, instead of generating new ideas themselves, consumers are provided with a list of problems in a general
product category. They are then asked to identify and discuss products in this category that have the particular problem.
This method is often effective since it is easier to relate known products to suggest problems and arrive at a new product
idea than to generate an entirely new idea by itself.
193 | P a g e
CREATIVE PROBLEM-SOLVING
Creative problem solving is a method for obtaining new ideas focusing on the parameters.
Brainstorming
The first technique, brainstorming, is probably the most well-known and widely used for both creative problem solving
and idea generation. It is an unstructured process for generating all possible ideas about a problem within a limited time
frame through the spontaneous contribution of the participants. All ideas, no matter how illogical, must be recorded, with
participants prohibited from criticizing or evaluating during the brainstorming session.
Reverse brainstorming
Similar to brainstorming, but criticism is allowed and encouraged as a way to bring out possible problems with the ideas.
Synectics
Synectics is a creative process that forces individuals to solve problems through one of four analogy mechanisms:
personal, direct, symbolic and fantasy. This forces participants to apply preconscious mechanisms consciously through the
use of analogies to solve problems.
194 | P a g e
Gordon method
Gordon method is a method of developing new ideas when the individuals are unaware of the problem. With this
approach, the entrepreneur starts by mentioning a general concept associated with the problem. The group responds by
expressing some ideas.
Checklist method
Developing a new idea through a list of related issues is a checklist method of problem-solving.
Opportunity Identification
Introduction
A business opportunity consists of four elements, all of which are to be present within the same time frame (window of
opportunity) and most often within the same domain or geographical location before it can be claimed as a business
opportunity. These four elements are:
• A need
• The means to fulfil the need
• A method to apply the means to fulfil the need and;
• A method to benefit
195 | P a g e
With any one of the elements missing, a business opportunity may be developed, by finding the missing element. A
desirable characteristic is the combination of items to be unique. The more control an institution (or individual) has over
the elements, the better they are positioned to exploit the opportunity and become a niche market leader.
Entrepreneurship can be viewed as
• Recognizing change,
• Pursuing opportunity,
• Taking on risk and responsibility,
• Innovating,
• Making better (higher value) use of resources, • Creating new value that is meaningful to customers,
• Doing it all over again and again.
Moreover, entrepreneurship is an attitude and the drive to pursue opportunity and create something new and of value.
Entrepreneurial Opportunities
Many different conditions in society can create entrepreneurial opportunities for new goods and services.
Opportunity conditions arise from a variety of sources. At a broad societal level, they are present as the result of forces—
such as changes in knowledge and understanding, the development of new technology, shifting demographics, political
change, or changing attitudes and norms—that give rise to new preferences and concerns. These forces constantly open up
new opportunities for entrepreneurs.
In relation to sustainability concerns, certain demographic shifts and pollution challenges create opportunities. For
example, with 50 percent of the world’s population, for the first time in history, now living in urban areas, city air quality
improvement present opportunities for entrepreneurs.
196 | P a g e
The entrepreneur must first recognize the opportunity and then innovate by proposing a business solution that provides
an attractive alternative to customers. A solution is just the first step in the process; the entrepreneur must also investigate
the economic value of and business proposition emanating from that opportunity. They must research the market to
understand how their potential product or service provides value to a customer and whether the amount a customer is
willing to pay, which reflects the value of the product or service to the customer, exceeds the costs to provide that value,
product, or service to the customer. In this way, the entrepreneur is contributing to economic growth and society by
providing customers with goods and services whose costs to provide are less than their value to consumers.
An entrepreneur can come up with a new approach that meets a customer’s need or want, but if not enough customers are
willing or able to pay a price above the cost of that product or service, it will not be financially viable. Therefore, the
opportunity becomes a true business opportunity when it is of sufficient scale and value—that is, revenues will cover costs
and promise to offer net revenue above operating costs after the initial start-up investment expenditures are repaid.
Emerging markets
The definition of an emerging market is complex and inconsistent. The application and interpretation of this information
vary depending on who is doing the analysis—a private sector business, the World Bank, the International Monetary Fund
(IMF), the World Trade Organization (WTO), the United Nations (UN), or any number of global economic, political, and
trade organizations. The different statistics, in turn, produce a changing number of countries that “qualify” as emerging
markets. For many business people, the definition of an emerging market has been simply a country that was once a
developing country, but has achieved rapid economic growth, modernization, and industrialization.
During the last 20 years, the global business world has gone through drastic, but mostly positive changes. In the 1980s,
international business was essentially an exclusive club of the 20 richest countries. This changed as dictatorships and
command economies collapsed throughout the world. Countries that once prohibited foreign investment from operating
on their soil and were isolated from international cooperation are now part of the global marketplace.
197 | P a g e
Knowing that there are wide inconsistencies, how do we define emerging markets consistently from the perspective of
global businesses? First, understand that there are some common characteristics in terms of local population size, growth
opportunities with changes in the local commercial infrastructure, regulatory and trade policies, efficiency improvements,
and an overall investment in the education and well-being of the local population, which in turn is expected to increase
local incomes and purchasing capabilities.
There are several major characteristics of emerging markets, which create “a comfortable and attractive environment for
global business, foreign investment and international trade. An emerging market country can be defined as a society
transitioning from a dictatorship to a free market oriented economy, with increasing economic freedom, gradual
integration within the global marketplace, an expanding middle class, improving standards of living and social stability
and tolerance, as well as an increase in cooperation with multilateral institutions.
The category of emerging markets is complex, evolving, and subject to wide interpretation. So how then do savvy global
professionals sort through all of this information? Managers focus on the criteria for emerging markets to take advantage
of newly emerging ones. While there are differing opinions on which countries are emerging, it is clear that global
businesses focus on the groups of countries offering strong domestic markets. Many of these emerging-market countries
are also home to companies that are taking advantage of the improved business conditions there. These companies are
becoming world-class global competitors in their industries. Regardless of which definition or classification is used, the
largest emerging markets remain lucrative and promising.
Emerging markets, such as Brazil, Russia, India, and China (also collectively known as the BRIC countries), don’t have the
same needs or capabilities as those found in developed economies. For instance, disposable income levels are relatively
low, the availability of basic utilities like water or electricity can be varied, and transportation and transportation
infrastructure can be non-existent. While these emerging economies are attractive by virtue of their massive size, their
different needs and capabilities pose unique challenges that are often overcome only through corporate innovation102.
198 | P a g e
New Technologies
Technology, being a form of social relationship, always evolves. No technology remains fixed. Technology starts, develops,
persists, mutates, stagnates, and declines, just like living organisms. The evolutionary life cycle occurs in the use and
development of any technology. The technological changes that damage established companies are usually not radically
new or difficult from a technological point of view. They do, however, have two important characteristics: First, they
typically present a different package of performance attributes—ones that, at least at the outset, are not valued by existing
customers. Second, the performance attributes that existing customers do value, improve at such a rapid rate that the new
technology can later invade those established markets.
The process of how disruptive technology, through its requisite support net, dramatically transforms a certain industry.
When the technology that has the potential for revolutionizing an industry emerges, established companies typically see it
as unattractive: it is not something their mainstream customers want, and its projected profit margins are not sufficient to
cover big-company cost structure. As a result, the new technology tends to get ignored for what’s currently popular with
the best customers. However, then another company steps in to bring the innovation to a new market. Once the disruptive
technology becomes established there, smaller-scale innovation rapidly raises the technology’s performance on the
attributes that mainstream customers’ value.
Technology entrepreneurship lies at the heart of many important debates, including those around launching and growing
firms, regional economic development, selecting the appropriate stakeholders to take ideas to market, and educating
managers, engineers, and scientists.
Technology entrepreneurship is an investment in a project that assembles and deploys specialized individuals and
heterogeneous assets to create and capture value for the firm. What distinguishes technology entrepreneurship from other
entrepreneurship types (e.g., Social entrepreneurship, small business management, and self-employment) is the
collaborative experimentation and production of new products, assets, and their attributes, which are intricately related to
advances in scientific and technological knowledge and the firm’s asset ownership rights.
199 | P a g e
The Internet and social networking websites have been pivotal resources for the success and collaboration of many social
entrepreneurs. In the twenty-first century, the Internet has become especially useful in disseminating information in short
amounts of time. In addition to this, the Internet allows for the pooling of design resources using open source principles.
These media allow ideas to be heard by broader audiences, help networks and investors to develop globally, and to achieve
their goals with little or no start-up capital. For example, the rise of open-source appropriate technology as a sustainable
development paradigm enables people all over the world to collaborate on solving local problems just as open source
software development leverages collaboration.
Social Changes
Social innovations are new strategies, concepts, ideas and organizations that meet the social needs of different elements
which can be from working conditions and education to community development and health — they extend and
strengthen civil society. Social innovation includes the social processes of innovation, such as open source methods and
techniques and also the innovations which have a social purpose — like online volunteering, microcredit, or distance
learning.
Opportunity Evaluation
In the business world, good ideas must pass one test: can they generate a profit? No idea is good, ultimately, if it cannot
pass this test. This means that someone, somewhere has to pay you more money for your product or service than it costs to
produce it. Is it that simple and that challenging? Perhaps the most important part of any business plan is an articulation
of the customer. Why will they buy it, When, Where, and for how much?
Of course, other characteristics are important too: does the idea have a social good or at least do no harm? How
challenging is it to make? Is it within the capabilities of the team? Sometimes student teams have great ideas but no way in
the world by executing them. You may want to save your great idea until you've had a little more experience with
something that's more manageable. Can you raise enough money to finance your idea? Often great ideas fail this test:
simply put, they require too much capital to prove themselves.
200 | P a g e
Peter Drucker outlined key potential sources of opportunities (Entrepreneurship in Action by Coulter, 2003). The sources
include:
❏ The unexpected or anticipated situations; both unforeseen success or unexpected failure

❏ Incongruous or inconsistent occurrences; when situations ‘ought to be’ a specific way but the reality is different;
encourages the potential to think outside the box
❏ The process need opportunities exist where there are gaps in stages of a process
❏ Changes in industry and market structure: regulatory changes governing a particular industry e.g. changes
in quotas, licences; changes in technology or techno-structural changes; changes in taste and social values
❏ Demographics: Demographic changes such as life stages, age, income levels influence industries and markets
❏ Changes in perception (view of reality): Changes in what people believe in, values and attitudinal changes
❏ New knowledge that creates opportunities e.g. energy conservation leading to the development of ‘green
products’, ‘green marketing’; technological developments
Apart from Drucker’s potential sources of opportunities; the entrepreneur should consider issues relating to the evaluation
of the opportunities. These issues include:
➔ Market issues: This will reflect changes in the industry and market structure; level of competition; level of
technology; legislation to regulate the market. It would incorporate trends in the market that will provide
opportunity/threats; new market opportunities as well as, new product development or new uses for existing
products.
➔ Economic issues: This will incorporate economic factors such as exchange rate issues; economic cycles (boom
and recession); growth rates of markets; income levels; level of unemployment; demand and supply conditions in
the market.
201 | P a g e
➔ Competitive Advantage issues: Competitive advantage is what sets the organization apart from its
competitors. According to Coulter (2003), competitive advantage can arise from an entrepreneur’s ability to access
the external environment to identify opportunities. The competitive advantage lies in the ability to observe the
external trends, interpret the findings and base decision making on them. Another view postulates that competitive
advantage is resource based. In that, it is based on exploiting the resources and capabilities in the organization.
Competitive advantage is unique to the organization.
➔ Management issues: The extent to which the management of the venture possess the expertise to combine the
factors of production to exploit opportunities in the environment is an important element in the success of a
venture. Management has to understand that in some cases the competitive advantage is temporary while changes
in the environment are continual. It is therefore imperative that, management engage in actions to develop new
competitive advantages.
Business Concepts
Introduction
The first stage in seeking to establish a business is to conceptualize a business idea. It requires identification of a venture
that can satisfy human wants and needs while generating a profit. In this section, you will define the business concept,
identify various sources from which a business concept can emerge and outline the steps involved in developing a concept
from an idea.
What is a business concept?

A business idea is a concept that can be used for financial gain that is usually centered on a product or service that can be
offered for money. An idea is the first milestone in the process of building a successful business.
202 | P a g e
The characteristics of a promising business idea are:
• Innovative
• Unique
• Problem-solving
• Profitable
Sources of business concept
1. Hobbies/Interests: A hobby is a favourite leisure-time activity or occupation. Many people, in pursuit of their
hobbies or interests, have founded businesses. If, for example, you enjoy playing with computers, cooking, music,
travelling, sport or performing, to name but a few, you may be able to develop it into a business.
2. Personal skills and experience: Over half of the ideas for successful businesses come from experiences in the
workplace, e.g. a mechanic with experience in working for a large garage who eventually sets up his/her own car repair or
a used car business. Thus, the background of potential entrepreneurs plays a crucial role in the decision to go into
business as well as the type of venture to be created. Your skills and experience are probably your most valuable resource,
not only in generating ideas, but also in capitalizing on them.
3. Mass media: The mass media is a great source of information, ideas and often opportunity. Newspapers, magazines,
television, and nowadays the Internet are all examples of mass media. Take a careful look, for instance, at the commercial
advertisements in newspaper or magazine and you may well find businesses for sale. Well, one way to become an
entrepreneur is to respond to such an offer. Articles in the printed press or on the Internet or documentaries on television
may report on changes in fashions or consumer needs. For example, you may read or hear that people are now
increasingly interested in healthy eating or physical fitness. You may also find advertisements calling for the provision of
certain services based on skills. For example, accounting, catering or security. Alternatively, you may discover a new
concept in which investors are required, such as a franchise.
203 | P a g e
4. Exhibitions: Another way to find the ideas for a business is to attend exhibitions and trade fairs. These are usually
advertised on the radio or in newspapers; by visiting such events regularly, you will not only discover new products and
services, but you will also meet sales representatives, manufacturers, wholesalers, distributors, and franchisers. These are
often excellent sources of business ideas, information, and help in getting started.
5. Surveys: The focal point for a new business idea should be the customer. The needs and wants of the customer, which
provide the rationale for a product or service, can be ascertained through a survey. Such a survey might be conducted
informally or formally by talking to people – usually using a questionnaire or through interviews – and/or through
observation. You may start by talking to your family and friends to find out what they think is needed or wanted that is not
available. Alternatively, for example, whether they are dissatisfied with an existing product or service and what
improvements or changes they would like to see. You can then move on and talk to people who are part of the distribution
chain that is manufacturers, wholesalers, distributors, agents and retailers. It would be useful to prepare beforehand a set
of questions which might be put in a questionnaire or used in an interview. Given their close contact with customers,
channel members have a good sense of what is required and what will not sell. Finally, you should talk to as many
customers as possible – both existing and potential customers. The more information you can get from them, the better.
Besides talking to people, you could also get information through observation. For example, in deciding whether to open a
shop on a particular street, you can observe and count the number of people going past on given days and besides talking
to people, you can also get information through observation.
6. Complaints: Complaints and frustrations on the part of customers have led to many a new product or service.
Whenever consumers complain bitterly about a product or service, or when they hear someone says ‘I wish there were…”
or “If only there were a product/service that could… “, you have the potential for a business idea. The idea could be to set
up a rival firm offering a better product or service, or it might be a new product or service which could be sold to the firm
in question and/or others.
204 | P a g e
The feasibility study
Conducting a feasibility study for a proposed business concept (incubator) can achieve a number of important objectives
and, if properly done, can provide a solid basis for judging the economic and political viability of the proposed project. The
feasibility study represents the first in a series of early development phases that, for planning purposes, can be described
as follows:
• Feasibility: 3 months
• Development: 9 months
• Renovation: 3-12 months
• Early-stage operations (up to anticipated break-even point): 18 months.
A feasibility study should also reveal examples of critical errors made on other incubator programmes. Such errors might
involve facility and site selection, the structure of the governing board, funding arrangements, income assumptions, or the
nature of the business assistance program. An adequate feasibility study will answer essential questions about how to
proceed in a systematic fashion and how to secure funding during all the phases of incubator development. Indeed, a
thorough study by a qualified consultant can and should provide the information necessary to determine whether the
project should be pursued.
Building support
A core group committed to starting a business incubator must recognize that its efforts cannot be pursued in a vacuum.
The dream of a few must become the dream of many. An incubator represents a significant community investment, both
practically and symbolically, and requires broad-based community support to be feasible. Engaging in this process should
clarify the prospects for starting an incubator. The process should help to identify potential sites, funding sources, project
champion from key organizations, and sources of assistance and support, both individual and organizational. The process
may, however, also uncover serious impediments to realizing the project.
205 | P a g e
Identifying and securing stakeholders
A stakeholder is any group or individual who can affect or is affected by the achievement of an organization’s objectives.
While each incubator’s circumstance is unique, anticipated stakeholders would likely include local and state governments
and a variety of public and private sector organizations (universities, major corporations) interested in fostering new
business development in the region. Stakeholders might also include economic development organizations that could fund
the rehabilitation of a facility and/or the operation of the incubator program. The support of these stakeholders is critical
to initiating an incubator program. At the same time, potential supporters of the incubator effort understandably have
varied motivations and expectations. Their level of understanding of the purposes and methods of business incubation will
vary widely.
Stakeholders need to be identified and then cultivated. The first step is to secure a commitment from potential
stakeholders who have the strongest interest and who are most likely to provide financial support for the endeavour. Once
stakeholders have committed to the project, the organizational structure needs to be formalized. A governing body,
typically a board of directors, provides the organizational vehicle for maintaining, building, and strengthening
commitment to the incubator program.
Identifying a market niche

A business incubator will operate in a particular locale with its own rich history, so it must act with an eye to the regional
economy and institutions. Therefore, to become an accepted part of this complex social fabric, an incubator must establish
its distinctiveness and unique purpose. From a business perspective, the incubator needs to identify its market niche.
Successful businesses carefully attend to the work of defining the market position of their products and services about
their competitors, as well as to modifying their market position in response to changing customer preferences.
206 | P a g e
Developing a market niche for a business incubator requires similar attention to these tasks. An incubator’s competitor
comes from the spheres of real estate and economic development. Within the real estate market, the incubator must
distinguish itself from other multiple-tenant properties. For a technology-related incubator, the distinction may be readily
apparent, for example, in that incubator facilities may offer wet and dry lab space. Incubators also differ from
conventional real estate agents in that they often offer short-term leases and flex-space for a company’s expansion.
Certainly, rent subsidization can be attractive to cash-poor start-ups. The availability of shared support services is another
appealing feature of incubator facilities, although the provision of such services by for-profit organizations has become a
growth industry.
The Formation Process

The basic structure of an incubator facility is determined by owner attributes and regional demographics. The following
owner/sponsor classifications can generally be applied:
· Private
· Local government
· University
· State government
· Private nonprofits
· Federal government
A typical organizational format includes executive and advisory boards, a CEO or operations manager, and support staff.
Selections for board positions and other representative forums may come from the following: private enterprise,
educational institutions, government, organized labour, development and investment community, and private citizens.
207 | P a g e
Strategic Planning
Strategic planning compels incubator management to confront tough issues. How will the incubator continue to operate if
revenue projections from rental income are not achieved? How will major facility repairs (for example, a ruptured boiler)
be paid for? Addressing these worst-case scenarios through strategic planning can provide both a clear course of action if
things go as planned and, if they do not, the necessary contingency plans to navigate what may be a difficult beginning.
Strategic planning usefully determines not only what will be done, but when it should be done. The initiation of a new
phase of the incubator may or may not be made contingent upon the successful completion of an earlier phase. Can the
operation begin as an “incubator without walls,” providing business services before the facility is ready for occupancy? At
what point in the development process is the manager hired? The notion that timing is everything is certainly true in
strategic planning for an incubator spinout.
Business Concepts
Figure 2.4 outlines the entrepreneurial process leading to the business concept development
208 | P a g e
An idea is not a full concept. The idea is the beginning of the concept. The idea is a thought in the mind. However, a
business concept explains what exactly the venture proposes to. It includes the creation of a ‘mental picture' of the or
service to be produced and extends to a description of issues such as price, promotion and place or distribution. The
business concept visualizes what is unique about the good or service. It involves some knowledge of any innovative
technology to be used in the production process. Moreover, the business concept puts forward the key benefits in terms of
customer value.
Therefore, the business concept is a refining of the idea to bring out a clear and concise picture of the
business and its competitive advantage. The concept may involve new products (goods or services); new processes,
new organizational structure. Consequently, the business concept is viewed as the connection or bridge between the idea
and the plan.
The business concept should:

❖ Clearly communicate the distinctive features of the business
❖ Be specific
❖ Be a definitive statement
❖ Be subject to change and evolve given the dynamics of the business environment
209 | P a g e
The following diagram illustrates some sources of business concepts
Sources of business concepts include:

➢ New goods: e.g. providing a new tangible product to a niche market; a complementary good to an existing
product.
➢ New services: e.g. providing a unique activity/set of activities/experience.
➢ New processes: e.g. enhanced production techniques; new method of producing a good or service via specialized
machinery or activity.
➢ New markets: e.g. sourcing new geographical areas via online technology; introducing product to new countries.
➢ New organizational structure/form: e.g. a virtual structure or flexible form.
➢ New sales or distribution channel: e.g. producers acting as intermediaries to push their products; using
online, as well as physical setting to sell and distribute products.
➢ New development paradigm: e.g. creating new standards, new models, new ways of doing business such as
shopping via website and facilitating delivery to any part of the world.
210 | P a g e
STEPS IN DEVELOPING A BUSINESS CONCEPT FROM AN IDEA
Figure 2.42 illustrates the detailed steps involved in development of a business concept from an idea.
211 | P a g e
Entrepreneurship Resources
Introduction
The idea of resources usually leads us to think of only money. In this section, we will examine how to access the available
resources and how to put it to work.
We will seek to answer the following questions:

1 How do we start a small business?
2 What do we need to start a business?
3 How do we access resources?
4 Is partnering to access resources a good idea?
Successful entrepreneurial processes require entrepreneurs and teams to mobilize a wide array of resources quickly and
efficiently. All innovative and entrepreneurial ventures combine specific resources such as capital, talent, and know-how
(e.g., Accountants, lawyers), equipment, and production facilities. Breaking down a venture’s required resources into
components can clarify what is needed and when it is needed. Although resource requirements change during the early
growth stages of a venture, at each stage the entrepreneur should be clear about the priority resources that enable or
inhibit moving to the next stage of growth. What kinds of resources are needed?
The following list provides guidance:

Capital. What financial resources, in what form (e.g., equity, debt, family loans, angel capital, venture capital), are needed
at the first stage? This requires an understanding of cash flow needs, break-even time frames, and other details. Back-of-
the-envelope estimates must be converted to pro forma income statements to understand financial needs.
212 | P a g e
Know-how. Record keeping and accounting and legal process and advice are essential resources that must be considered
at the start of every venture. New ventures require legal incorporation, financial record keeping, and rudimentary systems.
Resources to provide for these expenses must be built into the budget.
Facilities, equipment, and transport. Does the venture need office space, production facilities, special equipment, or
transportation? At the early stage of analysis, ownership of these resources does not need to be determined. The resource
requirement, however, must be identified. Arrangements for leasing or owning, vendor negotiations, truck or rail
transport, or temporary rental solutions are all decision options depending on the product or service provided. However,
to start and launch the venture, the resources must be articulated and preliminary costs attached to them.
Financial Resources
Finances are crucial, and the amount of money needed to start and run a business will depend on the type of product or
service, the size of the business and many other factors.
Every start-up firm and young growing business need capital/money to invest in growing the business. Some companies
access capital from the company founders or the friends and family of the founders. Growing companies that are
profitable may be able to turn to banks and traditional lending companies. Another increasingly visible and popular
source of capital is venture capital. Venture capital (VC) refers to the investment made in an early- or growth-stage
company. A venture capitalist (also known as VC) refers to the investor.
In this 28 minute, Voluntary Life Podcast explains how to finance a start-up. Listen and take note of the various options
for financing your business.
213 | P a g e
Sources of financing available to firms include foreign stock exchanges, foreign bond markets, foreign banks, venture
capital firms, and funding from the parent company. Firms can also obtain funding via intra-firm loans or trade credits. A
trade credit lets the customer (in this case, the subsidiary buying the goods or services) defers payment for the good or
service for a specified period, typically thirty or ninety days. By borrowing capital from a parent company, both the
subsidiary and the parent eliminate paying transaction costs to an outside entity such as a bank, which would charge fees
to make the transaction.
Product/Service Concept
What are you selling? New ventures offer solutions to people’s problems. This concept requires you to not only examine
the item or service description, but understand what your initial customers see themselves buying. A customer has a need
to be met. He or she is hungry and needs food. Food solves the problem. Another customer faces the problem of
transferring money electronically and needs an efficient solution, a service that satisfies the need. Automatic teller
machines are developed, and services are offered. In any of these situations, in any entrepreneurial innovation
circumstance in fact, as the entrepreneur you must ask the following questions:
• What is the solution for which you want someone to pay?
• Is it a service or product, or some combination?
• To whom are you selling it? Is the buyer the actual user? Who makes the purchase decision?
• What is the customer’s problem and how does your service or product address it?
Understanding what you are selling is not as obvious as it might sound.

When you sell an electric vehicle, you are not just selling transportation. The buyer is buying a package of attributes that
might include cutting-edge technology, lower operating costs, and perhaps the satisfaction of being part of a solution to
health, environmental, and energy security problems.
214 | P a g e
Physical resources
The physical resources examine the resources concerned with the operation's ability to deliver its goods and services.
These include manufacturing, marketing, production and technology facilities for optimal operation. The appropriate
physical resources are essential. This includes proper workstations, telecommunication systems, and marketing materials.
The entrepreneur should properly evaluate the needs and wants before they begin operations.
Human Resources
People in companies provide skills, knowledge, intuition, and reasoning (known as human capital). Additionally, the
culture inside an organization consists of relationships, values, and routines and companies that have a strong set of
managerial values have a strategic advantage over those that don't- through employees increased identity with the
corporation, increased stability, and consistency as well as a guide for appropriate behaviour.
The human resource is the skilled set of the business. To determine if the business has the desired skill set to ensure
success the entrepreneur should;
a) Ascertain the number of staff required and qualification need to operate the business properly
b) Resolve the training needed to function in various posts within the business
c) Ensure that the working environment is conducive for the employees to function optimally
d) It is crucial that professionals be recruited with the relevant expertise to ensure that the objectives of the business
are efficiently and competently done.
Internal environment
An organization evaluates which factors are its strengths and weaknesses; it is assessing its internal environment. Once
companies determine their strengths, they can use those strengths to capitalize on opportunities and develop their
competitive advantage. When organizations assess their internal environments, they must look at factors such as
performance and costs as well as brand awareness and location. Managers need to examine both the past and current
strategies of their firms and determine what strategies succeeded and which ones failed. This helps a company plan its
future actions and improves the odds they will be successful.
215 | P a g e
External environment
Analyzing the external environment involves tracking conditions in the macro and the micro marketplace that, although
largely uncontrollable, affect the way an organization does business. The macro environment includes economic factors,
demographic trends, cultural and social trends, political and legal regulations, technological changes, and the price and
availability of natural resources. The microenvironment includes competition, suppliers, marketing intermediaries
(retailers, wholesalers), the public, the company, and customers. Analyzing the environment becomes more complex
because they must examine the external environment in each country in which they do business. Regulations, competitors,
technological development, and the economy may be different in each country and will affect how firms do business.
Determining the resources for a venture: financial, physical and human

Resources are the means or assets that the business needs to achieve its goals. Categories of resources needed to start a
business venture are illustrated below.
216 | P a g e
Acquisition of Resources for Venture
Figure 2.51 Outlines sources of resource acquisition
The entrepreneur is responsible for acquiring the resources of the organization. He/she must be able to analyze all
available means of acquiring resources and choose the appropriate ways that fits the venture’s needs.
217 | P a g e
Sources Descriptions
Equity • Raising capital from selling shares in a venture or enterprise

• Includes financing of both public and private companies
• A start-up venture may have equity financing at different stages in its
development
• The entrepreneur usually produces a prospectus to help the investor make
a decision
Family and Friends • Common form of start-up funding

• Persons close to the entrepreneur might be more willing to fund venture
rather than banks
• The entrepreneur can encourage them to be investors
• Form a family network to assist in getting future investors and funding
• Family and friends may not understand the risk and can lead to tensions
in relationships
• To reduce hesitation, the entrepreneur can ask for funding funding as a
gift or loan or as equity financing from family and friends
Debt/Loan/Overdraft/Credit • Funds borrowed to finance a business e.g. from banks

Card • Venture secures both secured and unsecured loans
• Will involve some form of security or collateral
• Unsecured loans will be hedged against the borrower’s reputation
• Unsecured loans are short term in nature
• Overdraft is a form of short term
• Credit card
Leveraging • The use of debt to acquire more assets for the business
• Referred to a ‘trading on equity’
• If assets suffer a decrease in value, the leverage works against the
entrepreneur
218 | P a g e
Contract labour • Apart of the labour force does not work directly for the organization but is
employed by a firm contracted by the organization to do a job
• Peripheral workers who are brought in when sills are needed
• Management’s responsibility to workers do not extend beyond the
contractual obligations
Angel Funding • Usually the first investor in a business

• An individual who is willing to invest personal capital in return for equity
in the venture
• The risk is high for angel investment as the business still has to prove itself
in the market
Venture Capitalist • Usually the first investor in a business

• Venture capitalist invest in start-up ventures with the expectation of high
return on investment
• Venture capitalist are strongly influenced by a strong management team, a
product with a powerful competitive advantage and large market
• Important for ventures that cannot access funding in capital markets
• Venture capitalist may make loans available to start-up businesses or they
may make equity investments
Temporary Staff • Staff available when skills are needed

• Long term commitment in terms of pensions, increase in salary not a
responsibility of the venture
• The venture may not be acquiring core skills that will be needed for growth
Supplier Financing • Also called ’supplier credit’

• Agreement between the supplier of a product and the buyer (usually
another business) whereby payment for goods/services is deferred for a
period of time
• This affords the buyer access to a supply of products
• A third party (bank) can provide liquidity to the supplier in this process
219 | P a g e
Joint Venture • Two or more individuals or businesses collaborate on a particular business
undertaking
• Includes the sharing of skills and competencies
• One company benefits from the other’s reputation in the market
• Risk of a venture partner becoming a competitor
Partnership • A partnership can consist of between 2 to 20 person

• Each partner can contribute capital, expertise and share the workload
• If a partner leaves the other partners must acquire the outstanding
obligations
• A sleeping partner may contribute capital but not participate in the day to
day running of the business
Barter • An entrepreneur can exchange goods and services without the use of
money
• Arrangements can be entered into e.g. exchange a service for the use of a
piece of machine
Gifts • The entrepreneur can accept gifts or grants that funds the venture
Other Sources of Business Venture Financing Can Include:

▪ Credit Unions
▪ Sou sou
▪ Money Lenders
▪ Institutions e.g. Agricultural Development Bank; Business Development Company
220 | P a g e
Some Business and Entrepreneurial Development Organizations
Organization Facilities
The Institute of Private Enterprise (IPED) ▪ Provides supervise loans and business development services to micro,
small and medium-sized business enterprises
National Entrepreneurship Development ▪ Mandate to develop small and micro businesses whose needs could not
Company Limited (NEDCO) be met by traditional lending agencies, training and financial support
▪ Entrepreneurial Training Institute and Incubation Centre (ETIIC)
developed to help transform idea into enterprises
The Jamaican Business Development ▪ Providing business and technical support e.g. guiding business start
Corporation ups
St. Lucia Youth Business Trust ▪ Make funding available to youth entrepreneurs
Heart Trust/NTA (Jamaica) ▪ Development of technical and vocational skills training programmes
▪ Provides career guidance to the population
▪ Engages in assessment and certification
DFLSA Incorporated (Development Finance ▪ Provides medium and long term loans small, micro enterprises
Limited South America Inc.)
The Caribbean Association of Small and ▪ Coordinates and promotes regional trading opportunities
Medium Enterprises (CASME) (Jamaica) ▪ Assists with sustainable growth and development of small and medium
sized enterprises
221 | P a g e
Implementing and managing the venture
Introduction
A business venture is a start-up enterprise formed with the expectation and plan that a financial gain will result. This
type of business normally starts out with an idea that begins with a small amount of capital or finances. Individuals
consider a business venture or a small organization backed by one or more investors with the hope that the business will
be profitable.
Business Concepts
We can note that a business venture results out of a need for something lacking or insufficient in the current market. Also,
this need can be a service or product that consumers are requesting to satisfy a need or to serve a particular purpose.
Therefore, once the need is recognized, an individual or investor that has the resources and time to develop and market
the new commodity on the open market can start the venture.
At the start of a business venture, the investor should prepare a formal business plan to outline the purpose and mission of
the business for the future. An effective business plan will include a quantifiable process for identifying additional
finances, increasing gains and designing an escape plan should the business fail. One should note that many initial
business undertakings fail within the first one to three years of inception. As a result, it is important to include a plan to
liquefy the business if needed to reduce financial loss.
Entrepreneurs, often find easy coming up with a variety of ideas for new businesses and many difficulties to implement
those concepts. Although the business concept is a bridge between an idea and a business plan, it directs the
entrepreneur’s thinking so that s/he can identify the specifics of his/her proposed venture. Transfiguring an idea into a
business concept entails thinking about how the product or service will be sold and who will buy it, the values of the
product or service, how it is distinguished from similar ones, and methods of delivery.
222 | P a g e
A clear business concept also allows the entrepreneur/founder to describe the specific nature of the business to suppliers,
customers, lenders, and resource team members. When describing his/her business idea, the entrepreneur should answer
the following questions:
a) What is my product/service?
b) What does my product/service do?
c) How is it different or better than other products/services?
d) Who will buy the product/service?
e) Why will they buy the product/service?
f) How will the product/service be promoted and sold/offered?
g) Who are my competitors?
Once the entrepreneur defines the business concept statement, the more detailed work of business planning and
implementation may begin. You can conduct additional research using the World Wide Web to explore ways of starting
business ventures as well as further insight on how to compose a good business plan. Also, you can gain knowledge from
experts in your field of interest and across industries. There are many search engines to facilitate this exercise.
Monitoring Performance The innovative entrepreneur sees the importance in monitoring the performance of the new
business ideas to discover if s/he is delivering benefits. To accomplish this task, the entrepreneur must:
a) Set specific goals and targets: In most cases, new ideas or innovations originate to address specific needs or
issues. Thus, they should either improve or enhance an existing product, process or service, or be completely new
because of the research and development the entrepreneur has undertaken around a new trend or opportunity.
Great investors make sure their targets are SMART - specific, measurable, achievable, realistic and time bound.
223 | P a g e
b) Measure the performance of new ideas: No matter how the idea derived, it is essential to measure how well it
is performing once implemented. The choice of doing this will depend on the nature of the innovation and one’s
own organization. However, there are some simple calculations to facilitate the process, including:
• Research & Development expenditure as a percentage of revenue

• The cost of non-financial resources (including time and people)
• New product sales (less than 2 years) as a percentage of sales
• The percentage of profits from the new products/services
• The number of months to develop and launch a product
• (speed to market)
• Staff satisfaction and performance
• Customer feedback and satisfaction with your business.
c) Benchmark your business: the entrepreneur may find it useful to benchmark his/her business against other similar
businesses in the industry or sector, to try to understand the impact and benefits of the innovation. Benchmarking against
rivals could help the investor identify whether there are any goals and targets his/her competitors’ use that could similarly
benefit the business.
d) Act on goals and targets: When the goals and targets are achieved, the entrepreneur should consider additional or
improved targets to help get the most out of his/her idea. However, when the goals and targets are not achieved, the
entrepreneur should review and solve any specific issues which may be hampering the success, or consider whether
his/her initial targets were unrealistic and should be revised.
The investor/entrepreneur should also explore the longer-term benefits of innovation, as well as the effect it can have in
the short term. Since innovations can take the time to make a positive impact on your business operations, entrepreneurs
are advised to include innovation as part of the business planning. Having a business plan will help the entrepreneur to
develop new ideas that meet the strategy and vision for the business.
224 | P a g e
Resources Provider
The definition of a provider is an individual person, organization or business that offers a good or service. Moreover, a
resource provider is an individual, organization or business that offers services or good to the entrepreneur for a
successful venture. Starting a business can seem like an overwhelming task. In fact, it is. Research indicates many
businesses that open each year, fail to last as long since there is no guarantee for success. An entrepreneur who has
properly prepared may have an advantage on the competition.
In addition to a strong business plan, the entrepreneur should consider five resources that contribute to the success of a
new enterprise:
a. Financial Resources: The most important element in starting a business is funding. Even the most basic business
incurs several startup costs, including registering a business name, obtaining a business telephone line and printing
business cards. Financial resources can be obtained from multiple sources, the easiest being from the personal accounts of
the business founder. Additionally, loans and lines of credit may be granted from financial institutions, friends and
relatives, private investors and even the state government. Furthermore, many grants are offered from private and public
sources to entrepreneurs/small business owners of all demographics and personal situations.
b. Human Resources: The success of an organization is profoundly dependent on the talent and strength of its
employees. The hiring of experienced professionals with records of excellence in their field of expertise safeguards that the
mission and goals of the company will be executed and achieved. Strong team members can be recruited using several
methods such as staffing agencies and executive search firms as well as referrals from individuals.
c. Educational Resources: Conceivably the paramount thing an entrepreneur can do when establishing a new business
is to gain as much education possible. By understanding the competition and gaining an in-depth knowledge of the
industry, s/he will be better prepared to make smarter decisions regarding the direction of the firm. Educational resources
can be acquired through professional trade associations geared toward the industry, the local chamber of commerce as
well as the Small Business Association and Administration.
225 | P a g e
d. Physical Resources: Whether a small business or a retail operation with multiple locations, every organization must
have the appropriate physical resources to survive. This comprises a proper workspace, working telephone line, adequate
information systems, and effective marketing materials. Since this aspect of business planning can be one of the costliest,
it is important for an entrepreneur to assess his needs before making any purchases.
e. Emotional Resources: Starting a business venture can be a stressful undertaking for an entrepreneur. To maintain
sanity as well as stay motivated, it is important that the entrepreneur has a support team that can provide inspirations and
guidance as necessary. This team may entail friends and family as well as a mentor or professional group. If your resource
providers did not lay out repayment terms up front, it is likely that they are "friends and family" rather than investors or
venture capitalists. Consider ways in which you can create win-win for everyone involved in the success of the venture. The
entrepreneur may consider fringe benefits and other offers for the human resources, negotiate loans and repayment terms
conditions as well as offer shares in the business for major investors. Consulting with a professional consultant before
making major decisions on paybacks to resource providers is advisable.
Reinvestment in the Business

Without a doubt, the most successful investors/entrepreneurs recognize the value of reinvesting at an early stage. When a
business begins to generate profits, owners face two primary decisions: they can either distribute profits back to the
owners or reinvest those profits back into the business to improve the company or expand operations. The decision of
whether to reinvest profits or distribute it to the owners depends on several factors. However, there are some specific
advantages to reinvesting profits.
• Reinvesting is the paramount way to build wealth.
• Reinvesting is crucial to your company’s continued growth and success. Additionally, it is worth keeping in mind
that investing is not just about a sudden inflow of cash; your time and experience is also valuable.
If you can apply your time, knowledge and experience in a way that profits your company in the long term, you will be
making a valuable investment. Some form of reinvestment is necessary for any business to grow. It does not have to be all
of the entrepreneur’s profits, but a significant amount of resources, when effectively managed can dramatically increase
your bottom line.
226 | P a g e
How to invest financially
The first thing that boggles the mind when one hears the word “reinvest” is a financial reinvestment. Redirecting a
percentage of profits back into the business can help the firm grow and position itself for long-term success. However, the
exact amount that you should reinvest will differ as the key is to reinvest based on a strategy, rather than a set percentage.
Be strategic, and apply funds in line with your specific development plan and your business needs, but ensure there is
enough to cover all of your other expenses.
One communal reinvestment is making business improvements. Hence, improving infrastructure, streamlining
manufacturing, strengthening customer support, a refined marketing strategy can all directly benefit your business,
increase your profits and reduce expenses, while giving you more capital to work with.
An investment in marketing will often pay off if the entrepreneur is smart with his/her marketing, and continually track
the progress of the promotional initiatives. Therefore, when embarking on a marketing campaign, quantify the expected
results to be able to monitor the success of the campaign.
It is important to invest in staff and build a resilient workforce. Taking care of one’s employees will keep them happy as
they will look forward to coming to work, and will be more loyal to the company.
How to know when you are ready to reinvest

Successful entrepreneurs made their wealth by investing wisely and not just as a one-time venture. In other words, it is a
continual effort. Reallocating profits and other resources back into the business can help to establish the firm as a leading
provider of the services or products offered. Reinvesting can also help to set the business on track for continued
development.
Many people dislike reinvesting in their companies because they view it as spending money. However, investing is not
about wasting money on superfluous expenses, it is about applying resources in a strategic manner that will result in
increased profits and help you to achieve your long-term goals of continued growth and success.
227 | P a g e
How to invest expertise and experience
A sound strategy and good application of skills and knowledge are what will ultimately determine the success of any
investment. Investing should always be done carefully, and with defined goals. It is about finding the best way to
accelerate the venture forward, and position the entrepreneur to be more profitable in the long term.
Training and education can also serve as an excellent investment. Training for self or your employees can pay off each time
new skills are used. A well-educated workforce can be an important asset to the business, and smart firms invest in
keeping their employees well trained and up to date on their credentials.
Finally, consider investing in a business coach or finding a mentor. Learning from others who have experience can often
prove to be an invaluable investment. If you can gain support, time and assistance from others to improve your business,
you will be significantly ahead.
Expansion of the business

The entrepreneur is the endless challenge seeker who recognizes that once the business is profitable, growth is the next
exciting challenge. Exciting, but at the same time growth can make good business sense, such as better brand recognition,
building value in the business for employees and customers, offering a wider range of products and services to a larger
geographical market, and creating "economies of scale." As a result, rationalizing the rewards of a larger business could
mean updating your business plan. The entrepreneur will need to update those spreadsheets, strategize the marketing
plan and strategies an expansion implementation plan. Also, s/he will need to weigh the risks and rewards for growth.
228 | P a g e
Ways to Expand: From Local to Global
• Increase your sales and products in existing markets. This is the easiest and most risk-free way to
expand. It may require a bigger location, different pricing strategies, as well as new/improved marketing
techniques. However, it will be in a customer group with whom the entrepreneur already has a relationship.
• Introduce a New Product. You have a successful product/service that you have been offering for some time and
have been gathering data, customer feedback and doing the fiddling on your newest product. This is a normal
fruition in business, not just an expansion scheme. When placed as adding value and being responsive to customer
needs, this can be a reasonably risk-free way to expand.
• Develop a New Market Segment or Move into New Geography. These areas require cost expenditures
and doubt. Moving the products into new categories/demographic segments requires market research and new
marketing strategies. This activity may absorb significant time and attention. However, while the risks are more,
the payoffs are large. Therefore, for most businesses looking to expand, these two methods of expansion are
inevitable.
• Start a Chain. A service business that is easily reproduced and can be run from a distance is suitable to launch a
chain. However, the entrepreneur must be cognizant of what made the first location a success, i.e. was it the
location, the staff or you? If it is just you, then replication is only possible through meticulous operations plans and
sharing staff between locations. The entrepreneur will need to duplicate the plan of the first location while
satisfying increased customer demands.
• Franchise / License. Although it is a quick way to grow, a franchise agreement can be costly to prepare. You will
need to be a good teacher, be able to prepare the training manuals, be very organized and willing to travel. While
licensing can carry less risk, it demands giving up a certain amount of control. Licensing a patent, trademark or
industrial design means that you sell manufacturing, distribution or production rights.
• Join Forces / Strategic Alliance. A merger or acquisition combines two companies, expands your customer
base, increases intellectual capital and delivers operational efficiencies. The hoax is locating the right partner.
• Go Global. The business owner can decide to go global in a number of ways. These may include but not limited to
growing markets, rising consumer spending, or improved business climate. In addition, sometimes the only place
to find these things is overseas. Conducting international business can take the form of exporting, licensing, a joint
venture or manufacturing, but whatever forms the entrepreneur chose, the basic business rules apply. These
involve assess customer demand, gain legal and accounting assistance, protect intellectual property and obey
regulations.
229 | P a g e
Achievement of performance goals
Performance management (PM) includes exercises that ensure the aims are consistently being met in an effective and
efficient manner. In other words, performance management involves the way managers assess employees, how employees
evaluate their managers and fellow employees, and how individual workers appraise themselves. The ultimate goal of
performance management is to improve the quality of work in the most proficient manner possible. The performance
management process is a means by which organizations align their resources, systems, and employees to strategic
objectives and priorities. Effective managers seek to provide feedback to and receive feedback from employees incessantly,
rather than rely on infrequent appraisals. This allows a manager to determine what inspires employees to work hard,
evaluate what impediments are making it difficult for employees to do their jobs effectively, and adjust employee
workloads as necessary. Managers must identify which approach works best according to the situation and organizational
culture. Managers have to ensure that employees are governed according to a company’s policies, but must also ensure
that cultural norms are taken into account.
Managing performance is essential to the relationship between managers and employees. It can be a key element of good
communication and nurture the growth of trust and personal development. Managing performance is vital to how well
your employees will be engaged in their work and how well they will complete given tasks. It is important to note that, an
engaged employee is someone who:
▪ Takes pride in their job and shows loyalty towards their line manager, team or organization and
▪ Goes the extra mile – mainly in areas like customer service, or where employees need to be creative, responsive or
adaptable.
Good performance management can contribute significantly to all drivers. Moreover, there are three aspects to planning
an individual’s performance, which include:
1. Objectives which the employee is expected to achieve
2. Competencies or behaviours – the way in which employees work towards their objectives.
Personal development – the development employees need in order to achieve objectives and realize their potential.
230 | P a g e
The ‘SMART’ acronym is a useful way of getting the objectives right. Objectives should be:
Specific – objectives should state the desired outcome. What does the employee need to achieve?
Measurable – how will you and the employee know when an objective has been achieved? How should employee
performance be planned?
Achievable – is the objective something the employee is capable of achieving but also challenging?
Relevant – do objectives relate to those of the team/department/business?
Time bound – when does the objective need to be achieved?
Implementing and Managing the Venture
In analyzing the entrepreneurial process, we are now at stage 6 and stage 7, launching/implementing the venture and
managing the venture.
IMPLEMENTATION OF CONCEPT
There are many activities that need to be put in place before the venture is officially launched. The following figure
outlines that process from planning to implementation.
231 | P a g e
At the implementation level the entrepreneur needs to consider the following issues:
➢ Establishing the organizational goals: Goals are basically the outcomes expected by individuals,
departments and the organization. Objectives are more specific and measurable outcomes or end results. Goals and
objectives unify the organization towards a common purpose or vision and mission. Moreover, setting goals and
objectives provide targets to be achieved in the organization as well as, the benchmarks/standards to measure work
performance. Further, goals act a motivating force to drive the individuals.
➢ Strategy development: The strategy outlines the action plan for achieving the goals. According to Coulter
(2003), the entrepreneur needs to develop specific strategies to realize the long term (time frame over three years)
goals as well as, the Short term (up to one year) goals. The strategy is important in the implementation of the goals.
The strategy outlines how the goals will be achieved. It is important to note that some organizations given the
nature of their operations, their long term can be one month or one year and their Short term can
be one day or one week e.g. Firms in the information technology sector tend to have short life
cycles given the fast pace of changes in the industry.
232 | P a g e
Strategies will be developed to incorporate the various levels of the organization. Corporate level strategy deals
with the overall scope of the business e.g. the mission or purpose. Business level strategy deals how the venture or
enterprise will compete in the market e.g. pricing strategy. Operational strategies deal with how the various
departments employ the people, processes and other resources to achieve the vision and mission of the
organization.
Objectives are described as, ‘statements of specific outcomes that are to be achieved’ (Johnson, Scholes and
Whittington, 2008). In setting objectives the entrepreneur should consider that they should be ’SMART'. That is,
objectives should be specific, measurable, achievable, realistic and timely.
➢ The production and operations management functions: The entrepreneur has to assess how the venture
will engage in the transformation process to achieve the desired good and services to meet the target market e.g. is
it a process-focused strategy; a product-focused strategy or a repetitive-focused strategy. Capacity management is
another issue to consider in that; the entrepreneur has to make decisions on how to efficiently utilize existing
capacity. Location is another issue to consider. The choice of location affects the cost and revenue of the venture.
Factors such as proximity to the target market; accessibility of raw materials, labour costs and availability must be
incorporated in the production strategy. Work design must also be incorporated in the production process. The
entrepreneur should consider issues such as specialization, division of labour, job enrichment, ergonomics,
processes and procedures or work methods for example. The entrepreneur must define the quality the quality
factors. This will ensure that the product satisfies customers’ expectations and does what it proposes to do. This can
be done by adopting a Total Quality Management Approach or a philosophy where the customer is the focus and
there is continual improvement in all areas of the organization.
➢ The marketing function: The entrepreneur must be conscious of the needs of the target customer and meet
those needs through the product offering. A marketing strategy should include the activities of segmentation and
targeting. Segmentation is the dividing of the market according to various bases such as geographic, demographic,
psychographic or behavioural. After, potential segments have been identified; the entrepreneur should select the
most attractive segment that is accessible, sustainable and profitable. The entrepreneur also needs to find ways to
differentiate the venture’s product offering. Further, in the implementation process the strategies for Product;
Price; Promotion; Place; People; Process and Physical Evidence have to be developed.
233 | P a g e
➢ The Information system: This entails the systems; both manual and computer based used to collect, process,
store and disseminate information in the organization. The entrepreneur will be have to decide whether a simple
manual (pen and notebook) system or a more highly technical system is appropriate to his/her needs. Types of
information systems include: Transaction Processing system which documents day to day transactions e.g. sales;
Decision Support System which involves data analysis to facilitate decision making.
➢ Financial and accounting system: The entrepreneur will be concerned with a financial system that
concentrates on evaluating financial performance, forecasting, planning and budgeting, short term and long term
financing as well as, investment portfolio development and cash flow management. The entrepreneur will have to
know what is necessary in terms of financially managing the venture.
Managing the Venture
Managing the venture entails looking at the decisions to be taken in ensuring that the venture is operating smoothly; the
ways the entrepreneur will monitor performance in the enterprise; systems in place to pay back resource providers;
reinvesting in the venture and business expansion. Managing also incorporates achievement of performance goals against
set standards.
✓ All entrepreneurs have to continually make decisions or choose among alternatives and bear the opportunity costs in
managing the venture. Coulter (2003) outlines the following decision making process: firstly the entrepreneur has to
recognize the need to make a decision. This will arise because of a problem or an opportunity. Secondly, he/she needs
to identify the decision criteria. This is the process of identifying relevant versus irrelevant information in the decision
making process. Next, the criteria must be prioritized and weighed so that they will appropriately influence the
decision making process. Then the entrepreneur must develop, analyze and evaluate alternatives. Finally, an
alternative must be selected and implemented. The alternative must also be evaluated to ensure it is addressing the
problem need or opportunity.
234 | P a g e
✓ Once the venture is implemented, the entrepreneur has to measure and evaluate performance. Organizational
performance deals with the organization’s ability to achieve set goals efficiently and effectively. Measure can be: a)
Quantitative: quantifiable measures that are numerical and calculable e.g. to achieve a 5% growth in revenue in 2
years; b) Qualitative: quality measures that are not easily quantifiable e.g. the level of corporate social responsibility
in the organization or level of morale.
✓ Moreover, the entrepreneur has to be aware of the results of performance in terms of a) Efficiency: that is the
relationship between input factors and outcomes e.g. increase in outcomes from given inputs, shows increased
efficiency. Measures of efficiency include quality levels in terms of rejects, cost and expenditure levels against budgets
and profitability; b) Effectiveness: this describes the organizations ability to achieve its stated goals. Measures
include customer satisfaction levels and quality of products delivered in comparison to customer complaints; c)
Economy: this describes the acquisition of inputs at the lowest cost.
Some areas of performance to consider are:
✓ Financial performance: this would include profit data; financial statement analysis (income and profit and loss
statement; balance sheet; cash flow statement); financial ratio analysis e.g. liquidity ratio (current ratio= current
assets/current liabilities) this looks at the venture’s ability to meet short term debts.
✓ Analysis of the strengths, weaknesses, opportunities and threats (SWOT): this takes a look at how the work is being
done and assesses the capabilities of the venture.
✓ Managing the issues of creativity and innovation: this is the ability of the venture to come up with unique ideas and
making a product that is valuable on the market.
✓ Measuring the work of people in the organization: This can be in the forms of labour costs; sales per employee;
performance appraisal or evaluating the employee’s work e.g. the Balanced Scorecard Method.
235 | P a g e
Another key issue in managing the venture is analyzing the current level of investment in the business; where funds have
been sourced from; the effect of additional capital requirements; the payback period to investors and the return on
investment projections to the investors/lenders. Consideration must also be given to payback with interest.
As the venture runs, the entrepreneur has to fund activities. This can be done through internal means such as owner
injection of capital or reinvestment of profits in the business. External means of funding would include bank loans, bank
overdraft.
In managing the venture, growth or expansion can be a major objective of the entrepreneur. This can result from a various
reasons including: expanding markets; economies of scale; diversifying into other markets; product development. Internal
expansion/growth would include expansion as a result of expanding production capacity or extending the venture’s
offering. This can include: i) A product customer exploitation strategy where the venture attempts to increase sales of
existing products to existing/current customers; ii) A product development strategy where new products are created for
the existing customers; iii) A customer development strategy where the venture attempts to sell existing products to new
customers and iv) a product-customer expansion strategy where the motive is expansion into new products and
customers. The entrepreneur can also consider expansion by external means. This can include: a) Horizontal merger:
where firms at different stages in the production process join.
In managing the achievement of performance goals, the entrepreneur should establish a control system. This will provide
a way to measure the venture’s success in achieving goals and objectives set. This process should include: a determination
of specific performance areas to review; setting standards of performance or the control targets; measurement of
performance; comparing of performance against set standards. The process must also include appropriate feedback action
where plans are adjusted as necessary based on the achievement of performance goals.
236 | P a g e
Harvesting the Venture
Introduction
In this section you will learn about the final step of the entrepreneurial process: harvesting the venture. The harvesting
strategies include selling the venture, liquidation, mergers, and acquisitions. These options are used by entrepreneurs and
investors when they seek to exit a business and recover their initial investment.
Student Reflection:
When is the right time to leave a business?
As an entrepreneur, do you plan to stop working one day? What will happen to your business?
Harvesting strategies include selling the venture, liquidation, mergers, and acquisitions. These options are used by
entrepreneurs and investors when they seek to exit a business and recover their initial investment. Harvesting options are:
The entrepreneur has to be realistic about the survival and profitability of the venture. He/she must decide whether to end
the venture and pursue other goals; whether to capitalize on the venture’s investment or just to get out of the business. It
is therefore a wish move to create an exit strategy or harvest strategy for the venture. The aim of such a strategy is to
capitalize on the economic value of the venture. The exit/harvest strategy is important as it focuses the entrepreneur on
the transition of the venture. It is a key area of a high-growth venture as oppose to a lifestyle venture. The harvest strategy
in essence attracts investors and protects the wealth created in the venture.
In creating a harvest strategy, the entrepreneur should engage in a business valuation method. According to Coulter
(2003) valuation methods can range from asset valuations to earnings valuation and cash flow valuations. Investors are
keen to know the method of repayment and the waiting period.
237 | P a g e
Absorption of new concept into mainstream options:
This occurs when an area/activity of the venture is reduced or removed to recover funds to invest in a new concept or
expansion of the product line. It is dependent on the financial feasibility of the project.
Licensing of Rights:
The entrepreneur may choose to sell the business rights. Permission is granted to an individual/company to manufacture,
patent, copyright and trademark products using the licensing agreement. The agreement is legal, and can be customized
based on the access the licensors (entrepreneur) chooses to give the licensee.
Family Succession:
The entrepreneur/founder of the business may consider retirement or from being actively involved in the business and
may choose a family member to be a successor.
Initially, family members can be given employment with the company. This provides the opportunity for the founder to
mentor and guided participation of the successor in the business for a smooth transition when he takes over.
A written document succession plan should be created to address the new roles of management and structure of the
organizations for all parties involved.
Go Public:
A business may decide to sell shares of stock to outside investors. Initial public offerings (IPO) exist when a company sells
shares of its stocks to the public for the first time. The method is used to raise capital, however; it can be timely and
expensive. Entrepreneurs may choose to go public to gain returns on initial investments. When this happens, a business
chooses to sell stock to the public, the business status changes from private to public.
238 | P a g e
Employee Stock Ownership Plan (ESOP):
This involves an agreement with employees and managers to allocate a portion of their wages towards purchasing
company stock from the founder until employees own the company.
Liquidate the Venture:

The entrepreneur may want to leave the venture and will liquidate assets, settle debts and severance employees. This
exists when there are no prospective buyers.
Selling the Venture:

The owner may decide to sell the venture to an individual or company. Parties involved should agree on a sale price,
transfer of ownership and other legalities of the business.
Mergers and Acquisitions:

An entrepreneur or corporate organization may decide to purchase the majority or all shares of another business. The
organization may choose to merge as a strategy for expansion and growth.
Exit Strategies That Form Part of the Harvest Plan Include:
➢ Listening of Rights: The entrepreneur gives another company the right or permission to produce its product in
return for payment. This method allows the entrepreneur to capitalize on the manufacturing and distributing
systems of another, usually larger company. Under a licence one company is given the right to use the patents,
copyrights or trademarks of another company. The ownership if intellectual property sill belongs to the business
granting the licence. Conversely, in a franchise agreement the franchisor allows the franchisee use of intellectual
property as well as, the operating systems e.g. production, marketing.
239 | P a g e
➢ Family succession: Transferring the venture to family members. This would detail the partners and heirs who
will succeed the entrepreneur. The succession plan would outline the distribution of shares and assets; the issuing
of responsibilities among heirs/successors; how much control the original owner wants to maintain; clarification of
goals and other operating issues.
➢ Initial Public Offering (IPO)/going public: this is the initial or first sale of shares by a private company to
the public. The shares are issued on the stock exchange. It is a strategy used by ventures seeking to gain capital.
➢ Employee Share Ownership Plan (ESOP): This is an employee benefit strategy where employees invest in
the shares of the company. It helps to align the interest of the employees with the success of the company.
➢ Liquidate or shut down venture: This entails selling or closing the business. In liquidation proceeds from the
sale of assets must go to pay the creditors and help the venture capitalist recoup the investment in the venture.
➢ Selling the venture: The entrepreneur should consider whether selling is the appropriate strategy. If it is the
right decision, then consideration should be given to accessing professional help; valuing the venture in terms of
valuing assets, future profits and goodwill; use of varying methods to advertise sale e.g. agent or brokers,
advertising in the newspaper, network, trade magazines, negotiation of sale price, arrangements for human
resources; legal issues.
➢ Management buy-out: This is where the management of a company purchases the assets of the company the
team manages. The current management team will purchase the enterprise. They will have an understanding of the
operations and culture but will have to make the transition to being owners.
➢ Mergers and acquisition: External growth in a business describes mergers or takeover. A merger can be
horizontal (at the same stage of the production process) or vertical (different stages in the production process). It is
the voluntary joining of companies. Whereas, an acquisition/takeover is where one company acquires the shares of
another company.
➢ Absorption of new concept into mainstream operations: This is where ventures/growth opportunities are
developed outside of the core operations of a company. Those with the potential to add value to existing operations
are absorbed into the operations.
240 | P a g e
Unit One Module Two
Let us now apply this information to context.
Question 1: Jim Treliving
Jim Treliving has been a successful Canadian entrepreneur and investor for over 40 years.
Hailing from the small town of Virden, Manitoba, Jim was a young RCMP officer in 1966 when he walked into "Boston
Pizza and Spaghetti House" in Edmonton and saw big dough in his future. Over 350 restaurant openings later, Jim is now
the chairman and owner of Boston Pizza International Inc., Canada’s number one casual dining brand with operations in
three countries and almost $1 billion in annual system-wide sales. With Jim and his partner George Melville at the helm,
Boston Pizza has been consistently recognized as one of Canada’s "50 Best Managed Private Companies" and more
recently as one of Canada’s “Top Ten Most Admired Corporate Cultures”.
Beyond the restaurant business, Jim has made investments in many other successful business ventures including real
estate development, sports entertainment and the Canadian oil change retailer, Mr. Lube. Jim always invests in people
first and strongly believes that "behind every great business is a great team". He is well known for his dynamic business
vision, can-do attitude and drive for success.
Jim serves as chairman of both Global Entertainment Corporation and the Boston Pizza Foundation, which has raised $10
million for various Canadian charities since 1990. He is also a director of the Hockey Canada Foundation, dedicated to
increasing funding for minor league hockey in Canada.
In spite of his often hectic schedule of business, social and philanthropic commitments, Jim shows no interest in slowing
down and is always on the lookout for that next great opportunity. When he does have some time to relax he enjoys a good
round of golf and spending time with friends and family at one of his three residences in Dallas, Palm Springs or
Vancouver, where his penthouse overlooks the city and North Shore mountains.
241 | P a g e
a) What major resource does Jim believe is most beneficial to his business and why?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
b) Discuss two other resources that are important to ensuring the success of an entrepreneurship venture.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
242 | P a g e
c) Discuss two ways in which Jim can harvest his business.
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Question 2: Mark Cuban
Mark Cuban was born on July 31, 1958, in Pittsburgh, Pennsylvania. He graduated from Indiana University in 1981 with a
degree in Business. After college, Cuban moved to Dallas, Texas and created a computer consulting business called
"MicroSolutions" which transformed him into a millionaire when he sold the business to CompuServe in 1990. In 1995,
Mark and his business partner Todd Wagner began working on an idea (that later became known as Broadcast.com) in
order to stream live events over the Internet. This innovative duo sold their company to Yahoo.com in 1999 for billions of
dollars in Yahoo! stock. Mr. Cuban went on to purchase the NBA's Dallas Mavericks basketball franchise for $285 million
on January 14, 2000, dramatically changing the team for the better. Mark's brilliant ability to lead this organization and
mold the Mavericks into an evolving superior force led the team to reach the NBA Finals in 2006 for the first time in
franchise history.
Beyond that, Cuban launched the high-definition television network "HDNet" in September of 2001 with Philip Garvin.
HDNet provides the highest level of digital broadcast quality available. Mark and Todd Wagner established a media
company named "2929" with holdings that cover many aspects of entertainment. This includes film production companies
HDNet Films and 2929 Productions, movie distributor Magnolia Pictures, home video distributor Magnolia Home
Entertainment, the Landmark Theatres chain, and a stake in Lions Gate Entertainment.
243 | P a g e
Mr. Cuban is famous for his bold, unambiguous views and mindset, which has a great deal to do with his perpetual
success. He continues to challenge the status quo in the worlds of media and technology. In 2005, Mark announced he was
financially backing the underdog in a U.S. Supreme Court "peer-to-peer" file-sharing case. Also in 2005, Cuban
experimented with a "day-and-date" model when he produced the film Bubble (2005) which was released simultaneously
across theatrical, television and home video platforms. His stated goal of collapsing the traditional release windows was
intended to give consumers the choice in terms of exactly how they might be interested in viewing a film.
It's impossible to truly know what Mark Cuban will create, produce, buy, or sell next, but you can bet it will be considered
"genius" just like the man himself.
a) Mark seems to have great skills at generating new ideas for entrepreneurial ventures.
Explain any three methods of idea generation.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
244 | P a g e
b) Discuss three factors Mark might have to take into consideration when identifying opportunities in the market.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
3. In your own words, define the term ‘business venture’.
___________________________________________________________________________________
___________________________________________________________________________________
4. Identify THREE (3) steps the entrepreneur can explore in monitoring business performance.
___________________________________________________________________________________
___________________________________________________________________________________
245 | P a g e
5. In your own word, explain the term ‘resource provider.'
___________________________________________________________________________________
___________________________________________________________________________________
____________________________________________________________________________
6. List THREE (3) resource providers of a business.
___________________________________________________________________________________
___________________________________________________________________________________
7. Identify TWO (2) strategies an entrepreneur can exploit to the payback resource provider.
___________________________________________________________________________________
___________________________________________________________________________________
246 | P a g e
8. Define the term reinvestment and give TWO (2) ways in which the entrepreneur can reinvest into the business venture.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
9. Explain THREE (3) major benefits of reinvesting to an entrepreneur.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
247 | P a g e
10. Identify and explain TWO (2) growth strategies in a business venture.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
11. Explain the importance of managing performance in order to achieve business goals and objectives.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
248 | P a g e
12. Suggest TWO (2) factors that the entrepreneur should consider when selecting a suitable performance management
strategy
___________________________________________________________________________________
___________________________________________________________________________________
Bert and Danny, two brothers, decided to form a partnership to open a dog kennel. They agreed Tony (Bert’s son) would
take over the business in 8 years. During the entrepreneurial process, Tony was mentored and guided to take over the
business. After 8 years, the partners retired, and Tony was responsible for managing the kennel.
13. What is the harvesting strategy mentioned?
___________________________________________________________________________________
___________________________________________________________________________________
14. Describe the disadvantages of this option.
___________________________________________________________________________________
___________________________________________________________________________________
249 | P a g e
15. An entrepreneur may choose to fund an employee stock ownership plan:
(a) To increase multiple earnings
(b) To promote goodwill
(c) To exit the business
(d) Before filing bankruptcy
16. Placing a picture of Mickey Mouse to sell knapsacks is a form of:

(a) Liquidation
(b) Franchising
(c) Brand licensing
(d) Franchise loyalty
17. Franchising is an advantage to the franchisor as:

(a) Franchises are inexpensive
(b) Selling franchises can improve an unprofitable business
(c) The franchisor gains revenue from fees and royalties
(d) Legal fees must be paid prior to a franchising agreement
250 | P a g e
18. An initial public offering occurs:
(a) When a business has to liquidate due to bankruptcy
(b) An entrepreneur chooses to franchise the business
(c) A private company offers a stock sale to the public
(d) A management buyout occurs
19. A management buyout results:

(a) Employees purchase stocks in the business (ESOP)
(b) The managers of the company take ownership
(c) An IPO
(d) The owner buys managers’ shares
Answer key
15. C
16. C
17. C
18. C
19. B
251 | P a g e
20. What type information should be included in a franchise disclosure document?
____________________________________________________________________________
____________________________________________________________________________
21. What information must be included in a franchise agreement?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
252 | P a g e
22. List three advantages for an owner franchising the business.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
23. List three disadvantages of franchising a business
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
253 | P a g e
Module 3:
Creativity and Innovation
254 | P a g e
Overview
The focus of this module is to develop an understanding of how creativity and innovation influence the life of an
entrepreneur. At the end of this module you be able to understand the nature of creativity and innovation; appreciate the
process of nurturing and managing innovation; appreciate the value of creativity and innovation and also be able to
understand the importance of protecting creations and innovation.
Introduction
This topic explores creativity in relations to entrepreneurial activities as well as the process of creativity within the
workplace. In addition, the prominent entrepreneur(s) learn(s) the definition of creativity as well as, the roles of creativity,
and the importance of creativity in business. We will begin by brainstorming and coining a definition for creativity.
Moreover, the roles and importance of creativity in entrepreneurship that will broaden your knowledge and provide
assistance for the analysis and interpretation of data shared.
What is Creativity?
Creativity is the act of turning new and imaginative ideas into reality. Creativity is characterized by the ability to perceive
the world in new ways, to find hidden patterns, to make connections between seemingly unrelated phenomena, and to
generate solutions. Creativity involves two processes, thinking and producing. If you have ideas but don’t act on them, you
are imaginative but not creative. Without a doubt, creativity does not just happen. In fact, the process entails the ability to
envision situations in innovative ways, to discover unforeseen patterns, to make links between disparate phenomena, and
to generate resolutions. Additionally, creativity involves two processes: thinking, a skill that can be developed and
producing, a process that can and be managed. In order to identify an individual creativity, s/he must have a foundation of
knowledge, mastery of thinking, display signs of exploration, and love to experiment, focus on a discipline, question the
status quo, use their imagination and synthesize information. In other words, the entrepreneur must be able to look at
things in a complex approach from various perspectives. Additionally, s/he must learn to garner new ideas and think of
alternatives that are unique. Therefore, the entrepreneur must be flexible, unpredictable with his/her tactics as well as
tolerable of obscurities.
255 | P a g e
The Process of Creativity
256 | P a g e
INCEPTION: Understand the task at hand
The first stage of the creative process commences by establishing the brief or the scope of the task. Through properly
defining the task at hand one is able to pinpoint the problem that requires solving and determine the paths that may lead
to a solution.
Once the task is identified, we must analyze and absorb all relevant information. This allows us to intimately understand
the individual components that concern our subject. Study the conventional approaches and ask why those conventions
exist. Don’t be afraid to question their validity.
When research is concluded, test your immediate assumptions by conducting some preliminary ideation. Write down or
sketch these thoughts without prejudice. It is important not to censor your thinking as you will place limits on your
creativity. All thoughts have potential.
INCUBATION: Push the task out of your immediate attention
Once the problem has been defined, research completed and preliminary ideation has commenced, push the task out of
your immediate attention. Quite simply—forget about it.
To understand why this is important, we must understand the relationship between the conscious and unconscious modes
of ‘thinking’.
Consciousness is thought with attention. Unfortunately consciousness by necessity only uses a small subset of available
information as it schematically imposes a pattern on complex reality to assist in explaining it. Our consciousness
essentially thinks within the box.
Unconscious ‘thought’, however works schematically to weight the relative importance of various attributes. This
unconscious process may be called intuition. It is the mind’s ability to laterally access cognitive resources (i.e. knowledge,
past experiences and emotions) to formulate inferences.
Disengaging conscious attention allows the unconscious to efficiently process a mass of data.
257 | P a g e
ILLUMINATION: Inspiration is revealed in the form of an intuited notion
When discussing creativity with artists and designers, most agree that there is an urge to change their "mental state" at the
point of creativity. Whether it is to find a quiet space, turn on music or change the surroundings, it is fundamentally an
effort to find focus and enhance the brain's cognitive reception of intuited notions.
An experienced creative will become aware that a glimmer of an idea is about to emerge through a ‘feeling’ they have.
Emotion is essential because it creates a chain of associations that lead expectation. Such ‘feelings’ enable the use of past
experiences to subjectively recognize the potential of certain directions.
Inspiration is revealed in the form of an intuited notion that illuminates our consciousness. This notion however is
intangible; it is structured as an abstract synthesis of emotion, memory and imagination.
REALISATION: Give your inspiration context and structure
Intuited notions are fleeting thoughts; they have neither context nor structure. Therefore, intuited notions need to be
seized and brought into reality. Transform imagination into a tangible form by taking out what is distracting, leaving only
what is pertinent, and to create a finite form that can be put into action.
What separates a great artist and designer from the mediocre is not the quality of the inspiration, but the ability to realize
what others could not. It is about seeing potential where others see only ambiguity.
VERIFICATION: Analyze the result against the original objectives
It is essential to test all ideas against the strategy of the brief and proposed outcomes. By exposing the idea to analysis and
synthesis, we are able to assess its validity and judge the result.
Ideas that we create are highly personal due to the nature of their creation. Therefore it is important to be as impartial as
possible when assessing your ideas. Invite critique from others.
258 | P a g e
All ideas must report back to the reason that motivated their creation. If the idea does not sufficiently answer the brief,
take what is appropriate and discard what obscure and go back to stage one to begin the sequence again.
Creativity is a uniquely human ability that provides us with amazing potential and allows us to achieve designs—from the
most glorious, to the most heinous. We create the world we live in.
Roles of Creativity
In Entrepreneurship and decision making:
➢ Shalley et al. (2004) views creativity as allowing the organization to take advantage of opportunities which develop
as a result of changing environmental conditions.
➢ Creativity fosters new ideas generation from existing circumstances.
➢ Creativity facilitates attitudinal changes in employees, the ability to accept change; flexibility.
➢ Creation of novel products.
➢ Fosters creative thinking that leads to strategy articulation and implementation.
➢ Encourages decisions that include an assessment of new/novel options.
➢ In the preparation stage of the creative process can assist in viewing a problem from different perspectives
encouraging ‘out of the box thinking’.
➢ Creativity helps to generate modern approaches to solve organizational issues; it fosters the use of new technology
and new productive systems.
➢ Creativity encourages the decision maker to consider internal and external environment to collect information to
assist decision making.
For Individuals:
➢ Increases in the products of individual capabilities
➢ Howard Gardner proposed that, ‘Creativity is about liberating human energy.’
➢ Creativity develops imagination and inventive capability
➢ Develops the capacity for entrepreneurship
➢ Creativity encourages problem solving in innovative ways
➢ Develops the ability to ‘think outside the box’.
259 | P a g e
For Economic Development:
➢ Creativity fosters new approaches to problem solving.
➢ Labour market changes requiring skills that will meet the challenges of globalization and the digital era requires a
creative approach.
➢ Creativity enhances the possibility of business development, capitalizing on opportunities and income generation.
Importance of Creativity
Apart from assessing the roles of creativity, its importance to entrepreneurship can be underscored by looking at its
function to the entrepreneur:
➢ As the entrepreneur is faced with changing situational factors, new ways of approaching situations may be required.
There is the need for creative problem solving in place of /in addition to logical thinking.
➢ Organizations are embracing the role of creativity in mitigating the constant effects of change, in some cases the
problems are new ad there are no definite ways of dealing with them.
➢ Majaro (1991) suggests that, ‘It is universally assumed that enhanced creativity can provide a company with a
competitive edge.’
➢ For businesses to survive it must constantly change. The development of the creative process is essential in
restructuring and redesigning systems to produce new processes and novel ideas.
➢ Van Gundy (1987) points out that growth and survival of ventures is related to the organization’s ability to be
creative (produce and implement new products or processes).
➢ Creativity provides an avenue for the development of problem solving and decision making strategies that can help
enterprises move ahead of competition.
➢ Creativity is important for entrepreneurs and persons in leadership roles for reasons such as: to identify new
product-market opportunities; to meet customer needs and wants; to improve motivation in the organization.
Basically, creative thinking benefits all the functions the entrepreneurs have to perform.
260 | P a g e
Process of creativity
Roles and Importance of Creativity in Business

Undoubtedly creativity is important for any business venture. The act of creativity facilitates problem-solving by
generating new innovative ideas that may further lead to success. Research has proven that the creative entrepreneur is
happier in the long-run. This experience can be reflected within the workplace and serves as a motivation for others within
the workplace. This can affect the productivity within the business and lead to greater profitability. Creativity can drive
progress within the business as it facilitates changes necessary to combat problems within the workplace.
The Creative Process: Explain again with different concepts

The creative process explains how an individual can form random thoughts into an ideal combination or solution. It is
valuable to note that the basic five steps are important for creativity to be at its best.
● Preparation: During this step, an individual displays signs of curiosity after facing a problem. In addition, s/he may
carry out research, constructs objectives, organize thoughts and brainstorm the various ideas convey.
● Incubation: This step allows for the synthesizing of ideas through imagination as well as constructing of such ideas to
facilitate creation.
● Illumination: This step allows for the entrepreneur to be spontaneous as ideas can be obtained at the spur of the
moment. Although, an individual may have an initial idea, several other ideas may generate as she/he continues to explore
the concept and think outside the box. Illumination is that moment when the entrepreneur has an epiphany or unexpected
brilliant idea.
● Evaluation: the brilliant idea may not be ready for execution so the entrepreneur must undergo an evaluation process
to ensure that the pursuit is worth investing. In order to make a final decision, the entrepreneur may consult with other
experts in the field to gain further insights.
● Implementation: Finally the entrepreneur can begin to transform his/her thoughts into a final product. This step is
not set in stones and as such, the entrepreneur can begin to transform the idea or thoughts more than once until the
desired outcome is achieved.
261 | P a g e
Principles of Innovation
Introduction
Have you ever considered where good ideas come from? How new business ventures become a success? In this lesson, you
will have an opportunity to examine the core concepts of innovations and the role and process of innovations in
entrepreneurship. Innovation is the creation of better or more effective products, processes, services, technologies, or
ideas that are readily available to markets, governments, and society. Innovation differs from invention in that innovation
refers to the use of better and, as a result, a novel idea or method, whereas invention refers more directly to the creation of
the idea or method itself. Innovation differs from improvement in the innovation refers to the notion of doing something
different rather than doing the same thing better. Innovations are defined more narrowly as the ideas, the products, the
services, and processes that (a) are perceived as being new and different and (b) have been designed, built, and
commercialized. Innovation thus includes both creative idea generation and the actual implementation of the idea. An
invention is an innovation that is not ready for prime time. Inventions are ideas that have been built or conceptualized,
but not widely used and available and usually not commercialized.
Peter Drucker proposed five key principles of innovation. These are:

1. Innovation commences with the thorough analysis of opportunities.
2. Innovation has both conceptual and perceptual dimensions. It involves analytical, as well as, observational
techniques.
3. Effective innovations are focused and simple.
4. Effective innovations usually start small.
5. Successful innovations are focused on market or industry leadership.
262 | P a g e
The meaning of innovation
Innovation is described as the implementation of ideas into action. It is the conversion of opportunities into an idea.
Further, it is the ability to apply creative solutions to problems, issues and opportunities in order to create value.
According to Drucker (Harvard Business Review 2002), innovation is seen as ‘the specific function of entrepreneurship.’ It
is through the process of innovation that the entrepreneur can create new forms of capital. Innovation is seen as
facilitating the wealth creating potential of existing resources. Innovation according to Drucker (2002) ‘is the effort to
create purposeful, focused change in an enterprise’s economic or social potential.’
Joseph Schumpeter viewed entrepreneurial innovations as a key driver of economic growth. He contends that competition
motivates the entrepreneur to find new ways to improve the business process and technology.
The importance of innovation

Products and industries have life cycles, therefore it is imperative to remain competitive, survive and even aspire to
market leadership. Driving the innovation process is the changing face of how business is done given the advent of
globalization. The importance of innovation is outlined in the following points:
▪ While businesses need to focus on innovating their goods and services, they must also ensure that the processes in
the organization such as, human resources, technical, the goals and values and the managerial systems are creating
value for the organization.
▪ Innovation is the key to ensuring that an organization’s products are differentiated from similar products on the
market.
▪ Innovation can provide entrepreneurs with first mover advantages in the market.
▪ Innovation is important at the societal level in that new and improved goods and services e.g. in the field of
technology, medicine, education, work methods can positively impact productivity and standard of living.
▪ According to Schumpeter (1934), innovation is seen as a key driver of new demand and new wealth creation.
263 | P a g e
Types of Innovation
The 4Ps Model was developed by John Bessant and Joe Tidd, provided a framework for analyzing the innovative
processes. This model is summarized below:
1. Product (Good or Service) Innovation: change in what is offered to the end user; develop a new product;
improved versions of existing products e.g. mobile phones, computers; new products e.g. mp3 player; aims to
increase revenue
2. Process Innovation: improving the process e.g. lean production, total quality management; change in the way
something is done e.g. e-commerce( e-banking, e-mail, internet shopping); efficiency in the process; aims to reduce
costs
3. Position Innovation: repositioning products e.g. mobile phones are now available to the overall market; budget
airlines for persons who prefer affordability rather than comfort; change in the context in which the product is
framed and communicated
4. Paradigm Innovation: changes in the underlying mental models which shape what the organization does; shift
in the way of thinking; rolls Royce supplies a luxurious experience rather than compete with other car
264 | P a g e
Core innovation concepts
Incremental versus radical innovation: According to BusinessDictionary.com, incremental innovation is ‘a series of small
improvements to an existing product or product line that usually helps maintain or improve its competitive position over
time.’ Incremental innovation is a feature of high technology type of businesses that must continually improve their
offering to include new features to meet customer expectations.
• Incremental innovation has reduced risks as compared to radical innovation.
• Incremental innovation improves competition within current markets whereas; radical innovation creates dramatic
change leading to a transformation of existing markets (structure, leadership, supply, product offering etc.)
• Incremental innovation exploits the existing technology whereas; radical innovation explores new types of
technology.
• Incremental innovation is characterized by low uncertainty or risk whereas radical innovation is characterized by
high risk or uncertainty.
• Incremental innovation focuses on improvements in existing goods and services or processes while radical
innovation focuses on products (goods and services) with new features.
• An example of incremental innovation is Google’s ‘Gmail’. Initially features were limited but as it evolved more
features were added. Radical innovation is a feature of the ‘Virgin’ Brand. Businesses are developed in various
industries e.g. gaming, planes, mobile etc.
• Examples include: Haagen Dazs Ice Cream is seen as incremental market innovation. Ice cream was re-designed as
something which adults would enjoy; low –cost airlines is seen as a radical market innovation. Air travel was made
available for new users. Low price meant that a new market was created.
Modular Innovation
Modular innovation consists of the products and platforms consisting of or facilitating relationships e.g. people and
products; control of experience from creation to interaction; ownership of content. Modular innovation enhances the
online experience of the user through products such as, Facebook, Chrome, and Google Maps.
Modular Innovation gives the user more control of their interaction with the online environment.
265 | P a g e
Modular innovation uses the architecture and configuration associated with the existing system of an established product
and uses new components with different design concepts. Moreover
Architectural Innovation
Architectural innovation exists where the components and associated design concepts remain unchanged but the
configuration of the system changes as new linkages are instituted. It involves the reconfiguration of an established system
(Henderson and Clark, 1990). An example is the ‘Sony Walkman.’(highered.mheducation.com)
Sources of innovation
Drucker (2002) pointed out seven sources of innovation: These are
• The unexpected: This includes unexpected success and failure or an unexpected occurrence in the external
environment. Situations that act as a platform for new innovation e.g. The Ford motor company’s failure in 1958
with the ‘Ford Edsel’. According to Drucker, this failure formed the base of much of the company’s future success.
Another example (http://www.referenceforbusiness.com) is that of the development of the Sony Walkman which
was borne out of the CEO observing people carrying portable radios.
• Incongruities in processes, in the industry, in economic realities: Examples
(http://www.referenceforbusiness.com) include the rise of Federal Express that showed that consumers were
willing to pay a premium/high price for postal services in response to the service provided by the U.S, Postal
Service.
• Innovation arising out of a process need: This is an innovation that is created to support an existing process
or product such as automatic teller machines and internet banking to support banking transactions
(http://www.referenceforbusiness.com)
• Changes in industry or market structure: This would involve changes in the level of competition in markets,
as well as, growth or decline in an industry. An example outlined (http://www.referenceforbusiness.com) the
introduction of the personal computer and the laptop as oppose to the large main frame computers. This has
changed the accessible markets, to include business, as well as, the individual consumer demands.
266 | P a g e
• Demographic changes such as population density/size, age, employment status, income level: An
aging population for example, would require specialized health care such as geriatric nurses and products catering
to health care and comfort; changes in the composition of the population would also give rise to innovations in food
services and entertainment.
• New knowledge or technology: Business activities can transcend day and night given the Internet; new
research in the field of biotechnology; development of new materials can breed innovation.
• Changes in perception: For example, a shift to a more health conscious way of living leads to more organic types
of foods being consumed; more persons accessing gyms and health facilities. Another example is the prevalence of
women in the workplace leading to the provision of goods and services to the working woman e.g. clothes,
accessories, food choices.
Other sources include:

• New political rules: The ideals of the government of the day in terms of an orientation toward innovation and
creating small business; encouraging innovation; self- help; cottage industries; financing entrepreneurial
development and ideas development through low interest loans.
• Limited options: When firms/individuals are faced with limited options/end of the road for some products, they
are encouraged to think outside of the box and in order to remain viable they look to turn ideas into something
useful or marketable.
• Deregulation: The removal of governmental controls/legislation can lead to increased competition. According to
the Global Economic Symposium 2014, deregulation may have a positive effect on employment creation.
• Changes in business models: A business model is the means by which a firm aspires to get value from the
business activities. It incorporates the company’s processes such as how products are made; for whom it is made.
The business model provides a framework for how the firm will compete in the market/industry. It involves value
creation in the business. Changes in the market/industry e.g. financial crisis, new technologies, acts of terrorism;
shifts in perception for example can impact the business models encouraging creativity and establishing new
products and processes.
267 | P a g e
Disruptive, Incremental and Open innovations
Introduction
Disruptive and incremental innovators and innovators use new ideas and generate a viable business venture. In this
lesson, we will examine disruptive, incremental and open innovations and analyses the similarities and differences
between these concepts.
Concept of disruptive and incremental innovations

A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an
existing market and value network, displacing established market leaders and alliances. Not all innovations are disruptive,
even if they are revolutionary. Disruptive innovations tend to be produced by outsiders. The business environment of
market leaders does not allow them to pursue disruption when they first arise, because they are not profitable enough at
first and because their development can take scarce resources away from sustaining innovations (which are needed to
compete against current competition). A disruptive process can take longer to develop than with the conventional
approach and the risk associated with it higher than the other more incremental or evolutionary forms of innovations, but
once it is deployed in the market, it achieves a much faster penetration and a higher degree of impact on the established
markets.
Disruptive innovation processes have in many aspects been thoroughly analyzed, but are still something of an enigma on a
micro level. It is an area inhabited by many kinds of actors; scientists, entrepreneurs, companies, financiers, customer,
investors, business angels, etc. Product and business innovation can also emerge in a vast number of environments. Still,
the innovation process proceeds through these actors and environments and if we better can understand the conditions
for this innovation management and process, it might be able to capitalize on the investments for nurturing innovation
more effectively.
268 | P a g e
Incremental innovations
Incremental innovations involve smaller improvements in ideas, products, services, and processes. They are like adding
unique features to a product or service. But even incremental improvements can have a radical effect on the marketplace.
For example, consider the incremental improvements in wireless phones that eventually lead to the development of
Apple’s iPhone and to the numerous Smartphone offerings.
Incremental innovators think outside the box and challenge the norms of society.
Disruptive and Incremental

Joseph Schumpeter describes an entrepreneur as "a person who is willing and able to convert a new idea or invention into
a successful innovation." Entrepreneurship employs what Schumpeter called the gale of creative destruction.
Schumpeter's idea encompasses more than single innovations, as he further explains how innovative thinking allows for a
sustainable and long-term economic growth for societies that enable it. Creating new goods and new ways of doing things
allow for consistent job growth, more consumption, and more economic dynamism. Innovative thinking allows for so-
called disruptive innovations—innovations which make ‘leaps and bounds’ over existing products. One classic example is
the iPhone.
Schumpeter's view is not the only one, however. Incremental innovation is also largely recognized as a vital
entrepreneurial pursuit. The idea of incremental innovation is simple: large change is a byproduct of small innovations
compounded with others. Incremental innovators find ways to improve the efficiency of established processes to drive
efficiency. An example of this kind of innovation has been Toyota's just-in-time inventory management. Incremental
innovations are often process-based, while disruptive innovations are usually new goods or processes themselves.
The concept of open innovation

Among the latest developments in corporate innovation is the concept of open innovation. Open innovation1 is the
intentional leveraging of the research, ideas, or technologies of outsiders—that is, people or companies that are not part of
the corporate entity—rather than relying solely on innovations that are generated from inside the company. Open
269 | P a g e
innovation takes innovation beyond a company’s Research & Development lab and lets customers and partners participate
in the creation of new product and services.
Procter & Gamble (P&G) embarked on open innovation in 2001 with its Connect + Develop program. For example, the
innovation of printing text or images on Pringles chips came about through P&G partnering with a professor in Italy who
ran a small bakery and had invented a technology that used ink-jet techniques to print pictures on pastries.
One method by which a company can manage and run open innovation is to use a contest or “challenge” method. In the
contest method, the company poses a challenge, such as a way “to drop large amounts Humanitarian food and water
packages from an aircraft in populated areas such that there is no danger of falling objects (i.e., non-food items) causing
harm to those on the ground” and offers a financial reward to the person, company, or team that solves the problem first.
Nurturing and Managing Innovation
Introduction
Innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness and market share. The
aim is to convert innovative activities into notable organizational performance. In this section, you will identify the
conditions for effective innovation at the micro or organizational level.
Conditions for effective innovation

Innovation can involve new ways in which a product or a service might be used. It can involve new ways of packaging a
product or a service. Innovation can be associated with identifying new customers or new ways to reach customers. To put
it simply, innovation centers on finding new ways to provide customer value.
270 | P a g e
Examples of innovation
Apple was a $2 billion company in 1997; then it jumped to a $700 billion valuation in 2015 as a result of the innovation
that came from the; MacBook, iPod, iPad, iPhone.
Tesla built an electric car with exceptional aesthetics and efficiency, which has helped build the electric sports car
company earn a market capitalization of $33 billion, with revenues up 54% since 2014.
Uber was founded in 2009 and has become a $50 billion company in just 6 years, with its simple yet extremely unique
idea of getting a taxi with the press of a button that has completely revolutionized the way we travel.
Although some would argue that there is a difference between creativity and innovation, one would be hard-pressed to
argue that creativity is not required to produce innovative means of constructing customer value.
Alexander Hiam (1998) identified nine factors that can impede the creative mindset in organizations:
1. Failure to ask questions. Small-business owners and their employees often fail to ask the required why-type
questions.
2. Failure to record ideas. It does not help if individuals in an organization are creative and produce a large
number of ideas, but other members of the organization cannot evaluate these ideas. Therefore, it is important for
you to record and share ideas.
3. Failure to revisit ideas. One of the benefits of recording ideas is that if they are not immediately
implemented, they may become viable at some point in the future.
4. Failure to express ideas. Sometimes individuals are unwilling to express new ideas for fear of criticism. In
some organizations, we are too willing to critique an idea before it is allowed to develop fully.
5. Failure to think in new ways. This is more than the cliché of “thinking outside the box.” It involves new ways
of approaching and looking at the problem of providing customer value.
271 | P a g e
6. Failure to wish for more. Satisfaction with the current state of affairs or by the means of solving particular
problems translates into an inability to look at new ways of providing value to customers.
7. Failure to try to be creative. Many people mistakenly think that they are not at all creative. This means you
will never try to produce new types of solutions to the ongoing problems.
8. Failure to keep trying. When attempting to provide new ways to create customer value, individuals are
sometimes confronted with creative blocks. Then they simply give up. This is the surest way to destroy the creative
thinking process.
9. Failure to tolerate the creative behaviour. Organizations often fail to nurture the creative process. They
fail to give people time to think about problems; they fail to tolerate the “odd” suggestions from employees and
limit creativity to a narrow domain.
One of the great mistakes associated with the concept of innovation is that innovation must be limited to highly creative
individuals and organizations with large research and development (R&D) facilities. The organization’s size may have no
bearing on its ability to produce new products and services.
Incentives for Innovation

When attempting any internal innovation initiative, once you have sorted the campaign logistics (workflows for ideas,
defined roles, goals, etc.) and established a solid marketing plan, you should next consider incentives for employees.
Incentives can play an important part in motivating employees to create short term excitement as well as developing a
long-term, sustained innovation culture.
But generating workplace engagement can be a challenge. Top business thinker Gary Hamel cites a Towers Perrin study
that discovered only one-fifth of employees are truly engaged in their work—meaning they’re fully invested and would “go
the extra mile” for their employer. The rest ranged from disengaged (38%) to indifferent (41%). This feeling of
detachment, and especially the sense of not having a voice in the company, is also a large factor in why employees leave
their jobs.
272 | P a g e
However, there are a number of different ways to motivate and engage your employees. The two most common methods
are reward and recognition. While often used interchangeably, they are really two different practices – each with its own
benefits. Deciding on which ones to leverage and how can dramatically impact the success of your innovation initiatives.
Rewards
Rewards—both financial and non-financial—can play an important part
in an innovation initiative. However, at Bright idea we recommend that
financial or material rewards be reserved primarily for public campaigns,
where incentives are necessary to attract attention and drive large-scale
participation. For example, GE’s Ecomagination Challenge has attracted
tens of thousands of participants motivated by the $200 million purse.
For internal-facing challenges, financial rewards can become

problematic, both considering logistics of global application and the
ability to sustain motivation overtime. Some issues include:
• Employees may consider financial rewards an entitlement, and continue to expect them in the future.
• Cash incentives may not translate appropriately to different countries with differences in pay and cost of living.
• Legal implications as the challenge and rewards may constitute a contest or gift, and need to be reported and taxed
accordingly.
• Financial rewards may not be sustainable for long-term or large-scale campaigns, as well as for smaller companies
or departments with limited budgets.
273 | P a g e
Most importantly, financial rewards may actually prevent building a culture of innovation by promoting participation
driven by personal gain.
Non-financial and non-material rewards, however, are great ways to motivate your employees while incentivizing being
part of a larger team and collaborating for the improvement of the company as a whole.
Non-financial rewards can be:
* Lunch with the CEO
* Assignment to develop and implement the idea, and see it through to completion
* Days off or workplace perks (e.g. premium parking spots, etc.)
By thinking outside the box and creatively tapping the spirit of co-creation and collaboration, non-financial rewards can
have a positive impact on sustaining participation from employees in a variety of different internal innovation campaigns.
Recognition
Recognizing employees for their contributions can provide much more than just a psychological benefit. Management
consultant and author Cindy Ventrice states that, as long as employees have what is considered a fair wage, “money is not
really a factor in how motivated they are.” Instead, it comes down to feeling valued in the workplace, that their thoughts
and opinions matter, and that there is opportunity for learning and advancement.
Managers can recognize employees in a variety of ways:

✓ Employee of the month plaque or featured on the company website or internal intranet, or campaign homepage
✓ Email newsletters or company blogs
✓ Department leaderboards that highlight the top performers and create friendly competition
✓ Public acknowledgment during meetings or other events
✓ A personal note to say “thank you”
274 | P a g e
While these are all virtually without cost, they are essential to building trust between employees and managers, and can
encouraging your employees to achieve more and continue to think outside the box.
There are several practices to take into consideration when approaching employee recognition. Some of the most
important practices are:
✓ Consistency: It’s crucial that recognition is consistent to avoid confusion and hurt feelings. It will also make it
easier for other employees to model the desired thoughts and actions. Establish a guideline for desired performance
or actions to help keep recognition consistent.
✓ Communication: It’s important to be clear about what and why your employee is being recognized. Not only is it
a chance to make it apparent that you’re paying attention, but also you have the opportunity to provide other
feedback – areas of improvement, weaknesses, etc.
✓ Personalization: Different employees want different recognition. Some may want to be publicly recognized,
others may simple want a pat on the back. It’s important to always keep your recognition personal. A boilerplate
note given to every team member does little to inspire them to go the extra mile.
✓ Reward Effort, Not Just Success: Enthusiasm and effort are as just as important to recognize as success. Even
if it ends in failure, constructive criticism along with praise will build trust and encourage employees to take
meaningful risks.
275 | P a g e
Streamline and Automate Recognition
Engaging and recognizing employees on multiple fronts can seem like a daunting task. However, software solutions (such
as Bright idea) can help you manage your recognition plans by creating a single platform for both employee collaboration
and recognition from management. These solutions integrate recognition systems with features such as:
✓ Blogs
✓ Reputation Points for system activity (log-ins, idea submissions, votes, comments)
✓ Homepage Leaderboard Widgets/Navigation
✓ Activity feeds and micro-blogging
✓ Collaboration Rooms
✓ Project Fan-pages
With dynamic user profiles and analytics on all system activity, innovation management software can also help you keep
track and compare user activity and give you real-time statistics about top contributors and the impact on the company
from concept to cash overtime.
Recognition in the Innovation Community

Recognition is a crucial component to a building a sustained and thriving innovation community. First, encouraging
greater communication and transparency builds trust between employees and managers. In this environment, employees
can contribute ideas without the fear of being “wrong.” leading to a freer flow of thoughts and ideas. Business innovation
author Steven Johnson claims that this environment is “where good ideas come from.” Outlying and disruptive ideas often
come from these “liquid networks,” where information is freely traded.
Employees also want to be acknowledged for their ideas. But it is also crucial to acknowledge the efforts of contributors.
The support players who contribute and help develop an idea are essential to the ideation process, and should be
recognized with their own feedback and praise. In recognizing along the entire innovation lifecycle, and closing the loop of
communication from initial idea collection through implementation, you increase the likelihood of garnering participation
in future campaigns.
276 | P a g e
Finally, rewards and recognition are not mutually exclusive. Together, they can jumpstart your workplace by getting
people excited and making meaningful contributions. However, while rewards can help keep your workers motivated, it’s
recognition that builds a truly innovative culture. In the end, it’s showing your employees that their contributions are seen
by their managers, respected, and valued that will have the most positive impact on your business and bring real results
for your innovation initiatives.
Internal Policy
The framework of innovation process components is illustrated below:
Fundamental idea: The fundamental idea constitutes the technical and commercial hypothesis that is to be developed.
It can have its origin in technology or market, but must always contain both parts. An inventor or innovator is the most
common initiator of the process.
Entrepreneur: The entrepreneur runs the work with realizing the carrying idea. Typical abilities of an entrepreneur are
to see the fundamental idea's commercial possibilities and to be a visionary and leading a team.
277 | P a g e
Prototype/demanding customer: The prototype plays a role in the verification of the idea. By the prototype, the
technical and commercial relevance of the idea is secured. An important quality of the prototype is that it is developed
with a skilled, risk willing and demanding customer.
Team: Several persons need to attend the creative process. The team contributes with competence, resources and
constitutes a social system with common values regarding the fundamental idea.
Management/support: The team and the entrepreneur need to relate itself to a guiding and supporting context, e.g.
mentors, board, sponsors, in order to have the energy for the hard work of developing and verifying the idea.
Financial support / peace and quiet essential for work: The financial support does give not only resources but
also peace and quiet for the entrepreneur and the team.
Perseverance and handle dilemma: An important quality in the organization is strategically and tactically to handle
the obstacles and obstruction that the idea raises: perseverance is required to handle these dilemmas. These obstructions
can be both internally within a company as well as external market obstructions.
Organizational Policy: Change management experts have emphasized the importance of establishing organizational
readiness for change and recommended various strategies for creating it. Organizational readiness for change is a multi-
level, multi-faceted construct. As an organization-level construct, readiness for change refers to organizational members'
shared resolve to implement a change (change commitment) and shared belief in their collective capability to do so
(change efficacy). Organizational readiness for change varies as a function of how many organizational members value the
change and how favourably they appraise three key determinants of implementation capability: task demands, resource
availability, and situational factors. When organizational readiness for change is high, organizational members are more
likely to initiate change, exert greater effort, exhibit greater persistence, and display more cooperative behaviour.
278 | P a g e
Failure to establish sufficient readiness accounts for one-half of all unsuccessful, large-scale organizational change efforts.
Drawing on Lewin's three-stage model of change, change management experts have prescribed various strategies to create
readiness by 'unfreezing' existing mindsets and creating motivation for change. These strategies include highlighting the
discrepancy between current and desired performance levels, fomenting dissatisfaction with the status quo, creating an
appealing vision of a future state of affairs, and fostering confidence that this future state can be achieved.
What conditions promote organizational readiness for change?
Change valence
Simply put, do organizational members value the specific impending change? For example, do they think that it is needed,
important, beneficial, or worthwhile? The more organizational members value the change, the more they will want to
implement the change, or, put differently, the more resolve they will fail to engage in the courses of action involved in
change implementation.
Change efficacy
As Gist and Michell (1992) observe, efficacy is a 'comprehensive summary or judgment of perceived capability to perform
a task.' In formulating change-efficacy judgments, organizational members acquire, share, assimilate, and integrate
information bearing on three questions: do we know what it will take to implement this change effectively; do we have the
resources to implement this change effectively; and can we implement this change effectively given the situation we
currently face? Implementation capability depends in part on knowing what courses of action are necessary, what kinds of
resources are needed, how much time is needed, and how activities should be sequenced. In addition to gauging
knowledge of task demands, organizational members also cognitively appraise the match between task demands and
available resources. That is, they assess whether the organization has the human, financial, material, and informational
resources necessary to implement the change well. Finally, they consider situational factors such as, for example, whether
sufficient time exists to implement the change well or whether the internal political environment supports
implementation. When organizational members share a common, favourable assessment of task demands, resource
availability, and situational factors, they share a sense of confidence that collectively they can implement a complex
organizational change. In other words, change efficacy is high.
279 | P a g e
Contextual factors
Change management experts and scholars have discussed other, broader contextual conditions that affect organizational
readiness for change. For example, some contend that an organizational culture that embraces innovation, risk-taking,
and learning supports organizational readiness for change. Others stress the importance of flexible organizational policies
and procedures and positive organizational climate (e.g., good working relationships) in promoting organizational
readiness. Still others suggest that positive past experience with change can foster organizational readiness.
Organizational culture, for example, could amplify or dampen the change valence associated with a specific organizational
change, depending on whether the change effort fits or conflicts with cultural values. Likewise, organizational policies and
procedures could positively or negatively affect organizational members' appraisals of task demands, resource availability,
and situational factors. Finally, past experience with change could positively or negatively affect organizational members'
change valence (e.g., whether they think the change really will deliver touted benefits) and change efficacy judgments (e.g.,
whether they think the organization can effectively execute and coordinate change-related activities).
Protecting Innovation and Creativity
Introduction
Entrepreneurs invest time and money into researching and developing a new product. Intellectual property laws protect
the rights of individuals and give them economic rights for a specified time. You have learnt in previous lessons about
creativity and innovation and how to nurture creativity. In the final lesson of this module, you will learn the methods of
protecting your creative works that ensure the products offered by your venture is secured and allow you to retain profits.
Methods of protecting innovations and creativity

Entrepreneurs invest time and money into researching and developing a new product. Intellectual property laws protect
the rights of individuals and give them economic rights for a specified time. Ways of protecting creativity and innovation
are:
280 | P a g e
Intellectual Property Rights (IPR)
For companies to gain financial benefits from investing in research and coming up with new inventions, there must be
legal protection for those inventions. The system of law related to Research & Development and innovation is referred to
as intellectual property rights. Different countries vary in the extent to which they protect intellectual property and
enforce intellectual property regulations. The presence of strong, enforceable, consistent property rights serves to make
the world flat. However, as long as significant differences in property rights exist around the globe, the world will be far
from flat with respect to innovation.
Intellectual Property Rights is the legal protection of an invention developed by an individual. The creator can own the
rights to their invention or creative works. Intellectual Property Rights:
• Establishes standards
• Minimizes competing for development
• Access to new markets
• Access to new technology
Intellectual property (IP) refers to creations of the mind—inventions, literary and artistic works, and symbols, names, and
images used in commerce. The term property connotes ownership that’s exclusive, but the owners have the right to license
or sell their IP. Under intellectual property law, owners are granted certain exclusive rights—intellectual property rights
(IPR) —to the discoveries, inventions, words, phrases, symbols, and designs they create.
281 | P a g e
World Intellectual Property Organization (WIPO)
The World Intellectual Property Organization (WIPO) is a specialized agency of the United Nations that works to
harmonize the intellectual property laws of countries around the world. Although the roots of the WIPO go back to 1883,
WIPO became an agency of the United Nations in 1974, with a mandate to administer intellectual property matters
recognized by the member states of the UN. In 1996, WIPO expanded its role and further demonstrated the importance of
intellectual property rights in the management of globalized trade by entering into a cooperation agreement with the
World Trade Organization (WTO). Today, WIPO seeks to
• Harmonize national intellectual property legislation and procedures,
• Provide services for international applications for industrial property rights,
• Exchange intellectual property information,
• Provide legal and technical assistance to developing and other countries,
• Facilitate the resolution of private intellectual property disputes, and
• Marshal information technology as a tool for storing, accessing and using
• Valuable intellectual property information.
Patents:
Rights are given to investors to exploit the invention for the life of the patent. The investor must meet certain stipulations
in registering the patent to have a monopoly over the invention. This reduces the risk of competitors using, manufacturing
or modifying the invention for personal and financial gain.
The creator establishes ownership of the innovation. Not all inventions are patented, and not all
innovations are patentable. Creators must research and assess economic costs and feasibility in
choosing a patent. Stipulations for a patent-
✓ Must have never existed prior
✓ Have innovative steps
✓ Capable of industrial application.
282 | P a g e
For security, creators should not publicize innovations or reveal the patent before the filing date. The patent is not affected
until it is commercialized on the market.
The most common way to protect an industrial discovery or invention is to patent it. A patent is an inventor’s exclusive
right granted by the government for an invention, whether a product or a process, that is industrially applicable (i.e.,
useful) or new (i.e., novel) or exhibits a sufficient “inventive step” (i.e., be not obvious) get a patent, the company must
reveal the details of the invention. The rationale for revealing the invention details is so that others can build on the
invention and thus promote further innovation. By revealing the invention, companies obtain legal protection and the
right to exclusive sales of the invention (or the right to license or sell its use to others). The patent gives the patent owner a
monopoly on the invention for a specific number of years. A patent prohibits other people from selling the identical
product built in the same way as the accepted patent. Patents give the owner the right to defend the invention in court, but
they don’t automatically mean that the owner will win the court case.
Trademarks
A registered trademark gives the entrepreneur exclusive rights to use symbolic
characters, sound, scents, logo, and pictures to license and sell its products.
Trademarks distinguish your products from other competitors on the market.
Registration prevents others from using a similar mark that may confuse customers.
However, it does not prevent the competitor from making a similar product.
Registration serves a public notice of ownership, making persons knowledgeable of
the brand.
Branding
A symbol or combination of designs, names or characters associated with an organization
that identifies it from its competitors.
283 | P a g e
Copyrights
The legal protection is given to individuals who express ideas and
information in mediums such as art, music, song, literary work, pictures,
drawings, and architecture. Copyright focuses on the expression of an
idea and not the idea. Copyright gives the creator the right to decide the
reproductive use of original work. Registered Design protection a design
can be created and registered for protection by the original owner. It can
apply to three-dimensional elements, shapes, colours, and textures.
Design protection protects original designs from being used without the
creator’s permission.
Registered Design Protection

A design can be created and registered for protection by the original owner. It can apply to three-dimensional elements,
shapes, colours, and textures. Design protection protects original designs from being used without the creator’s
permission.
Trade Secrets
In the entrepreneurial process, the entrepreneur may create a product or seek to enhance its innovative capabilities. The
law allows the entrepreneur to formulate a confidential legal agreement that restricts employees or authorized persons to
information by associating with the firm, from disclosing trade secrets. A trade secret consists of information that is
considered and must be kept as a secret has commercial value, and the result of disclosure will affect the value of the
enterprise.
Broadly speaking, any confidential business information which provides an enterprise with a competitive edge can qualify
as a trade secret. A trade secret may relate to technical matters, such as the composition or design of a product, a method
of manufacture or the know-how necessary to perform a particular operation. Common items that are protected as trade
secrets include manufacturing processes, market research results, consumer profiles, lists of suppliers and clients, price
lists, financial information, business plans, business strategies, advertising strategies, marketing plans, sales plans and
methods, distribution methods, designs, drawings, architectural plans, blueprints and maps, etc.
284 | P a g e
The simplest way for a company to protect its intellectual property is never to reveal it—to create what is called a trade
secret. This is how Coca-Cola protects the formula for its hugely popular soda. If the secret were discovered or revealed
through nefarious intent, then trade secret law would allow punishment of the perpetrator, including criminal
prosecution. But if a company somehow developed the same formula on its own, Coca Cola could do nothing to stop them.
Therefore, companies opt for other IP protection—namely, patents and copyrights.
Copyright and Related Rights

Copyright is the body of laws which grants authors, artists and other creators’ protection for their literary and artistic
creations, which are generally referred to as “works.” A closely associated field of rights related to copyright is “related
rights,” which provides rights similar or identical to those of copyright, although sometimes more limited and of shorter
duration.
Licensing IP Rights
The word license, according to the World Intellectual Property Organization (WIPO), means permission granted by the
owner of the intellectual property to another to use it according to agreed terms and conditions, for a defined purpose, in a
defined territory, and for an agreed period of time. In licensing IP rights, the IP owner gives permission to use the IP but
retains ownership of the IP.
285 | P a g e
Unit One Module Three
Question 1
Mrs. Thomas owns a mechanic store; her clients consistently demand her attention throughout the day. The tasks are
vastly becoming uncontrollable for Mrs. Thomas to achieve within the short opening hours of operation. She discussed the
problem with her son who provides assistance in the workplace twice per week. Amis is an innovative person who looked
at the issues in a different perspective. He provided his mother with a solution that will allow her to accomplish her
clients’ tasks in a profitable way. If you were Mrs. Thomas’ son, Amis, what are some of the solutions you would provide to
solve the problem faced in the workplace?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
2. In your own word, define the term creativity.
____________________________________________________________________________
____________________________________________________________________________
286 | P a g e
3. List three characteristics of a creative individual.
____________________________________________________________________________
____________________________________________________________________________
4. Explain two (2) steps of the creative process.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
5. Discuss three (3) importance of creativity in the entrepreneurship process.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
287 | P a g e
6. Which form of protection can be used for protecting a specific way of doing business, the underlying computer codes,
programmes, and technology?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
7. Analyze and differentiate three forms of protecting innovation.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
288 | P a g e
8. Discuss the implications of failing to protect innovations.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
289 | P a g e
UNIT 2: MODULE 1
THE ENTREPRENEURSHIP
PRACTICE
Essentials of Business Ownership

290 | P a g e
Overview
In Module one, students will examine the essentials of business ownership and develop an awareness of types of ventures,
risk, and benefits of different types of ventures, the legal and regulatory framework of different venture along with ethics
and social responsibilities as an entrepreneur. You will also examine the best practices of entrepreneurship development.
The aim of this module is to develop your understanding of entrepreneurship ventures, and have you evaluate the
different aspects of different types of business ventures.
Introduction
The teaching of entrepreneurship provides students with an opportunity to generate a feasible and sustainable income
while making a meaningful contribution to their country. The unit continues the process by examining the
entrepreneurship practice, assessing the essentials of business ownership, new venture planning, and creation and
managing, growing and harvesting the venture.
Types of Ventures
Introduction
In the lesson, we will begin to examine the essential of business ownership. As an entrepreneur, there are several types of
business venture that one can engage to create economic activity. In this unit, students will explore different types of
business ventures, there features and pros, and cons of each form of business.
Mom and pop store: This is a small proprietor with a small shop.
Sole Trader
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a
type of business entity that is owned and run by one natural person and in which there is no
legal distinction between the owner and the business. The owner is in direct control of all
elements and is legally accountable for the finances of such business, and this may include
debts, loans, loss, etc.
291 | P a g e
The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses
and debts. The proprietor owns every asset of the business, and all debts of the business are the proprietor's. It is a "sole"
proprietorship in contrast with partnerships (which have at least two owners). A sole proprietor may use a trade name or
business name other than his, her, or its legal name. They will have to legally trademark their business name, the process
being different depending upon country of residence.
Advantages
A large advantage of the sole proprietorship structure is its ease of filing
incorporation and tax documents as well as having uninterrupted control
of the business. The sole proprietorship is one type of business structure
that does not require formal incorporation, meaning that sole proprietors
do not need to formally file articles of incorporation, hold regular
meetings, or elect an advising or directing board. This simplicity is also
reflected in tax treatment, as a sole proprietor files taxes as personal
income. Sole proprietors also have control over the aspects of their
business without the involvement of elected board members.
A Writer’s Office: A writer enjoying the advantages of being a sole proprietor.
Disadvantages
On the flip side, the sole proprietorship has one main disadvantage: there is no separation
between the entrepreneur and the business. With sole proprietorships, like some forms of
partnership, owners can be personally liable for business losses, meaning their personal assets
are not protected against the claims of creditors. The sole proprietorship is not a separate
entity from the owner/entrepreneur, unlike a corporation. As a result, if the proprietor dies,
the business ceases to exist. Because the enterprise rests exclusively on one person, it often has
difficulty raising long-term capital.
Sole proprietorships have unlimited liability: A sole proprietor will be responsible for all the costs and debts of their company.
292 | P a g e
Franchise
Key Points
*A business format franchise is a franchising arrangement where the franchisor provides the franchisee with an
established business, including name and trademark, for the franchisee to run independently.
*A product franchise is a franchising agreement where manufacturers allow retailers to distribute products and use names
and trademarks.
*A manufacturing franchise is a franchising agreement where the franchisor allows a manufacturer to produce and sell
products using its name and trademark.
Types of Franchises
While there are many ways to differentiate between different types of franchises (size, geographic location, etc.), we will be
looking at how different franchisors allow franchisees to use their name. On this basis, there are three different types of
franchise:
• Business format franchises
• Product franchises
• Manufacturing franchises
Business Format Franchises

In business format franchises (which are the most common type), a company expands by supplying independent business
owners with an established business, including its name and trademark. The franchiser company generally assists the
independent owners considerably in launching and running their businesses. In return, the business owners pay fees and
royalties. In most cases, the franchisee also buys supplies from the franchiser. Fast food restaurants are good examples of
this type of franchise. Prominent examples include McDonald's, KFC, Burger King, and Pizza Hut.
293 | P a g e
McDonalds
McDonald's is perhaps the most famous franchise in the world.
Franchises
With product franchises, manufacturers control how retail stores distribute their products. Through this kind of
agreement, manufacturers allow retailers to distribute their products and to use their names and trademarks. To obtain
these rights, store owners must pay fees or buy a minimum amount of products. Tire stores, for example, operate under
this kind of franchise agreement.
Manufacturing Franchises
Through manufacturing franchises, a franchiser grants a manufacturer the
right to produce and sell goods using its name and trademark. This type of
franchise is common among food and beverage companies. For example, soft
drink bottlers often obtain franchise rights from soft drink companies to
produce, bottle and distribute soft drinks. The major soft drink companies
also sell the supplies to the regional manufacturing franchises. In the case of
Coca-Cola, for example, Coca-Cola sells the syrup concentrate to a bottling
company, who mixes these ingredients with water and bottles the product
and sells it on.
294 | P a g e
Advantages of Franchises
• Benefits to the franchisor include regular royalty payments, expansion with reduced financial risk, and a greater
geographical presence.
• Franchisee benefits include lower risk, lower startup costs, existing brand recognition, and parent company
marketing support.
• Potential franchisees can select a franchise based on their location, interests, resources, and needs, which means
that entering into a franchising arrangement can be a flexible process.
• Royalty payments
Franchisee benefits include:

o Higher chance of success due to tried and tested business model
o Franchisor support, training, and expertise
o Brand recognition and national marketing
Benefits for the Franchisor

Franchisors benefit from franchise agreements because they allow companies to expand much more quickly than they
could otherwise. A lack of funds and workers can cause a company to grow slowly. Through franchising, a company invests
very little capital or labor because the franchisee supplies both. The parent company experiences rapid growth with little
financial risk.
A company can also ensure it has competent and highly motivated owners and managers at each outlet through
franchising. Since the owners are largely responsible for the success of their outlets, they will put in a strong and constant
effort to make sure their businesses run smoothly and prosper. In addition, companies can provide franchising rights to
only qualified people.
295 | P a g e
Other benefits include:
• Franchising allows a business to have an international presence.
• Franchisors can experience economies of scale.
• Franchisors can benefit from growth without worrying about running costs.
• Franchisors receive royalty payments that are set as a percentage of profits.
Benefits for the Franchisee

The franchisee also has numerous advantages that come from entering a franchising agreement, including:
- There is a low risk due to the tried and tested formula. Buying a franchise business provides a higher chance for
success. They get the benefit of owning a proven business formula that has been tested and shown to work well in
other locations. In addition, they receive the support from the main company toward establishing the business, and
the training to operate it successfully.
- There are lower start-up costs since the business idea was already developed.
- They are buying a name and brand that is recognized by the public. So they have a big advantage over starting a
business from scratch, as they already have an established customer base.
- A franchise gives more security from the beginning. New independent businesses are known to have as high as a
90% failure rate, often causing the business owner heavy losses and at times bankruptcy.
- When you start a business from scratch, you spend huge amounts of time trying to operate the business without
being successful because you may not have the necessary skills for that particular area. When you purchase a
franchise, all the necessary groundwork has been done already. In addition, the franchisee gets training and head
office support from the franchisor; this may be essential if the franchisee is new to running a business and has no
experience or business knowledge.
- The franchisee gets the support of national marketing which a small business would not normally be able to afford.
In some cases of larger brands, they may have customers waiting for their doors to open (for example in a new
McDonalds).
- Since all the product selection and the marketing have been already developed, you simply have to take care of the
daily operations of the business. Your goal will be to grow from an established foundation and expand from there.
- The new franchise owner gains many benefits from the association with the main franchise company. The
franchisor offers a great deal of business experience that would take years for the average business person to
acquire.
296 | P a g e
Pizza Hut Franchise
Franchisees gain many benefits from being a franchisee rather than starting their own
business from scratch. There are a lot of part-time franchising opportunities, which are
perfect if someone has a small amount to invest and wants to support themselves and
maintain their investment. They may be able to sell the franchise to someone else once they
no longer wish to run it.
Disadvantages of Franchises
• Disadvantages to franchisors include a lack of control over franchisees, reputational risks, and slow growth through
franchising compared to mergers and acquisitions.
• Disadvantages to franchisees include high costs and royalty payments, strict product rules, and other start-up
challenges.
• Entering into an agreement with an interested franchisor is important. Uninterested franchisors will not provide
adequate support and are only interested in collecting fees and payments from franchisees.
Franchisee disadvantages may include:

• High entry costs, which include fees and start-up capital, and ongoing royalty fees
• Lack of support from uninterested franchisors
• Lack of flexibility in how to trade, as well as where to locate
Disadvantages to the Franchisor:

Of course, no business arrangement is without potential risks and disadvantages. While there are many advantages for the
franchisor in entering a franchising agreement, some of the potential risks are:
- Difficult to control activities of franchisees: In any franchise agreement (particularly when there is a geographical
separation between the franchisor and the franchisee), it can be difficult to control the activities of the franchisee
and ensure that their activities are up to standard.
297 | P a g e
- Huge risk in reputation by allowing other businesses to use their names. If a franchisee does not live up to the
quality standards of the franchisor (cleanliness, customer service, pricing, quality of the product, etc.), this can have
a negative reputational effect not just on the franchisee, but on the broader reputation of the franchisor as well.
Thus, there is a risk in allowing others not directly connected to the business to use the business name and
trademark.
Disadvantages to the Franchisee

- High entry and ongoing cost: It can be more expensive to start a franchise than an independent business. You can
open your own burger bar for a fraction of the cost of buying the rights to a McDonald's franchise. Thus, franchising
is often an option open only to already wealthy businessmen.
- Franchisees have to pay a significant percentage of their revenues to the franchisor: On top of the upfront money
needed to start a franchise, the franchisee must pay fees and royalties to the franchisor. The franchise fee may
range anywhere from $5,000 to over $1 million and hence can be a major expenditure for the franchisee. Royalties
are paid periodically during the life of the franchise agreement. They are either a percentage of an outlet's gross
income—usually under 10 percent of an outlet's gross income—or a fixed fee.
- Other franchise costs: In addition to royalties and payments, the franchisee may be required to buy certain items
from the franchisor like computer systems and software.
- Uninterested franchisors: Some franchisors may have little interest in their franchisee's success and may be more
interested in just collecting the fees associated with the franchise. Thus, support and marketing may not be
adequately provided.
- Strict product rules: Franchisees experience less flexibility to use their own initiative due to restraints from the
franchisor. Franchisees can only sell the products of the franchise, and they may be tied into a national brand with a
strict set of instructions about how they should trade.
- Startup challenges: The franchisee may have to find or build the right location, hire and train staff and install
equipment. This may be difficult for someone with limited business skills just starting out.
298 | P a g e
Closed shop
Franchisees face risks and disadvantages that may jeopardize their ability to stay open.
Franchise costs vary to some extent because of costs associated with different kinds of
businesses and with different locations.
Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a hybrid business entity having certain characteristics of both a corporation and a
partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a
type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation
is a limited liability and the primary characteristic it shares with a partnership is the availability of pass-through income
taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.
Advantages
• Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, or corporation (as long as they
would otherwise qualify for such tax treatment), providing for a great deal of flexibility.
• A limited liability company with multiple members that elects to be taxed as a partnership may specially allocate
the members' distributive share of income, gain, loss, deduction, or credit via the company operating agreement.
• Limited liability, meaning that the owners of the LLC, called "members," are protected from some or all liability for
acts and debts of the LLC depending on state shield laws.
• Much less administrative paperwork and record keeping than a corporation.
• Using default tax classification, profits are taxed personally at the member level, not at the LLC level. LLCs can be
set up with just one natural person involved.
• Less risk of being "stolen" by fire-sale acquisitions (more protection against "hungry" investors).
• For real estate companies, each separate property can be owned by its own, individual LLC, thereby shielding not
only the owners but their other properties from cross-liability.
299 | P a g e
Disadvantages
Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple
member LLC who operate without one may run into problems. The members of an LLC must establish governance and
protective provisions under an operating agreement or similar governing document.
• It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds
in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form
a new corporation and merge into it, dissolving the LLC and converting into a corporation.
• Many jurisdictions levy a franchise tax or capital values tax on LLCs. In essence, this franchise or business privilege
tax is the fee the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on
revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital
employed in the state, or some combination of those factors, or simply a flat fee.
• Typically, LLCs will choose to be taxed as a partnership to avoid double taxation, which occurs in corporations. This
allows companies to distribute their income among members who then report it on their personal tax returns.
• Renewal fees may also be higher.
• The management structure of an LLC may not be clearly stated. Unlike corporations, they are not required to have
a board of directors or officers. (This could also be seen as an advantage to some).
• The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director,
chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the
authority to enter into a contract on the LLC's behalf.
Variation of LLCs
1. A Professional Limited Liability Company (PLLC, P.L.L.C., or P.L.) is a limited liability company organized for the
purpose of providing professional services. Usually, professions where the state requires a license to provide services, such
as a doctor, chiropractor, lawyer, accountant, architect, landscape architect, or engineer, require the formation of a PLLC.
Typically, a PLLC's members must all be professionals practicing the same profession. In addition, the limitation of
personal liability of members does not extend to professional malpractice claims.
2. A Series LLC is a special form of a Limited liability company that allows a single LLC to segregate its assets into separate
series. For example, a series LLC that purchases separate pieces of real estate may put each in a separate series so if the
lender forecloses on one piece of property; the others are not affected.
300 | P a g e
3. An L3C is a for-profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not
maximizing income. It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social
benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.
4. An Anonymous Limited Liability Company is an LLC where ownership information is not made publicly available by the
state where the LLC is registered. This is done by using a third-party to act as the organizer and registered agent of the
LLC. The level of anonymity varies with different states.
Private Companies
A private company has shareholders with limited liability, and its shares may not be offered to the general public, unlike
those of a public limited company (plc). 13 Private companies may be called corporations, limited companies, limited
liability companies, unlimited companies, or other names, depending on where and how they are organized and
structured. Each of these categories may have additional requirements and restrictions that may impact reporting
requirements, income tax liabilities, governmental obligations, employee relations, marketing opportunities, and other
business obligations and decisions.
Limited by shares means that the liability of the shareholders to creditors of the company is limited to the capital
originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the
company. A shareholder's personal assets are thus protected in the event of the company's insolvency, but any money
invested in the company may be lost. A limited company may be "private" or "public." A private limited company's
disclosure requirements are lighter. However, its shares may not be offered to the general public and therefore cannot be
traded on a public stock exchange. This is the major difference between a private limited company and a public limited
company. Most companies, particularly small companies, are private. Private companies limited by shares are usually
required to have the suffix "Limited" (often written "Ltd" or "Ltd.") or "Incorporated" ("Inc.") as part of their name.
301 | P a g e
Advantages
• When a limited company is formed, it must issue one or more subscriber shares to its initial members. It may
increase capitalization by the issue of further shares. The issued share capital of the company is the total number of
existing shares in the company multiplied by the nominal value of each share.
• When private companies decide to raise outside equity capital, they can seek funding from several
potential sources: angel investors, venture capital firms, institutional investors, and corporate investors.
• Private investors can offer expert knowledge and direct oversight of the company in a way that can benefit
performance.
• A private company limited by shares, or an unlimited company with a share capital, may re-register as a public
limited company (PLC). A private company must pass a special resolution that it be so re-registered and deliver a
copy of the resolution together with an application form to the Registrar.
• Privately held companies are not generally required to publish their financial statements. By not being required to
disclose details about their operations and financial outlook, private companies are not forced to disclose
information that may potentially be valuable to competitors and can avoid the immediate erosion of customer and
stakeholder confidence in the event of financial duress. Further, with limited reporting requirements and
shareholder expectations, private firms are afforded a greater operational flexibility by being able to focus on long-
term growth rather than quarterly earnings.
• Private company executives may steer their ships without shareholder approval, allowing them to take significant
action without delays.
Disadvantages
• Shares in a private company are usually transferred by private agreement between the seller and the buyer, as they
may not be offered to the general public.
• The articles of association of private companies often place restrictions on the transfer of shares.
• Going public provides companies with greater liquidity and better access to capital. By going public, companies give
their private equity investors the ability to diversify.
302 | P a g e
Non-Governmental Organizations
Non-governmental Organizations - A non-governmental organization (NGO) is a not-for-profit organization that is
independent of states and international governmental organizations. They are usually funded by donations, but some
avoid formal funding altogether and are run primarily by volunteers. NGOs are highly diverse groups of organizations
engaged in a wide range of activities, and take different forms in different parts of the world. Some may have charitable
status, while others may be registered for tax exemption based on recognition of social purposes. Others may be fronts for
political, religious, or other interests.
Characteristics of Non-governmental Organizations

NGOs exhibit some specific characteristics including:
a. The majority of NGOs are small and horizontally structured with short lines of communication and are therefore
capable of responding flexibly and rapidly to clients' needs and to changing circumstances. NGOs often maintain a
field presence in remote locations, where there are few government facilities. However, because NGOs' projects are
small in size they rarely address the structural problems. Small size, independence, and differences in philosophy
also limit learning from each other's experience and the creation of effective forums, at national and international
level.
b. They have pioneered a wide range of participatory methods for diagnosis and introduced approaches for testing
new technology and incorporate local knowledge systems. However, NGOs have limited capacities for agricultural
technology development and dissemination.
c. Most NGOs are more accountable to external funding agencies than to the clientele they claim to serve.
Types of Non-Governmental Organizations

• Community-Based Organizations (CBOs)
• Social Enterprises
• Charities and Endowment/Foundations
• Cooperative Societies
303 | P a g e
Advantages of Non-Governmental Organizations
1. NGOs have the ability to experiment freely with innovative approaches and, if necessary, to take risks.
2. They are flexible in adapting to local situations and responding to local needs and therefore able to develop
integrated projects, as well as sectoral projects.
3. They enjoy good rapport with people and can render micro-assistance to very poor people as they can identify those
who are most in need and tailor assistance to their needs.
4. They have the ability to communicate at all levels, from the neighborhood to the top levels of government.
5. They can recruit both experts and highly motivated staff with fewer restrictions than the government.
Disadvantages of Non-Governmental Organizations

1. Paternalistic attitudes restrict the degree of participation in program/project design.
2. Restricted/constrained ways of approach to a problem or area.
3. Reduced/less replicability of an idea, due to non-representativeness of the project or selected area, relatively small
project coverage, dependence on outside financial resources, etc.
4. "Territorial possessiveness" of an area or project reduces cooperation between agencies, seen as threatening or
competitive.
5. Top-down models of development minimize the role of local knowledge and ownership to submit or conform to
international norms and expectations.
6. Dependency on external assistance decreases the pressure for local and national governments to provide for their
citizens.
Community-Based Organizations (CBOs)

• Community-based organizations (CBOs) arise out of people's own initiatives. They can be responsible for
raising the consciousness of the urban poor, helping them to understand their rights in accessing needed
services and providing such services.
304 | P a g e
Social Enterprises
A social enterprise is an organization that applies commercial strategies to maximize improvements in human and
environmental well-being—this may include maximizing social impact alongside profits for external shareholders. Social
enterprises can be structured as a for-profit or non-profit and may take the form (depending on which country the entity
exists and the legal forms available) of a co-operative, mutual organization, a disregarded entity, social business, a benefit
corporation, a community interest company or a charity organization. They can also take more conventional structures.
What differentiates social enterprises is that their social mission is as core to their success as any potential profit.29
Charities
A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it
centers on philanthropic goals as well as social well-being (e.g. charitable, educational, religious, or other activities serving
the public interest or common good). The legal definition of a charitable organization (and of charity) varies according to
the country and in some instances the region of the country in which the charitable organization operates. The regulation,
tax treatment, and the way in which charity law affects charitable organizations also varies. Charitable organizations often
depend partly on donations from for-profit organizations. Such donations to charitable organizations represent a major
form of corporate philanthropy.
Endowment
A financial endowment is a donation of money or property to a nonprofit organization for the ongoing support of that
organization. Usually, the endowment is structured so that the principal amount is kept intact while the investment
income is available for use, or part of the principal is released each year, which allows for their donation to have an impact
over a longer period than if it were spent all at once. An endowment may come with stipulations regarding its usage. The
total value of an institution's investments is often referred to as the institution's endowment and is typically organized as a
public charity, private foundation, or trust. Among the institutions that commonly manage endowments are academic
institutions. For example, colleges, universities, and private schools), cultural institutions (museums, libraries, and
theaters), service organizations (hospitals, retirement homes, the Red Cross), and religious organizations (churches,
synagogues, mosques).
305 | P a g e
Types of endowment funds
• An unrestricted endowment can be used in any way the recipient chooses to carry out its mission.
• Term endowment funds stipulate that all or part of the principal may be expended only after the expiration of a
stated period of time or occurrence of a specified event, depending on donor wishes.
• Quasi-endowment funds must retain the purpose and intent as specified by the donor or source of the original
funds and earnings may be expended only for the specified purpose.
• Restricted endowments -Endowment revenue can be restricted by donors to serve many purposes. Endowed
professorships or scholarships restricted to a particular subject are common; in some places, a donor could fund a
trust exclusively for the support of a pet. Ignoring the restriction is called "invading" the endowment. However, the
change of circumstance or financial duress like bankruptcy can preclude carrying out the donor's intent. A court can
alter the use of restricted endowment under a doctrine called cy-près meaning to find an alternative "as near as
possible" to the donor's intent. The restricted/unrestricted distinction focuses on the use of the funds;
• Quasi-endowments - A quasi-endowment, or fund functioning as an endowment, are funds merely earmarked by an
organization's governing board, rather than restricted by a donor or other outside agency, to be invested to provide
income for a long but unspecified period, and the governing board has the right to decide at any time to expend the
principal of such funds. Separately from the endowment versus quasi-endowment distinction, there's another 2-
way categorization of restricted and unrestricted, which focuses on the use of the funds. As an example, a quasi-
endowment might be restricted by the donor to supporting the tennis team; the use is restricted to one purpose, but
the governing board could "invade principal" to support the tennis team.
Foundations
A foundation (also a charitable foundation) is a legal category of nonprofit organizations that will typically either
donate funds or support to other organizations or provides the source of funding for its own charitable purposes.
Foundations incorporate private foundations and public foundations.
This type of non-profit organization differs from a private foundation which is typically endowed by an individual or
family.
306 | P a g e
Cooperative Societies
A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close
association with the enterprise as producers or consumers of its products or services, or as its employees.
A cooperative (also known as co-operative, co-op or coop) is an autonomous association of people united voluntarily
to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically
controlled business. Cooperatives include non-profit community organizations and businesses that are owned and
managed by the people who use their services (a consumer cooperative); by the people who work there (a worker
cooperative); by the people who live there (a housing cooperative); hybrids such as worker cooperatives that are also
consumer cooperatives or credit unions; multi-stakeholder cooperatives such as those that bring together civil society and
local actors to deliver community needs; and second and third tier cooperatives whose members are other cooperatives.
Coop Principles and Values

Cooperative Principles are the seven guidelines by which coops put their values into practice, often called the seven
Rochdale Principles:
1. Voluntary and open membership
2. Democratic member control
3. Economic participation by members
4. Autonomy and independence
5. Education, training, and information
6. Cooperation among cooperatives
7. Concern for community
Cooperatives Values, in the tradition of its founders, are based on "self-help, self-responsibility, democracy, equality,
equity, and solidarity." Co-operative members believe in the ethical values of honesty, openness, social responsibility and
caring for others.
307 | P a g e
State Owned Enterprises (Statutory Organizations)
A state-owned enterprise (SOE) is a legal entity that undertakes commercial activities on behalf of the state, its owner.
SOEs are also called state-owned company, state-owned entity, state enterprise, publicly owned corporation, government
business enterprise, Crown Corporation, a government-owned corporation, commercial government agency, public sector
undertaking, or parastatal. Reasons for state ownership of commercial enterprises are that the enterprise in question is a
natural monopoly or because the government is promoting economic development and industrialization. SOEs can be
fully owned or partially owned by the government. As a definitional issue, it is difficult to determine categorically what
level of state ownership would qualify an entity to be considered as state-owned since governments can also own regular
stock, without implying any special interference. Government-owned corporations are common with natural monopolies
and infrastructure, such as railways and telecommunications, strategic goods and services (mail, weapons), natural
resources and energy, politically sensitive business, broadcasting, demerit goods (e.g. alcoholic beverages), and merit
goods (healthcare).
The legal status of SOEs varies from being a part of the government to being stock companies with the state as a regular
stockholder. The defining characteristics of SOEs are that they have a distinct legal form and are established to operate in
commercial affairs and commercial activities. While they may also have public policy objectives (e.g., a state railway
company may aim to make transportation more accessible), SOEs should be differentiated from other forms of
government agencies or state entities established to pursue purely nonfinancial objectives.
Advantages
• Generally financed by the central or state government
• They have to frame their own policies and procedures within the scope of the state legislature.
• They can recruit and appoint their employee with their service condition since they are a corporate body.
• May borrow funds from the public and government organizations through statutory sources. If they are profitable,
the profit is often used to finance other state services, such as social programs and government research, which can
help lower the tax burden.
308 | P a g e
Disadvantages
• They may be obliged to operate loss-making activities where it is judged that social benefits are greater than social
costs— for example, rural postal and transport services.
• State-owned Enterprise is perceived as excessive government interference in, and control of, economic affairs of
individual citizens.
• When ownership of a resource is vested in the state, or any branch of the state such as a local authority, individual
use "rights" are based on the state's management policies, though these rights are not property rights as they are
not transmissible. For example, if a family is allocated an apartment that is state owned, it will have been granted a
tenancy of the apartment, which may be lifelong or inheritable, but the management and control rights are held by
various government departments.
Broken Down of Types of Business
The legal forms of business:
1. Sole Trader
2. Partnerships
3. Limited Companies
4. CO-operatives
5. Franchising
6. Multinational Companies
7. Organizations and the public sector
8. Corporation
309 | P a g e
Introduction
A person wanting to set up a business has to consider what legal form organization should take.
Factors influencing this decision are:
▪ How many owners the business is going to have?
▪ What is the tax position of the business?
▪ Can the owner take the risk of unlimited ability?
▪ Does the owner want all the business profits?
▪ Is there a complete privacy in the affairs of the business for the owner?
▪ In the case of the owners illness or death what will happen to the business?
Sole Trader
What is a sole trader?

Sole trader is a person who owns and operates their own business. They may or may not employ other people. It is
important to remember that a sole trader is usually a relatively small business with little capital available for expansion
and the capital that has been invested comes from one source and that is the owner. Sole traders are common businesses.
Example of a sole trader business is a hairdresser.
The advantages of being a sole trader are:
Profits - they are kept by the owner. There are no other shareholders so the profits don't have to be split.
Easy to run - every business is difficult to run successfully but sole trader is the easiest form of business
Easy to establish - hardly any complicated forms or procedures. Some of the other legal forms have to have legal forms
completed before the business can start.
Total control - the owner is in charge of the business. He/she does not need to discuss their decisions with any other
owners. They have total control of the business.
310 | P a g e
Privacy - As there are no shareholders in the business you only need to inform Inland Revenue and Customs and Excise
in order for them to see how well the sole proprietor is doing.
Flexibility - very flexible working hours as sole trader is its own boss e.g. Rather than working on Friday he/she decides
to work on Sunday instead.
Disadvantages of Sole Trader:
Illness - If ill the business might be forced to shut down stopping the income and profits
Unlimited liability - if the things don’t work out as planned the sole proprietor could lose all its investment.
Lack of continuity - because the owner is the business there is no guarantee that the business will carry on running once
the owner decided to stop.
Long hours - long hours may be required of the owner to keep the business afloat.
Difficulty in raising capital - small businesses find it hard to find a startup capital and usually the owner might have to
put his/her house as an insurance for capital borrowed.
Limited specialization - as the owner has to be a purchaser, lorry driver and accountant there is no time for this person
to specialize in all fields
Limited economies of scale - e.g. a small construction business would have to hire a lorry to do the required task as
this would be cheaper but larger business would buy its own as this would prove to be cheaper due to the fact that lorry is
in continuous use.
Definitions:
Sole Trader- a single owner of the business who has unlimited liability
Unlimited Liability - a legal obligation stating that the owner must settle all debts of the business. If the debt of a
business is larger than his personal assets than they may be forced into bankruptcy
Economies of Scale - are the factors that cause average costs to be lower in large scale operations than in small scale
ones.
311 | P a g e
Partnership
What is Partnership?
Partnership is a type of business where 2 or more people agree to own, run and trade. Partnerships require a high degree
of trust and are very common in fields such as medicine.
Decisions regarding partnership
When setting up a business a person has to decide whether to set up a business on their own or with
others. This will depend on:
• How much control they want over the business
• Are they prepared to share the profit
• Can they raise necessary capital to start up the business by themselves
• There is also a risk factor. Is this person prepared to accept the risk of unlimited liability?
The advantages of partnership are:

• Easy to set up
• Solicitors and accountants are not required to run the business
• Profits belong to the partners
• Privacy. Only tax authorities need to be told how much partners are earning and profit of the business
• Often good relations between partners raising capital for the business is easier than that of sole
proprietor
• Different expertise for partners e.g. 1 specializes in accountancy whilst the other in marketing
Some businesses have sleeping/silent partners. They play a little role in running day to day basis
of a business but they provide the capital for the business.
312 | P a g e
The disadvantages of partnership:
• Disagreements between partners, which can be bad for business

• Some partnerships don’t have a deed of partnership, which can be bad for business
• Most partnerships are relatively small businesses e.g. Shops, farms
Definitions:
Ordinary Partnerships - there can be between 2 and 20 partners

Deed of Partnership - is the legal contract, which sets out following:
• Who the partners are
• Capital brought into business by each partner
• How profits should be shared
• How many votes each partner has in any partnership meeting
• What happens if there is a withdrawal of a partner from the business
Limited companies
What is a limited company?
Every limited company has a shareholder. The term limited company refers to the fact that if the company goes into debt
each shareholder risks losing only the amount he has invested and his personal belongings are safe and can’t be touched.
313 | P a g e
• The owners of the company are called shareholders
• they have limited liability
314 | P a g e
Two documents required by Registrar of Companies to set up a limited company are:
✓ The articles of association - this is basically the rule book of how the company must operate. It is agreed by the
people setting up the business. The articles of association gives details such as voting rights of the shareholders,
how the profit will be distributed, how decisions will be reached etc.
✓ The memorandum of association - This is basically the CV of the company. It tells people what the business does
and where it operates from. In it you could find the details such as the names of the companies and the addresses of
their headquarters.
✓ Every year a limited company has to send audited accounts and various other documents to the Registrar Of
Companies at Company House. Anybody who asks can see them.
Private Limited Companies (LTD) and Public Limited Companies (PLC)
Difference between PLC and LTD lie in:

✓ Sales of shares - the Public Limited Company’s shares must be tradable on stock exchange
✓ Share capital - £50,000 in share capital is required from PLC by the law in order to start up
Size and number of shareholders - the number of shareholders is likely to be far greater in PLC than in LTD
Control - LTD is controlled by shareholders in theory
Every year shareholders’ interests are represented at AGM (Annual General Meeting) of directors who appoint managers
to run their companies
In LTD Company the shareholders, the directors and managers are often same people because the company is usually
small
In PLC company situation is different. The managers and the directors are different form shareholders
The advantages of becoming a PLC company are:
It is easier to attract shareholders to invest money in the business because of limited liability. It enables a business to grow
and become large.
315 | P a g e
The disadvantages of becoming PLC Company are:
✓ General public has the access about the company’s information

✓ Giving information out is also costly in terms of administration costs
✓ PLC companies must comply with stock exchange rules
✓ It has been known that sometimes the only interest for a shareholder is short term profit
Definitions:
✓ Articles of association - the document, which gives the details about the relationship between the company and its
shareholders and directors
✓ Directors - people elected by the shareholders to represent the shareholders’ interests
✓ Limited liability - when shareholders of a company are liable for the debts of a company only up to the value of their
shareholding.
✓ Private Limited Company - a joint stock company whose shares are not openly traded on a stock exchange
✓ Public Limited Company - a joint stock company whose shares are openly traded on a stock exchange
✓ Shareholders - the owners of a company
✓ The Registrar General - keeps records on all UK limited companies.
✓ Divorce of Ownership and Control - this occurs when there is a disagreement between shareholders, managers and
directors e.g. A manager of a MNC wants to invest in a country where a political situation is unstable but he thinks
that the gains outweigh the risks but the shareholders disagree. If there is a continuous disagreement between
managers and shareholders than this leads to Divorce of Ownership and Control
316 | P a g e
Cooperatives
What Cooperative movement is made up off?
United Norwest Co-operative is a part of the UK Co-operative movement. It is made up of:

✓ Co-operative retail societies
✓ Co-operative wholesale society
✓ And a variety of other Co-operative operations e.g. banking and travel
Cooperatives today
✓ Largest firm of undertakers in the UK
✓ Co-operative society is based in North West of England
✓ It is the 7th largest tour operator in UK
✓ The largest wholesaler and farmer in UK
✓ Insurance societies and banks of Co-op are both very successful
Problems
Since 1945 they have lost the market share in grocery business. They are under intense competition from supermarket
chains such as Sainsbury and Tesco.
Reasons being:
✓ Co-op have been operating too many small shops with high costs
✓ Sainsbury and Tesco were able were able to open up bigger shops and buy in bulk, which made them more
competitive
✓ The dividend, which kept customers loyal to Co-op in the past became less and less important as buyers found
Tesco and Sainsbury to be cheaper
317 | P a g e
Worker Cooperatives
This is different from retail Co-operative. A Worker Co-operative is a business, which is owned
by its workers.
As the owners are the workers they also make decisions on how the business is run. Each
worker is entitled to one vote when making a decision and he also owns one share of the
business.
Advantages of Worker Cooperative are:

✓ It is unlikely to be a conflict of interests between owners and the workers because profits made by the business go
to the workers or are reinvested back into a business
✓ The business is likely to be conscious of its place in community
Disadvantages of Worker Cooperative are:

✓ Difficult to persuade other workers to establish a worker Co-operative. Partnerships are much easier.
✓ New workers usually have to become new owners. There could be difficulty in raising the capital required to
become the owner
✓ Limited companies tend to buy out very successful worker CO-operatives
✓ Expansion can be difficult as it cannot look for new shareholders to finance expansion
✓ The belief of workers that everybody should be paid the same
Problems with Worker Cooperatives

The main problem with worker Co-operatives is that there are too many managerial tasks so they bring in outsiders to
perform these tasks e.g. Accountancy so soon enough the workers themselves find themselves bosses around by other
agencies.
318 | P a g e
Definitions
✓ Consumer Co-operative - a business organization owned by customer shareholders and which aims to maximize
benefits for its customers
✓ Worker Co-operative - a business organization owned by its workers who run the business and share the profit
among themselves
Franchising
What is a franchise?
A franchise is a business established by one person who the buys copyrights of another firm and is allowed to produce and
distribute that product.
What the franchisor provides?

✓ Training to start the business
✓ Equipment e.g. shop fittings, machinery
✓ Materials used for production
✓ Finding customers e.g. advertising
✓ Back up services e.g. a loan, advice
✓ A brand name e.g., Coca cola,
✓ An exclusive area in which to sell the products
✓ Goods or services to sell
The cost to the franchisee
Franchisors tend to charge a fixed sum at the start of the franchise agreement to cover the costs of starting up a new
branch, then they charge a fee or a percentage of the sales that the business has made.
319 | P a g e
Advantages to franchisee are:
✓ 6-7% of franchise businesses fail
✓ Franchisor is careful in his/hers selection of franchisee
✓ Franchisor sets out at the start how much capital franchisee will need to start the business
✓ Franchise formula has already been tested and it has been established in the market
✓ Franchisor provides ongoing support e.g. Help to sort out tax problems
Disadvantages to franchisee are:

✓ Franchisee has no freedom to manoeuvre, he has to stick to franchise agreement
✓ Franchisee cannot sell the business without franchisors permission
✓ Franchisor can end the agreement without any explanation or compensation
✓ If franchisee becomes successful he feel that the franchisor is profiting from his hard work
Advantages to franchisor are:

✓ Due to the fact that the franchisee puts up money from the start it allows for a faster rate of expansion of
franchisors business
✓ Franchisee will be keen and motivated to make the business successful and this will help franchisor
Does a franchise work?

Answer: not all the time
If there is a poor business plan this could lead to both franchisor and franchisee to be out of the business also if a
franchisee provides poor quality product this could have disastrous consequences.
Definitions
Franchise - the right given by one business to another to sell goods and services using its name
320 | P a g e
Organization & Public Sector
Public sector
The public sector is run and owned by the state.
Two (2) most important parts of the state are:

✓ Central Government - controlled from London
✓ Local Government - is the government of counties, districts and parishes throughout UK
The public sector is a provider, producer and buyer.
✓ Provider - the public sector provides a range of services e.g. health, police, education
✓ Producer - the public sector produces some of the goods and provides some of the services e.g. defence, education
and healthcare.
✓ Buyer - the public sector buys the rest of what it provides from private sector businesses e.g. new roads and places
in old people’s homes.
Public Corporation
It is only owned by the central government who is the only shareholder. The government sets goals for public
corporations to achieve.
It has a board of directors and this type of business organization is recognized in law like a public limited company or a
Co-operative.
321 | P a g e
Privatization
Privatization - government selling public corporations to private buyers. Opposite of this is nationalization.
Things to consider when it comes to privatization are:
✓ Costs
✓ prices
✓ the product
Other public sector enterprises are:

✓ Local leisure centres
✓ Cemeteries
✓ Airports
✓ Market halls
✓ Trust hospitals
Ways in which government can affect businesses are:

✓ Deregulation - occurs when the government removes some of these rules
o Health and Safety Acts
o Trade Description Act
o Ending monopoly rights
322 | P a g e
Definitions:
✓ Contracting out - also known as sub-contracting. The company hire another firms services to do the task within
your firm e.g. Hiring an outside firm to do you cleaning duties
✓ Nationalization - the purchase by the state of a private sector business
✓ Public Corporation - a public sector enterprise owned by the central government
✓ Public sector enterprise - a business owned by the state, which sells what it produces to the private sector. This
also includes NHS(National Health Service)
Corporation
Corporations are probably the dominant form of business organization in the United States. Although fewer in number,
corporations account for the lion's share of aggregate business receipts in the U.S. economy. A corporation is a legal entity
doing business, and is distinct from the individuals within the entity. Public corporations are owned by shareholders who
elect a board of directors to oversee primary responsibilities.
Advantages
• Unlimited commercial life. The corporation is an entity of its own and does not dissolve when ownership changes.
• Greater flexibility in raising capital through the sale of stock.
• Ease of transferring ownership by selling stock.
• Limited liability. This limited liability is probably
• The biggest advantage to organizing as a corporation.
• Individual owners in corporations have limits on their personal liability.
• Even if a corporation is sued for billions of dollars, individual shareholder's liability is generally limited to the value
of their own stock in the corporation.
Unlike a partnership or sole proprietorship, shareholders of a modern business corporation have limited liability for the
corporation’s debts and obligations. As a result, their losses cannot exceed the amount which they contributed to the
corporation as dues or payment for shares. This enables corporations to socialize their costs. Socializing a cost is to spread
it to society in general. The economic rationale for this is that it allows anonymous trading in the shares of the corporation
by eliminating the corporation’s creditors as a stakeholder in such a transaction. Without limited liability, a creditor would
probably not allow any share to be sold to a buyer at least as creditworthy as the seller.
323 | P a g e
Limited liability reduces the amount that a shareholder can lose in a company so it allows corporations to raise large
amounts of finance for their enterprises by combining funds from many stock owners. This increases the attraction to
potential shareholders and increases both the number of willing shareholders and the amount they are likely to invest.
However, some jurisdictions also permit another type of corporation, in which shareholders’ liability is unlimited, for
example the unlimited liability corporation in two provinces of Canada, and the unlimited company in the United
Kingdom.
Another advantage is that the assets and structure of the corporation may continue beyond the lifetimes of its
shareholders and bondholders. This allows stability and the accumulation of capital, which is then available for
investment in larger and longer-lasting projects than if the corporate assets were subject to dissolution and distribution.
This was also important in medieval times, when land donated to the Church (a corporation) would not generate the
feudal fees that a lord could claim upon a landholder’s death. However, a corporation can be dissolved by a government
authority, putting an end to its existence as a legal entity. But this usually only happens if the company breaks the law. For
example, it fails to meet annual filing requirements or, in certain circumstances, if the company requests dissolution.
Welcoming Facebook: Facebook was able to raise $16 billion when it decided to offer shares to the public.
324 | P a g e
Disadvantages
• Regulatory restrictions. Corporations are typically more closely monitored by governmental agencies, including
federal, state, and local. Complying with regulations can be costly.
• Higher organizational and operational costs. Corporations have to file articles of incorporation with the appropriate
state authorities. These legal and clerical expenses, along with other recurring operational expenses, can contribute
to budgetary challenges.
• Double taxation. The possibility of double taxation arises when companies declare and pay taxes on the net income
of the corporation, which they pay through their corporate income tax returns. If the corporation also pays out
dividends to individual shareholders, those shareholders must declare that dividend income as personal income
and pay taxes at the individual income tax rates. Thus, the possibility of double taxation.
In many countries, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a
separate rate — double taxation.
In many countries, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a
separate rate. Such a system is sometimes referred to as “double taxation”, because any profits distributed to shareholders
will eventually be taxed twice.
One solution to this (as in the case of the Australian and UK tax systems) is for the recipient of the dividend to be entitled
to a tax credit, which addresses the fact that the profits represented by the dividend have already been taxed. The company
profit being passed on is therefore effectively only taxed at the rate of tax paid by the eventual recipient of the dividend.
In other systems, dividends are taxed at a lower rate than other income (for example, in the US) or shareholders are taxed
directly on the corporation’s profits and dividends are not taxed. For example, S corporations in the US do not pay any
federal income taxes. Instead, the corporation’s income or losses are divided among and passed through to its
shareholders. The shareholders must then report the income or loss on their own individual income tax returns.
Another disadvantage of corporations is that, as Adam Smith pointed out in the Wealth of Nations, when ownership is
separated from management (i.e. the actual production process required to obtain the capital), the latter will inevitably
325 | P a g e
begin to neglect the interests of the former, creating dysfunction within the company. Some maintain that recent events in
corporate America may serve to reinforce Smith’s warnings about the dangers of legally-protected, collectivist hierarchies.
The fees and legal costs required to form a corporation may be substantial, especially if the business is just being started
and the corporation is low on financial resources.
Leeman Brothers’ Collapse: The management of Leeman Brothers was involved in presenting a misleading picture of
the company which collapsed in 2008.
326 | P a g e
Legal and Regulatory Framework
Introduction
In the lesson, we will begin to examine the elements of the legal and regulatory framework. Modern day business practices
emphasize the significance of protecting ventures legally to strengthen the resilience and sustainability of the venture.
Therefore, it is crucial to evaluate the roles of entrepreneurship in national and regional development to understand our
role as an entrepreneur in the economy. Our goal is to start and operate a successful business.
Registration of a Venture
The initial stage of starting a business venture is the registration of the business name with the appointed state authorities.
In most countries, it is the Intellectual Property Rights Office. This process checks to verify that another business does not
exist with the same business name.
Registration of a venture provides identity and ownership of the business thus showing the legality of the business. It
establishes the business in the economy and for marketing purposes, contributing to the economic development of the
country.
1. The Intellectual Property Rights Office is the institution responsible for registering a business. This process takes a
week. In Antigua, the office is located at St. John’s Street. In order to complete this process,
one should take identification in the form of a passport/ national ID/naturalization certification,
a work permit (if applicable), and
$112 for the application fee
2. On receipt of the business registration certificate, the entrepreneur would then take the certificate to the Inland
Revenue Department to be issued a tax identification number for the business.
3. The registration certificate should be taken to the Social Security office for registration for Social Security payments and
then to Medical Benefits and Board of Education to complete registration for the business for tax payment. (Ref JR 2012)
327 | P a g e
Intellectual Property Protection
An entrepreneur can use...
Copyright
Trademarks
Patent
Trade Secret a secret innovation or device used by a company…
Intellectual Property Rights (IPR)

For companies to gain financial benefits from investing in research and coming up with new inventions, there must be
legal protection for those inventions. The system of law related to Research & Development and innovation is referred to
as intellectual property rights. Different countries vary in the extent to which they protect intellectual property and
enforce intellectual property regulations. The presence of strong, enforceable, consistent property rights serves to make
the world flat. However, as long as significant differences in property rights exist around the globe, the world will be far
from flat with respect to innovation.
Intellectual Property Rights is the legal protection of an invention developed by an individual.
The creator can own the rights to their invention or creative works. Intellectual Property Rights:
Establishes standards
Minimizes competing for development
Access to new markets
Access to new technology.
328 | P a g e
Intellectual property (IP) refers to creations of the mind—inventions, literary and artistic works, and symbols, names, and
images used in commerce. The term property connotes ownership that’s exclusive, but the owners have the right to license
or sell their IP. Under intellectual property law, owners are granted certain exclusive rights—intellectual property rights
(IPR) —to the discoveries, inventions, words, phrases, symbols, and designs they create. World Intellectual Property
Organization (WIPO) The World Intellectual Property Organization (WIPO) is a specialized agency of the United Nations
that works to harmonize the intellectual property laws of countries around the world. Although the roots of the WIPO go
back to 1883, WIPO became an agency of the United Nations in 1974, with a mandate to administer intellectual property
matters recognized by the member states of the UN. In 1996, WIPO expanded its role and further demonstrated the
importance of intellectual property rights in the management of globalized trade by entering into a cooperation agreement
with the World Trade Organization (WTO). Today, WIPO seeks to
• Harmonize national intellectual property legislation and procedures,
• Provide services for international applications for industrial property rights,
• Exchange intellectual property information,
• Provide legal and technical assistance to developing and other countries,
• Facilitate the resolution of private intellectual property disputes, and
• Marshal information technology as a tool for storing, accessing and using valuable intellectual property
information.
Patents
Rights are given to investors to exploit the invention for the life of the patent. The investor must meet certain stipulations
in registering the patent to have a monopoly over the invention. This reduces the risk of competitors using, manufacturing
or modifying the invention for personal and financial gain.
The creator establishes ownership of the innovation. Not all inventions are patented, and not all innovations are
patentable. Creators must research and assess economic costs and feasibility in choosing a patent. Stipulations for a
patent- · Must have never existed prior · Have innovative steps · Capable of industrial application. For security, creators
should not publicize innovations or reveal the patent before the filing date. The patent is not affected until it is
commercialized on the market.
329 | P a g e
The most common way to protect an industrial discovery or invention is to patent it. A patent is an inventor’s exclusive
right granted by the government for an invention, whether a product or a process, that is industrially applicable (i.e.,
useful) or new (i.e., novel) or exhibits a sufficient “inventive step” (i.e., be not obvious) get a patent, the company must
reveal the details of the invention. The rationale for revealing the invention details is so that others can build on the
invention and thus promote further innovation. By revealing the invention, companies obtain legal protection and the
right to exclusive sales of the invention (or the right to license or sell its use to others). The patent gives the patent owner a
monopoly on the invention for a specific number of years. A patent prohibits other people from selling the identical
product built in the same way as the accepted patent. Patents give the owner the right to defend the invention in court, but
they do not automatically mean that the owner will win the court case.
Trademarks - A registered trademark gives the entrepreneur exclusive rights to use symbolic characters, sound, scents,
logo, and pictures to license and sell its products. Trademarks distinguish your products from other competitors on the
market.
Registration prevents others from using a similar mark that may confuse customers. However, it does not prevent the
competitor from making a similar product. Registration serves a public notice of ownership, making persons
knowledgeable of the brand.
Branding - A symbol or combination of designs, names or characters associated with an organization that identifies it
from its competitors.
Copyrights - The legal protection is given to individuals who express ideas and information in mediums such as art,
music, song, literary work, pictures, drawings, and architecture. Copyright focuses on the expression of an idea and not
the idea. Copyright gives the creator the right to decide the reproductive use of original work.
Registered Design Protection

A design can be created and registered for protection by the original owner. It can apply to three-dimensional elements,
shapes, colours, and textures. Design protection protects original designs from being used without the creator’s
permission.
330 | P a g e
Trade Secrets
In the entrepreneurial process, the entrepreneur may create a product or seek to enhance its innovative capabilities. The
law allows the entrepreneur to formulate a confidential legal agreement that restricts employees or authorized persons to
information by associating with the firm, from disclosing trade secrets. A trade secret consists of information that is
considered and must be kept as a secret has commercial value, and the result of disclosure will affect the value of the
enterprise. Broadly speaking, any confidential business information which provides an enterprise with a competitive edge
can qualify as a trade secret. A trade secret may relate to technical matters, such as the composition or design of a product,
a method of manufacture or the know-how necessary to perform a particular operation. Common items that are protected
as trade secrets include manufacturing processes, market research results, consumer profiles, lists of suppliers and clients,
price lists, financial information, business plans, business strategies, advertising strategies, marketing plans, sales plans
and methods, distribution methods, designs, drawings, architectural plans, blueprints and maps, etc.
The simplest way for a company to protect its intellectual property is never to reveal it—to create what is called a trade
secret. This is how Coca-Cola protects the formula for its hugely popular soda. If the secret were discovered or revealed
through nefarious intent, then trade secret law would allow punishment of the perpetrator, including criminal
prosecution. However, if a company somehow developed the same formula on its own, Coca-Cola could do nothing to stop
them. Therefore, companies opt for other IP protection—namely, patents and copyrights.
Copyright and Related Rights

Copyright is the body of laws which grants authors, artists and other creators’ protection for their literary and artistic
creations, which are generally referred to as “works.” A closely associated field of rights related to copyright is “related
rights,” which provides rights similar or identical to those of copyright, although sometimes more limited and of shorter
duration.
Licensing IP Rights
The word license, according to the World Intellectual Property Organization (WIPO), means permission granted by the
owner of the intellectual property to another to use it according to agreed terms and conditions, for a defined purpose, in a
defined territory, and for an agreed period of time. In licensing IP rights, the IP owner gives permission to use the IP but
retains ownership of the IP.
331 | P a g e
Broken Down of Intellectual Property:
What is intellectual Property?

Intellectual property refers to creations of the mind: inventions; literary and artistic works; and symbols, names and
images used in commerce. Intellectual property is divided into two categories:
Industrial Property includes patents for inventions, trademarks, industrial designs and geographical indications.
Copyright covers literary works (such as novels, poems and plays), films, music, artistic works (e.g., drawings, paintings,
photographs and sculptures) and architectural design. Rights related to copyright include those of performing artists in
their performances, producers of phonograms in their recordings, and broadcasters in their radio and television programs.
What are intellectual property rights?

Intellectual property rights are like any other property right. They allow creators, or owners, of patents, trademarks or
copyrighted works to benefit from their own work or investment in a creation. These rights are outlined in Article 27 of the
Universal Declaration of Human Rights, which provides for the right to benefit from the protection of moral and material
interests resulting from authorship of scientific, literary or artistic productions.
The importance of intellectual property was first recognized in the Paris Convention for the Protection of Industrial
Property (1883) and the Berne Convention for the Protection of Literary and Artistic Works (1886). Both treaties are
administered by the World Intellectual Property Organization (WIPO).
332 | P a g e
Why promote and protect intellectual property?
There are several compelling reasons. First, the progress and well-being of humanity rest on its capacity to create and
invent new works in the areas of technology and culture. Second, the legal protection of new creations encourages the
commitment of additional resources for further innovation. Third, the promotion and protection of intellectual property
spurs economic growth, creates new jobs and industries, and enhances the quality and enjoyment of life. An efficient and
equitable intellectual property system can help all countries to realize intellectual property’s potential as a catalyst for
economic development and social and cultural well-being. The intellectual property system helps strike a balance between
the interests of innovators and the public interest, providing an environment in which creativity and invention can
flourish, for the benefit of all.
How does the average person benefit?

Intellectual property rights reward creativity and human endeavor, which fuel the progress of humankind. Some
examples:
• The multibillion dollar film, recording, publishing and software industries – which bring pleasure to millions of
people worldwide – would not exist without copyright protection.
• Without the rewards provided by the patent system, researchers and inventors would have little incentive to
continue producing better and more efficient products for consumers.
• Consumers would have no means to confidently buy products or services without reliable, international trademark
protection and enforcement mechanisms to discourage counterfeiting and piracy.
What is a Patent?
A patent is an exclusive right granted for an invention – a product or process that provides a new way of doing something,
or that offers a new technical solution to a problem.
A patent provides patent owners with protection for their inventions. Protection is granted for a limited period, generally
20 years.
333 | P a g e
Why are patents necessary?
Patents provide incentives to individuals by recognizing their creativity and offering the possibility of material reward for
their marketable inventions. These incentives encourage innovation, which in turn enhances the quality of human life.
What kind of protection do patents offer?

Patent protection means an invention cannot be commercially made, used, distributed or sold without the patent owner’s
consent. Patent rights are usually enforced in courts that, in most systems, hold the authority to stop patent infringement.
Conversely, a court can also declare a patent invalid upon a successful challenge by a third party.
What rights do patent owners have?

A patent owner has the right to decide who may – or may not – use the patented invention for the period during which it is
protected. Patent owners may give permission to, or license, other parties to use their inventions on mutually agreed
terms. Owners may also sell their invention rights to someone else, who then becomes the new owner of the patent. Once a
patent expires, protection ends and the invention enters the public domain. This is also known as becoming off patent,
meaning the owner no longer holds exclusive rights to the invention, and it becomes available for commercial exploitation
by others.
What role do patents play in everyday life?

Patented inventions have pervaded every aspect of human life, from electric lighting (patents held by Edison and Swan)
and sewing machines (patents held by Howe and Singer), to magnetic resonance imaging (MRI) (patents held by
Damadian) and the iPhone (patents held by Apple). In return for patent protection, all patent owners are obliged to
publicly disclose information on their inventions in order to enrich the total body of technical knowledge in the world.
This ever- increasing body of public knowledge promotes further creativity and innovation. Patents therefore provide not
only protection for their owners but also valuable information and inspiration for future generations of researchers and
inventors.
334 | P a g e
How is a patent granted?
The first step in securing a patent is to file a patent application. The application generally contains the title of the
invention, as well as an indication of its technical field. It must include the background and a description of the invention,
in clear language and enough detail that an individual with an average understanding of the field could use or reproduce
the invention. Such descriptions are usually accompanied by visual materials – drawings, plans or diagrams – that
describe the invention in greater detail. The application also contains various “claims”, that is, information to help
determine the extent of protection to be granted by the patent.
What kinds of inventions can be protected?

An invention must, in general, fulfill the following conditions to be protected by a patent. It must be of practical use; it
must show an element of “novelty”, meaning some new characteristic that is not part of the body of existing knowledge in
its particular technical field. That body of existing knowledge is called “prior art”. The invention must show an “inventive
step” that could not be deduced by a person with average knowledge of the technical field. Its subject matter must be
accepted as “patentable” under law. In many countries, scientific theories, mathematical methods, plant or animal
varieties, discoveries of natural substances, commercial methods or methods of medical treatment (as opposed to medical
products) are not generally patentable.
Who grants patents?

Patents are granted by national patent offices or by regional offices that carry out examination work for a group of
countries – for example, the European Patent Office (EPO) and the African Intellectual Property Organization (OAPI).
Under such regional systems, an applicant requests protection for an invention in one or more countries, and each country
decides whether to offer patent protection within its borders. The WIPO-administered Patent Cooperation Treaty (PCT)
provides for the filing of a single international patent application that has the same effect as national applications filed in
the designated countries. An applicant seeking protection may file one application and request protection in as many
signatory states as needed.
335 | P a g e
A trademark is a distinctive sign that identifies certain goods or services produced or provided by an individual or a
company. Its origin dates back to ancient times when craftsmen reproduced their signatures, or “marks”, on their artistic
works or products of a functional or practical nature. Over the years, these marks have evolved into today’s system of
trademark registration and protection. The system helps consumers to identify and purchase a product or service based on
whether its specific characteristics and quality – as indicated by its unique trademark – meet their needs.
What do trademarks do?

Trademark protection ensures that the owners of marks have the exclusive right to use them to identify goods or services,
or to authorize others to use them in return for payment. The period of protection varies, but a trademark can be renewed
indefinitely upon payment of the corresponding fees. Trademark protection is legally enforced by courts that, in most
systems, have the authority to stop trademark infringement.
In a larger sense, trademarks promote initiative and enterprise worldwide by rewarding their owners with recognition and
financial profit. Trademark protection also hinders the efforts of unfair competitors, such as counterfeiters, to use similar
distinctive signs to market inferior or different products or services. The system enables people with skill and enterprise to
produce and market goods and services in the fairest possible conditions, thereby facilitating international trade.
What kinds of trademarks can be registered?

Trademarks may be one or a combination of words, letters and numerals. They may consist of drawings, symbols or three-
dimensional signs, such as the shape and packaging of goods. In some countries, non-traditional marks may be registered
for distinguishing features such as holograms, motion, color and non-visible signs (sound, smell or taste).
In addition to identifying the commercial source of goods or services, several other trademark categories also exist.
Collective marks are owned by an association whose members use them to indicate products with a certain level of quality
and who agree to adhere to specific requirements set by the association. Such associations might represent, for example,
accountants, engineers or architects. Certification marks are given for compliance with defined standards but are not
confined to any membership.
336 | P a g e
They may be granted to anyone who can certify that their products meet certain established standards. Some examples of
recognized certification are the internationally accepted “ISO 9000” quality standards and Ecolabels for products with
reduced environmental impact.
How is a trademark registered?

First, an application for registration of a trademark must be filed with the appropriate national or regional trademark
office. The application must contain a clear reproduction of the sign filed for registration, including any colors, forms or
three-dimensional features. It must also contain a list of the goods or services to which the sign would apply. The sign
must fulfill certain conditions in order to be protected as a trademark or other type of mark. It must be distinctive, so that
consumers can distinguish it from trademarks identifying other products, as well as identify a particular product with it. It
must neither mislead nor deceive customers nor violate public order or morality.
Finally, the rights applied for cannot be the same as, or similar to, rights already granted to another trademark owner.
This may be determined through search and examination by national offices, or by the opposition of third parties who
claim to have similar or identical rights.
How extensive is trademark protection?

Almost all countries in the world register and protect trademarks. Each national or regional office maintains a Register of
Trademarks containing full application information on all registrations and renewals, which facilitates examination,
search and potential opposition by third parties. The effects of the registration are, however, limited to the country (or, in
the case of regional registration, countries) concerned.
To avoid the need to register separate applications with each national or regional office, WIPO administers an
international registration system for trademarks. The system is governed by two treaties: the Madrid Agreement
Concerning the International Registration of Marks and the Madrid Protocol. Persons with a link (be it through
nationality, domicile or establishment) to a country party to one or both of these treaties may, on the basis of a registration
or application with the trademark office of that country (or related region), obtain an international registration having
effect in some or all of the other countries of the Madrid Union.
337 | P a g e
What is an Industrial Design?
An industrial design refers to the ornamental aesthetic aspects of an article. A design may consist of three – dimensional
features, such as the shape or surface of an article, or two – dimensional features such as, patterns, lines or color.
Industrial designs are applied to a wide variety of industrial products and handicrafts: from technical and medical
instruments to watches, jewelry and other luxury items; from house wares and electrical appliances to vehicles and
architectural structures; from textile designs to leisure goods.
To be protected under most national laws, an industrial design must be new or original and nonfunctional. This means
that an industrial design is primarily of an aesthetic nature and any technical features of the article to which it is applied
are not protected by the design registration. However, those features could be protected by a patent.
Why protect industrial designs?

Industrial designs are what make an article attractive and appealing; hence, they add to the commercial value of a product
and increase its marketability.
When an industrial design is protected, the owner – the person or entity that has registered the design – is assured an
exclusive right and protection against unauthorized copying or imitation of the design by third parties. This helps to
ensure a fair return on investment. An effective system of protection also benefits consumers and the public at large, by
promoting fair competition and honest trade practices, encouraging creativity and promoting more aesthetically pleasing
products.
Protecting industrial designs helps to promote economic development by encouraging creativity in the industrial and
manufacturing sectors, as well as in traditional arts and crafts. Designs contribute to the expansion of commercial activity
and the export of national products.
338 | P a g e
Industrial designs can be relatively simple and inexpensive to develop and protect. They are reasonably accessible to small
and medium-sized enterprises as well as to individual artists and craftsmakers, in both developed and developing
countries.
How can industrial designs be protected?

In most countries, an industrial design must be registered in order to be protected under industrial design law. As a rule,
to be registrable, the design must be “new” or “original”. Countries have varying definitions of such terms, as well as
variations in the registration process itself. Generally, “new” means that no identical or very similar design is known to
have previously existed. Once a design is registered, a registration certificate is issued. Following that, the term of
protection granted is generally five years, with the possibility of further renewal, in most cases for a period of up to 15
years.
Hardly any other subject matter within the realm of intellectual property is as difficult to categorize as industrial designs.
And this has significant implications for the means and terms of its protection. Depending on the particular national law
and the kind of design, an industrial design may also be protected as a work of applied art under copyright law, with a
much longer term of protection than the standard 10 or 15 years under registered design law. In some countries, industrial
design and copyright protection can exist concurrently. In other countries, they are mutually exclusive: once owners
choose one kind of protection, they can no longer invoke the other.
Under certain circumstances an industrial design may also be protectable under unfair competition law, although the
conditions of protection and the rights and remedies available can differ significantly.
How extensive is industrial design protection?

Generally, industrial design protection is limited to the country in which protection is granted. The Hague Agreement
Concerning the International Registration of Industrial Designs, a WIPO- administered treaty, offers a procedure for
international registration of designs. Applicants can file a single international application either with WIPO or the
national or regional office of a country party to the treaty. The design will then be protected in as many member countries
of the treaty as the applicant designates.
339 | P a g e
What is a Geographical Indication?
A geographical indication is a sign used on goods that have a specific geographical origin and possess qualities or a
reputation due to that place of origin. Most commonly, a geographical indication consists of the name of the place of origin
of the goods. Agricultural products typically have qualities that derive from their place of production and are influenced by
specific local geographical factors, such as climate and soil. Whether a sign functions as a geographical indication is a
matter of national law and consumer perception. Geographical indications may be used for a wide variety of agricultural
products, such as, for example, “Tuscany” for olive oil produced in a specific area of Italy, or “Roquefort” for cheese
produced in that region of France.
The use of geographical indications is not limited to agricultural products. They may also highlight specific qualities of a
product that are due to human factors found in the product’s place of origin, such as specific manufacturing skills and
traditions. The place of origin may be a village or town, a region or a country. An example of the latter is “Switzerland” or
“Swiss”, perceived as a geographical indication in many countries for products made in Switzerland and, in particular, for
watches.
What is an appellation of origin?

An appellation of origin is a special kind of geographical indication used on products that have a specific quality
exclusively or essentially due to the geographical environment in which the products are produced. The term geographical
indication encompasses appellations of origin. Examples of appellations of origin that are protected in states party to the
Lisbon Agreement for the Protection of Appellations of Origin and their International Registration are “Bordeaux” for
wine produced in the Bordeaux region of France, “Prosciutto di Parma” – or Parma ham – for ham produced in the Parma
province of Italy or “Habana” for tobacco grown in the Havana region of Cuba.
340 | P a g e
Why do geographical indications need protection?
Geographical indications are understood by consumers to denote the origin and quality of products. Many of them have
acquired valuable reputations which, if not adequately protected, may be misrepresented by commercial operators. False
use of geographical indications by unauthorized parties, for example “Darjeeling” for tea that was not grown in the tea
gardens of Darjeeling, is detrimental to consumers and legitimate producers. The former are deceived into believing they
are buying a genuine product with specific qualities and characteristics, and the latter are deprived of valuable business
and suffer damage to the established reputation of their products.
What is the difference between a geographical indication and a trademark?

A trademark is a sign used by a company to distinguish its goods and services from those produced by others. It gives its
owner the right to prevent others from using the trademark. A geographical indication guarantees to consumers that a
product was produced in a certain place and has certain characteristics that are due to that place of production. It may be
used by all producers who make products that share certain qualities in the place designated by a geographical indication.
What is a “generic” geographical indication?

If the name of a place is used to designate a particular type of product, rather than to indicate its place of origin, the term
no longer functions as a geographical indication. For example, “Dijon mustard”, a kind of mustard that originated many
years ago in the French town of Dijon, has, over time, come to denote mustard of that kind made in many places. Hence,
“Dijon mustard” is now a generic indication and refers to a type of product, rather than a place.
How are geographical indications protected?

Geographical indications are protected in accordance with national laws and under a wide range of concepts, such as laws
against unfair competition, consumer protection laws, laws for the protection of certification marks or special laws for the
protection of geographical indications or appellations of origin. In essence, unauthorized parties may not use geographical
indications if such use is likely to mislead the public as to the true origin of the product. Applicable sanctions range from
court injunctions preventing unauthorized use to the payment of damages and fines or, in serious cases, imprisonment.
341 | P a g e
What is WIPO’s role in the protection of geographical indications?
WIPO administers a number of international agreements that deal partly or entirely with the protection of geographical
indications (in particular, the Paris Convention and the Lisbon Agreement). WIPO meetings offer Member States and
other interested parties the opportunity to explore new ways of enhancing the international protection of geographical
indications.
What are Copyright and Related Rights?

Copyright laws grant authors, artists and other creator’s protection for their literary and artistic creations, generally
referred to as “works”. A closely associated field is “related rights” or rights related to copyright that encompass rights
similar or identical to those of copyright, although sometimes more limited and of shorter duration. The beneficiaries of
related rights are:
• performers (such as actors and musicians) in their performances;
• producers of phonograms (for example, compact discs) in their sound recordings; and
• broadcasting organizations in their radio and television programs.
Works covered by copyright include, but are not limited to: novels, poems, plays, reference works, newspapers,
advertisements, computer programs, databases, films, musical compositions, choreography, paintings, drawings,
photographs, sculpture, architecture, maps and technical drawings.
342 | P a g e
What rights do copyright and related rights provide?
The creators of works protected by copyright, and their heirs and successors (generally referred to as “right holders”), have
certain basic rights under copyright law. They hold the exclusive right to use or authorize others to use the work on agreed
terms. The right holder(s) of a work can authorize or prohibit:
• its reproduction in all forms, including print form and sound recording;
• its public performance and communication to the public;
• its broadcasting;
• its translation into other languages; and
• its adaptation, such as from a novel to a screenplay for a film.
Similar rights of, among others, fixation (recording) and reproduction are granted under
related rights.
Many types of works protected under the laws of copyright and related rights require mass distribution, communication
and financial investment for their successful dissemination (for example, publications, sound recordings and films).
Hence, creators often transfer these rights to companies better able to develop and market the works, in return for
compensation in the form of payments and/or royalties (compensation based on a percentage of revenues generated by
the work).
The economic rights relating to copyright are of limited duration – as provided for in the relevant WIPO treaties –
beginning with the creation and fixation of the work, and lasting for not less than 50 years after the creator’s death.
National laws may establish longer terms of protection. This term of protection enables both creators and their heirs and
successors to benefit financially for a reasonable period of time. Related rights enjoy shorter terms, normally 50 years
after the performance, recording or broadcast has taken place. Copyright and the protection of performers also include
moral rights, meaning the right to claim authorship of a work, and the right to oppose changes to the work that could
harm the creator’s reputation.
343 | P a g e
Rights provided for under copyright and related rights laws can be enforced by right holders through a variety of methods
and fora, including civil action suits, administrative remedies and criminal prosecution. Injunctions, orders requiring
destruction of infringing items, inspection orders, among others, are used to enforce these rights.
What are the benefits of protecting copyright and related rights?

Copyright and related rights protection is an essential component in fostering human creativity and innovation. Giving
authors, artists and creators incentives in the form of recognition and fair economic reward increases their activity and
output and can also enhance the results. By ensuring the existence and enforceability of rights, individuals and companies
can more easily invest in the creation, development and global dissemination of their works. This, in turn, helps to
increase access to and enhance the enjoyment of culture, knowledge and entertainment the world over, and also
stimulates economic and social development.
How have copyright and related rights kept up with advances in technology?
The field of copyright and related rights has expanded enormously during the last several decades with the spectacular
progress of technological development that has, in turn, yielded new ways of disseminating creations by such forms of
communication as satellite broadcasting, compact discs and DVDs. Widespread dissemination of works via the Internet
raises difficult questions concerning copyright and related rights in this global medium. WIPO is fully involved in the
ongoing international debate to shape new standards for copyright protection in cyberspace. In that regard, the
Organization administers the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty
(WPPT), known as the “Internet Treaties”. These treaties clarify international norms aimed at preventing unauthorized
access to and use of creative works on the Internet.
How are copyright and related rights regulated?

Copyright and related rights protection is obtained automatically without the need for registration or other formalities.
However, many countries provide for a national system of optional registration and deposit of works. These systems
facilitate, for example, questions involving disputes over ownership or creation, financial transactions, sales, assignments
and transfer of rights.
344 | P a g e
Many authors and performers do not have the ability or means to pursue the legal and administrative enforcement of their
copyright and related rights, especially given the increasingly global use of literary, music and performance rights. As a
result, the establishment and enhancement of collective management organizations (CMOs), or “societies”, is a growing
and necessary trend in many countries. These societies can provide their members with efficient administrative support
and legal expertise in, for example, collecting, managing and disbursing royalties gained from the national and
international use of a work or performance. Certain rights of producers of sound recordings and broadcasting
organizations are sometimes managed collectively as well.
What is the World Intellectual Property Organization?

Established in 1970, the World Intellectual Property Organization (WIPO) is an international organization dedicated to
helping ensure that the rights of creators and owners of intellectual property are protected worldwide, and that inventors
and authors are therefore recognized and rewarded for their ingenuity.
This international protection acts as a spur to human creativity, pushing back the limits of science and technology and
enriching the world of literature and the arts. By providing a stable environment for marketing products protected by
intellectual property, it also oils the wheels of international trade. WIPO works closely with its Member States and other
constituents to ensure the intellectual property system remains a supple and adaptable tool for prosperity and well-being,
crafted to help realize the full potential of created works for present and future generations.
How does WIPO promote the protection of intellectual property?

As part of the United Nations system of specialized agencies, WIPO serves as a forum for its Member States to establish
and harmonize rules and practices for the protection of intellectual property rights. WIPO also services global registration
systems for trademarks, industrial designs and appellations of origin, and a global filing system for patents. These systems
are under regular review by WIPO’s Member States and other stakeholders to determine how they can be improved to
better serve the needs of users and potential users.
345 | P a g e
Many industrialized nations have intellectual property protection systems that are centuries old. Among newer or
developing countries, however, many are in the process of building up their patent, trademark and copyright legal
frameworks and intellectual property systems. With the increasing globalization of trade and rapid changes in
technological innovation, WIPO plays a key role in helping these systems to evolve through treaty negotiation; legal and
technical assistance; and training in various forms, including in the area of enforcement.
WIPO works with its Member States to make available information on intellectual property and outreach tools for a range
of audiences – from the grassroots level through to the business sector and policymakers – to ensure its benefits are well
recognized, properly understood and accessible to all.
How is WIPO funded?

WIPO is a largely self-financed organization, generating more than 90 percent of its annual budget through its widely used
international registration and filing systems, as well as through its publications and arbitration and mediation services.
The remaining funds come from contributions by Member States.
Understanding Copyright and Related Rights
Introduction
This booklet is intended to provide an introduction for non-specialists or new-comers to the subject of copyright and
related rights. It explains in layman’s terms the fundamentals underpinning copyright law and practice. It describes the
different types of rights which copyright and related rights law protects, as well as the limitations on those rights. And it
briefly covers transfer of copyright and provisions for enforcement.
Detailed legal or administrative guidance on how, for example, to deal with infringement of copyright, is not covered in
this booklet, but can be obtained from national intellectual property or copyright offices. The further information section
at the back of this booklet also lists some useful websites and publications for readers requiring more detail.
346 | P a g e
A separate WIPO booklet, Understanding Industrial Property, offers an equivalent introduction to the subject of industrial
property, including patents for invention, industrial designs, trademarks and geographical indications.
Intellectual Property
Copyright legislation is part of the wider body of law known as intellectual property. The term intellectual property refers
broadly to the creations of the human mind. Intellectual property rights protect the interests of creators by giving them
property rights over their creations.
The Convention Establishing the World Intellectual Property Organization (1967) gives the following list of subject matter
protected by intellectual property rights:
▪ literary, artistic and scientific works;
▪ performances of performing artists, phonograms, and broadcasts;
▪ inventions in all fields of human endeavor;
▪ scientific discoveries;
▪ industrial designs;
▪ trademarks, service marks, and commercial names and designations;
▪ protection against unfair competition; and
▪ “all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.”
Intellectual property relates to items of information or knowledge, which can be incorporated in tangible objects at the
same time in an unlimited number of copies at different locations anywhere in the world. The property is not in those
copies but in the information or knowledge reflected in them. Intellectual property rights are also characterized by certain
limitations, such as limited duration in the case of copyright and patents.
The importance of protecting intellectual property was first recognized in the Paris Convention for the Protection of
Industrial Property in 1883 and the Berne Convention for the Protection of Literary and Artistic Works in 1886. Both
treaties are administered by the World Intellectual Property Organization (WIPO).
347 | P a g e
Countries generally have laws to protect intellectual property for two main reasons. One is to give statutory expression to
the moral and economic rights of creators in their creations and to the rights of the public in accessing those creations.
The second is to promote creativity, and the dissemination and application of its results, and to encourage fair trade,
which would contribute to economic and social development.
The Two Branches of Intellectual Property

Industrial Property and Copyright
Intellectual property is usually divided into two branches, namely industrial property, which broadly speaking protects
inventions, and copyright, which protects literary and artistic works.
Industrial property takes a range of forms. These include patents to protect inventions, and industrial designs, which
are aesthetic creations determining the appearance of industrial products. Industrial property also covers trademarks,
service marks, layout-designs of integrated circuits, commercial names and designations, as well as geographical
indications, and protection against unfair competition.
Copyright relates to artistic creations, such as books, music, paintings and sculptures, films and technology-based works
such as computer programs and electronic databases. In most European languages other than English, copyright is known
as author’s rights. The expression copyright refers to the main act which, in respect of literary and artistic creations, may
be made only by the author or with his authorization. That act is the making of copies of the work. The expression author’s
rights refers to the creator of the artistic work, its author. It thus underlines the fact, recognized in most laws, that the
author has certain specific rights in his creation which only he can exercise (such as the right to prevent a distorted
reproduction). Other rights (such as the right to make copies) can be exercised by other persons, for example, a publisher
who has obtained a license from the author.
While other types of intellectual property also exist, it is helpful for present purposes to explore the distinction between
industrial property and copyright in terms of the basic difference between inventions and literary and artistic works.
348 | P a g e
Inventions may be defined in a non-legal sense as new solutions to technical problems. These new solutions are ideas,
and are protected as such; protection of inventions under patent law does not require that the invention be represented in
a physical embodiment. The protection accorded to inventors is, therefore, protection against any use of the invention
without the authorization of the owner. Even a person who later makes the same invention independently, without
copying or even being aware of the first inventor’s work, must obtain authorization before he can exploit it.
Unlike protection of inventions, copyright law protects only the form of expression of ideas, not the ideas themselves.
The creativity protected by copyright law is creativity in the choice and arrangement of words, musical notes, colors and
shapes. So copyright law protects the owner of property rights against those who copy or otherwise take and use the form
in which the original work was expressed by the author.
From this basic difference between inventions and literary and artistic works, it follows that the legal protection provided
to each also differs. Since protection for inventions gives a monopoly right to exploit an idea, such protection is short in
duration- usually about 20 years. The fact that the invention is protected must also be made known to the public. There
must be an official notification that a specific, fully described invention is the property of a specific owner for a fixed
number of years; in other words, the protected invention must be disclosed publicly in an official register.
Since the legal protection of literary and artistic works under copyright, by contrast, prevents only unauthorized use of the
expressions of ideas, the duration of protection can be much longer than in the case of the protection of ideas themselves,
without damage to the public interest. Also, the law can be - and in most countries is - simply declaratory, i.e., the law may
state that the author of an original work has the right to prevent other persons from copying or otherwise using his work.
So a created work is considered protected as soon as it exists, and a public register of copyright protected works is not
necessary.
349 | P a g e
Works Protected by Copyright
For the purposes of copyright protection, the term “literary and artistic works” is understood to include every original
work of authorship, irrespective of its literary or artistic merit. The ideas in the work do not need to be original, but the
form of expression must be an original creation of the author. The Berne Convention for the Protection of Literary and
Artistic Works (Article 2) states: “The expression ‘literary and artistic works’ shall include every production in the literary,
scientific and artistic domain, whatever may be the mode or form of its expression”. The Convention goes on to list the
following examples of such works:
▪ books, pamphlets and other writings;
▪ lectures, addresses, sermons;
▪ dramatic or dramatico-musical works;
▪ choreographic works and entertainments in dumb show;
▪ musical compositions with or without words;
▪ cinematographic works to which are assimilated works expressed by a process analogous to cinematography;
▪ works of drawing, painting, architecture, sculpture, engraving and lithography;
▪ photographic works, to which are assimilated works expressed by a process analogous to photography;
▪ works of applied art; illustrations, maps, plans, sketches and three- dimensional works relative to geography,
topography, architecture or science;
▪ “translations, adaptations, arrangements of music and other alterations of a literary or artistic work, which are to
be protected as original works without prejudice to the copyright in the original work.”
▪ “collections of literary or artistic works such as encyclopaedias and anthologies which, by reason of the selection
and arrangement of their contents, constitute intellectual creations, are to be protected as such, without prejudice
to the copyright in each of the works forming part of such collections.”
Member countries of the Berne Union, and many other countries, provide protection under their copyright laws for the
above categories of works. The list, however, is not intended to be exhaustive. Copyright laws also protect other modes or
forms of expression of works in the literary, scientific and artistic domain, which are not included in the list.
350 | P a g e
Computer programs are a good example of a type of work which is not included in the list in the Berne Convention, but
which is undoubtedly included in the notion of a production in the literary, scientific and artistic domain within the
meaning of Article 2. Indeed, computer programs are protected under the copyright laws of a number of countries, as well
as under the WIPO Copyright Treaty (1996). A computer program is a set of instructions, which controls the operations of
a computer in order to enable it to perform a specific task, such as the storage and retrieval of information. The program is
produced by one or more human authors, but in its final “mode or form of expression,” it can be understood directly only
by a machine (the computer), not by humans. Multimedia productions are another example of a type of work not
listed in the Berne Convention, but which comes within the notion of creations in the literary, scientific and artistic
domain. While no acceptable legal definition has been developed, there is a consensus that the combination of sound, text
and images in a digital format, which is made accessible by a computer program, embodies an original expression of
authorship sufficient to justify the protection of multimedia productions under the umbrella of copyright.
Rights Protected
The principle of any kind of property is that the owner may use it as he wishes, and that nobody else can lawfully use it
without his authorization. This does not, of course, mean that he can use it regardless of the legally recognized rights and
interests of other members of society. Similarly the owner of copyright in a protected work may use the work as he wishes,
and may prevent others from using it without his authorization. The rights granted under national laws to the owner of
copyright in a protected work are normally exclusive rights to authorize a third party to use the work, subject to the legally
recognized rights and interests of others.
There are two types of rights under copyright. Economic rights allow the rights owner to derive financial reward from the
use of his works by others. Moral rights allow the author to take certain actions to preserve the personal link between
himself and the work.
351 | P a g e
Most copyright laws state that the author or rights owner has the right to authorize or prevent certain acts in relation to a
work. The rights owner of a work can prohibit or authorize:
• its reproduction in various forms, such as printed publications or sound recordings;
• the distribution of copies;
• its public performance;
• its broadcasting or other communication to the public;
• its translation into other languages;
• its adaptation, such as a novel into a screenplay.
These rights are explained in more detail in the following paragraphs.
Rights of reproduction, distribution, rental and importation

The right of the copyright owner to prevent others from making copies of his works without his authorization is the most
basic right protected by copyright legislation. The right to control the act of reproduction – be it the reproduction of books
by a publisher, or the manufacture by a record producer of compact discs containing recorded performances of musical
works - is the legal basis for many forms of exploitation of protected works.
Other rights are recognized in national laws in order to ensure that this basic right of reproduction is respected. Many laws
include a right specifically to authorize distribution of copies of works. Obviously, the right of reproduction would be of
little economic value if the owner of copyright could not authorize the distribution of the copies made with his consent.
The right of distribution usually terminates upon first sale or transfer of ownership of a particular copy. This means, for
example, that when the copyright owner of a book sells or otherwise transfers ownership of a copy of the book, the owner
of that copy may give the book away or even resell it without the copyright owner’s further permission.
Another right which is achieving increasingly wide recognition, and is included in the WIPO Copyright Treaty, is the right
to authorize rental of copies of certain categories of works, such as musical works in sound recordings, audiovisual works,
and computer programs. This became necessary in order to prevent abuse of the copyright owner’s right of reproduction
when technological advances made it easy for rental shop customers to copy such works.
352 | P a g e
Finally, some copyright laws include a right to control importation of copies as a means to prevent erosion of the principle
of territoriality of copyright; that is, the legitimate economic interests of the copyright owner would be endangered if he
could not exercise the rights of reproduction and distribution on a territorial basis.
Certain forms of reproduction of a work are exceptions to the general rule, because they do not require the authorization
of the rights owner. These exceptions are known as limitations on rights (see page 11). An area of current debate relates to
the scope of one particular limitation traditionally present in copyright laws, which allows individuals to make single
copies of works for private, personal and non-commercial purposes. The continued justification for such a limitation on
the right of reproduction is being questioned now that digital technology has made it possible to produce high-quality,
unauthorized copies of works, which are virtually indistinguishable from the source - and thus a perfect substitute for the
purchase of authorized copies.
Rights of public performance, broadcasting, communication to the public, and making available to the
public
A public performance is considered under many national laws to include any performance of a work at a place where
the public is or can be present; or at a place not open to the public, but where a substantial number of persons outside the
normal circle of a family and its close acquaintances is present. The right of public performance entitles the author or
other copyright owner to authorize live performances of a work, such as a play in a theater, or an orchestra performance of
a symphony in a concert hall. Public performance also includes performance by means of recordings. Thus a musical work
is considered publicly performed when a sound recording of that work, or phonogram, is played over amplification
equipment, for example in a discotheque, airplane, or shopping mall.
The right of broadcasting covers the transmission for public reception of sounds, or of images and sounds, by wireless
means, whether by radio, television, or satellite. When a work is communicated to the public, a signal is distributed by
wire or wireless means, which can be received only by persons who possess the equipment necessary to decode the signal.
Cable transmission is an example of communication to the public.
353 | P a g e
Under the Berne Convention, authors have the exclusive right to authorize public performance, broadcasting and
communication of their works to the public. Under some national laws, the exclusive right of the author or other rights
owner to authorize broadcasting is replaced, in certain circumstances, by a right to equitable remuneration, although
this sort of limitation on the broadcasting right is less and less common.
In recent years, the rights of broadcasting, public performance and communication to the public have been the subject of
much discussion. New questions have arisen as a result of technological developments, in particular digital technology,
which has introduced interactive communications, whereby the user selects which works he wishes to have delivered to his
computer. Opinions diverge as to which right should be applied to this activity. The WIPO Copyright Treaty (WCT) (article
8) clarifies that it should be covered by an exclusive right, which the Treaty describes as the authors’ right to authorize
making their works available to the public “in such a way that members of the public can access these works from a place
and at a time individually chosen by them”. Most national laws implement this right as a part of the right of
communication to the public, although some do so as part of the right of distribution.
Translation and adaptation rights

The acts of translating or adapting a work protected by copyright also require authorization from the rights owner.
Translation means the expression of a work in a language other than that of the original version. Adaptation is generally
understood as the modification of a work to create another work, for example adapting a novel to make a film; or the
modification of a work for different conditions of exploitation, e.g., by adapting a textbook originally written for university
students to make it suitable for a lower level.
Translations and adaptations are themselves works protected by copyright. So in order to publish a translation or
adaptation, authorization must be obtained both from the owner of the copyright in the original work and from the owner
of copyright in the translation or adaptation.
354 | P a g e
The scope of the right of adaptation has been the subject of significant discussion in recent years because of the greatly
increased possibilities for adapting and transforming works which are embodied in digital format. With digital technology,
manipulation of text, sound and images by the user is quick and easy. Discussions have focused on the appropriate
balance between the rights of the author to control the integrity of the work by authorizing modifications, and the rights of
users to make changes which seem to be part of a normal use of works in digital format.
Moral rights
The Berne Convention (Article 6bis) requires Member countries to grant to authors:
i. the right to claim authorship of the work, (sometimes called the right of paternity); and
ii. the right to object to any distortion or modification of the work, or other derogatory action in relation to the work,
which would be prejudicial to the author’s honor or reputation, (sometimes called the right of integrity).
These rights are generally known as the moral rights of authors. The Convention requires them to be independent of the
author’s economic rights, and to remain with the author even after he has transferred his economic rights. It is worth
noting that moral rights are only accorded to individual authors. Thus even when, for example, a film producer or a
publisher owns the economic rights in a work, it is only the individual creator who has moral interests at stake.
Limitations on Rights
The first limitation is the exclusion from copyright protection of certain categories of works. In some countries, works
are excluded from protection if they are not fixed in tangible form. For example, a work of choreography would only be
protected once the movements were written down in dance notation or recorded on videotape. In certain countries, the
texts of laws, court and administrative decisions are excluded from copyright protection.
355 | P a g e
The second category of limitations concerns particular acts of exploitation, normally requiring the authorization of the
rights owner, which may, under circumstances specified in the law, be carried out without authorization. There are two
basic types of limitations in this category: (a) free use, which carries no obligation to compensate the rights owner for the
use of the work without authorization; and (b) non-voluntary licenses, which do require that compensation be paid to
the rights owner for non-authorized exploitation.
Examples of free use include:

• quoting from a protected work, provided that the source of the quotation and the name of the author is mentioned,
and that the extent of the quotation is compatible with fair practice;
• use of works by way of illustration for teaching purposes; and
• use of works for the purpose of news reporting.
In respect of free use for reproduction, the Berne Convention contains a general rule, rather than an explicit
limitation. Article 9(2) states that Member States may provide for free reproduction in special cases where the acts do not
conflict with normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the author. As
noted above, many laws allow for individuals to reproduce a work exclusively for their personal, private and non-
commercial use. However, the ease and quality of individual copying made possible by recent technology has led some
countries to narrow the scope of such provisions, including through systems which allow certain copying, but incorporate
a mechanism for payment to rights owners for the prejudice to their economic interests resulting from the copying.
In addition to the specific categories of free use set out in national laws, the laws of some countries recognize the concept
known as fair use or fair dealing. This allows use of works without the authorization of the rights owner, taking into
account factors such as the nature and purpose of the use, including whether it is for commercial purposes; the nature of
the work used; the amount of the work used in relation to the work as a whole; and the likely effect of the use on the
potential commercial value of the work.
356 | P a g e
Non-voluntary licenses allow use of works in certain circumstances without the authorization of the owner of rights,
but require that compensation be paid in respect of the use. Such licenses are called non-voluntary because they are
allowed in the law, and do not result from the exercise of the exclusive right of the copyright owner to authorize particular
acts. Non-voluntary licenses were usually created in circumstances where a new technology for the dissemination of works
to the public had emerged, and where the national legislator feared that rights owners would prevent the development of
the new technology by refusing to authorize use of works. This was true of two non-voluntary licenses recognized in the
Berne Convention, which allow the mechanical reproduction of musical works and broadcasting. The justification for non-
voluntary licenses is, however, increasingly called into question, since effective alternatives now exist for making works
available to the public based on authorizations given by the rights owners, including in the form of collective
administration of rights.
Duration of Copyright
Copyright does not continue indefinitely. The law provides for a period of time during which the rights of the copyright
owner exist. The period or duration of copyright begins from the moment when the work has been created, or, under some
national laws, when it has been expressed in a tangible form. It continues, in general, until sometime after the death of the
author. The purpose of this provision in the law is to enable the author’s successors to benefit economically from
exploitation of the work after the author’s death.
In countries party to the Berne Convention, and in many other countries, the duration of copyright provided for by
national law is as a general rule the life of the author plus not less than 50 years after his death. The Berne Convention also
establishes periods of protection for works such as anonymous, posthumous and cinematographic works, where it is not
possible to base duration on the life of an individual author. There is a trend in a number of countries toward lengthening
the duration of copyright. The European Union, the United States of America and several others have extended the term of
copyright to 70 years after the death of the author.
357 | P a g e
Ownership, Exercise and Transfer of Copyright
The owner of copyright in a work is generally, at least in the first instance, the person who created the work, i.e. the author
of the work. But this is not always the case. The Berne Convention (Article 14bis) contains rules for determining initial
ownership of rights in cinematographic works. Certain national laws also provide that, when a work is created by an
author who is employed for the purpose of creating that work, then the employer, not the author, is the owner of the
copyright in the work. As noted above, however, moral rights always belong to the individual author of the work, whoever
the owner of economic rights may be.
The laws of many countries provide that the initial rights owner in a work may transfer all economic rights to a third party.
(Moral rights, being personal to the author, can never be transferred). Authors may sell the rights to their works to
individuals or companies best able to market the works, in return for payment. These payments are often made dependent
on the actual use of the work, and are then referred to as royalties. Transfers of copyright may take one of two forms:
assignments and licenses.
Under an assignment, the rights owner transfers the right to authorize or prohibit certain acts covered by one, several,
or all rights under copyright. An assignment is a transfer of a property right. So if all rights are assigned, the person to
whom the rights were assigned becomes the new owner of copyright.
In some countries, an assignment of copyright is not legally possible, and only licensing is allowed. Licensing means that
the owner of the copyright retains ownership but authorizes a third party to carry out certain acts covered by his economic
rights, generally for a specific period of time and for a specific purpose. For example, the author of a novel may grant a
license to a publisher to make and distribute copies of the novel. At the same time, the author may grant a license to a film
producer to make a film based on the novel. Licenses may be exclusive, where the copyright owner agrees not to authorize
any other party to carry out the licensed acts; or non-exclusive, which means that the copyright owner may authorize
others to carry out the same acts. A license, unlike an assignment, does not generally convey the right to authorize others
to carry out acts covered by economic rights.
358 | P a g e
Licensing may also take the form of collective administration of rights. Under collective administration, authors and
other rights owners grant exclusive licenses to a single entity, which acts on their behalf to grant authorizations, to collect
and distribute remuneration, to prevent and detect infringement of rights, and to seek remedies for infringement. An
advantage for authors in collective administration lies in the fact that, with multiple possibilities for unauthorized use of
works resulting from new technologies, a single body can ensure that mass uses take place on the basis of authorizations
which are easily obtainable from a central source.
A rights owner may also abandon the exercise of the rights, wholly or partially. The owner may, for example, post
copyright protected material on the Internet and leave it free for anybody to use, or may restrict the abandonment to
noncommercial use. Some very impressive cooperation projects have been organized on a model where contributors
abandon certain rights as described in the licensing terms adopted for the project, such as the General Public License
(GPL). They thereby leave their contributions free for others to use and to adapt, but with the condition that the
subsequent users also adhere to the terms of the license. Such projects, including the open source movement, which
specializes in creating computer programs, also build their business models on the existence of copyright protection,
because otherwise they could not impose an obligation on subsequent users.
Enforcement of Rights
The Berne Convention contains very few provisions concerning enforcement of rights, but the evolution of new national
and international enforcement standards has been dramatic in recent years due to two principal factors. The first concerns
advances in the technological means for creation and use (both authorized and unauthorized) of protected material.
Digital technology in particular makes it easy to transmit and make perfect copies of any information existing in digital
form, including copyright-protected works. The second factor is the increasing economic importance in the realm of
international trade of the movement of goods and services protected by intellectual property rights. Simply put, trade in
products embodying intellectual property rights is now a booming, worldwide business.
This is acknowledged in the WIPO Copyright Treaty (WCT), which requires Contracting Parties to ensure that
enforcement procedures are available under their law so as to permit effective action against any infringement of rights
covered by the Treaty, including remedies to prevent or deter further infringements.
359 | P a g e
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which contains more detailed
provisions on the enforcement of rights, is ample evidence of this new link between intellectual property and trade. The
following paragraphs identify and summarize some of the enforcement provisions found in recent national legislation.
They may be divided into the following categories: conservatory or provisional measures; civil remedies; criminal
sanctions; measures to be taken at the border; and measures, remedies and sanctions against abuses in respect of
technical devices.
Conservatory or provisional measures have two purposes: first, to prevent infringements from occurring, in
particular to prevent the entry of infringing goods into the channels of commerce, including entry of imported goods after
clearance by customs; and second, to preserve relevant evidence in regard to an alleged infringement. Thus, judicial
authorities may have the authority to order that provisional measures be enacted without advance notice to the alleged
infringer. In this way, the alleged infringer is prevented from relocating the goods to avoid detection. The most common
provisional measure is a search of the premises of the alleged infringer and seizure of suspected infringing goods, the
equipment used to manufacture them, and all relevant documents and other records of the alleged infringing business
activities.
Civil remedies compensate the rights owner for economic injury suffered because of the infringement, usually in the
form of pecuniary damages, and create an effective deterrent to further infringement. This is often in the form of a judicial
order to destroy the infringing goods and the materials which have been predominantly used for producing them. If there
is a danger that infringing acts may be continued, the court may also issue injunctions against such acts, failure to comply
with which would subject the infringer to payment of a fine.
Criminal sanctions are intended to punish those who willfully commit acts of piracy on a commercial scale and, as in
the case of civil remedies, to deter further infringement. The purpose of punishment is served by substantial fines, and by
prison sentences consistent with the level of penalties applied for crimes of corresponding seriousness, particularly for
repeat offenses. The purpose of deterrence is served by orders for the seizure and destruction of infringing goods, and of
the materials and equipment used predominantly to commit the offense.
360 | P a g e
Measures to be taken at the border are different from the enforcement measures described so far, in that they
involve action by the customs authorities rather than by the judicial authorities. Border measures allow the rights owner to
request that customs authorities suspend the release into circulation of goods that are suspected of infringing copyright.
This is intended to give the rights owner a reasonable time to commence judicial proceedings against the suspected
infringer, without the risk that the alleged infringing goods will disappear into circulation after customs clearance. The
rights owner must (a) satisfy the customs authorities that there is prima facie evidence of infringement, (b) provide a
detailed description of the goods so that they can be recognized and (c) provide a security to indemnify the importer, the
owner of the goods, and the customs authorities in case the goods turn out to be non-infringing.
The final category of enforcement provisions, which has achieved greater importance since the advent of digital
technology, includes measures, remedies and sanctions against abuses in respect of technical means. In
certain cases, the only practical means of preventing copying is through so-called copy-protection or copy-management
systems. These use technical devices, which either entirely prevent copying, or make the quality of the copies so poor as to
be unusable. Technical means are also used to prevent the reception of encrypted commercial television programs except
with use of decoders. However, it is technically possible to manufacture devices to circumvent such copy-protection and
encryption systems. The enforcement provisions are intended to prevent the manufacture, importation and distribution of
such devices. Provisions to this effect are included in the WCT. So too are provisions to prevent the unauthorized removal
or alteration of electronic rights management information, and the dissemination of copies of works from which such
information has been removed. Such information may identify the author or rights owner, or contain information about
the terms and conditions of use of the work. Removing it may result in the distortion of computerized rights management
or fee-distribution systems.
Related Rights
The purpose of related rights is to protect the legal interests of certain persons and legal entities who contribute to making
works available to the public; or who produce subject matter which, while not qualifying as works under the copyright
systems of all countries, contain sufficient creativity or technical and organizational skill to justify recognition of a
copyright-like property right. The law of related rights deems that the productions which result from the activities of such
persons and entities merit legal protection in themselves, as they are related to the protection of works of authorship
under copyright. Some laws make clear, however, that the exercise of related rights should leave intact, and in no way
affect, the protection of copyright.
361 | P a g e
Traditionally, related rights have been granted to three categories of beneficiaries:
• performers,
• producers of phonograms and
• broadcasting organizations.
The rights of performers are recognized because their creative intervention is necessary to give life to, for example, motion
pictures or musical, dramatic and choreographic works; and because they have a justifiable interest in legal protection of
their individual interpretations. The rights of producers of phonograms are recognized because their creative, financial
and organizational resources are necessary to make sound recordings available to the public in the form of commercial
phonograms; and because of their legitimate interest in having the legal resources to take action against unauthorized
uses, be this the making and distribution of unauthorized copies (piracy), or the unauthorized broadcasting or
communication to the public of their phonograms. Likewise, the rights of broadcasting organizations are recognized
because of their role in making works available to the public, and in light of their justified interest in controlling the
transmission and retransmission of their broadcasts.
Treaties. The first organized international response to the need for legal protection of the three categories of related
rights beneficiaries was the conclusion, in 1961 of the International Convention for the Protection of Performers,
Producers of Phonograms and Broadcasting Organizations (Rome Convention). Unlike most international conventions,
which follow in the wake of national legislation and are intended to synthesize existing laws, the Rome Convention was an
attempt to establish international regulations in a new field where few national laws existed at the time. This meant that
most States had to draft and enact laws before adhering to the Convention.
362 | P a g e
Today, it is a widespread view that the Rome Convention is out-of-date and in need of revision or replacement by a new
set of norms in the field of related rights, even though it was the basis for inclusion of provisions on the rights of
performers, producers of phonograms, and broadcasting organizations in the TRIPS Agreement. (The levels of protection
are similar, but not the same). For two of the categories of beneficiaries, up-to-date protection is now provided by the
WIPO Performances and Phonograms Treaty (WPPT), which was adopted in 1996, together with the WCT. Work on a
new, separate treaty on the rights of broadcasters continues at WIPO. The rights granted to the three beneficiaries of
related rights in national laws are as follows (although not all rights may be granted in the same law):
• Performers are provided the rights to prevent fixation (recording), broadcasting and communication to the public
of their live performances without their consent, and the right to prevent reproduction of fixations of their
performances under certain circumstances. The rights in respect of broadcasting and communication to the public
may be in the form of equitable remuneration rather than a right to prevent. Due to the personal nature of their
creations, some national laws also grant performers moral rights, which may be exercised to prevent unauthorized
uses of their name and image, or modifications to their performances which present them in an unfavorable light.
• Producers of phonograms are granted the rights to authorize or prohibit reproduction, importation and
distribution of their phonograms and copies thereof, and the right to equitable remuneration for broadcasting and
communication to the public of phonograms.
• Broadcasting organizations are provided the rights to authorize or prohibit re-broadcasting, fixation and
reproduction of their broadcasts.
Under some laws, additional rights are granted. For example, in a growing number of countries, producers of phonograms
and performers are granted a right of rental in respect of phonograms (audiovisual works in respect of performers), and
some countries grant specific rights over cable transmissions. Likewise under the WPPT, producers of phonograms (as
well as any other right holders in phonograms under national law) are granted a right of rental.
363 | P a g e
As in the case of copyright, the Rome Convention and national laws contain limitations on rights. These allow use of
protected performances, phonograms, and broadcasts, for example, for teaching, scientific research, or private use, and
use of short excerpts for reporting current events. Some countries allow the same kinds of limitations on related rights as
their laws provide in connection with copyright, including the possibility of non-voluntary licenses. Under the WPPT,
however, such limitations and exceptions must be restricted to certain special cases, which do not conflict with the normal
use of the performances of phonograms, and which do not unreasonably prejudice the legitimate interests of the
performers or producers.
The duration of protection of related rights under the Rome Convention is 20 years from the end of the year (a) that the
recording is made, in the case of phonograms and performances included in phonograms; or (b) that the performance
took place, in the case of performances not incorporated in phonograms; or (c) that the broadcast took place, for
broadcasts. In the TRIPS Agreement and the WPPT, however, the rights of performers and producers of phonograms are
to be protected for 50 years from the date of the fixation or the performance. Under the TRIPS Agreement, the rights of
broadcasting organizations are to be protected for 20 years from the date of the broadcast. Thus many national laws which
protect related rights grant a longer term than the minimum contained in the Rome Convention.
In terms of enforcement, remedies for infringement or violation of related rights are, in general, similar to those
available to copyright owners as described above, namely, conservatory or provisional measures; civil remedies; criminal
sanctions; measures to be taken at the border; and measures, remedies and sanctions against abuses in respect of
technical devices and rights management information.
364 | P a g e
Finally, mention should be made of the relationship between the protection of related rights and the interests of
developing countries. The largely unwritten and unrecorded cultural expression of many developing countries,
generally known as folklore or traditional cultural expressions, may be protected under related rights as
performances, since it is often through the intervention of performers that they are communicated to the public. By
providing related rights protection, developing countries may also provide a means for protection of the vast, ancient and
invaluable cultural expression, which is the essence of what distinguishes each culture. Likewise, protecting producers of
phonograms and broadcasting organizations helps to establish the foundation for national industries capable of
disseminating national cultural expression within the country and, perhaps more important, in markets outside it. The
current popularity of what is called world music demonstrates that such markets exist. But the economic benefits from do
not always return to the country where the cultural expressions originated. In sum, protection of related rights serves the
twin objectives of preserving national culture and providing a means for commercial exploitation of international markets.
The interest of developing countries in the protection of related rights goes beyond the protection of traditional cultural
expressions and into the realm of international trade and development. Today, the extent to which a country protects
intellectual property rights is inextricably linked to the potential for that country to benefit from the rapidly expanding
international trade in goods and services protected by such rights. For example, the convergence of telecommunications
and computer infrastructures will lead to international investment in many sectors of developing country economies,
including intellectual property, and those countries which lack political commitment to the protection of intellectual
property rights will be left out of the frame. Protection of related rights has thus become part of a much larger picture. It is
a necessary precondition for participation in the emerging system of international trade and investment that will
characterize the 21st century.
The Role of WIPO

The World Intellectual Property Organization (WIPO) is an international organization dedicated to promoting creativity
and innovation by ensuring that the rights of creators and owners of intellectual property are protected worldwide, and
that inventors and authors are thus recognized and rewarded for their ingenuity.
365 | P a g e
As a specialized agency of the United Nations, WIPO exists as a forum for its Member States to create and harmonize
rules and practices to protect intellectual property rights. Most industrialized nations have protection systems that are
centuries old. Many new and developing countries, however, are now building up their patent, trademark and copyright
laws and systems. With the rapid globalization of trade during the last decade, WIPO plays a key role in helping these new
systems to evolve through treaty negotiation, legal and technical assistance, and training in various forms, including in the
area of enforcement of intellectual property rights.
The field of copyright and related rights has expanded dramatically as technological developments have brought new ways
of disseminating creations worldwide through such forms of communication as satellite broadcasting, compact discs,
DVDs and the Internet. WIPO is closely involved in the on-going international debate to shape new standards for
copyright protection in cyberspace. WIPO administers the following international treaties on copyright and related
rights:
• Berne Convention for the Protection of Literary and Artistic Works
• Brussels Convention Relating to the Distribution of Program-Carrying Signals Transmitted by Satellite
• Geneva Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their
Phonograms
• Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations
• WIPO Copyright Treaty (WCT)
• WIPO Performances and Phonograms Treaty (WPPT)
WIPO also provides an Arbitration and Mediation Center, which offers services for the resolution of international
commercial disputes between private parties involving intellectual property. The subject matter of these proceedings
includes both contractual disputes (such as patent and software licenses, trademark coexistence agreements, and research
and development agreements) and non- contractual disputes (such as patent infringement). The Center is also now
recognized as the leading dispute resolution service provider for disputes arising out of the abusive registration and use of
Internet domain names.
366 | P a g e
Understanding Industrial Property
Introduction
This booklet is intended to provide an introduction for non-specialists or new- comers to the subject of industrial
property. It explains in layman’s terms the principles underpinning industrial property rights. It describes the most
common forms of industrial property, including patents and utility models for inventions, industrial designs, trademarks
and geographical indications. And it outlines the means by which creators can seek protection for their industrial
property.
Detailed legal or administrative guidance on how, for example, to apply for protection or to deal with infringement of
industrial property rights, is not covered in this booklet, but can often be obtained from national Intellectual Property
Offices. The further information section at the back of this booklet also lists some useful websites and publications for
readers requiring greater depth. A separate WIPO publication, Understanding Copyright and Related Rights, offers an
equivalent introduction to the subject of copyright.
Intellectual Property
Industrial property legislation is part of the wider body of law known as intellectual property. The term intellectual
property refers broadly to the creations of the human mind. Intellectual property rights protect the interests of creators by
giving them property rights over their creations.
367 | P a g e
The Convention Establishing the World Intellectual Property Organization (1967) does not seek to define intellectual
property, but gives the following list of the subject matter protected by intellectual property rights:
▪ literary, artistic and scientific works;
▪ performances of performing artists, phonograms, and broadcasts;
▪ inventions in all fields of human endeavor;
▪ scientific discoveries;
▪ industrial designs;
▪ trademarks, service marks, and commercial names and designations;
▪ protection against unfair competition; and
▪ “all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.”
Intellectual property relates to items of information or knowledge, which can be incorporated in tangible objects at the
same time in an unlimited number of copies at different locations anywhere in the world. The property is not in those
copies but in the information or knowledge reflected in them. Intellectual property rights are also characterized by certain
limitations, such as limited duration in the case of copyright and patents.
The importance of protecting intellectual property was first recognized in the Paris Convention for the Protection of
Industrial Property in 1883 and the Berne Convention for the Protection of Literary and Artistic Works in 1886. Both
treaties are administered by the World Intellectual Property Organization (WIPO).
Countries generally have laws to protect intellectual property for two main reasons. One is to give statutory expression to
the moral and economic rights of creators in their creations and to the rights of the public in accessing those creations.
The second is to promote creativity and the dissemination and application of its results, and to encourage fair trade, which
would contribute to economic and social development.
368 | P a g e
The Two Branches of Intellectual Property
Intellectual property is usually divided into two branches, namely industrial property and copyright.
Copyright
Copyright relates to artistic creations, such as poems, novels, music, paintings, and cinematographic works. In most
European languages other than English, copyright is known as author’s rights. The expression copyright refers to the main
act which, in respect of literary and artistic creations, may be made only by the author or with his authorization. That act is
the making of copies of the literary or artistic work, such as a book, a painting, a sculpture, a photograph, or a motion
picture. The second expression, author’s rights refers to the person who is the creator of the artistic work, its author, thus
underlining the fact, recognized in most laws, that the author has certain specific rights in his creation, such as the right to
prevent a distorted reproduction, which only he can exercise, whereas other rights, such as the right to make copies, can
be exercised by other persons, for example, a publisher who has obtained a license to this effect from the author.
Industrial Property
The broad application of the term “industrial” is clearly set out in the Paris Convention for the Protection of Industrial
Property (Article 1 (3)): “Industrial property shall be understood in the broadest sense and shall apply not only to industry
and commerce proper, but likewise to agricultural and extractive industries and to all manufactured or natural products,
for example, wines, grain, tobacco leaf, fruit, cattle, minerals, mineral waters, beer, flowers, and flour.”
Industrial property takes a range of forms, the main types of which will be outlined in this booklet. These include patents
to protect inventions; and industrial designs, which are aesthetic creations determining the appearance of industrial
products. Industrial property also covers trademarks, service marks, layout-designs of integrated circuits, commercial
names and designations, as well as geographical indications, and protection against unfair competition. In some of these,
the aspect of intellectual creation, although existent, is less clearly defined. What counts here is that the object of
industrial property typically consists of signs transmitting information, in particular to consumers, as regards products
and services offered on the market. Protection is directed against unauthorized use of such signs likely to mislead
consumers, and against misleading practices in general.
369 | P a g e
Patents for Invention
Most laws dealing with the protection of inventions do not actually define the notion of an invention. A number of
countries, however, define inventions as new solutions to technical problems. The problem may be old or new, but the
solution, in order to merit the name of invention, must be a new one. Merely discovering something that already exists in
nature, such as a previously unknown plant variety, is not an invention. Human intervention must be added. So the
process for extraction of a new substance from a plant may be an invention. An invention is not necessarily a complex
item. The safety pin was an invention which solved an existing “technical” problem. New solutions are, in essence, ideas,
and are protected as such. Thus protection of inventions under patent law does not require that the invention be
represented in a physical embodiment.
Patents, also referred to as patents for invention, are the most widespread means of protecting the rights of inventors.
Simply put, a patent is the right granted to an inventor by a State, or by a regional office acting for several States, which
allows the inventor to exclude anyone else from commercially exploiting his invention for a limited period, generally 20
years. By granting an exclusive right, patents provide incentives to individuals, offering them recognition for their
creativity and material reward for their marketable inventions. These incentives encourage innovation, which in turn
contributes to the continuing enhancement of the quality of human life. In return for the exclusive right, the inventor must
adequately disclose the patented invention to the public, so that others can gain the new knowledge and can further
develop the technology. The disclosure of the invention is thus an essential consideration in any patent granting
procedure. The patent system is so designed as to balance the interests of inventors and the interests of the general public.
The word patent, or letters patent, also denotes the document issued by the relevant government authority. In order to
obtain a patent for an invention, the inventor, or the entity he works for, submits an application to the national or regional
patent office. In the application the inventor must describe the invention in detail and compare it with previous existing
technologies in the same field in order to demonstrate its newness.
370 | P a g e
Not all inventions are patentable. Laws generally require that an invention fulfill the following conditions, known as the
requirements or conditions of patentability:
▪ Industrial Applicability (utility). The invention must be of practical use, or capable of some kind of industrial
application.
▪ Novelty. It must show some new characteristic that is not known in the body of existing knowledge (referred to as
prior art) in its technical field.
▪ Inventive step (non-obviousness). It must show an inventive step that could not be deduced by a person with
average knowledge of the technical field.
▪ Patentable subject matter. The invention must fall within the scope of patentable subject matter as defined by
national law. This varies from one country to another. Many countries exclude from patentability such subject
matter as scientific theories, mathematical methods, plant or animal varieties, discoveries of natural substances,
methods for medical treatment (as opposed to medical products), and any invention where prevention of its
commercial exploitation is necessary to protect public order, good morals or public health.
The conditions of novelty and inventive step (non-obviousness) must exist at a certain date, generally the date on which
the application is filed. There is an exception to this rule, covered by an applicant’s right of priority, regulated by the Paris
Convention for the Protection of Industrial Property. This exception relates only to applications made in countries party to
the Paris Convention. The right of priority means that, having filed an application in one member country of the Paris
Convention, the same applicant (or his successor in title) may, within a specified time period, apply for protection for the
same invention in any of the other member countries. These later applications will be regarded as if they had been filed on
the same day as the earliest application.
For example, if an inventor first files an application for patent protection in Japan, and later a second application, with
respect to the same invention, in France, it is sufficient that the conditions of non-obviousness existed at the date on which
the Japanese application was filed. In other words, the later, French application retains priority over any applications
relating to the same invention filed by other applicants between the dates of the inventor’s first and the second
application. This is subject to the period between the two dates not exceeding 12 months.
371 | P a g e
It is customary to distinguish between inventions that consist of products and inventions that consist of processes. The
creation of a new alloy is an example of a product invention. The invention of a new method or process of making a known
or new alloy is a process invention. The corresponding patents are usually referred to respectively as a product patent
and a process patent.
The person to whom a patent is granted, is known as the patentee, the owner of the patent or the patent holder. Once a
patent has been granted with respect to a particular country, anyone who wishes to exploit the invention commercially in
that country must obtain the authorization of the patentee. In principle, anyone who exploits a patented invention without
the patentee’s authorization commits an illegal act. The protection is granted for a limited period, generally 20 years. Once
a patent expires, the protection ends, and the invention enters the public domain. The patentee no longer holds exclusive
rights to the invention, which then becomes available for commercial exploitation by others.
The rights conferred by a patent are not described in the patent itself. Those rights are described in the patent law of the
country in which the patent is granted. The patent owner’s exclusive rights generally consist of the following:
▪ in the case of a product patent, the right to prevent third parties without the owner’s consent from making, using,
offering for sale, selling or importing for these purposes the product;
▪ in the case of a process patent, the right to prevent third parties without the owner’s consent from using the
process; and to prevent third parties from using, offering for sale, selling or importing for these purposes the
products which were obtained directly by that process.
The patentee is not given a statutory right to exploit his own invention, but rather a statutory right to prevent others from
commercially exploiting it. He may give permission, or grant a license, to other parties to use the invention on mutually
agreed terms. The patentee may also sell his right to the invention to someone else, who will then become the new owner
of the patent.
There are certain exceptions to the principle that a patented invention cannot legally be exploited without the
authorization of the owner of the patent. These exceptions take into account the balance between the legitimate interests
of the patentee and those of the general public. Patent laws may provide for cases in which a patented invention may be
exploited without the patentee’s authorization, for example, in the wider public interest by or on behalf of the government,
or on the basis of a compulsory license.
372 | P a g e
A compulsory license is an authorization to exploit the invention given by a governmental authority. It is generally
issued only in very special cases, defined in the law, and only where the entity wishing to exploit the patented invention is
unable to obtain the authorization of the owner of the patent. The conditions regarding the granting of compulsory
licenses are regulated in detail by laws that provide for them. The decision to grant a compulsory license must provide for
an adequate remuneration of the patentee. The decision may be the subject of an appeal.
Utility Models
While not as widespread as patents, utility models are also used to protect inventions.
Utility models are found in the laws of more than 30 countries, as well as in the regional agreements of the African
Regional Industrial Property Organization (ARIPO) and the Organization africaine de la propriété intellectuelle (OAPI). In
addition, some countries, such as Australia and Malaysia, provide for titles of protection called innovation patents or
utility innovations, which are similar to utility models. Other countries, like Hong Kong, Ireland and Slovenia, have a
short-term patent that is equivalent to the utility model.
The expression “utility model” is simply a name given to a title of protection for certain inventions, such as inventions in
the mechanical field. Utility models are usually sought for technically less complex inventions or for inventions that have a
short commercial life. The procedure for obtaining protection for a utility model is usually shorter and simpler than for
obtaining a patent. Substantive and procedural requirements under the applicable laws differ to a large extent among the
countries and regions that have a utility model system, but utility models usually differ from patents for invention in the
following main respects:
The requirements for acquiring a utility model are less stringent than for patents. While the “novelty” requirement must
always be met, that of “inventive step” or “non-obviousness” may be much less or even absent altogether. In practice,
protection for utility models is often sought for innovations of a rather incremental nature, which may not meet the
patentability criteria.
373 | P a g e
The maximum term of protection provided by law for a utility model is generally shorter than the maximum term of
protection provided for a patent for invention (usually between 7 and 10 years).
The fees required for obtaining and maintaining the right are generally lower than those for patents.
Industrial Designs
An industrial design, in general terms, is the ornamental or aesthetic aspect of a useful article. This aspect may depend on
the shape, pattern or color of the article. The design must have visual appeal and perform its intended function efficiently.
Moreover, it must be able to be reproduced by industrial means; this is the essential purpose of the design, and is why the
design is called industrial.
In a legal sense, industrial design refers to the right granted in many countries, pursuant to a registration system, to
protect the original, ornamental and nonfunctional features of a product that result from design activity.
Visual appeal is one of the main factors which influence consumers in their preference for one product over another.
When the technical performance of a product offered by different manufacturers is relatively equal, consumers will make
their choice based on price and aesthetic appeal. So in registering their industrial designs, manufacturers protect one of
the distinctive elements that determine market success.
By rewarding creators for their effort in producing new industrial designs, this legal protection also serves as an incentive
to invest resources in design activities. One of the basic aims of industrial design protection is to stimulate the design
element of production. This is why industrial design laws usually only protect designs that can be used in industry or that
can be produced on a large scale.
374 | P a g e
This condition of utility is a notable difference between industrial design protection and copyright, since the latter is only
concerned with aesthetic creations. Industrial designs can generally be protected if they are new or original. Designs
may not be considered new or original if they do not significantly differ from known designs or their combinations.
In most industrial design laws, designs that are dictated solely by the article’s function are excluded from protection. If the
design for an article produced by many manufacturers, such as a screw, is dictated purely by the function that the screw is
intended to perform, then protection for that design would have the effect of excluding all other manufacturers from
producing items intended to perform the same function. Such exclusion is not warranted, unless the design is sufficiently
novel and inventive to qualify for patent protection.
In other words, the legal protection offered by industrial designs concerns only the design that is applied to, or embodied
in, articles or products. This protection does not prevent other manufacturers from producing or dealing in similar articles
or products, as long as these do not embody or reproduce the protected design.
Industrial design registration protects against unauthorized exploitation of the design in industrial articles. It grants the
owner of the design the exclusive right to make, import, sell, hire or offer for sale articles to which the design is applied
or in which the design is embodied.
The term for an industrial design right varies from country to country. The usual maximum term is from 10 to 25 years,
often divided into terms requiring the proprietor to renew the registration in order to obtain an extension of the term. The
relatively short period of protection may be related to the association of designs with more general styles of fashions,
which tend to enjoy somewhat transient acceptance or success, particularly in highly fashion-conscious areas, such as
clothing or footwear.
375 | P a g e
Intellectual Property with Regard to Integrated Circuits
The question of the type of protection to be granted to the layout design or topography of integrated circuits is relatively
new. Although prefabricated components of electrical circuitry have been used for a long time in the manufacture of
electrical equipment (such as radios), large-scale integration of a multitude of electrical functions in a very small
component became possible as a result of advances in semiconductor technology. Integrated circuits are manufactured in
accordance with very detailed plans or layout designs.
The layout designs of integrated circuits are creations of the human mind. They are usually the result of vast investment,
of both expertise and financial resources. There is a continuing need for the creation of new layout designs that reduce the
dimensions of existing integrated circuits and simultaneously increase their functions. The smaller an integrated circuit,
the less material is needed for its manufacture, and the smaller the space needed to accommodate it. Integrated circuits
are used in a wide range of products, including articles of everyday use, such as watches, television sets, washing machines
and cars, as well as sophisticated computers and servers.
Whereas creating a new layout design for an integrated circuit involves a major investment, it is possible to copy such a
layout design for a fraction of that cost. Copying may be done by photographing each layer of an integrated circuit and
preparing masks for the production of the integrated circuit on the basis of the photographs obtained. The high cost of the
creation of such layout designs and the relative ease of copying are the main reasons why layout designs need protection.
Layout designs of integrated circuits are not considered to be industrial designs in the sense of the laws providing for the
registration of industrial designs. This is because they do not determine the external appearance of integrated circuits, but
rather the physical location, within the integrated circuit, of each element with an electronic function. Moreover, layout
designs of integrated circuits are not normally patentable inventions, because their creation usually does not involve an
inventive step, although it requires a great deal of work by an expert. Further, copyright protection may not apply if
national law determines that layout designs cannot be copyrighted.
376 | P a g e
In response to the uncertainty surrounding the protection of layout designs, the Treaty on Intellectual Property in Respect
of Integrated Circuits was adopted under WIPO’s auspices on May 26, 1989. The Treaty has not entered into force but its
substantive provisions have, to a large extent, been incorporated by reference in the Agreement on Trade Related Aspects
of Intellectual Property Rights (TRIPS), which was concluded in 1994.
Trademarks
A trademark is a sign, or a combination of signs, which distinguishes the goods or services of one enterprise from those of
another. Such signs may use words, letters, numerals, pictures, shapes and colors, as well as any combination of the above.
An increasing number of countries also allow for the registration of less traditional forms of trademark, such as three-
dimensional signs (like the Coca-Cola bottle or Toblerone chocolate bar), audible signs (sounds, such as the roar of the
lion that precedes films produced by MGM), or olfactory signs (smells, such as perfumes). But many countries have set
limits as to what may be registered as a trademark, generally allowing only signs that are visually perceptible or can be
represented graphically.
A trademark is a sign used on goods or in connection with the marketing of goods. The trademark may appear not only on
the goods themselves but also on the container or wrapper in which the goods are sold. When used in connection with the
marketing of the goods the sign may appear in advertisements, for example in newspapers or on television, or in the
windows of the shops in which the goods are sold.
In addition to trademarks identifying the commercial source of goods or services, several other categories of marks exist.
Collective marks are owned by an association, such as an association representing accountants or engineers, whose
members use the mark to identify themselves with a level of quality and other requirements set by the association.
Certification marks, such as the Woolmark, are given for compliance with defined standards, but are not confined to
any membership. A trademark used in connection with services is called a service mark. Service marks are used for
example by hotels, restaurants, airlines, tourist agencies, car-rental agencies, laundries and cleaners. All that has been said
about trademarks applies also to service marks.
377 | P a g e
Broadly speaking, a trademark performs the following four main functions. These relate to the distinguishing of marked
goods or services, their commercial origin, their quality and their promotion in the market place:
▪ To distinguish the products or services of one enterprise from those of other enterprises. Trademarks facilitate
the choice to be made by the consumer when buying certain products or using certain services. The trademark
helps the consumer to identify a product or service which was already known to him or which was advertised. The
distinctive character of a mark has to be evaluated in relation to the goods or services to which the mark is applied.
For example, the word “apple” or the image of an apple cannot distinguish apples, but it is distinctive for
computers. Trademarks do not only distinguish products or services as such, they distinguish them in their
relationship to an enterprise from which the products or services originate.
▪ To refer to a particular enterprise, not necessarily known to the consumer, which offers the products or services on
the market. Thus trademarks distinguish products or services from one source, from identical or similar products
or services from other sources. This function is important in defining the scope of protection of trademarks.
▪ To refer to a particular quality of the product or service for which it is used, so that consumers can rely on the
consistent quality of the goods offered under a mark. This function is commonly referred to as the guarantee
function of trademarks. A trademark is not always used by only one enterprise, since the trademark owner may
grant licenses to use the trademark to other enterprises. It is accordingly essential that licensees respect the quality
standards of the trademark owner. Moreover, trading enterprises often use trademarks for products that they
acquire from various sources. In such cases, the trademark owner is not responsible for producing the products but
rather (and this may be equally important) for selecting those that meet his quality standards and requirements.
This argument is supported by the fact that even where the trademark owner is the manufacturer of a particular
product, he may frequently use parts which have not been produced by him, but which have been selected by him.
▪ To promote the marketing and sale of products, and the marketing and rendering of services. Trademarks are not
only used to distinguish or to refer to a particular enterprise or a particular quality, but also to stimulate sales. A
trademark that is to fulfill that function must be carefully selected. It must appeal to the consumer, create interest
and inspire a feeling of confidence. That is why this function sometimes is called the appeal function.
378 | P a g e
The owner of a registered trademark has an exclusive right in respect of his mark. It gives him the right to use the mark
and to prevent unauthorized third parties from using the mark, or a confusingly similar mark, so as to prevent consumers
and the public in general from being misled. The period of protection varies, but a trademark can be renewed indefinitely
on payment of corresponding fees. Trademark protection is enforced by the courts, which in most systems have the
authority to block trademark infringement.
Trade Names
Another category of industrial property covers commercial names and designations. A commercial or trade name is the
name or designation that identifies an enterprise. In most countries, trade names may be registered with a government
authority. However, under Article 8 of the Paris Convention for the Protection of Industrial Property a trade name must be
protected without the obligation of filing or registration, whether or not it forms part of a trademark. Protection generally
means that the trade name of one enterprise may not be used by another enterprise either as a trade name or as a trade or
service mark; and that a name or designation similar to the trade name, if likely to mislead the public, may not be used by
another enterprise.
Geographical Indications
A geographical indication is a sign used on goods that have a specific geographical origin and possess qualities or a
reputation that are due to that place of origin.
Agricultural products typically have qualities that derive from their place of production and are influenced by specific local
factors, such as climate and soil. Whether a sign functions as an indication is a matter of national law and consumer
perception. Geographical indications may be used for a wide variety of agricultural products, such as "Tuscany" for olive
oil produced in a specific area of Italy, or “Roquefort” for cheese produced in a certain region of France.
379 | P a g e
The use of geographical indications is not limited to agricultural products. They may also highlight particular qualities of a
product, which are due to human factors found in the place of origin of the products, such as specific manufacturing skills
and traditions. That place of origin may be a village or town, a region or a country. An example for the latter is Switzerland
or Swiss, which is widely perceived as a geographical indication for products that are made in Switzerland, in particular for
watches.
An appellation of origin is a special kind of geographical indication, used on products that have a specific quality that is
exclusively or essentially due to the geographical environment in which the products are produced. The concept of
geographical indication encompasses appellations of origin. Examples of appellations of origin which are protected in
states party to the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration
include “Habana” for tobacco grown in the Havana region of Cuba, or “Tequila” for spirits produced in particular areas of
Mexico.
Geographical indications are protected in accordance with national laws under a wide range of concepts, such as laws
against unfair competition, consumer protection laws, laws for the protection of certification marks or special laws for the
protection of geographical indications or appellations of origin. In essence, unauthorized parties may not use geographical
indications if such use is likely to mislead the public as to the true origin of the product. Applicable sanctions range from
court injunctions preventing the unauthorized use, to the payment of damages and fines or, in serious cases,
imprisonment.
380 | P a g e
Protection against Unfair Competition
The Paris Convention for the Protection of Industrial Property, Article 10bis, requires its member countries to provide
protection of industrial property against unfair competition. This article is directed against acts of competition that are
contrary to honest practices in industry or commerce. The Paris Convention lists the following as acts of unfair
competition in relation to industrial property:
▪ all acts of such a nature as to create confusion with the establishment, the goods or the industrial or commercial
activities of a competitor;
▪ false allegations in the course of trade of such a nature as to discredit the establishment, the goods or the industrial
or commercial activities of a competitor;
▪ indications or allegations, the use of which in the course of trade are liable to mislead the public as to the
characteristics of certain goods.
Protection against unfair competition supplements the protection of inventions, industrial designs, trademarks and
geographical indications. It is particularly important for the protection of knowledge, technology or information which is
not protected by a patent but which may be required in order to make the best use of a patented invention.
The Role of WIPO

The World Intellectual Property Organization (WIPO) is an international organization dedicated to ensuring that the
rights of creators and owners of intellectual property are protected worldwide and that inventors and authors are thus
recognized and rewarded for their ingenuity.
As a specialized agency of the United Nations, WIPO exists as a forum for its Member States to create and harmonize
rules and practices to protect intellectual property rights. Most industrialized nations have protection systems that are
centuries old. Many new and developing countries, however, are now building up their patent, trademark and copyright
laws and systems. With the rapid globalization of trade during the last decade, WIPO plays a key role in helping these new
systems evolve through treaty negotiation, legal and technical assistance, and training in various forms, including in the
area of enforcement of intellectual property rights.
381 | P a g e
WIPO also provides international registration systems for patents, trademarks, appellations of origin and industrial
designs. These greatly simplify the process for simultaneously seeking intellectual property protection in a large number of
countries. Instead of having to file national applications in many languages, these systems enable applicants to file a single
application, in one language, and to pay a single application fee. The WIPO-administered systems of international
protection include four different mechanisms of protection for specific industrial property rights:
▪ The Patent Cooperation Treaty (PCT) for filing patent applications in multiple countries.
▪ The Madrid System for the International Registration of Marks for trade and service marks.
▪ The Hague System for the International Deposit for Industrial Designs.
▪ The Lisbon System for the International Registration of Appellations of Origin.
Anyone applying for a patent or registering a trademark or design, whether at the national or international level, needs to
determine whether their creation is new or is owned or claimed by someone else. To make this determination, huge
amounts of information must be searched. Four WIPO treaties have created classification systems, which organize
information on different branches of industrial property into indexed, manageable structures for easy retrieval:
▪ Strasbourg Agreement Concerning the International Patent Classification.
▪ Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the
Registration of Marks.
▪ Vienna Agreement Establishing an International Classification of the Figurative Elements of Marks.
▪ Locarno Agreement Establishing an International Classification for Industrial Designs.
WIPO also provides an Arbitration and Mediation Center, which offers services for the resolution of international
commercial disputes between private parties involving intellectual property. The subject matter of these proceedings
includes both contractual disputes (such as patent and software licenses, trademark coexistence agreements, and research
and development agreements) and non-contractual disputes (such as patent infringement).
The Center is also now recognized as the leading dispute resolution service provider for disputes arising out of the abusive
registration and use of Internet domain names.
382 | P a g e
Industrial Property Protection:
Instruments and International Agreements Administered by WIPO
Instruments of protection What they protect Relevant international agreements
Patents and utility models Inventions Paris Convention for the Protection of Industrial
Property (1883)
Patent Cooperation Treaty (1970)
Budapest Treaty on the International Recognition

of the Deposit of Microorganisms for the Purposes
of Patent Procedure (1977)
Strasbourg Agreement Concerning the

International Patent Classification (1971)
Patent Law Treaty (2000)
Industrial design Independently created Hague Agreement Concerning the International

industrial designs that are Registration of Industrial Designs (1934)
new or original
Locarno Agreement Establishing an International
Classification for Industrial Designs (1968)
383 | P a g e
Instruments of protection What they protect Relevant international agreements
Trademarks, Certification Marks and Distinguishing signs and Madrid Agreement Concerning the
Collective Marks symbols International Registration of Marks (1891)
Protocol Relating to the Madrid

Agreement Concerning the International
Registration of Marks (1989)

Nice Agreement Concerning the
International Classification of Goods
and Services for the Purposes of the
Registration of Marks (1957)
Vienna Agreement Establishing an

International Classification of the
Figurative Elements of Marks (1973)
Madrid Agreement for the Repression

of False or Deceptive Indications of Source on
Goods (1891)
Trademark Law Treaty (1994)
Geographical indications and Geographical name of a Lisbon Agreement for the Protection
appellations of origin country, region or locality of Appellations of Origin and their
International Registration (1958)
Integrated circuits Lay-out designs Washington Treaty on Intellectual Property

in Respect of Integrated Circuits (1989)
Protection against unfair competition Honest practices Paris Convention for the Protection of
Industrial Property (1883)
384 | P a g e
Personnel & Labour Laws
The business owner should be knowledgeable about the labour laws of the country where the business is established.
Peruse the following document by clicking on the link below. Identify and become more knowledgeable about the main
areas that an entrepreneur should factor in managing of the human resource section of the business.
Employment
Legal contracts
Leave privileges
Remuneration and hours of work
Severance
Unfair dismissal
Trade unions/labour relations
Hiring and firing policies
Employee representation/collective bargain
Tax Obligations
Taxes applicable to business ventures in the Caribbean:
✓ Income tax
✓ Import and export licenses
✓ Social security, medical benefits, and national insurance
✓ Value added tax (VAT) / ABST (Antigua and Barbuda Sales Tax)
✓ Unincorporated Business Tax (paid by small businesses in Antigua and Barbuda)
385 | P a g e
There are varying taxes associated with managing the venture. A business may incur payroll taxes, sales tax, and property
tax. Tax deductions in Antigua and Barbuda are:
• Social Security
• Medical Benefits
• Education Levy
Open Innovation
Open innovation factors the venture’s approach to innovation. The entrepreneur attains innovation ideas or strategies
from external sources. In this instance, the business does not depend on the company own innovative resources for new
technology and product development.
Governments regulate business in order to promote fairness of and protection of workers and customers conducting
trading transactions.
Open innovation is a term promoted by Henry Chesbrough, adjunct professor and faculty director of the Center for
Open Innovation at the Haas School of Business at the University of California, in a book of the same name, though the
idea and discussion about some consequences (especially the interfirm cooperation in R&D) date as far back as the 1960s.
The term refers to the use of both inflows and outflows of knowledge to improve internal innovation and expand the
markets for external exploitation of innovation.
The concept is also related to user innovation, cumulative innovation, know-how trading, mass innovation and distributed
innovation.
“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and
internal and external paths to market, as the firms look to advance their technology”. Alternatively, it is "innovating with
partners by sharing risk and sharing reward." The boundaries between a firm and its environment have become more
permeable; innovations can easily transfer inward and outward.
386 | P a g e
The central idea behind open innovation is that, in a world of widely distributed knowledge, companies cannot afford to
rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other
companies. In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g.
through licensing, joint ventures or spin-offs).
The open innovation paradigm can be interpreted to go beyond just using external sources of innovation such as
customers, rival companies, and academic institutions, and can be as much a change in the use, management, and
employment of intellectual property as it is in the technical and research driven generation of intellectual property. In this
sense, it is understood as the systematic encouragement and exploration of a wide range of internal and external sources
for innovative opportunities, the integration of this exploration with firm capabilities and resources, and the exploitation
of these opportunities through multiple channels.
International Standards and Regulations

ISO (International Standards for Organization)
Duty of Care
(HACCP) Hazard Analyses and Critical Control Points
OSHA (Operation, Safety and Health Association)
Entrepreneurs are legally obligated to provide clean work environments free from discrimination and
physical haphazard. Products and strategies implemented by organizations must be ethical and have
limited impact on the environment.
387 | P a g e
Occupational Safety & Health (OSHA)
The Occupational Safety and Health Administration is an agency with responsibility for setting and enforcing work safety
measures in the workplace. Some regulatory measures:
Providing training for employees
Providing job required tools and equipment
Documentation of illnesses, injuries and employee access to these documents
Visual publication of health and safety practices in the workplace
The Occupational Safety and Health Administration, more commonly known by its acronym OSHA, is responsible
for protecting worker health and safety in the United States. Congress created OSHA in 1971 following its passage of the
Occupational Safety and Health Act of 1970 to ensure safe and healthy working conditions for workers by enforcing
workplace laws and standards and also by providing training, outreach, education and assistance. Congress enacted the
OSH Act in response to annual workplace accidents that resulted in 14,000 worker deaths and 2.5 million disabled
workers annually. Since its inception, OSHA has cut the work-fatality rate by more than half, and it has significantly
reduced the overall injury and illness rates in industries where OSHA has concentrated its attention, such as textiles and
excavation. The administrator for OSHA is the Assistant Secretary for Occupational Safety and Health; the position
answers to the Secretary of Labor, a member of the Cabinet of the United States.
OSHA coverage extends to most, but not all, private sector employers and their workers. OSHA rules cover numerous
industry workplaces from construction to maritime to agriculture. The agency also covers some public sector employers
and their workers, usually through state OSHA agencies that regulate public sector employers. However, OSHA does not
cover self-employed workers or immediate members of farm families who do not employ nonfamily workers. OSHA
extends throughout all 50 states as well as U.S. territories and jurisdictions, including the District of Columbia, Puerto
Rico, the U.S. Virgin Islands, American Samoa, Guam and Northern Mariana Islands. States can have their own federally
approved occupational safety and health regulatory programs, which are called state-plans. The State-Plan States must
have regulations that are as stringent as federal OSHA regulations, but they also can implement stricter regulations if they
choose.
388 | P a g e
OSHA determines which standards and requirements apply to which workplace environments and then enforces employer
adherence to those standards and requirements. OSHA sets these standards and requirements based on workplace
research as well as input from technical experts, employers, unions and other stakeholders. To help employers adhere to
its standards and requirements, OSHA offers training and tools to educate employers and employees. OSHA is required to
explain the procedures, equipment and training that employers and workers must use to reduce hazards and ensure safety
measures specific to the employers’ workplace and workers’ jobs.
The Occupational Safety and Health Administration, more commonly known by its acronym OSHA, is responsible for
protecting worker health and safety in the United States. Congress created OSHA in 1971 following its passage of the
Occupational Safety and Health Act of 1970 to ensure safe and healthy working conditions for workers by enforcing
workplace laws and standards and also by providing training, outreach, education and assistance. Congress enacted the
OSH Act in response to annual workplace accidents that resulted in 14,000 worker deaths and 2.5 million disabled
workers annually. Since its inception, OSHA has cut the work-fatality rate by more than half, and it has significantly
reduced the overall injury and illness rates in industries where OSHA has concentrated its attention, such as textiles and
excavation. The administrator for OSHA is the Assistant Secretary for Occupational Safety and Health; the position
answers to the Secretary of Labor, a member of the Cabinet of the United States.
OSHA coverage extends to most, but not all, private sector employers and their workers. OSHA rules cover numerous
industry workplaces from construction to maritime to agriculture. The agency also covers some public sector employers
and their workers, usually through state OSHA agencies that regulate public sector employers. However, OSHA does not
cover self-employed workers or immediate members of farm families who do not employ nonfamily workers. OSHA
extends throughout all 50 states as well as U.S. territories and jurisdictions, including the District of Columbia, Puerto
Rico, the U.S. Virgin Islands, American Samoa, Guam and Northern Mariana Islands. States can have their own federally
approved occupational safety and health regulatory programs, which are called state-plans. The State-Plan States must
have regulations that are as stringent as federal OSHA regulations, but they also can implement stricter regulations if they
choose.
389 | P a g e
OSHA determines which standards and requirements apply to which workplace environments and then enforces employer
adherence to those standards and requirements. OSHA sets these standards and requirements based on workplace
research as well as input from technical experts, employers, unions and other stakeholders. To help employers adhere to
its standards and requirements, OSHA offers training and tools to educate employers and employees. OSHA is required to
explain the procedures, equipment and training that employers and workers must use to reduce hazards and ensure safety
measures specific to the employers’ workplace and workers’ jobs.
In addition to education and training, OSHA is tasked with enforcement. OSHA officials can issue fines ranging into the
tens of thousands of dollars for violations, and they can refer violators for criminal prosecution if they deem such action
warranted. OSHA is also tasked with identifying possible causes for job-related injuries, deaths and illnesses. In 2015,
OSHA fined Ashley Furniture three times for a total of $2,280,200 after investigations revealed more than 1,000
recordable work-related injuries in the previous three-and-a-half years and failure to protect employees from moving
machine parts. OSHA's largest action to date has been against BP Products of North America Inc., following a 2005
explosion and fire at the BP Texas City Refinery that killed 15 workers and injured 170. The proposed penalties totaled
$87.4 million.
To comply with OSHA requirements, employers must take a number of specific actions; those include inspecting the
workplace for potential hazards, eliminating or minimizing hazards, keeping records of workplace injuries and illness,
training employees to recognize safety and health hazards, and educating employees on precautions to prevent accidents.
OSHA also requires employees to follow rules, such as complying with all applicable OSHA standards, following OSHA
safety regulations, wearing required protective equipment, reporting hazardous conditions, and reporting job-related
injuries and illnesses. OSHA also protects employees by guaranteeing a host of rights. Those include the right to have
copies of OSHA regulations and request information about workplace hazards, precautions, and procedures; to request
OSHA inspections if they believe hazardous conditions or violations exist in their workplace; and to refuse being exposed
to the danger of death or serious physical harm. Additionally, OSHA and federal laws protect workers who complain or
report possible violations to their employers, OSHA or other agencies against retaliation. Employers are prohibited from
taking unfavorable personnel action against a whistleblower, and employees who feel their legal rights have been infringed
upon can file a complaint to OSHA alleging employer retaliation.
390 | P a g e
OSHA has various programs to further its mission. It’s Alliance Program, for example, allows employers, labor unions,
trade or professional groups, government agencies and educational institutions to collaborate with OSHA to prevent
workplace injuries and illnesses. Meanwhile, it’s Safety and Health Achievement Recognition Program (SHARP) provides
incentives and support to employers for the development and implementation of workplace safety and health programs.
Environmental Stewardship
The entrepreneur exercises Environmental Stewardship by using conservatory and sustainable practices in the
management of the business that contributes to the protection of the natural environment and its resources.
International and government organizations have implemented laws to regulate the use of hazardous chemicals, materials
pollutants, and excessive noise. Environmental management and sustainability practices have been implemented and
enforced by corporations.
Environmental stewardship refers to responsible use and protection of the natural

environment through conservation and sustainable practices. Aldo Leopold (1887–1949) championed environmental
stewardship based on a land ethic "dealing with man's relation to land and to the animals and plants which grow upon it."
There are 3 types of environmental stewards

1. Doers go out and help the cause by taking action. For example, the doers in an oil spill would be the volunteers
that go along the beach and help clean up the oil from the beaches.
2. A donor is the person that financially helps the cause. They can do anything from donating their money, to having
galas or other fundraisers. They are typically governmental agencies.
3. Lastly there are practitioners. They work on a day-to-day basis to steer governmental agencies, scientists,
stakeholder groups, or any other group toward a stewardship outcome.
Together these 3 groups make up environmental stewards and with the help keep the ecosystem running healthily.
Anybody can be an environmental steward by being aware and knowledgeable of the world around them and making sure
they do as little as possible to negatively impact our world. Without these groups it would be hard to get any sort of
sustainability in our increasingly technology, pollution and industrial based world.
391 | P a g e
Insurance
Entrepreneurs should obtain insurance for their business. Insurance is a form of protection against risks undertaken by
the business. It is a contract engaged by business with an insurance company that guarantees compensation in the event of
a specified loss or accident. This allows the venture to safeguard the business against any severe financial impact on the
business. The main types of insurance are:
1. Property insurance – insurance against business possessions in case of natural disasters, fires or burglary.
2. Liability insurance – protection for the business in the event of injury or damage resulting from the business’
actions.
3. Workers compensation – rewards employees in the event of job-related injury or illness.
Ethics and Social Responsibility
Introduction
It is in the best interest of a company to operate ethically. Trustworthy companies are better at attracting and keeping
customers, talented employees, and capital. Those tainted by questionable ethics suffer from dwindling customer bases,
employee turnover, and investor mistrust. Business Ethics covers the areas of moral principles and decision making,
governance issues and codes of conduct for a business. Business actions will then be judged by not that which is efficient
or effective but by that which is “morally defensible” (Wozniak 2011 pp 304). We understand that business ethics as a
concept is mutating, changing in the context of new technologies, new ways of resource mobilization and utilization,
evolving societal practices and growing towards a perpetually connected global business network. Growing universal
awareness of the finiteness of natural resources, the growing wealth divide, and the pervasive presence of businesses in the
individual citizen's life through technologies such as big data and cloud computing, bring forth business ethics to the
forefront of the conversation on societal norms
392 | P a g e
What Is Ethics?
Students probably already know what it means to be ethical: to know right from wrong and to know
when they are practicing one instead of the other. At the risk of oversimplifying, then, we can say
that business ethics is the application of ethical behavior in a business context. Acting ethically in
business means more than simply obeying applicable laws and regulations: It also means being
honest, doing no harm to others, competing fairly, and declining to put their own interests above
those of their company, its owners, and its workers. If you are in business, you obviously need a
strong sense of what is right and what is wrong (not always an easy task). You need the personal
conviction to do what is right, even if it means doing something that’s difficult or personally
disadvantageous.
What Is Social Responsibility?

Corporate social responsibility deals with actions that affect a variety of parties in a company’s environment. A socially
responsible company shows concern for its stakeholders—anyone who, like owners, employees, customers, and the
communities in which it does business, has a “stake” or interest in it. We will discuss corporate responsibility later in the
chapter. At this point, we will focus on ethics.
How Can You Recognize an Ethical Organization?

One goal of anyone engaged in business should be to foster ethical behavior in the organizational environment. How do we
know when an organization is behaving ethically? Most lists of ethical organizational activities include the following
criteria:
• Treating employees, customers, investors, and the public fairly
• Making fairness a top priority
• Holding every member personally accountable for his or her action
• Communicating core values and principles to all members
• Demanding and rewarding integrity from all members in all situations (Axelrod, 2004) whether you work for a
business or for a non-profit organization, you probably have a sense of whether your employer is ethical or
unethical.
393 | P a g e
Employees at companies that consistently make Business
Ethics magazine’s list of the “100 Best Corporate Citizens” regards the items on the previous list as business as usual in the
workplace. Companies that routinely win good-citizenship awards include Procter & Gamble, Hewlett-Packard, Intel,
Avon Products, Cisco Systems, and Merck. By contrast, employees with the following attitudes tend to suspect that their
employers are not as ethical as they should be:
• They consistently feel uneasy about the work they do.
• They object to the way they are treated.
• They are uncomfortable about the way coworkers are treated.
• They question the appropriateness of management directives and policies (Axelrod, 2004)
How can you make sure that you do the right thing in the business world? How should you respond to the kinds of
challenges that you will be facing? Because your actions in the business world will be strongly influenced by your moral
character, let’s begin by assessing your current moral condition.
Which of the following best applies to you (select one)?

1. I am always ethical.
2. I am mostly ethical.
3. I am somewhat ethical.
4. I am seldom ethical.
5. I am never ethical.
394 | P a g e
Now that you have placed yourself in one of these categories, here are some general observations. Few people put
themselves below the second category. Most of us are ethical most of the time, and most people assign themselves to
category number two—“I am mostly ethical.” Why do not more people claim that they are always ethical? Apparently, most
people realize that being ethical all the time takes a great deal of moral energy. If you placed yourself in category number
two, ask yourself this question: How can I change my behavior so that I can move up a notch? Unfortunately, practicing
this philosophy might be easier in your personal life than in the business world. Ethical challenges arise in business
because business organizations, especially large ones, have multiple stakeholders and because stakeholders make
conflicting demands. Making decisions that affect multiple stakeholders is not easy even for seasoned managers; and for
new entrants to the business world, the task can be extremely daunting. Many managers need years of experience in an
organization before they feel comfortable making decisions that affect various stakeholders. You can, however, get a head
start in learning how to make ethical decisions by looking at two types of challenges that you’ll encounter in the business
world: ethical dilemmas and ethical decisions.
Ethical Dilemmas
An ethical dilemma is a morally problematic situation: You have to pick between two or more acceptable but often
opposing alternatives that are important to different groups. Experts often frame this type of situation as a “right-versus-
right” decision. It is the sort of decision that Johnson & Johnson (known as J&J) CEO James Burke had to make in 1982
(Kaplan, 2012). On September 30, twelve-year-old Mary Kellerman of Chicago died after her parents gave her Extra-
Strength Tylenol. That same morning, twenty-seven-year-old Adam Janus, also of Chicago, died after taking Tylenol for
minor chest pain. That night, when family members came to console his parents, Adam’s brother and his wife took Tylenol
from the same bottle and died within forty-eight hours. Over the next two weeks, four more people in Chicago died after
taking Tylenol. The actual connection between Tylenol and the series of deaths was not made until an off-duty fireman
realized from news reports that every victim had taken Tylenol. As consumers panicked, J&J pulled Tylenol off Chicago-
area retail shelves. Researchers discovered Tylenol capsules containing large amounts of deadly cyanide. Because the
poisoned bottles came from batches originating at different J&J plants, investigators determined that the tampering has
occurred after the product had been shipped.
So J&J was not at fault. However, CEO Burke was still faced with an extremely serious dilemma: Was it possible to
respond to the tampering cases without destroying the reputation of a highly profitable brand? Burke had two options:
395 | P a g e
He could recall only the lots of Extra-Strength Tylenol that were found to be tainted with cyanide. This was the path
followed by Perrier executives in 1991 when they discovered that cases of bottled water had been poisoned with benzine.
This option favored J&J financially but possibly put more people at risk.
Burke could order a nationwide recall—of all bottles of Extra-Strength Tylenol. This option would reverse the priority of
the stakeholders, putting the safety of the public above stakeholders’ financial interests.
Burke opted to recall all 31 million bottles of Extra-Strength Tylenol on the market. The cost to J&J was $100 million, but
public reaction was quite positive. Less than six weeks after the crisis began, Tylenol capsules were reintroduced in new
tamper-resistant bottles, and by responding quickly and appropriately, J&J was eventually able to restore the Tylenol
brand to its previous market position. When Burke was applauded for moral courage, he replied that he’d simply adhered
to the long-standing J&J credo that put the interests of customers above those of other stakeholders. His only regret was
that the tamperer was never caught (Weber, 1999).
If you are wondering what your thought process should be if you are confronted with an ethical dilemma, you could do
worse than remember the mental steps listed in Figure 1. “How to Face an Ethical Dilemma”—which happen to be the
steps that James Burke took in addressing the Tylenol crisis:
1. Define the problem: How to respond to the tampering case without destroying the reputation of the Tylenol
brand.
2. Identify feasible options: (1) Recall only the lots of Tylenol that were found to be tainted with cyanide or (2)
order a nationwide recall of all bottles of Extra-Strength Tylenol.
3. Assess the effect of each option on stakeholders: Option 1 (recalling only the tainted lots of Tylenol) is
cheaper but puts more people at risk. Option 2 (recalling all bottles of Extra-Strength Tylenol) puts the safety of the
public above stakeholders’ financial interests.
4. Establish criteria for determining the most appropriate action: Adhere to the J&J credo, which puts the
interests of customers above those of other stakeholders.
5. Select the best option based on the established criteria: In 1982, Option 2 was selected, and a nationwide
recall of all bottles of Extra-Strength Tylenol was conducted.
396 | P a g e
Figure 1. How to Face an Ethical Dilemma
Ethical Decisions
In contrast to the “right-versus-right” problem posed by an ethical dilemma, an ethical decision entails a “right-versus-
wrong” decision— one in which there is a right (ethical) choice and a wrong (unethical or illegal) choice. When you make
a decision that’s unmistakably unethical or illegal, you have committed an ethical lapse. Betty Vinson, for example, had an
ethical lapse when she caved into her bosses’ pressure to cook the WorldCom books. If you are presented with what
appears to be this type of choice, asking yourself the questions in Figure 2. “How to Avoid an Ethical Lapse” will increase
your odds of making an ethical decision.
397 | P a g e
Figure 2. How to Avoid an Ethical Lapse
To test the validity of this approach, let’s take a point-by-point look at Betty Vinson’s decisions:
1. Her actions were clearly illegal.
2. They were unfair to the workers who lost their jobs and to the investors who suffered financial losses (and also to
her family, who shared her public embarrassment).
3. She definitely felt bad about what she had done.
4. She was embarrassed to tell other people what she had done.
5. Reports of her actions appeared in her local newspaper (and just about every other newspaper in the country).
398 | P a g e
Code of Ethics
Many companies use the phrases 'ethical code' and 'code of conduct' interchangeably, but it may be useful to make a
distinction. A code of ethics will start by setting out the values that underpin the code and will describe a company's
obligation to its stakeholders. The code is publicly available and addressed to anyone with an interest in the company's
activities and the way it does business. It will include details of how the company plans to implement its values and
vision, as well as guidance to staff on ethical standards and how to achieve them. However, a code of conduct is
generally addressed to and intended for employees alone. It usually sets out restrictions on behavior and will be far more
compliance or rules focused than value or principle focused. It is clear in this definition that business ethics is related to
moral norms and values. At this point, it is necessary to ask if companies have moral norms and values as individuals do.
This is why companies now provide ethical codes or codes of conduct and expect workers of all levels to obey these codes
when they make a decision as a part of their jobs. For example, according to Facebook code of conduct, employees are not
allowed to accept any gifts of substantial value from partners. Thus, this code provides an idea as to what is right and
wrong in the offices of Facebook. As a result, business ethics is not related to a company’s moral obligations to its
stakeholders but ethical behaviors expected from employees.
Corporate Social Responsibility (CSR)
The title corporate social responsibility has two meanings. First, it is a general name for any theory of the corporation that
emphasizes both the responsibility to make money and the responsibility to interact ethically with the surrounding
community. Second, corporate social responsibility is also a specific conception of that responsibility to profit while
playing a role in broader questions of community welfare.
As a specific theory of the way corporations interacts with the surrounding community
and larger world, corporate social responsibility (CSR) is composed of four obligations:
1. The economic responsibility to make money. Required by simple economics,
this obligation is the business version of the human survival instinct. Companies
that do not make profits are—in a modern market economy—doomed to perish.
Of course, there are special cases. Nonprofit organizations make money (from
their own activities as well as through donations and grants) but pour it back into
their work. Also, public/private hybrids can operate without turning a profit. In
some cities, trash collection is handled by this kind of organization, one that
keeps the streets clean (at least theoretically) making anyone rich. For the vast
399 | P a g e
majority of operations, however, there have to be profits. Without them, there’s no business and no business
ethics.
2. The legal responsibility to adhere to rules and regulations. Like the previous, this responsibility is not
controversial. What proponents of CSR argue, however, is that this obligation must be understood as a proactive
duty. That is, laws are not boundaries that enterprises skirt and cross over if the penalty is low; instead,
responsible organizations accept the rules as a social good and make good faith efforts to obey not just the letter
but also the spirit of the limits. In concrete terms, this is the difference between the driver who stays under the
speed limit because he cannot afford a traffic ticket and one who obeys because society as a whole is served when
we all agree to respect the signs and stop lights and limits. As against that model of behavior, a CSR vision of
business affirms that society’s limits will be scrupulously obeyed, even if the fine is only one dollar.
3. The ethical responsibility to do what is right, even when not required by the letter or spirit of the law. This is
the theory’s keystone obligation, and it depends on a coherent corporate culture that views the business itself as a
citizen in society, with the kind of obligations that citizenship normally entails. When someone is racing his or her
Porsche along a country road on a rainy summer’s night and encounters another driver stopped on the roadside
with a flat, there’s a social obligation to do something, though not a legal one. The same logic can work in the
corporate world. Many industrial plants, produce as an unavoidable part of their fabricating process, poisonous
waste. The law governing toxic waste disposal was ambiguous, but even if the companies were not legally required
to enclose their poisons in double-encased, leakproof barrels, is not that the right thing to do so as to ensure that
the contamination will be safely contained? True, it might not be the right thing to do in terms of pure profits, but
from a perspective that values everyone’s welfare as being valuable, the measure could be recommendable.
4. The philanthropic responsibility to contribute to society’s projects even when they are independent of the
particular business. A lawyer driving home from work may spot the local children gathered around a makeshift
lemonade stand and sensed an obligation to buy a drink to contribute to the neighborhood project. Similarly, a law
firm may volunteer access to their offices for an afternoon every year, so some local schoolchildren may take a field
trip to discover what lawyers do all day. An industrial chemical company may take the lead in rehabilitating an
empty lot into a park. None of these acts arise as obligations extending from the day-to-day operations of the
business involved. They are not like the responsibility a chemical firm has for safe disposal of its waste. Instead,
these public acts of generosity represent a view that businesses, like everyone in the world, have some obligation to
support the general welfare in ways determined by the needs of the surrounding community.
400 | P a g e
The Moral Requirement Argument
The moral requirement that business goals go beyond the bottom line to include the people and the world we all share is
built on the following arguments:
1. Corporations are already involved in the broad social world and the ethical dilemmas defining it. For example,
factories producing toxic waste are making a statement about the safety and wellbeing of those living nearby every
time they dispose of the toxins. If they follow the cheapest—and least safe—route in order to maximize profits, they
are not avoiding the entire question of social responsibility; they are saying with their actions that the well-being of
townspeople does not matter too much. That is an ethical stance. It may be good or bad, it may be justifiable or
not, but it is definitely ethics. Choosing, in other words, not to be involved in surrounding ethical issues is an
ethical choice. Finally, because companies are inescapably linked to the ethical issues surrounding them, they are
involved with some form of corporate social responsibility whether they like it or not.
2. Corporations, at least well-established, successful, and powerful ones can be involved in the effective resolution of
broad social problems, and that ability implies an obligation. Whether we are talking about a person or business,
the possession of wealth and power is also a duty to balance that privilege by helping those with fewer resources.
Many accept the argument that individuals who are extraordinarily rich have an obligation to give some back by,
say, creating an educational foundation or something similar. That is why people say, “To whom much is given,
much is expected.” Here, what is being argued is that the same obligation applies to companies.
3. Corporations rely on much more than their owners and shareholders. They need suppliers who provide materials,
employees who labor, a town where the workplace may be located, consumers who buy, air to breathe, water to
drink, and almost everything. Because a business relies on all that, the argument goes, it is automatically
responsible—to some extent—for the welfare and protection of those things.
4. Because businesses cause problems in the larger world; they are obligated to participate in the problems’
resolution. What kinds of problems are caused? Taking the example of an industrial chemical factory, toxic waste
is produced. Even though it may be disposed of carefully, that does not erase the fact that barrels of poison are
buried somewhere, and a threat remains, no matter how small. Similarly, companies that fire workers create social
tensions. The dismissal may have been necessary or fully justified, but that does not change the fact that problems
are produced, and with them comes a responsibility to participate in alleviating the negative effects.
401 | P a g e
The notion of corporate social responsibility, Friedman asserts, is not only misguided; it is dangerous because it threatens
to violate individual liberty. Stronger, the violation may ultimately lead to socialism, the end of free market allocation of
resources because rampant political forces take control in the boardroom.
The movement to socialism that Friedman fears comes in two steps:

1. Environmental activists, social cause leaders, and crusading lawyers will convince at least a handful of
preening business executives that working life is not about individuals expressing their freedom in a wide-
open world; it is about serving the general welfare. The notion of corporate social responsibility becomes a
mainstream concern and wins wide public support.
2. By the way forced open by activists, the risk is that government will follow: the institution originally set up to
regulate business life while guaranteeing the freedom of individuals will fall into the custom of imposing
liberty-wrecking rules. Under the weight of these intrusive laws, working men and women will be forced to
give up on their own projects and march to the cadence of government-dictated social welfare projects. Hiring
decisions, for example, will no longer be about companies finding the best people for their endeavors; instead,
they will be about satisfying social goals defined by politicians and bureaucrats. Friedman cites as an example
the hiring of felons. Obviously, it is difficult for people coming out of jail to find good jobs. Just as obviously,
it is socially beneficial for jobs to be available to them. The problem comes when governments decide that the
social purpose of reinserting convicts is more important than protecting the freedom of companies to hire
anyone they choose. When that happens, hiring quotas will be imposed—corporations will be forced to
employ certain individuals. This intrusive workplace rule will be followed by others. All of them will need to
be enforced by investigating agents and disciplining regulators. As their numbers grow and their powers
expand, freedom will be squeezed.
Good Corporate Governance
The Corporate governance system is best understood as the set of fiduciary and managerial responsibilities that binds a
company’s management, shareholders, and the board within a larger, societal context defined by legal, regulatory,
competitive, economic, democratic, ethical, and other societal forces.
402 | P a g e
Social Entrepreneurship
The social entrepreneur is a mission-driven individual who uses a set of entrepreneurial behaviours to deliver a social
value to the less privileged, all through an entrepreneurially oriented entity that is financially independent, self-sufficient,
or sustainable.
This definition combines four factors that make social entrepreneurship distinct from other forms of entrepreneurship.
Social entrepreneurs:
1. are mission-driven. They are dedicated to serve their mission of delivering a social value to the underserved.
2. act entrepreneurially through a combination of characteristics that set them apart from other types of entrepreneurs.
3. act within entrepreneurially oriented organizations that have a strong culture of innovation and openness.
4. act within financially independent organizations that plan and execute earned-income strategies.
The objective is to deliver the intended social value while remaining financially self-sufficient. This is achieved by
blending social and profit oriented activities to achieve self-sufficiency, reduce reliance on donations and government
funding, and increase the potential of expanding the delivery of proposed social value (Bacq et al., 2011).
Characteristics of Social Entrepreneurship
Although the use of the term social entrepreneur is growing rapidly, the field of social entrepreneurship lacks rigour and
is in its infancy compared to the wider field of entrepreneurship. Success stories of individuals solving complex social
problems are being used to legitimize the field of social entrepreneurship. For example, in 2004, Stanford University
launched Social E-Lab as part of its Entrepreneurial Design for Extreme Affordability course, which promotes the use of
entrepreneurship principles to solve social and environmental problems.
The public often holds social entrepreneurs in high regard because of the multitude of social needs they satisfy and the
improved life quality they bring to affected societies.
403 | P a g e
Unit Two Module One
1. What are the minimum and maximum amount of persons required to form an LLC?
____________________________________________________________________________
____________________________________________________________________________
2. Discuss two ways in which an LLC can raise capital and indicate one way in which it may be difficult to do so.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
404 | P a g e
3. An LLC may choose to be taxed as a Sole Proprietor, Partnership, or Corporation. As a student, if you were a member of
an LLC, suggest, giving two reasons why and which tax regime would be preferred.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
4. Should Government be intricately involved in the running of a Statutory Corporation? Whether YES or No, give two
reasons to support your position.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
405 | P a g e
5. List two types of Statutory Corporations that should remain natural monopolies. Give a reason why any ONE of the
Statutory Corporation identified should remain a monopoly.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
6. What argument would you put forward for the privatization of a Statutory Corporation?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
406 | P a g e
7. What is the primary advantage of forming a private company over a public company?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
8. Private Companies may raise equity capital from angel investors, venture capital firms and corporate investors. Giving
three reasons why explain which type of investment may be safer for the company.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
9. Essay Question
Compare and contrast an LLC and a Private Company. Based on your comparison, which company is more attractive to
create in relation to investment, management and sustainability and growth.
407 | P a g e
10. Explain THREE advantages and THREE disadvantages of registering a venture
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
11. What is Open Innovation and why is it useful to Entrepreneurs?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
408 | P a g e
12. Describe THREE actions an entrepreneur can take to establish a business venture legally.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
13. Explain TWO benefits of implementing environment stewardship practices.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
409 | P a g e
14. Why legal considerations important to an entrepreneur?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Question 15
Case Study: John Wayne the Marine Engineer
John Wayne is an engineer and an entrepreneur. John started his own company in 2014. He decided to offer marine
engineering services to yacht and boat owners in Antigua & Barbuda. John had plans to trademark his business with the
intention of expanding his services regionally and internationally.
From his 28 years of experience in the engineering field, John Wayne had an idea for a new innovation that would assist
maintaining the efficiency of the engines whilst on the sea. He wanted to execute this invention on a few clients before
patenting his invention; however, he was wary of someone stealing his idea.
John met with his attorney who advised him to apply for the relevant intellectual protection for his business before going
to the client with a proposal of his new innovation. The application process can take 6-12 months or possibly longer. John
Wayne has to make a decision regarding the protection of his business.
410 | P a g e
1. List THREE types of intellectual property protection.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
2. Should John Wayne continue the business without intellectual property protection? Give TWO reasons to support your
response
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
3. What is a trademark?
____________________________________________________________________________
____________________________________________________________________________
411 | P a g e
4. Explain ONE benefit that can be gained from implementing environmental stewardship practices
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
16. Explain the difference between an ethical dilemma and an ethical decision. Then provide an example of each. Describe
an ethical lapse and provide an example
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
412 | P a g e
Module 2:
New Venture Planning and

Creation
413 | P a g e
Overview
The focus of this module is to develop an understanding of how business ideas are generated. At the end of this module
you should be able to identify different methods of generating business ideas and opportunity identification; examine
business concepts; identify different resources essential for business success; and how to implement and manage a
business venture.
Introduction
In this chapter, you will learn about taking that idea you have for a business and determining whether it will be profitable
and become your business venture. Are you excited? The process and importance of conducting a market research will be
discussed. Enjoy your lesson as you embark upon building a sustainable business venture.
Before you begin
Consider the following:

What are you most passionate about?
Is my idea realistic for a venture opportunity?
Who are my competitors?
Is there any product or service closely linked to your hobby?
Observe your surroundings? Is there a consumer needs not being met?
What is market research?

Market research involves the collection and analyzing of information need to make business decisions regarding potential
customers and identifying their preferences. The entrepreneur is able to develop strategies for creating and influencing
demand for the product. The entrepreneur creates a product that satisfies the consumer and delivers a good or service
which helps to maintain customer relations. This approach is referred to as the marketing concept.
Reasons and Benefits of Marketing Research

Entrepreneurs may perceive market research as a tedious process. However, it is important to comprehend the usefulness
of research and the benefits associated with market planning. Market research provides avenues of insight for the
entrepreneur into the demand for the product and the challenges which may be encountered during the entrepreneurial
process and increase of sales. Market research can be conducted by the entrepreneur or researchers within the company.
Some businesses may decide to employ or contract company that specializes in market research. The entrepreneur obtains
414 | P a g e
information of the business’ strengths and weakness, information about competitors and data about consumers. The
entrepreneur will be able to determine the characteristics and demographics of the potential target market. Research can
be used to monitor and evaluate the actions previously implemented to assess the progress of strategy in achieving the
objective. This information will assist in developing an effective plan which for increasing revenue and distribution of the
product to consumers. In addition, it is also beneficial for an entrepreneur who is seeking an investor for his business.
Types of Data
There are two types of data that can be used in the research process. Based on the type of information the entrepreneur
may require, there is the option of using primary or secondary data. Both can be used depending on the research objective.
These are described as:
Primary data – collection of new data for a specific purpose and target market. This information can be sourced
through interviews, focus groups, surveys and observation of potential or existing customers.
Secondary data – the usage of data collected in a previous or other purpose and not the proposed research investigated.
Secondary data can be sourced from magazines, business reports, government offices, and journals.
Market Research can help the entrepreneur to:

1. Identify problems
2. Understand the changing market
3. Focus or develop strategies to keep existing customers
4. Improve the quality of decision making
Market research focuses on the business environment, potential customers and competitors. It is crucial for the
entrepreneur to be attentive to these areas as it would help in measuring the market demand for the product and enabling
customer satisfaction.
Business Environment – the entrepreneur, should conduct a PESTLE analysis that would assess the impact of the
political, economic, social, technological, legal and environmental factors that could impact the business.
415 | P a g e
Customers – it is important to evaluate the customers’ needs and ensure there is a demand for your product in order to
ensure the venture’s sustainability.
Competitor – market research allows the entrepreneur identify competitors. Entrepreneurs/management are able to
make strategic plans that are viable and would contribute to increasing sales and market share. The market research
process will guide you in deciding if the venture is feasible and shows profitability.
Steps in Market Research

1. Problem identification/ Identify research objectives
2. Determine the research design
3. Identify data types and sources
4. Collect data
5. Organize/collate data
6. Analyze data
7. Report findings
Key elements of Market Research

The research design must request information from the customer about various elements which will help the entrepreneur
to achieve customer satisfaction.
Product characteristics:
The product features valued by the potential consumer must be clearly identified
Definition of market:
The size of the market helps the entrepreneur to decide whether he will operate in a mass market or choose niche
marketing. Asses your target market. This consists of a potential number of customers who may purchase your product.
416 | P a g e
Expected sales trends
Market research provides the entrepreneur with information in understanding consumer patterns and behaviour. The
entrepreneur is able to know how trends can affect purchases and improve the accuracy of projected sales.
Customer analysis
Market campaigns can be designed to suit the target market when the entrepreneur obtains information from the
research. New strategies can be evolved for ways to improve customer satisfaction and reduce wastage of resources and
maximize the marketing plan.
Promotional strategy
The market research will allow the entrepreneur to create a customer profile and learn about what influences behaviour
and spending power. Once the entrepreneur identifies the target market, a promotional strategy can be developed to
launch information on the communications and product information that will be used to create product awareness.
Nature and level of competition

Competitors may already be present in the market. The entrepreneur should observe and become knowledgeable of
competitors. This will assist the organization in decision making in developing sustainable business strategies. A
competitor analysis will provide information on the impact or influence the competitor may have on the venture. Develop
and incorporate proper strategic planning to place your business ahead of the competitor in the market.
Cost-benefit analysis approach to market research

In this instance, the entrepreneurs assess the expected benefits of an opportunity and detract the expected costs. Once the
benefits exceed the cost, the entrepreneurial venture is worthwhile.
417 | P a g e
Broken Down of Market Research
Definition of market research

According to 'entrepreneurship.org', market research is 'the process of gathering, analyzing and interpreting
information about a market, about a product or service to be offered for sale in the market, and about the
past, present and potential customers for the product or service.' The term has also been described as activities
such as, information gathering and evaluation designed to link markets to consumers. Additionally, market research is
described as an 'investigation into aspects of the market' (ABE). This will be used to inform decision making in
planning. Moreover, in conducting market research certain aspects of marketing such as market price, distribution
channels, and promotion among others will be researched. This sometimes led to the terms, market research and
marketing research being used interchangeably. However, the terms are distinct and should be treated as
such. Consequently, marketing research deals with investigating how to best reach the customer, as, such it deals with the
aspects of the marketing mix.
Sources of data in market research

Data sources can be placed in two categories:
Secondary Research: This entails the researcher using information that has been published by other
sources. Secondary research sources can be:
• Internal to the organization e.g. reports and records on sales; customer buying history; return on investment;
• External to the organization e.g. industry surveys, companies' annual financial reports, studies in journals, trade
magazines, books, trade associations, mass media, and banks.
Secondary research is not necessarily new information and may not meet the objectives of the present researcher or may
be irrelevant. Further, it may have been collected under totally different market conditions. However, conducting desk or
secondary research can assist in reducing risk and cost of decision making by pointing out unattainable or unsuitable
segments.
418 | P a g e
Primary Research: This is new or primary research. It is collected by the organization or by an agent hired by the
organization. Data in field or primary research can be collected by site visits, questionnaires focus groups, and
surveys. Primary research can be time consuming as well as, expensive if using an external company to conduct
research. It may also suffer from personal bias. However, the researcher can target specific groups and provide up to date
information on the market.
Business researchers in contemporary settings are utilizing more online methods of collecting data. This involves
researching journals and studies online (secondary) and conducting focus groups, sending online questionnaires and
surveys (primary).
Benefits of conducting market research

Conducting market research is important to provide the venture with customer information, competitor information and
industry trends. Moreover, market research can help the venture understand threats and opportunities facing the
business. The information from this type of research is important in formulating and evaluating the venture's marketing
strategies. This would include informing the market segmentation process where there is need to identify different
demographic groups. Further, information provided can be a basis for product differentiation by understanding what the
competitors are providing. Market research is also important in assessing the feasibility of a venture before extensive
capital is invested into the start-up. Additionally, conducting market research can identify opportunities to improve
growth e.g. new markets. Also, information can feed into the business plan development and reduce the risk in decision
making.
Key Elements of Market Research

• Product characteristics: According to Kotler (2003), 'a product is anything that can be offered to a market to
satisfy a want or need.' He describes products as, 'physical goods, services, experiences, events, persons, places,
properties, organizations, information and ideas.' The entrepreneur must have a clear understanding of the
product features in order to formulate the marketing strategy and meet the customer needs. It is important to
understand how the product is perceived on the market.
419 | P a g e
Levitt (1980), contends that there are four concepts that combine to give the idea of 'the total product'. The
entrepreneur needs to be aware of these concepts when finding out what the consumer needs and wants. These
are: (a) The physical product or service or the basic product that provides the core benefit to be gained by the
customer; (b) The expected product that includes the attributes expected by the buyer e.g. packaging, after-sales
services, pricing information; (c) The augmented product that is differentiated from the competitor and offers extra
benefits. This 'exceeds customer expectation'; (d) the potential product is the definitive product that the
entrepreneur can provide to the market.
The entrepreneur needs to also be aware of the distinction between a good or service. The good is tangible and can
be stored for future use whereas, a service is intangible and cannot be stored. A service that is not used is lost. Key
features of a service are: (a) Intangibility, where the service cannot be seen or touched before actual buying; (b)
Inseparability, where the service cannot be separated from the service provider and the activities are used at the
time of purchase; (c) Perishability, where the service cannot be stored for future use and: (d) Heterogeneity, in that
the service will vary with the service provider and the environmental circumstances at the time.
The market researcher, should therefore be aware of what the target customer wants and ensure that the product
offering match the customer requirements. The market research should inform as to who is the buyer and the
needs of the buyer; who will influence the buying decision and the trends in buying needs; competition product
offering and the target market size.
• Market definition: Kotler (2003), defines a market as, 'the set of all actual and potential buyers of a market
offer.' The entrepreneur can utilize the following market definitions in research and planning. This is important in
deciding on which market to measure in market research. The following definitions are based on Kotler(2003),
Marketing Management 11th Edition:
• Potential Market: The set of consumers who express a 'sufficient level' of interest in a market offering.
• Available Market: The set of consumers who possess an interest, the income and access to a particular
market offer.
• Target Market or Served Market: The segment or part of the available market that the company decides to
pursue.
• Penetrated Market: This consists of the set of consumers who are purchasing the firm's products.
420 | P a g e
• Expected sales trends: The researcher should be aware of fluctuating sales tends as this may point to new trends
in the market. Further, sales trends point to issues in customer retention. The expected sales trend analysis will
underscore which customer segments are experiencing highest sales growth or decline in monetary terms; or how
strong is the growth or decline trend. Understanding sales trends is important for sales forecasting. That is
projecting expected customer demand for a specific company's good or service in a particular time period. This will
inform the entrepreneur of what products to pursue and how much to spend on marketing efforts and the
development of the marketing strategy. According to Kotler (2003), a sales forecast can be developed based on past
sales figures. This can be done by using :
• Time Series Analysis: This entails analyzing past time series. This would be done according to elements such
as trend, cycle, seasonal and erratic. The researcher will then project the elements into the future.
• Exponential Smoothing: This deals with a projection of the sales for the next period. This is achieved by
using an average of past sales and most recent sales figures.
• Statistical Demand Analysis: This entails a measurement of the impact of factors (causal) such as income
and price on sales level.
• Customer analysis (acsbdc.org): This aspect of market research identifies the target customers and the needs of
the target segment. The research will indicate how the product offering will satisfy the consumer. Two key element
s of the customer profile is(a) Demographic analysis which groups customers according to age, income, sex, race
and education for example; (b) Behavioral provides an assessment of the factors that cause consumers to choose
among alternatives in the market; (c) Psychographic entails analyzing lifestyle and personality;
• Promotional strategy: This involves the use of sales promotion, personal selling, advertising and public
relations. Basically, it incorporates the marketing communication tools. The entrepreneur will have to decide on
the most appropriate promotional strategy.
421 | P a g e
• Nature and level of competition and market attractiveness: Porter identified forces that determine the
level of competition and market attractiveness. This is also termed an Industry analysis. These forces pose certain
threats to the business. These include:
a. The threat/force of segment rivalry: The target segment can be unattractive if it is saturated or
declining. Moreover, if the segment contains forceful and strong competitors, it can be difficult to
compete. There will be high advertising costs.
b. Threat/force of new entrants: If barriers to entry and exit are low and the market is attractive then firms
will tend to enter the market and profit potential will be reduced. If for instance barriers to entry are low,
but exit barriers are high, this can result in overcapacity in the market.
c. Threat/force of substitute: A market segment can prove to be unattractive if there is the presence of
strong substitutes. Substitute goods can reduce profit potential.
d. Threat/force of buyers' bargaining power: if the cost of switching between substitutes is low, then the
buyer bargaining power is high. The buyer is more forceful if the product represents a large part of their
costs and if products are undifferentiated.
e. Threat/force of suppliers' bargaining power: When suppliers are concentrated and are few in number,
they tend to be forceful. Moreover, when the cost of switching is high and the raw material is an essential
input, the supplier power is greater. The greater the supplier power (ability to raise price and restrict
supply), the more unattractive the segment.
The Five Forces Model provides a base for strategy formulation and deciding whether to enter a market for new ventures.
Cost-benefit analysis approach to market research
In assessing the cost of market research to a venture the entrepreneur has to consider the research method to be used and
the relative costs of each option available. The size of the sample population should also be considered in costing market
research. In considering a cost -benefit analysis approach to market research the entrepreneur can look at examples of
cost associated with market research:
• Time spent by research staff and consultants on research activities;
• Resources (of the firm) used in the process such as, electricity, accommodation;
• Cost of each research location;
• Cost per research participant;
• Cost of delaying a product entry into the market as a result of market research;
• Opportunity cost of market research in terms of using resources in another area;
422 | P a g e
Possible benefits of conducting market research entails:
• Lower the risk of product failure on the market
• Create a better profile of customers and market
• Provide a more detailed and up-to date understanding of the venture's environments;
• Identify opportunities in the market;
• Can benefit the organization's image of having a culture of research and learning;
Moreover, the cost of a market research programme is dependent by the research method to be used e.g. A focus group
may be more expensive in terms of location, time, and cost of participant than a phone survey.
After, estimates on cost and benefits of the market research process are done, the venture can calculate the return on
investment. The return on investment quantifies or shows the dollar worth of the project. Further, it can highlight
additional advantages that may be more qualitative in nature. Additionally, calculating the rate of return can lend support
to the viability of a project. The formula for calculating Return on Investment (ROI) is: ROI = (Financial value - Project
Cost) / Project Cost.
Steps in the Marketing Research Process
1. Establish the need for the marketing research.

2. Define the problem.
3. Establish research objectives.
4. Determine the research design.
5. Identify information types and sources.
6. Determine the methods of accessing data.
7. Design data collection forms.
8. Determine sample plan and size.
9. Collect data.
10. Analyze data.
11. Prepare and present the final research report.
423 | P a g e
Few comments about the process:
1. It is rare in practice a research project follows all the exact steps.
✓ Research is an interactive process where a researcher by discovering something may move forward or backwards in
the process.
2. May not involve every step shown
✓ The research problem may be resolved, for example by a review of secondary data, thereby eliminating the need to
determine a sample plan or size.
3. What’s important is although every research project is different, there are enough commonalities to follow the eleven
steps of marketing research.
Step 1: Establish the Need for Marketing Research
A good monitoring system will alert the marketing manager to a problem that can be attacked by marketing research.
Regardless of the monitoring system used a good monitoring system constantly searches for hints that the companies
marketing mix may be out of “sync” in the market place.
Marketing research may not be needed:

✓ Information is already available
✓ There is insufficient time for marketing research
✓ Resources are not available
✓ Costs outweigh the value of the research
Step 2: Define the Problem
Defining the problem is the single most important step in the marketing research process.
Often studies are commissioned without a clear understanding of the problem that needs to be addressed.
424 | P a g e
Exploratory research is needed to define the problem so research may be conducted.
Problem definition involves:

1. Specifying the symptoms
2. Itemizing the possible causes of the symptoms
3. Listing the reasonable alternative courses of action that the marketing manager can undertake to solve the problem.
Step 3: Establish the Research Objectives
Research objectives identify what specific pieces of information are necessary to solve the problem at hand.
Research objectives step is the specification of the specific types of information useful to the managers as they grapple for
a solution to the marketing problem at hand.
Step 4: Determine Research Design
There are three types of research design:
1. Exploratory Research Design - is defined as collecting information in an unstructured and informal manner.
Examples: Reading periodicals, visiting competitor’s premises, examine company sales and profits vs. industry sales and
profit, clipping service.
2. Descriptive Research Design - refers to a set of methods and procedure that describe marketing variables. Portray
these variables by answering who, what, why and how questions. Example: consumer attitude survey to your
company’s services.
3. Casual Research Design – designs allow us to isolate causes and their effects.
✓ Casual research is conducted by controlling various factors to determine which factor is causing the problem.
✓ By changing one factor, say price, we can monitor its effect on a key consequence, such as sales. In other words,
casual design allow us to determine causality, or which variable is causing another variable to change.
425 | P a g e
Step 5: Identify Information Types and Sources.
Basically two types of data information available to a marketing researcher:

1. Secondary data – as it name implies, refers to information that has been collected for some other purpose.
2. Primary data - refers to information that has been gathered specifically to serve the research objectives at hand.
Step 6: Determine Methods of Accessing Data
Once the researcher has determined which type or types of information are needed, he or she must determine methods of
accessing data.
Methods of accessing external secondary data have improved over the last five years:
1. Information processing technology.
2. Easy and Quick retrieval.
3. Internal data- company reports, salespersons, executives, MIS and other information sources.
There are several different methods of collecting primary data including:

1. Telephone surveys
2. Mail surveys
3. Door-to-door interviews
4. Mall-intercept studies
5. New data collection methods are emerging.
Step 7: Design Data Collection Forms
1. Questionnaires and observation forms must be designed with great care.

2. Questionnaires – which record the information communicated by respondents or the respondent’s behavior as
observed by the researcher.
3. Structured Questionnaires - list questions that have pre- specified answer choices.
4. Unstructured questionnaires – have open ended questions and/or questions that are asked based on a response.
5. Disguised-true object of the study is not identified.
6. Undisguised- respondent is made fully aware of the purpose/or sponsor of the survey.
426 | P a g e
Step 8: Determine Sample Plan and Size
✓ A sample plan identifies who is to be sampled and how to select them for study.
✓ A sample element refers to a unit of the entity being studied.
✓ A sample Frame is a list from which the sample elements are drawn for the sample.
✓ A sample plan specify how to draw the sample elements from the sample plan.
✓ Methods are available to help the researcher determine the sample size required for the research study.
Step 9: Collect Data
Data collection is usually done by trained interviewers who are employed by field data collection companies to collect
primary data.
Being ware of errors that may occur is important.
Non-sampling Errors are attributable to factors other than sampling errors.

✓ Wrong sample elements to interview
✓ Securing participants who refuse to participate
✓ Not a home
✓ Interviewing subjects who give the wrong information.
✓ Hiring interviewers who cheat and fill out fictitious survey questionnaires.
Step 10: Analyze Data
✓ Data analysis involves entering data into computer files, inspecting it for errors and running tabulations and
various statistical tests.
✓ Data cleaning – process by which the raw data are checked to verify that the data has been correctly inputted
from the data collection form to the computer software program. Use SPSS
✓ Coding – is the process of assigning all response categories a numerical value males=1, females=2.
✓ Tabulation – which refers to the actual counting of the number of observations that fall into each possible
response category.
427 | P a g e
Step 11: Prepare and Present the Final Research Report
Preparing the marketing research report involves describing the process used, building meaningful tables, and using
presentation graphics for clarity.
Preparing the SPSS software allows you to prepare graphics to enhance your written or oral presentation.
Summary
✓ Virtually all market research projects are different.

✓ Some are limited to review of secondary data; others require complex designs involving large scale collection of
primary data.
✓ Understand the eleven steps of the research process.
✓ Steps can give researchers an overview of the entire research process.
✓ Gives researchers a procedure to follow and a framework.
✓ Many steps outlined are interactive and the researcher may decide which ones to use.
Cost Benefit Analysis
Agenda
✓ What is CBA?
✓ History
✓ Why CBA?
✓ Cost
✓ Benefit
✓ General steps for CBA
✓ Current State of the Art Potential use in UAE
✓ Conclusion
428 | P a g e
What is CBA?
✓ A cost benefit analysis is done to determine how well, or how poorly, a planned action will turn out.
✓ The analysis relies on the addition of positive factors and the subtraction of negative ones to determine a net
result.
History
✓ CBA can be traced back to the 19th century by Eng & Economist Jules Dupuit.
✓ In 1936, the US Congress passed the flood control act which contained the phrase which established CBA
"the Federal Government should improve or participate in the improvement of navigable waters or their
tributaries, including watersheds thereof, for flood-control purposes if the benefits to whomsoever they may
accrue are in excess of the estimated costs."
Why CBA?
Cost Benefit Analysis is used to determine:
Whether a solution/project is economically feasible
Which of two or more projects provides the best return on investment
The optimal point in time to start a project (time-phasing).
429 | P a g e
Cost
Any negative effect on an organization resulting from the implementation of the project.
Examples:
✓ maintenance costs
✓ environment
✓ research and development costs
✓ labor costs
✓ Cost Time
Benefit
A benefit is any positive effect on the organization resulting from the implementation of the project.
Examples:
✓ increase in productivity
✓ reduction in costs
✓ Saving Time
✓ Decrease road congestion
Method
The General steps for Cost Benefit Analysis are:
✓ Identify the problem

✓ Clearly define and set the objectives of the project, Identify the Benefits
✓ Generate alternatives that would meet the stated objective's
✓ Identify the Cost (Time, Env impact, Stress ect)
✓ Eliminate alternatives that do not fall within the constraints.
✓ Compare Benefit to Cost associated
430 | P a g e
431 | P a g e
432 | P a g e
Current State of the Art
• Investment-type or yes/no decisions

o whether or not a single project or course of action will be undertaken
• design-type or either/or decisions

o which of the several possible projects should be implemented, or the choice between two or more alternative
• least-cost or minimum-cost
o all the competing courses of action produce the same benefits. Being common to all, the benefits are not
evaluated, however, the cost is only analyzed.
• Cost-effectiveness analysis
o often used in fields where the benefits are difficult to value economically, like health care or education.
Current State of the Art
Analyses are also distinguished according to the identity of the group of people; on whose behalf they are carried out:
• Financial CBA: A financial analysis concerns the financial position of a person, firm or organization, so that both
costs and benefits are measured in term of money spent or received by that party
• Economic CBA: An economic CBA concerns the welfare of a defined group of people, usually a nation.
• Social CBA: the analyst goes further and adjusts the prices by which costs and benefits are valued so as to reflect
priorities and policies to certain population groups like the rural poor.
433 | P a g e
Potential use in UAE
The case of “Traffic Congestion in Sh. Zayed Rd”
Potential use in UAE
CBA analysis type: least-cost or minimum-cost
Cost?
• Air Pollution
• Noise Pollution
• Stress
• Increased Travel Time
• Health effects
• Increase fuel consumption
• Ect
Alternatives?
• Policy implementation
• Add road capacity (flyovers, tunnels, interchanges)
• Introduce Toll
• Stagger working hours
• Enhance Public Transport Options
• Transit Oriented Developments
• Ect
434 | P a g e
Benefit
• Improved travel time

• Lower fuel consumption
• Decrease pollution
• Enhance Quality of life
CBA in the UK
• CBA was gradually introduced through the New Approach to Appraisal (NATA) for roads projects in 1998
• CBA in Business
• CBA in Non-Business Entities
o Benefit: Reducing the level if illiteracy among rural low income Community
o Cost:
• Extent to which the program will attract illiterates
• A facility is available at low cost but far-away.
• Considerations on Transportation should be in mind
Conclusion
• It gives planners a method to try and “put all relevant costs and benefits on a common temporal footing” in order to
help people make informed decisions.
• It provides people with an understanding as to the economic costs of decisions, and allows arguments to be made
for or against a change based upon economic considerations.
• It is a decision-making process that forces the decision maker to compare all direct and indirect positive and
negative effects of the proposed decision on an objective basis.
435 | P a g e
Feasibility Analysis
Introduction
In the lesson, we will examine what a feasibility analysis as an entrepreneur is. A feasibility study aims to objectively and
rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats
present in the environment, the resources required to carry through, and ultimately the prospects for success. In its
simplest terms, the two criteria to judge feasibility are cost required and value to be attained.
A well-designed feasibility study should provide a historical background of the business or project, a description of the
product or service, accounting statements, details of the operations and management, marketing research and policies,
financial data, legal requirements and tax obligations. Generally, feasibility studies precede technical development and
project implementation.
The focus of this unit will be for students to develop a clear understanding of the purpose of feasibility analysis and its
benefits. The unit will also profile the key elements of a feasibility analysis such as personality feasibility or individual’s
SWOT profile, management, operational, financial, marketing, time, industry, and cultural feasibility. Finally, students
will learn to distinguish the features of market research and feasibility analysis.
Purpose of a Feasibility Analysis

A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an existing business or
proposed venture, opportunities and threats present in the environment, the resources required to carry through, and
ultimately the prospects for success. In its simplest terms, the two criteria to judge feasibility are cost required and value
to be attained.
436 | P a g e
A well-designed feasibility study should provide:
1. a historical background of the business or project,
2. a description of the product or service,
3. accounting statements,
4. details of the operations and management, marketing research and policies, financial data, legal requirements and
tax obligations.
Generally, feasibility studies precede the technical development and project implementation.
A feasibility study evaluates the project's potential for success; therefore, perceived objectivity is an important factor in the
credibility of the study for potential investors and lending institutions. It must, therefore, be conducted with an objective,
unbiased approach to provide information upon which decisions can be based.
Technical feasibility
This assessment is based on an outline design of system requirements, to determine whether the company has the
technical expertise to handle completion of the project. When writing a feasibility report, the following should be taken
into consideration:
A brief description of the business to assess more possible factors which could affect the study
The part of the business being examined
The human and economic factor
The possible solutions to the problem
At this level, the concern is whether the proposal is both technically and legally feasible (assuming moderate cost).
The technical feasibility assessment is focused on gaining an understanding of the present technical resources of the
organization and their applicability to the expected needs of the proposed system. It is an evaluation of the hardware and
software and how it meets the need of the proposed system.
Legal feasibility
Legal feasibility determines whether the proposed system conflicts with legal requirements, e.g. a data processing system
must comply with the local data protection regulations and if the proposed venture is acceptable in accordance with the
laws of the land.
437 | P a g e
Operational feasibility
Operational feasibility is the measure of how well a proposed system solves the problems and takes advantage of the
opportunities identified during scope definition and how it satisfies the requirements identified in the requirements
analysis phase of system development.
The operational feasibility assessment focuses on the degree to which the proposed development projects fits in with the
existing business environment and objectives with regard to development schedule, delivery date, corporate culture and
existing business processes.
To ensure success, desired operational outcomes must be imparted during design and development. These include such
design-dependent parameters as reliability, maintainability, supportability, usability, product ability, disposability,
sustainability, affordability, and others. These parameters are required to be considered at the early stages of design if
desired operational behaviours are to be realized. A system design and development requires the appropriate and timely
application of engineering and management efforts to meet the previously mentioned parameters. A system may serve its
intended purpose most effectively when its technical and operating characteristics are engineered into the design.
Therefore, operational feasibility is a critical aspect of systems engineering that needs to be an integral part of the early
design phases.
Schedule feasibility
A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the
system will take to develop, and if it can be completed in a given time period using some methods like payback period.
Schedule feasibility is a measure of how reasonable the project timetable is. Given our technical expertise, are the project
deadlines reasonable? Some projects are initiated with specific deadlines. It is necessary to determine whether the
deadlines are mandatory or desirable.
Market and real estate feasibility
Market feasibility studies typically involve testing geographic locations for a real estate development project and usually
involve parcels of real estate land. Developers often conduct market studies to determine the best location within a
jurisdiction, and to test alternative land uses for given parcels. Jurisdictions often require developers to complete
feasibility studies before they approve a permit application for retail, commercial, industrial, manufacturing, housing,
office or mixed-use project. Market Feasibility takes into account the importance of the business in the selected area.
438 | P a g e
Resource feasibility
This involves questions such as how much time is available to build the new system, when it can be built, whether it
interferes with normal business operations, type and amount of resources required, dependencies, and developmental
procedures with company revenue prospectus.
Financial feasibility
In the case of a new project, financial viability can be judged on the following parameters:
Total estimated cost of the project
Financing of the project in terms of its capital structure, debt to equity ratio and promoter's share of total cost
Existing investment by the promoter in any other business
Projected cash flow and profitability
The financial viability of a project should provide the following information:
Full details of the assets to be financed and how liquid those assets are.
Rate of conversion to cash-liquidity (i.e. how easily can the various assets be converted to cash?).
Project's funding potential and repayment terms.
Sensitivity in the repayments capability to the following factors:
Mild slowing of sales.
Acute reduction/slowing of sales.
Small increase in cost.
Large increase in cost.
Adverse economic conditions.
Market research studies
This is one of the most important sections of the feasibility study as it examines the marketability of the product or
services and convinces readers that there is a potential market for the product or services. If a significant market for the
product or services cannot be established, then there is no project. Typically, market studies will assess the potential sales
of the product, absorption and market capture rates and the project's timing.
439 | P a g e
The feasibility study outputs the feasibility study report, a report detailing the evaluation criteria, the study findings, and
the recommendations.
SWOT analysis (alternatively SWOT Matrix) is an acronym for strengths, weaknesses, opportunities, and threats and is a
structured planning method that evaluates those four elements of an organization, project or business venture. A SWOT
analysis can be carried out for a company, product, place, industry, or person. It involves specifying the objective of the
business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve
that objective. The degree to which the internal environment of the firm matches with the external environment is
expressed by the concept of strategic fit.
• Strengths: characteristics of the business or project that give it an advantage over others
• Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others
• Opportunities: elements in the environment that the business or project could exploit to its advantage
• Threats: elements in the environment that could cause trouble for the business or project
Identification of SWOTs is important because they can

inform later steps in planning to achieve the objective.
First, decision-makers should consider whether the
objective is attainable, given the SWOTs. If the objective is
not attainable, they must select a different objective and
repeat the process.
Users of SWOT analysis must ask and answer questions

that generate meaningful information for each category
(strengths, weaknesses, opportunities, and threats) to
make the analysis useful and find their competitive
advantage.
440 | P a g e
Example of a Swot Analysis
441 | P a g e
Broken Down of Feasibility Study
What Is Feasibility Analysis?
Feasibility analysis is the process of determining whether a business idea is viable.
Benefits of Feasibility Analysis?
A feasibility analysis helps you:
• To assess the merit of your business idea,

• Determine whether there is a market for your idea,
• Whether the idea is financially viable,
• and ultimately, whether or not it is worth investing your time and money into the venture,
• Overall demand for new products, services, or ideas
• Characteristics of likely customers (such as demographics and buying behavior)
• Characteristics of likely competitors
When to Conduct a Feasibility Analysis

Timing of Feasibility Analysis.
The proper time to conduct a feasibility analysis is early in thinking through the prospects for a new business.
The thought is to screen ideas before a lot of resources are spent on them.
It is estimated that only one in fifty business ideas are actually commercially viable. Therefore a business feasibility study
is an effective way to safeguard against wastage of further investment.
The research and information uncovered in the feasibility study will support the business planning stage and reduce the
research time. Hence the cost of the business plan will also be reduced.
442 | P a g e
Components of a Feasibility Analysis
Role of feasibility analysis in developing business ideas.
443 | P a g e
Outline for a Comprehensive Feasibility Analysis
444 | P a g e
Product/Service Feasibility Analysis
Product/Service Desirability
First, ask the following questions to determine the basic appeal of the product or service.
✓ Does it make sense? Is it something consumers will get excited about?
✓ Does it take advantage of an environmental trend, solve a problem, or take advantage of a gap in the marketplace?
✓ Is this a good time to introduce the product or service to the market?
✓ Are there any fatal flaws in the product or service’s basic design or concept?
Second, Develop/Administer a Concept Test
✓ A concept statement should be developed.

✓ A concept statement is a one page description of a business that is distributed to people who are asked to provide
feedback on the potential of the business idea.
✓ The feedback will hopefully provide the entrepreneur
• Sense of the viability of the product or service idea.
• Suggestions for how the idea can be strengthened or “twisted” before proceeding further.
445 | P a g e
New Venture Fitness Drink’s Concept Statement
446 | P a g e
Product/Service Demand
• Through primary and secondary research
• Step 1: Administer a Buying Intentions Survey, focus group etc.
• Step 2: Conduct library, Internet research, used local data etc.
447 | P a g e
448 | P a g e
Gumshoe Research
Explanation
• A gumshoe is a detective or an investigator that scrounges around for information or clues wherever they can be
found.
• Be a gumshoe. Ask people what they think about your product or service idea. If your idea is to sell educational
toys, spend a week volunteering at a day care center and watch how children interact with toys.
449 | P a g e
Industry/Target Market Feasibility Analysis
Purpose
• Is an assessment of the overall appeal of the industry and the target market for the proposed business?
• An industry is a group of firms producing a similar product or service.
• A firm’s target market is the limited portion of the industry it plans to go after.
450 | P a g e
Assessing Industry Attractiveness
Porter five forces model
451 | P a g e
Target Market Attractiveness
• The challenge in identifying an attractive target market is to find a market that’s large enough for the proposed
business but is yet small enough to avoid attracting larger competitors.
• Assessing the attractiveness of a target market is tougher than an entire industry.
Organizational Feasibility Analysis
Purpose
• Is conducted to determine whether a proposed business has sufficient management expertise, organizational
competence, and resources to successfully launch a business.
• Focuses on non-financial resources.
Management Prowess
A firm should candidly evaluate the prowess, or ability, of its management team to satisfy itself that management has the
requisite passion and expertise to launch the venture. Two of the most important factors in this area are:
• The passion that the solo entrepreneur or the founding team has for the business idea.
• The extent to which sole entrepreneur or the founding team understands the markets in which the firm will
participate.
452 | P a g e
Resource Sufficiency
An assessment of whether an entrepreneur has sufficient non-financial resources to launch the proposed business.
Examples of nonfinancial resources that may be critical to the successful launch of a new business
• Availability of factory/ lab space for business. Local and state government support of the business.
• Quality of the labor pool available.
• Closeness to key suppliers and customers.
• Willingness of high quality employees to join the firm.
• Proximity to similar firms for the purpose of sharing knowledge.
• Possibility of obtaining intellectual property protection in key areas.
Financial Feasibility Analysis
Purpose
• Is the final component of a comprehensive feasibility analysis?
• A preliminary financial assessment is sufficient.
453 | P a g e
Total Start-Up Cash Needed
• The first issues refers to the total cash needed to prepare the business to make its first sale.
• An actual budget should be prepared that lists all the anticipated capital purchases and operating expenses needed
to generate the first $1 in revenues.
• The point of this exercise is to determine if the proposed venture is realistic given the total start-up cash needed.
Financial Performance of Similar Businesses

Estimate the proposed start-up’s financial performance by comparing it to similar, already established businesses.
There are several ways to doing this, all of which involve a little ethical detective work.
• First, there are many reports available, some for free and some that require a fee, offering detailed industry trend
analysis and reports on thousands of individual firms.
• Second, simple observational research may be needed. For example, the owners of New Venture Fitness Drinks
could estimate their sales by tracking the number of people who patronize similar restaurants and estimating the
average amount each customer spends.
Overall Financial Attractiveness of the Proposed Investment

• A number of other financial factors are associated with promising business startups.
• In the feasibility analysis stage, the extent to which a business opportunity is positive relative to each factor is based
on an estimate rather than actual performance.
• The table on the next slide lists the factors that pertain to the overall attractiveness of the financial feasibility of the
business idea.
454 | P a g e
Financial Factors Associated With Promising Business Opportunities
• Steady and rapid growth in sales during the first 5 to 7 years in a clearly defined market niche.
• High percentage of recurring revenue—meaning that once a firm wins a client, the client will provide recurring
sources of revenue.
• Ability to forecast income and expenses with a reasonable degree of certainty.
• Internally generated funds to finance and sustain growth.
• Availability of an exit opportunity for investors to convert equity to cash.
A feasibility analysis is the process of determining whether or not an entrepreneur’s idea is a viable foundation for creating
a successful business.
Purpose of Feasibility Analysis

To determine whether or not a business idea is worth pursuing.
• If the idea passes the feasibility analysis, the entrepreneur’s next step is to build a solid business plan for
capitalizing the idea.
• If the idea fails to pass the study, the entrepreneur drops it and moves on to the next study.
Benefits of Feasibility Analysis

Saved:
1. Time
2. Money
3. Energy
455 | P a g e
Key Elements of Feasibility Analysis
Personality Feasibility
There are traits that come naturally to an entrepreneur and others which may come with time. Some characteristics,
persons may never have. An analysis and reflection is important before starting any venture. A personal SWOT analysis
profile can assist with this.
Management Feasibility
When looking at your own personality profile, you will realize that you may have some deficiencies. This is where a strong
management team comes in. It is helpful if the entrepreneur looks for members whose strengths compensate for his
weakness. The team must collectively possess the experience, training, drive and management skill to achieve success.
Operational Feasibility
Not only must the entrepreneur look at sourcing land, labour and capital but he/she must ensure that the value chain
(each stage of the production process that adds value to a product) is at its maximum. For example, the layout of the
production line, can assist in saving time once the production process is properly thought out.
Financial Feasibility
The major areas to analyze at this time is capital requirements compared to estimated earnings in order to get a projected
return on investment. At this stage, a broad financial analysis is sufficient. If the concept passes the overall feasibility
analysis, then the entrepreneur should conduct a more thorough financial analysis when creating the business plan.
456 | P a g e
Marketing Feasibility
Market research can guide a feasibility analysis.
✓ It can assist determining if there is a market for the product or to determine what product to develop to cater for
the market.
✓ It can assist in determining if the proposed pricing strategy is viable or not
✓ It can assist in determining whether the proposed location is viable or not
✓ It can assist in determining the level of marketing effort required based on the market, the product, price, location
and level of competition
Time Feasibility
Getting a product onto the market is time sensitive. It is important that a realistic time span be placed on the development
of the business. If businesses fail to do so, they can be faced with a situation where a product is placed on the market
where it is no longer relevant. Important areas such as obtaining necessary licenses, staff, equipment and supplies in a
timely manner must be considered.
Industry Feasibility
The characteristics of the industry and the firms that make it up, trends in the related technology and expectations for the
future are factors that could affect the success and sustainability of the enterprise. Even in a promising industry, it is
important that the management team have the kind of knowledge, experience and network that are necessary to be
effective.
Cultural Feasibility
This looks at how the proposed business could affect local culture or be affected by the local culture. Will the business or
product be well received? Will there be objections or even protests by the local community? Think about the case where
McDonalds set up in India and sold beef. What happened?
457 | P a g e
Distinction between Market Research and Feasibility Analysis
Whilst market research is focused specifically on the 4 P’s, the feasibility study also considers this but goes beyond the
market and evaluates the proposed business as a whole.
Start-up capital and Financial Statements
Introduction
The term ‘start-up’ has many definitions due to the variety of usages in government, industry, and academia. We identify
‘start-ups’ as newly created firms (New firms; less than one year of age) that move from the idea stage to seeking finance in
order to lay down the basic structure of the firm and start operations. There are several options to receive finance for your
business enterprise apart from applying for a business loan. These options include family members, venture funding,
angel funding, grants, and bequest. The entrepreneur is also responsible for ensuring that these funds are reported
correctly to derive the financial position of the business. Therefore, the elements of the various financial statements and
cash flow statement will also be examined in this unit.
Entrepreneurial finance is the study of value and resource allocation, applied to new ventures. It addresses key
questions which challenge all entrepreneurs: how much money can and should be raised; when should it be raised and
from whom; what is a reasonable valuation of the startup; and how should funding contracts and exit decisions be
structured.
The first step in raising capital is to understand how much capital you need to raise. Successful businesses anticipate their
future cash needs, make plans and execute capital acquisition strategies well before they find themselves in a cash crunch.
458 | P a g e
Three axioms guide start-up fundraising:
• As businesses grow, they often go through several rounds or stages of financing. These rounds are targeted to
specific phases of the company's growth and require different strategies and types of investors.
• Raising capital is an ongoing issue for every venture.
• Capital acquisition takes time and needs to be planned accordingly.
Four critical determinants of the financial need of a venture are generally distinguished:
• Determination of projected sales, their growth, and the profitability level
• Calculation of start-up costs (one-time costs)
• Estimation of recurring costs
• Projection of working capital (inventory, credit and
payment policies. This determines the cash needed to
maintain the day-to-day business)
Types of Financing
Sources of finance (funding)

Equity financing
Equity financing refers to the sale of an ownership interest
(e.g. shares in an enterprise) to raise funds for business
purposes. Equity financing spans a wide range of activities in
scale and scope, from a few thousand dollars raised by an
entrepreneur from friends and family, to initial public
offerings (IPOs) running into the billions by companies like
Google and Facebook.
459 | P a g e
Debt financing
Debt financing refers to funds borrowed by a firm for working capital or capital expenditures by selling bonds, bills, or
notes to individual and/or institutional investors. The individuals or institutions lending the money thus become creditors
of the firm and often receive a security that the principal and interest on the debt will be repaid. Security involves a form of
collateral as an assurance the loan will be repaid, to be forfeited to satisfy payment of the debt if the debtor defaults on the
loan. Sources of debt financing include loans, venture funding, and angel funding.
Angel Funding
Angel funding is the practice of high-net-worth individuals investing their own time and money in new businesses with the
goal of profiting from their long-term growth. Such investments are characterized by very high levels of risk as most
companies are in the earliest stages and will likely fail. Angel investors are different from venture capitalists (VCs) in that
VCs invest other people’s money. Motivations are another important distinction between the two; angels are typically
interested in more than just receiving a financial return. Personal interest, the desire to give back, and the thrill of being
involved with an innovative company are just a few of the reasons why people decide to become angel investors.
Angel investors are typically experienced professionals who can offer wisdom and guidance to the entrepreneur and have
the patience to wait for normal company maturation. Angels can facilitate new business connections that help start-ups
grow, and they can offer insights based on deep knowledge of an industry. They provide support and motivation to
entrepreneurs to persevere when launching and growing a business inevitably becomes very challenging.
Venture capital
Venture Capital is a specialized form of equity finance used to finance costly, high-risk, high-return technology-based
innovative firms at the pre-seed, seed, start-up, and early expansion stages of commercialization. The funds are used to
develop a company’s ideas to the stage where their commercial potential is sufficiently proven for the venture capitalist to
sell its equity in the company to another party.
460 | P a g e
Venture capitalists tend to finance firms during the early stages (when growth is rapid) and cash out of the venture once it
is established. Venture capital funds typically operate with a ten-year model, where investments and divestments of
portfolio companies must occur within that period to generate returns for institutional investors. At that time, the
business owner may take the company public, repurchase the investor's stock, merge, be bought by another firm, or in
some circumstances liquidates the firm. Most venture capital investment realizations are by way of a trade sale.
Venture capital can stimulate innovation, spur entrepreneurship, and enhance productivity growth. The venture capital
sector is an important component of national innovation systems, playing an important role in driving innovation and
supporting skills development by providing finance and other support to turn novel ideas into innovative outputs.
Grants
There are lots of grants out there, and many of them are ideal for tech start-ups looking for a funding boost, especially if
your business is very innovative or specific. This is free money – you do not have to pay a grant back – and the prestige.
Grants are especially good for businesses in niche industries, where there’s often less competition for the money.
However, grant proposals can take a long time to put together, there can be quite a lot of competition, and the money has
to be used for a specific purpose. It is rare that a grant can fund the business alone – you’ll usually be expected to match at
least part of the funding with your own finance.
Purpose of Accounting
The purpose of accounting is to provide a means of recording, reporting, summarizing and interpreting economic data.
“The primary purpose of accounting is to identify and record all activities that impact the organization financially. All
activities, including purchases, sales, the acquisition of capital and interest earned from investments, can be classified in
monetary terms and posted to a specified account as an accounting record. These transactions typically are recorded in
ledgers and journals and are part of the process known as the accounting cycle.” (ehow 1999-2001)
461 | P a g e
Types of Accounting Information
An accounting information system provides data to help decision makers both outside and inside the business. Decision
makers outside the business are affected in some way by the performance of the business. Decision makers inside the
business are responsible for the performance of the business. For this reason, accounting is divided into two categories:
• Financial accounting for those outside; and
• Managerial accounting for those inside.
Management Accounts
Management accounting refers to the processes and procedures implemented for internal decision making and reporting
within an organization. It provides information that is useful in running a business by internal users, usually accomplished
through custom designed reports. These are produced as often as a business wants them (usually monthly). They can be
prepared using the business’s own internal policies and bookkeeping/financial management system. Internal users, Senior
and Middle Management use accounting information to run a business. Employees utilize accounting information to
determine a business’s profitability and profit sharing.
Management account information or reports should:

• Relate to the part of the business for which the manager is responsible. For example, a Production Manager wants
information on costs of production but not on advertising.
• Involve planning for the future. For instance, a budget would show financial plans for the coming year.
• Meet two tests:
o The accounting information must be useful and relevant; and
o It must not cost more to gather and process than it is worth.
462 | P a g e
Managerial accounting generates information that managers can use to make sound decisions. The four major types of
internal management decisions are:
1. Financial Decisions—determine what amount of capital (funds) are needed to run the business and whether to
secure these funds from owners or creditors. In this sense, capital means money used by the business to purchase
resources such as machinery and buildings and to pay expenses of conducting the business.
2. Resource Allocation Decisions—identify how the total capital of a business is to be invested, such as the
amount of machinery to be purchased in any one year.
3. Production Decisions—decides what products are to be produced, by what means, and when.
4. Marketing Decisions—establishes selling prices and advertising budgets; determining the location of a
business's markets and how to reach them.
Financial Accounts
Financial accounting refers to the fundamental guidelines, policies, procedures and regulations mandated by the General
Accepted Accounting Principles (GAAP), which was established by the Financial Standards Board (FASB) and/or
government regulators. It provides information designed to satisfy the needs of external users. This reporting is done in
the form of financial statements. These accounts are usually produced annually. They are based on historical information
and are rarely used internally. Financial accounts are used by external users for several reasons.
The external users of accounting information fall into six groups; each has different interests in the business depending on
how you are financially structure and thus will want answers to unique questions. The groups and some of their possible
questions are:
• Owners and Prospective Owners. Has the business earned satisfactory income on its total investment? Should
an investment be made in this business? Should the present investment be increased, decreased, or retained at the
same level? Can the business install costly pollution control equipment and still be profitable?
• Creditors and Lenders. Should a loan be granted to the business? Will the business be able to pay its debts as
they become due?
463 | P a g e
• Employees and their Unions. Does the business have the ability to pay increased wages? Is the business
financially able to provide long-term employment for its workforce?
• Customers. Does the business offer useful products at fair prices? Will the business survive long enough to
honour its product warranties?
• Governments. Is the business, such as a local public utility, charge a fair rate for its services? How much tax does
the business owe?
• The General Public. Is the business providing useful products and gainful employment for the local citizens
without causing serious environmental problems?
An accounting concept is nothing but a basic assumption about the environment in which the business operates and
accounting functions. It is an assumption that is well recognized and accepted by the accounting professionals. It,
therefore, gains acceptability among the entire accounting people. However, it is not a fact. It is the building block on
which the entire accounting structure rests. They are general in nature and present a philosophy with regard to the
manner business transactions must be recorded.
Accounting Assumptions
Separate Entity
Figure 4. Separate Entity
464 | P a g e
The entity postulate assumes that both business and businessman are different for accounting purposes. Thus, for
accounting purposes, the business is considered as a unit or entity that is separate from all the people that are related to it
or transact with it either directly or indirectly. This is an important concept as it justifies considering every transaction
from the business point of view for recording purposes. For example, capital introduced by the owner of the business into
the business increases the assets as well as owings of the business to the owner. Although the business belongs to the
owner, and the total of his personal and business worth in terms of net assets owned by him remains the same, yet he is
able to analyze the growth of the business by recording them separately. So, when the owner introduces his personal assets
in the business, they are recorded as business assets separately in the books of the business, and not in the name of the
owner. However, if the owner uses some of the business assets for his personal use, say payment of his personal electricity
bill from office cash, it is treated as drawings made by him from the business. In this way, this concept enables the
accountants to distinguish between personal and business transactions.
Going Concern
Going concern refers to the assumption that the life of business will be fairly large. It suggests that the business is run with
the objective of continuing it for a long number of years, and it not intended to be closed in the near future. It assumes
that the business has an unlimited life, extending to an indefinite period until it is liquidated. It is important for the
interested parties to know that the business is run for a long period of time so that they are induced to enter into various
contracts with the enterprise. Such an assumption is made by every interested party, even if the life of a business cannot
be known with certainty. However, an enterprise is not considered to be a going concern if there is a clear evidence or
specific information about its end. For example, when the venture is for a specific purpose, such as setting up of a stall in
an exhibition or fair, the business comes to an end on the completion of fair or exhibition.
Money Measurement
Money is considered as a common basis for recording business transactions. According to this concept, such transactions
alone can be recorded in the books of account that can be measured in terms of money. In the absence of common
measuring unit (i.e. money) it is not possible to add or subtract various business events.
465 | P a g e
Time Period
As per going concern concept, the business is assumed to have an indefinite life. However, the proprietor of the business
cannot wait for such a long period for the determination of income. Such a measurement of income at the end of the life of
business would render useless information as well as it will be too late to take corrective steps at that time. Therefore,
accountants choose some convenient period of time to measure the income or to know the results of business transaction
known as accounting period.
Thus, accounting period refers to the span of time at the end of which financial statements are prepared to represent the
results of the operations of the business during the relevant period and financial position at the end of that relevant
period. The accounting period varies in time intervals such as a month, quarter, and year. However, the year is the most
common accounting period as a result of established business practices traditions and government requirements.
Accounting Principles
Historical Cost
The cost concept requires that the assets should be recorded at the exchange price or acquisition cost. Since the original or
acquisition cost relates to the past, it is also referred to as historical cost. Historical cost is recognized as the appropriate
valuation basis for recognition of all goods and services, expenses cost, and equities. For the purposes of recording in
accounting, all business transactions are measured in terms of actual prices at the time of occurrence of the transaction.
For example, if a business entity purchases a machine for Rs. 5, 00,000 from a builder friend. The actual worth of the
machinery is Rs. 6, 00,000. This asset would be recorded in the books at Rs 5, 00,000 not at Rs. 6, 00,000 because for the
business entity actual cost of the asset is Rs 5, 00,000 i.e. the price paid for it. The basis for all future transactions relating
to this building would be its cost i.e. Rs. 5, 00,000. For example, the depreciation will be charged at Rs. 5, 00,000, not at
Rs. 6, 00,000.
466 | P a g e
Further historical cost is considered more relevant than any other value of asset i.e. market value. The identification of the
market value involves following problems:
i. One has to make a choice about the value prevailing in the market. At the same point in time, two different market
values exist in any market: the one at which the asset can be sold and one at which the asset can be purchased.
ii. The accountant has to keep a record of changes in market price of the asset as the market keeps on fluctuating.
Suppose there are 50 dealers in the market dealing in sale or purchase of a particular asset. There may be 100
different values (50 sale values and 50 purchase values) of that asset. Now the question is which value in the most
appropriate.
iii. Moreover, it is not always feasible to keep track of the market to determine the correct value.
Thus, the justification for recording fixed assets at historical cost is that the historical cost is most objective reliable,
definite and it is also free from personal bias.
However, this concept suffers from the following limitations:

i. Items which do not carry any cost are ignored in accounting. Thus goodwill aroused on account of favourable
location, brand name, knowledge, technological skill built inside the enterprise are not recorded in the books of
account.
ii. The actual information required by the management, investors, creditors, etc. may be current value and not the
historical costs.
iii. During inflation, if the depreciation based on the historical cost of earlier year is charged against revenue at current
prices, then income figure may be distorted.
467 | P a g e
Matching
The matching principle in financial accounting is the process of matching accomplishments or revenues with efforts or
expenses to a particular period for which the income is being determined. This concept emphasizes which items of costs
are expenses in a given accounting period. Costs are reported as expenses in the accounting period in which the revenues
associated with those costs are reported. For example, when the sales value of some goods is reported as revenue in a year,
then the cost of those goods would be reported as an expense in the same year.
The matching concept needs to be fulfilled only after accrual concept has been completed by the accountant. First,
revenues are measured in accordance with the accrual concept, and then costs are associated with these revenues.
Realization of Income
Business enterprises utilize resources to earn revenue by sale of goods or rendering of services. According to AS -9 issued
by ICAI, “Revenue is the gross inflow of cash receivables or other considerations arising in the course of an enterprise
from the sale of goods, from the rendering of services and from holding of assets. Revenue is measured by the changes
made to customers or clients for goods supplied and services rendered to them and by the changes and rewards arising
from the provision of assets. It excludes amounts collected on behalf of third parties such as certain taxes.” Thus revenue
is considered as being realized or earned on the date when the sale process is complete, and transfer of title or ownership
takes place.
468 | P a g e
Dual Aspect
Financial accounting is transaction based. Of course, we consider only those transactions and events which involve
financial element. In every type of business, there are numerous transactions. For example, purchase of goods from
several suppliers, sell to various customers for cash or on credit, payment to suppliers, collection from customers,
payment of salaries and wages, payment of rent and taxes, etc. In each of the above transactions, there are two aspects to
be recorded from the point of view of the entity. For example – if there is the sale of goods – it involves two aspects, one is
the delivery of goods and other is the receipt of cash (in the case of cash sale) or the acknowledgement of the debt from the
customer (in the case of credit sale). The recognition of two aspects for every transaction is known as dual aspect analysis.
The method of recording transactions on the basis of the concept of duality is known as ‘Double Entry Book Keeping.'
Every transaction is recorded under the following heads under this double entry system of bookkeeping while holding the
following equation true at all times:
Assets = Liabilities + Capital
In accounting terminology, resources are referred to as assets, obligations towards the owners are referred to as capital,
and obligations towards the outsiders is referred to as liabilities the total of assets, and the total of obligations to owners
and outsiders must agree.
This equation holds good at any point of time because of double entry system of bookkeeping. In double entry system for
every transaction, two entries are made one entry consists of a debit to one or more accounts, and another entry consists
of credit to one or more accounts. However, the total amount debited always equals the total amount credited.
469 | P a g e
Accounting Conventions
Materiality In order to make financial statements more meaningful and to minimize costs, the accountant should report
only the information which is material. Thus, accounting should focus on material facts and resources should not be
wasted in recording and analyzing immaterial and insignificant facts. Materiality is an implicit guide for the accountant in
deciding what should be disclosed in the financial statements. However, it is difficult to define the term materiality. Most
definitions of materiality stress the role of accountants’ judgment in interpreting what is and what is not material at the
same time stressing its importance. According to American Accounting Association (AAA), “an item should be regarded as
material if there is a reason to believe that knowledge of it would influence the decision of informed investor.”
Conservatism Every business enterprise wants to play safe in the world of uncertainty. These are following two principal
rules that are related to the convention of prudence:
i. The accountant should not anticipate profits and should provide for all losses.
ii. When is doubt, the accountant must prefer that method of accounting which will not lead to any overestimation of
assets and/or income.
iii. When applied to business income, this convention results in recognition of all losses that have occurred or liable to
occur and to admit the gains only when they have been realized.
470 | P a g e
Consistency Uniformity in accounting methods and practices over a period of time is necessary in order to enable the
management to analyze the records and draw correct inferences about the working of the enterprise. The comparison of
financial statements of one accounting period with that of the other cannot be made unless they are prepared on the basis
of consistent methods. For example, if the income statement for the current year shows higher earnings than the
preceding year, the user is entitled to assume that the business operations have been more profitable provided there is no
change in the accounting procedure adopted by the enterprise. The rationale for this convention is that frequent changes
in accounting treatment would make the income statement and balance sheet unreliable to end users; there are many
examples in which a change in accounting method may bring different results. For instance, different methods of charging
depreciation will result in different amounts of depreciation to be written off the fixed assets over the useful life of the
asset. A change of method of charging depreciation will affect the depreciation amount and consequently the net profits of
the enterprise. The figures of net profit do not become comparable in that case. If there is inconsistency in the record
keeping, it may bring about considerable influence on the income reported as well as the value of assets in the balance
sheet.
Full Disclosure Under this convention, it is required that the accounts must be honestly prepared and all material
information must be disclosed therein. Accountants are unanimous that there should be a full, fair and adequate
disclosure. Full disclosure means the complete and comprehensive presentation of information i.e. nothing is omitted.
Fair disclosure means that accounting principles have been applied in a fair manner so as to report the true and fair view
of the results of the business.
Adequate disclosure means that anything which influences the decision of the user must always be reported. Thus,
disclosure should not be taken to imply that every small piece of information must find a place in the financial statements,
rather provides that there must be adequate disclosure of material information to the interested parties that is required by
them and will influence their decision making. For example, a firm is depreciating its assets on a straight-line basis for last
two years. It changes the method to written down value method with retrospective effect. The firm must disclose this fact
as a part of accounting policies as ‘Notes to Accounts’ forming part of financial statements. Similarly, contingent liabilities
and market value of investments are also shown as notes to financial statements.
471 | P a g e
The concept of disclosure also applies to events occurring after the balance sheet date and the date on which the financial
statements are authorized for issue. Such events include bad debts, destruction of plant and equipment due to natural
calamites, etc. Such events are likely to have a substantial influence on the earning and financial position of the enterprise.
The accounting cycle

The accounting cycle is a series of steps that is followed to ensure that the records of a business are true and fair. Each
business transaction goes through these steps. Let’s have a look at these steps in detail.
Figure 5 Accounting Cycle
472 | P a g e
Step 1 - Collecting and analyzing data from source documents.
When a transaction occurs; a document is produced. Most of the time, these documents are external to the
business (e.g. purchase orders, sales slips, etc.). However, they can also be internal documents, such as inter-
office sales, cheques, bills from providers, etc. These documents are referred to as source documents. Some
additional examples of source documents include:
• The receipt you get when you purchase something at the store.
• Interest you earned on your savings account which is documented in your monthly bank statement.
• The monthly electric utility bill that comes in the mail.
• The telephone bill.
• Invoices from other service providers, contractors, etc.
Step 2 – Journalizing transactions.
The source documents are recorded in a Journal. This is also known as a book of first entry. The journal records
both sides of the transaction recorded in the source document. These write-ups are known as Journal entries.
Step 3 – Post to the Ledgers.

The Journal entries are then transferred to a Ledger. The group of accounts (described earlier) is called ledger. A ledger is
also known as a book of accounts. The purpose of a Ledger is to bring together all of the transactions for a similar activity.
For example, if a business has one bank account, then all transactions that include cash would then be maintained in the
Cash Ledger. This process of transferring the values is known as a posting.
Once the entries have all been posted, the Ledger accounts are added up in a process called Balancing. Balancing implies
that the sum of all Debits equals the sum of all Credits.
473 | P a g e
Step 4 – Unadjusted Trial Balance.
A particular working document called an unadjusted trial balance is created. This lists all the balances from all the
accounts in the Ledger. Notice that the values are not posted to the trial balance, they are merely copied.
At this point, accounting happens. The accountant produces a number of adjustments, which make sure that the values
comply with accounting principles. These values (such as depreciation of equipment) are then passed through the
accounting system resulting in an adjusted trial balance. This process continues until the accountant is satisfied.
Steps 5 – Prepare adjustments.

Period-end adjustments (usually quarterly) are required to bring accounts to their proper balances after considering
transactions and/or events not yet recorded. Under accrual accounting, revenue is recorded when earned and expenses
when they are incurred. An entry may be required at the end of the period to record revenue that has been earned but not
yet recorded on the books. Similarly, an adjustment may be required to record expense that may have been incurred but
not yet recorded.
Step 6 – Prepare an adjusted trial balance. This step is similar to the preparation of the unadjusted trial balance,
but this time the adjusting entries are included. Correction of any errors must be made.
Step 7 - Prepare Financial Statements.

Financial statements are drawn from the trial balance and are presented in the following forms:
• Income statement: prepared from revenue, expenses, gains and losses
• Balance sheet: prepared from assets, liabilities and equity accounts
• Statement of retained earnings: prepared from net income and dividend information
• Cash flow statement: derived from the other financial statement using either the direct or indirect method.
Finally, all the revenue and expense accounts are closed.
474 | P a g e
Step 8 – Closing entries.
Revenues and expenses are accumulated and reported by period, monthly, quarterly, or yearly. To prevent them not being
added to or co-mingled with revenues and expenses of another period, they need to be closed out- that is, given zero
balances at the end of each period. Their net balances, which represent the income or loss for the period, are transferred
into owners’ equity. Once revenue and expense accounts are closed, the only accounts that have balances are the asset,
liability, and owners’ equity accounts. These balances are carried forward to the next period.
Step 9 – Prepare post-closing trial balance.

The purpose of this final step is two-fold: to determine that all revenue and expense accounts have been closed properly
and to test the equality of debit and credit balances of all the balance sheet accounts, that is, assets, liabilities and owners’
equity.
Statement of Cash Flow

A Statement of Cash Flow is an analysis of sources of cash that flowed into the business together with how cash was
allocated, for the accounting period.
The information is grouped by functional department, because Cash can be freed up from anywhere (such as getting
customers to pay faster or paying suppliers more slowly), not just from Sales or the Finance Department.
475 | P a g e
A cash flows statement provides information beyond that available from other financial statements such as the Income
Statement and the Balance Sheet. It is important information because cash flow is essential to the continued operation of a
business. The main purpose of the statement, according to the Financial Accounting Standard Board (FASB) is to provide:
• Information about the changes of an entity cash or cash equivalents in the accounting period.
• Information about a company borrowing and debts repayment activities.
• The company sale and repurchase of its ownership securities.
• Other factors affecting the company's liquidity and solvency.
The normal format of The Cash Flow Statement is:

Statement of Cash Flows for the period
Debit +/- Credit +/-
Cash flows from operating activities

Cash receipts from customers Balance c/d
Cash paid to suppliers and employees
Cash flow from investing activities
Cash flow from financing activities

Net increase/decrease/Change in the cash
and cash equivalents
Cash and cash equivalents at the beginning
of period
Cash and cash equivalents at the end of
period
476 | P a g e
Each of the above headings will have further details, such as Cash flow from operations with an increase in account
receivables, accounts payables, cash receipts from customers, payment for goods sold and operating expenses. The
investing cash flow includes capital expenditures for long-term assets, sales of assets and investing in joint ventures, etc.
Financing cash flow includes debts financing, dispensing ownership funds and borrowings.
When activities that do not involve cash they are not normally disclosed on the statement, BUT the Standard requires such
transactions to be disclosed by way of footnotes or on a separate schedule.
The importance of the Cash Flow Statement for investment decision making includes:
• Regular operations are sustainable or not.
• Sufficient cash generated to pay debts or not.
• The likelihood that the company needs further financing.
• Can unexpected obligations or opportunities be taken up by the company without difficulty?
Income Statements
Comprehensive income, the broadest measure of performance, captures the extent management increased net assets
during a reporting period, other than transactions with owners and accounting changes and restatements.
Comprehensive income has two components: net profit (loss) and other comprehensive income.
• Net profit (loss) is the accounting measure users of financial statements tend to place the most reliance on when
assessing performance.
Other comprehensive income (OCI) is comprised of items standard setters have decided not to include in net
profits, primarily because these items are transient and result from factors largely outside a company’s influence.
• Under IFRS, income statements have two primary elements: income and expenses. Under U.S. GAAP, revenues,
gains, expenses, and losses are all considered primary elements of income statements.
477 | P a g e
• Because the definitions of income and expenses are based on changes in assets or liabilities, measurement and
recognition decisions associated with income statements depend on measurement and recognition decisions
associated with assets and liabilities. Thus, all the uncertainty, judgments, and risks associated with balance-sheet
measures affect income measures.
Statement of Financial Position (Balance Sheet)

The primary purpose of a balance sheet is to report an organization’s assets and liabilities at a particular point in time. The
format is quite simple. All assets are listed first—usually in order of liquidity —followed by the liabilities. A picture is
provided of each future economic benefit owned or controlled by the company (its assets) as well as its debts (liabilities).
A typical balance sheet is reported in Figure 3.5 “Balance Sheet” for Davidson Groceries. Note that the assets are divided
between current (those expected to be used or consumed within the next year) and noncurrent (those expected to remain
within the company for longer than a year). Likewise, liabilities are split between current (to be paid during the next year)
and noncurrent (not to be paid until after the next year). This labelling aids financial analysis because Davidson Groceries’
current liabilities ($57,000) can be subtracted from its current assets ($161,000) to arrive at a figure often studied by
interested parties known as working capital ($104,000 in this example). The current assets can also be divided by current
liabilities ($161,000/$57,000) to determine the company’s current ratio (2.82 to 1.00), another figure calculated by many
decision makers as a useful measure of short-term operating strength.
The balance sheet shows the company’s financial condition on one specific date. All the other financial statements report
events occurring over a period of time (often a year or a quarter). The balance sheet discloses assets and liabilities as of the
one specified date.
478 | P a g e
479 | P a g e
Figure 6 – Balance Sheet
Considerable information is included on the balance sheet presented in Figure 6 “Balance Sheet”. Assets such as cash,
inventory, and land provide future economic benefits for a company. Liabilities for salaries, insurance, and the like
reflect debts that are owed at the end of the year. The $179,000 capital stock figure indicates the amount of assets that
the original owners contributed to the business. The retained earnings balance of $450,000 was computed earlier and
identifies the portion of the net assets generated by the company’s own operations over the years. For convenience, a
general term such as “stockholders’ equity” or “shareholders’ equity” encompasses the capital stock and the retained
earnings balances.
Why does the balance sheet balance? This agreement cannot be an accident. The asset total of $1,206,000 is exactly the
same as the liabilities ($577,000) plus the two stockholders’ equity accounts ($629,000—the total of capital stock and
retained earnings). Thus, assets equal liabilities plus stockholders’ equity. What creates that equilibrium?
The balance sheet will always balance unless a mistake is made. This is known as the accounting equation:
Assets = liabilities + stockholders’ equity.
Or if the stockholders’ equity account is broken down into its component parts,
Assets = liabilities + capital stock + retained earnings.
This equation stays in balance for one simple reason: assets must have a source. If a business or other organization has an
increase in its total assets, that change can only be caused by
a) an increase in liabilities such as money being borrowed,
b) an increase in capital stock such as additional money being contributed by stockholders, or
c) an increase created by operations such as a sale that generates a rise in net income. There are no other ways to
increase assets.
480 | P a g e
One way to understand the accounting equation is that the left side (the assets) presents a picture of the future economic
benefits that the reporting company holds. The right side provides information to show how those assets were derived
(from liabilities, from investors, or from operations). Because no assets are held by a company without a source, the
equation (and, hence, the balance sheet) must balance.
Assets = the total source of those assets

Break even analysis
• Breakeven analysis is a method of determining the level of sales at which the company will break even (have no
profit or loss).
• The following information is used in calculating the breakeven point: fixed costs, variable costs, and contribution
margin per unit.
• Fixed costs are costs that do not change when the amount of goods sold changes. For example, rent is a fixed cost.
• Variable costs are costs that vary, in total, as the quantity of goods sold changes but stay constant on a per-unit
basis. For example, sales commissions paid based on unit sales are a variable cost.
• Contribution margin per unit is the excess revenue per unit over the variable cost per unit. Contribution = Sales
– Variable cost
Contribution per unit = selling price – variable cost per unit
• The breakeven point in units is calculated with this formula: fixed costs divided by contribution margin per unit
(selling price per unit less variable cost per unit).
A break-even analysis determines at which point your revenues from sales equal your costs. It also tells you the amount of
revenue your business needs to generate and the number of units it must sell to break even before your business can
become profitable.
481 | P a g e
Determining Costs
The first step is to determine the costs to manufacture your product or offer your service. Once you know your costs, you
can calculate your break- even point.
Definition of Fixed and Variable Costs

Variable costs are the expenses that vary with the amount of services rendered or goods produced. They depend on the
operations of the business. They include costs of raw materials used for production, wages, and utilities.
For example, the cost of labourers to offload a container of goods may vary with the volume of goods in the container or
the number of loaded containers available for offloading. In this case cost of labour depends on the volume of operations
of the business.
Definition of Fixed Costs - costs that remain constant despite increases or decreases in sales or volumes of production.
Fixed costs include the cost of rent of office premises or operating licenses for the year.
Definition of Unit - is a quantity used as a standard measurement of “output” for a product or service. Units are used to
measure volume, costs or price. They include kilograms, boxes, or units of a currency like shillings.
Calculating Variable Costs

Calculating variable costs is trickier than calculating fixed costs because it requires isolating costs of all inputs used in
producing one unit of a good. Therefore, if you are offering a training service, you will need to calculate all costs related to
providing that training. This might include a contracted trainer's fee, materials, space (if you plan to rent space outside
your regular office), snacks you will provide, etc. Reusable supplies, such as pens, need to be costed by their estimated life
span, or their total cost divided by the number of times you can use them.
482 | P a g e
You may also calculate variable costs by subtracting fixed costs from total costs.
Variable costs= total costs – fixed costs.
Formula for Calculating Break-Even Units

To determine how many units must be produced and sold to break even, use the following formula:
Fixed costs (FC)
Selling Price (SP) - Variable cost per unit (VC) = Number of units needed to break even (#BE)
FC…. = BE (units)
(SP-VC)
Results of the break-even analysis can help you to:

1. Establish the profitability of your business.
2. Establish your firm’s capacity to meet the demand for its products and make a profit.
3. Establish whether there is sufficient market for this quantity of service or products.
4. Test whether the marketing plan can support the firm to sell the quantity needed to break-even at the selling price
established.
5. Determine how long it will take your business to make a profit. If you lose money for a year or two will you
eventually make a profit? If not, you are in the wrong business?
483 | P a g e
Savings and investment options
Saving is income not spent or deferred consumption. Methods of saving include putting money aside in, for example, a
deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as
recurring costs. In terms of personal finance, saving generally specifies low-risk preservation of money, as in a deposit
account, versus investment wherein risk is a lot higher; in economics more broadly, it refers to any income not used for
immediate consumption.
Investment generally results in acquiring an asset, also called an investment. If the asset is available at a price worth
investing, it is normally expected either to generate income or to appreciate in value, so that it can be sold at a higher price
(or both).
Investors generally expect higher returns from riskier investments. Financial assets range from low-risk, low-return
investments, such as high- grade government bonds, to those with higher risk and higher expected commensurate reward,
such as emerging markets stock investments.
Stock and bonds

Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an
equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they
are lenders). Being a creditor, bondholders have priority over stockholders. This means they will be repaid in advance of
stockholders but will rank behind secured creditors in the event of bankruptcy. Another difference is that bonds usually
have a defined term, or maturity, after which the bond is redeemed, whereas stocks are typically outstanding indefinitely.
An exception is an irredeemable bond, such as a consol, which is a perpetuity, that is, a bond with no maturity.
484 | P a g e
Developing the Business Model
Introduction
The idea of resources usually leads us to think of only money. In this section, we will examine how to access the available
resources and how to put it to work.
We will seek to answer the following questions:

1. How do we start a small business?
2. What do we need to start a business?
3. How do we access resources?
4. Is partnering to access resources a good idea?
Description of a business model

Models are simplified representations of things in the real world. You are already familiar with many kinds of models. You
had played with a model airplane or boat when you were a child. You may have seen models of buildings, dams, or other
construction projects built by architects to show the sponsors of a project how a completed building will look after it is
built. In the same way, a business model lets an entrepreneur try out different ways to put together the components of his
or her business and evaluate various options before implementing the one that looks the best.
Business models can be approached from two perspectives. A general perspective defines a business model as any type of
conceptual framework explaining how to organize and evolve a business venture. On the other hand, specific
circumstances guide business modeling. For instance, industries such as tourism, banking in the services sector, or
automobile or shoe manufacturing demand specific models that take into account critical variables found within the
industry's specific environment.
485 | P a g e
One definition from the general perspective is provided by Alex Osterwalder:
A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the
business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers
and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and
relationship capital, to generating profitable and sustainable revenue streams.
A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social,
cultural or other contexts. The process of business model construction is part of business strategy. In theory and practice,
the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a
business, including purpose, business process, target customers, offerings, strategies, infrastructure, organizational
structures, sourcing, trading practices, and operational processes and policies including culture.
COMPONENTS OF A BUSINESS MODEL

1. VALUE PROPOSITION (how do you create value?)
A value proposition is a statement which clearly identifies clear, measurable and demonstrable benefits consumers get
when buying a particular product or service. It should convince consumers that this product or service is better than
others on the market. This proposition can lead to a competitive advantage when consumers pick that particular product
or service over other competitors because they receive greater value. Capon and Hulbert linked the success of firms in the
marketplace to the value provided to customers. They introduced a principle of customer value, with customer insights
driving the company’s marketing activities. Customer value should also drive investment and production decisions
because customers perceive value on the benefits of the product or service they receive. Consequently, as the environment
changes, and the customer experience and their desires change, the value they seek changes. As a result, companies are
pressured to invest more resources in marketing research in order to gain deep customer insights, improve the value
proposition.
486 | P a g e
Consumers are always looking around for the best possible deal for the best quality and how these products or services will
contribute to their success. The value proposition is the promise that the business will give the consumer to assure best
possible value. The value proposition is a creative statement that depicts the unique selling point. Without this statement,
you lose an opportunity to tell consumers why they should pick you over competitors. An important goal in a business is to
convince customers that they are getting many more benefits. Coming from a customer’s perspective, buyers are not only
asking how this product is different to one they may already be using but what value this product or service may have.
Customers are looking for answers that may improve or replace products or services. Customers will never buy a product
or service if they do not feel like they are receiving the best possible deal. Therefore, the value proposition is important to
businesses and their success.
When creating a value proposition, it is important to think about these key questions: What is the product or service? Who
is the target market? What value does the product or service provide? How is this different from competitors? Many
businesses that can answer these will have a relatively strong value proposition as they know how their product or service
differentiates from competitors. But it is more than just understanding and recognizing what makes them different; it is
about creating a statement that engages customers in purchasing goods or service. There are many benefits that the value
proposition can have on a business. These benefits include a strong differentiation between the company and its
competitors, increase in quantity, better operations efficiency and increase in revenue. By also creating a more personal
and honest relationship with consumers through the value proposition also gives them another reason to choose you.
These benefits will help the business grow and succeed in the market.
Standardize or customize?
When planning on producing a new product and/or service, the key factor is the product and service design. Successful
designs come down to these basic principles: translate customers' wants and needs, refine existing products and services,
develop new products and services, formulate quality goals, formulate cost targets, construct and test prototypes,
document specifications, and translate products and service specification into process specifications. The process of design
has certain steps that include motivation, ideas for improvement, organizational capabilities, and forecasting. In the
product process innovations, research and development play a significant role. Because of the influence a product and
service design can have on an organization, the design process is encouraged to be tied in with the organization’s strategy
and take into account some key considerations such as technological changes, the competitive market, and economic and
487 | P a g e
demographic changes are some market opportunities and threats that all organizations must be aware of when planning a
product and service design. Companies choose various ways to design their products and the type of services they provide.
Which include: standardization, mass customization, delayed differentiation, modular design, and
robust design. Deciding which method to use is very important along with deciding the company's target market.
Deciding the right method establishes good productivity and efficient way for operations.
Mobile-phone maker Nokia went a step further in localizing its phones to different markets. The company uses local
designers to create mobile- phone handset models that are specifically appropriate for each country. For example, the
handsets designed in India are dust resistant and have a built-in flashlight. The models designed in China have a touch
screen, stylus, and Chinese character recognition.
Direct or indirect distribution?

A marketing channel is a set of practices or activities necessary to transfer the ownership of goods and to move goods,
from the point of production to the point of consumption and, as such, which consists of all the institutions and all the
marketing activities in the marketing process. There are basically four types of marketing channels:
• Direct selling;
• Selling through intermediaries;
• Dual distribution; and
• Reverse channels
Direct Selling
Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is
the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one
demonstrations, and personal contact arrangements as well as internet sales.
488 | P a g e
Industry representative, the World Federation of Direct Selling Associations (WFDSA), reports that its 59 regional
member associations accounted for more than US$114 Billion in retail sales in 2007, through the activities of more than
62 million independent sales representatives. According to the WFDSA, consumers benefit from direct selling because of
the convenience and service benefits it provides, including personal demonstration and explanation of products, home
delivery, and generous satisfaction guarantees.
Selling Through Intermediaries

A marketing channel where intermediaries such as wholesalers and retailers are utilized to make a product available to the
customer is called an indirect channel.
The most indirect channel you can use (Producer/manufacturer --> agent --> wholesaler --> retailer --> consumer) is
used when there are many small manufacturers and many small retailers and an agent is used to help coordinate a large
supply of the product.
Dual Distribution
Dual distribution describes a wide variety of marketing arrangements by which the manufacturer or wholesalers uses
more than one channel simultaneously to reach the end user. They may sell directly to the end users as well as sell to other
companies for resale. Using two or more channels to attract the same target market can sometimes lead to channel
conflict.
An example of dual distribution is business format franchising, where the franchisors, license the operation of some of its
units to franchisees while simultaneously owning and operating some units themselves.
489 | P a g e
Reverse Channels
If you have read about the other three channels, you would have noticed that they have one thing in common -- the flow.
Each one flows from producer to intermediary (if there is one) to consumer.
Technology, however, has made another flow possible. This one goes in the reverse direction and may go -- from consumer
to intermediary to the beneficiary. Think of making money from the resale of a product or recycling. There is another
distinction between reverse channels and the more traditional ones -- the introduction of a beneficiary. In a reverse flow,
you won't find a producer. You'll only find a User or a Beneficiary.
Internal manufacturing or outsourcing?

Insourcing is the commencement of performing a business function that could be contracted out internally: either with
the help of a third-party provider who performs the task on-site or by conducting said task independently. Insourcing is
also defined as bringing a third party outsourcer to work inside a company's facility. For example, an IT outsourcing
provider may be hired to service a company's IT department while working inside the company's facilities.
Outsourcing involves the contracting out of a business process (e.g. payroll processing, claims processing) and
operational, and/or non-core functions (e.g. manufacturing, facility management, call center support) to another party.
Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always. Outsourcing
is also the practice of handing over control of public services to private enterprise.
Reasons for outsourcing

Companies primarily outsource to reduce certain costs — such as peripheral or "non-core" business expenses, high taxes,
high energy costs, excessive government regulation/mandates, production and/or labor costs. The incentive to outsource
may be greater for U.S. companies due to unusually high corporate taxes and mandated benefits, like social security,
Medicare, and safety protection (OSHA regulations).
490 | P a g e
Digital Outsourcing
Many think of outsourcing as it relates to manufacturing (e.g. the "made in China" label on the product you buy).
However, outsourcing of white collar work has grown rapidly since the early 21st century. The digital workforce of
countries like India and China are only paid a fraction of what would be a minimum wage in the US. Outsourcing has also
expanded to include many different countries; Costa Rica has become a big source for outsourcing work as it offers the
advantage of a highly educated labor force, a large bilingual population, stable democratic government, shares similar
time zones with the United States, and it takes only a few hours to travel between Costa Rica and the US. Companies such
as Intel, Procter & Gamble, HP, Gensler, Amazon, and Bank of America have big operations in Costa Rica.
BENEFICIARY (for whom do you create value?)
Business to Business versus Consumer Marketing: Similarities and Differences
Consumer marketing, or business-to-consumer (B2C) marketing, sales are made to individuals who are the final decision-
makers, though they may be influenced by family members or friends. A business marketing, or business-to-business
(B2B) marketing, sale is made to a business or firm.
Buyer Behavior
Whereas emotional factors play a large role in B2C purchases, B2B purchasing decisions tend to be less emotional and
more task-oriented than consumer buyer markets. Business customers often look for specific product attributes such as
the economy in cost and use, productivity, and quality. Additionally, B2B purchasers generally spend more money, as the
buying process tends to be more complex and lengthy.
491 | P a g e
Buyer-Customer Relationship
While consumer marketing is aimed at large groups through mass media and retailers, the negotiation process between
the buyer and seller is more personal in business marketing. Sales representatives and marketers are often assigned to
market to individuals who act as influencers or decision-makers in the customer organization. The bulk of a consumer's
interaction with a brand typically happens via an advertisement, promotion, or transaction. In contrast, B2B marketing
can include numerous meetings between the seller and buyer before a transaction occurs.
For example, B2B marketers often present products and their benefits in private presentations to key decision-makers.
The B2B organizations may also invite prospects and customers to be public or private events to facilitate further
conversations. As a result, confidence and trust are gradually built between the seller and buyer over a period of time.
Significant time and money are spent during the evaluation and selection process, resulting in strong brand loyalty among
B2B customers.
Communications Channels
Although on the surface the differences between business and consumer marketing may seem obvious, there are more
subtle distinctions between the two, with substantial ramifications. The evaluation and selling process for B2B purchases
are longer and more complex than consumer purchases. However, business marketing generally entails shorter and more
direct channels of distribution to target audiences. Different aspects of the promotional mix can be easily personalized due
to the relationship between a B2B salesperson and the individual buyer.
Customer Event
Promotional channels such as events provide ways for B2B sellers to move prospects along the buying process.
492 | P a g e
Most business marketers commit only a small part of their promotional budgets to general advertising, usually through
direct marketing efforts and trade publications. For example, a business marketer may allocate spending to banner
advertising or paid search. Similar to consumer ads, these advertisements lead to landing pages, where marketing
messaging aims to convince web visitors to submit a form, download a brochure, or register for a webcast. While business
advertising is limited, it helps generate leads that marketing can pass along to sales representatives.
Similarities between business-to-consumer and business-to-business
Marketing
Marketing to a business and marketing to an individual are similar in terms of the fundamental principles of marketing.
Both business-to-consumer and business-to-business marketing objectives reflect the fundamental principles of the
marketing mix, and in both situations, the marketer must always:
• Successfully match product or service strengths with the needs of a specific target market
• Position and price products or services to align products and service offerings with the market
• Communicate and sell products or services so that they effectively demonstrate value to the target market.
Local, Regional or International Markets

As one would expect, the size and location of a company's market vary greatly. Local marketers are concerned with
customers that tend to be clustered tightly around the marketer. The marketer is able to learn a great deal about the
customer and make necessary changes quickly. Naturally, the total potential market is limited. There is also the possibility
that a new competitor or environmental factor will put a local marketer out of business.
Regional marketers cover a larger geographic area that may necessitate multiple production plants and a more complex
distribution network. While regional marketers tend to serve adjoining cities, parts of states or entire states, dramatic
differences in demand may still exist, requiring extensive adjustments in marketing strategy.
493 | P a g e
National marketers distribute their product throughout a country. This may involve multiple manufacturing plants, a
distribution system, including warehouses and privately owned delivery vehicles, and different versions of the marketing
"mix" or overall strategy. This type of marketing offers tremendous profit potential but also exposes the marketer to new,
aggressive competitors.
International marketers operate in more than one country. As will become clear later in this book, massive adjustments
are normally made in the marketing mix in various countries. Legal and cultural differences alone can greatly affect a
strategy's outcome. As the US market becomes more and more saturated with US-made products, the continued
expansion into foreign markets appears inevitable, greatly affect a strategy's outcome. As the US market becomes more
and more saturated with US-made products, the continued expansion into foreign markets appears inevitable.
Global marketing differs from international marketing in some very definite ways. Whereas international marketing
means a company sells its goods or services in another country, it does not necessarily mean that the company has made
any further commitments. Usually, the product is still manufactured in the home country, sold by their people, and the
profits are taken back to that country. In the case of Honda Motors, for example, it means building manufacturing plants
in the US, hiring local employees, using local distribution systems and advertising agencies, and reinvesting a large
percentage of the profits back into the US.
494 | P a g e
General or niche Market
General Market
An attractive market has the following characteristics:
It is sizeable enough to be profitable given your operating cost. Only a tiny fraction of the consumers in China
can afford to buy cars. However, because the country’s population is so large (nearly 1.5 billion people), more cars are sold
in China than in Europe (and in the United States, depending on the month). Three billion people in the world own cell
phones. But that still leaves three billion who do not.
It is growing. For example, the middle class of India is growing rapidly, making it a very attractive market for consumer
products companies. People under thirty make up the majority of the Indian population, fueling the demand for
“Bollywood” (Indian-made) films.
It is not already swamped by competitors, or you have found a way to stand out in a crowd. IBM used to
make PCs. However, after the marketplace became crowded with competitors, IBM sold the product line to a Chinese
company called Lenovo.
Either it is accessible, or you can find a way to reach it. Accessibility, or the lack of it, could include geographic
accessibility, political and legal barriers, technological barriers, or social barriers. For example, to overcome geographic
barriers, the consumer products company Unilever hires women in third-world countries to distribute the company’s
products to rural consumers who lack access to stores.
495 | P a g e
You have the resources to compete in it. You might have a great idea to compete in the wind-power market.
However, it is a business that is capital intensive. What this means is that you will either need a lot of money or must be
able to raise it. You might also have to compete with the likes of T. Boone Pickens, an oil tycoon who is attempting to
develop and profit from the wind-power market.
It “fits in” with your firm’s objectives and mission. Consider TerraCycle, which has made its mark by selling
organic products in recycled packages. Fertilizer made from worm excrement and sold in discarded plastic beverage
bottles is just one of its products. It wouldn’t be a good idea for TerraCycle to open up a polluting, coal-fired power plant,
no matter how profitable the market for the service might be.
Yogurt, Anyone? I Mean, Any Woman? Are women an attractive target market for yogurt sellers? The maker of this
humorous YouTube video thinks so. (She seems to imply they are the only market.)
Niche Market
From a marketing perspective, a niche is a well-defined segment of a larger market. Because it is difficult to be all things
to all people, marketers craft niches to suit their needs and business needs and resources. The more specifically you can
delineate your niche, the easier it is to target your marketing content and communications to meet your audience’s needs
as well as your own. Of course, the downside of niche marketing is that it reduces your potential customer base.
Crafting a well-delineated niche strategy can help you create more effective marketing campaigns. In my experience,
taking the time to understand a target market enables you to maximize your promotions because you know your
audience’s behaviors and hot buttons.
496 | P a g e
While marketing seven book clubs, I found that selling into a set of focused niche markets enabled me to maximize
profitability because I could target promotions based on past buyer behavior and needs. For example, since mystery books
are highly consumable, I was able to sell these readers more books by promoting related titles. By contrast, science fiction
readers love collecting things, so I increased revenues by offering special, related non- book products. Ironically, my peers
who marketed general fiction had to segment their audience to increase sales. Without having a well-defined niche, their
marketing was too broad-based to be extremely effective.
Here are seven steps to help you craft your niche to ensure business success.
1. Define your business goals. Start by determining what you want to accomplish. Are you looking to build your
brand or maximize your audience size?
2. Understand your audience and their needs. To this end, it is helpful to create a marketing persona to know
better your target market, their needs and the tradeoffs they are willing to make. Go beyond the superficial
demographics to understand how your target market makes purchase decisions, what motivates them and who
influences their choices.
3. Determine your product’s strengths and weaknesses. Assess where your products fulfill your customers’
needs (including additional content, training, and support) and where the products fall short. Assuming that your
product is perfect won’t help you craft better marketing content. Answer the question, “What attracts customers to
my product?” If you do not know the answer, ask your prospects and customers.
4. Examine close product substitutes. Do not assume consumers, especially in today’s connected era, think only
in terms of other brands of the same product. They’ve broader viewpoints that incorporate social input and a
willingness consider a wider range of substitute options. In my experience, marketers tend to have blinders when it
comes to alternatives for their product offering. In my book marketing days, I couldn’t talk about libraries where
readers could borrow books for free or Costco that sold bestsellers for half price. My management didn’t want to
focus on these alternatives.
497 | P a g e
5. Take the pulse of the social media conversation related to your offering. Listen to what is being said
about your product set on various social media venues. What do prospects like and dislike about your product
category? Develop a social media persona to understand better where your audience congregates on social media
and how they use these venues.
6. Analyze your competitors. When selecting your competitors, think in terms of people who sell the same
product as well as broader retailers like Walmart, Amazon, eBay and Apple. Consider relevant geographic locations
as well as online and mobile product options. Understand how they define their market and how it relates to their
target audience, brand, and pricing. Where are there gaps in the category for your product/offering and brand?
7. Price your offering. Consider how your competitors have priced their products. How does your product compare
in terms of pricing and branding? What sets your product apart from the competition? How does this help you price
your product?
A niche market provides an organization with the opportunity to uniquely fulfill the needs of its members based on
their interests, past behavior, and role in the purchase process. It enables marketers to tailor their content and
communications to better resonate with their audience and drive them to buy. Once you have defined your market
segment, use it to guide the creation of your marketing and promotions. As part of this process, continually test new
tactics targeted for your niche and measure your results.
OPERATIONS (what is your internal source of advantage?)
Defining Business Capability

A business capability is what a company needs to be able to do to execute its business strategy. Another way to think about
capabilities is a collection of people, process, and technology gathered for a specific purpose. Capability management uses
the organization’s customer value proposition to establish performance goals for capabilities based on value. It reduced
inefficiencies in capabilities that contribute low customer impact, and focus efficiencies in areas with high financial
leverage while preserving or investing in capabilities for growth.
498 | P a g e
Capability vs. process
A process is how the capability is executed. Much of the reengineering revolution, or business process reengineering,
focused on how to redesign business processes.
Business vs. organizational capability

An organization capability refers to the way systems and people in the organization work together to get things done. The
way leaders foster shared mindsets, orchestrate talent, encourage speed of change, collaborate across boundaries, and
learn and hold each other accountable define the company's culture and leadership edge.
Capability vs. competency

Although often used interchangeably, "capability" and "competency" are quite different. Individuals have competencies
while organizations have capabilities. Both competencies and capabilities have technical and social elements.
Competencies and Capabilities

Individuals have competencies while organizations have capabilities.
At the intersection of the individual and the technical, employees bring functional skills and competencies such as
programming, cost accounting, electrical engineering, etc. At the intersection of the individual and the social, leaders
also have a set of competencies or skills such as setting a strategic agenda, championing change, and building
relationships. At the intersection of the organizational and the technical are business capabilities. For example, a
financial service firm must know how to manage risk and design innovative products.
499 | P a g e
Organization capabilities include talent management, collaboration, and accountability. They are the underlying DNA,
culture, and personality of a firm, integrating all the other parts of the firm and bringing it together. When a group of
leaders has mastered certain competencies, organization capabilities become visible. For example, when a group of leaders
master "turning vision into action" and "aligning the organization," the organization a whole shows more "accountability."
Capability value contribution

Firms should assess the capabilities necessary to operate the business by examining the financial impact as well as the
customer impact.
Figure 7. Capability Value Contribution to Strategy
Different capabilities have different financial and strategic impacts. Some capabilities directly contribute to the customer
value proposition and have a high impact on company financials. These "advantage capabilities" are shown in the upper
right.
500 | P a g e
Some capabilities directly contribute to the customer value proposition and have a high impact on company financials.
These "advantage capabilities" are shown in the upper right. Value contribution is assured when performance is among
the best in peer organizations at an acceptable cost. In the top left quadrant, strategic support capabilities have a high
contribution in direct support of advantage capabilities. Value contribution is assured when performed above industry
parity at a competitive cost. Other capabilities shown in the bottom right are essential. They may not be visible to the
customer, but contribute to company's business focus and have a big impact on the bottom line. Value contribution is
assured when performed at industry parity performance below competitors' cost.
Income Generation
A business can generate income in using several strategies.
Operating Leverage
Key Points
• As operating leverage increases, more sales are needed to cover the increased fixed costs.
• High levels of fixed costs increase business risk, which is the inherent uncertainty in the operation of the business.
• Operating leverage also increases forecasting risk. Therefore, even a small error made in forecasting sales can be
magnified into a major error in forecasting cash flows.
• Measures used to interpret operating leverage include the ratio of fixed costs to total costs, the ratio of fixed costs to
variable costs, and Degree of Operating Leverage (DOL).
Terms
• fixed cost business expenses that are not dependent on the level of goods or services produced by the business
• variable cost
• a cost that changes with the change in volume of activity experienced by an organization
501 | P a g e
Defining Operating Leverage
Operating leverage can be defined, simply, as the degree to which a firm incurs a combination of fixed and variable costs.
Specifically, it is the use of fixed costs over variable costs in production. For example, replacing production workers
(variable cost) with robots (fixed cost). Operating leverage is also a measure of how revenue growth translates into growth
in operating income.
Example of Operating Leverage

Factory automation with industrial robots for metal die casting.
Recall that variable costs are those that change alongside the volume activity of a business, and fixed costs are those that
remain constant regardless of volume. Utilizing operating leverage will allow variable costs to be reduced in favor of fixed
costs; therefore, profits will increase more for a given increase in sales. This is, of course, after the breakeven point has
been reached. In other words, because variable costs are reduced, each sale will contribute a higher profit margin to the
company.
Fixed and Variable Costs
Fixed costs and variable costs, together, comprise total costs.

As operating leverage increases, more sales are needed to cover the increased fixed costs. Therefore, companies with low
output would not benefit from increased operating leverage. Moreover, high levels of fixed costs increase business risk,
which is the inherent uncertainty in the operation of the business. Manufacturing companies tend to invest heavily in fixed
assets. Therefore, operating leverage is used much more than financial leverage for these types of firms. Operating
leverage also increases forecasting risk. Therefore, even a small error made in forecasting sales can be magnified into a
major error in forecasting cash flows.
502 | P a g e
Interpreting Operating Leverage
Various measures can be used to interpret operating leverage. These include the ratio of fixed costs to total costs, the ratio
of fixed costs to variable costs, and the Degree of Operating Leverage (DOL). All of these measures depend on sales. The
ratios of fixed cost to total costs and fixed costs to variable costs tell us that if the unit variable cost is constant, then as
sales increase, operating leverage decreases. The DOL tells us, as a percentage, that for a given level of sales and profit, a
company with higher fixed costs has a higher contribution margin - the marginal profit per unit sold. Therefore, it’s
operating income increases more rapidly with sales than a company with lower fixed costs (and correspondingly lower
contribution margin).
Contribution Margin
Contribution margin (CM), or dollar contribution per unit, is the selling price per unit minus the variable cost per unit.
“Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the
coverage of fixed costs. This concept is one of the key building blocks of break-even analysis.
Figure 8 Decomposing Sales as Contribution plus Variable Costs In the Cost-Volume-Profit Analysis model, costs are
linear in volume
503 | P a g e
In cost-volume-profit analysis, a form of management accounting, contribution margin—the marginal profit per unit
sale—is a useful quantity in carrying out various calculations, and can be used as a measure of operating leverage.
Typically, low contribution margins are prevalent in the labour-intensive tertiary sector while high contribution margins
are prevalent in the capital-intensive industrial sector.
Purpose
Cost-Volume-Profit Analysis, where it simplifies calculation of net income and, especially, break-even analysis.
Given the contribution margin, a manager can easily compute breakeven and target income sales and make better
decisions about whether to add or subtract a product line, about how to price a product or service and about how to
structure sales commissions or bonuses.
Contribution margin analysis is a measure of operating leverage; it measures how growth in sales translates to growth in
profits.
The contribution margin is computed by using a contribution income statement, a management accounting version of the
income statement that has been reformatted to group together a business's fixed and variable costs.
Contribution is different from gross margin in that a contribution calculation seeks to separate out variable costs (included
in the contribution calculation) from fixed costs (not included in the contribution calculation) on the basis of economic
analysis of the nature of the expense, whereas gross margin is determined using accounting standards. Calculating the
contribution margin is an excellent tool for managers to help determine whether to keep or drop certain aspects of the
business. For example, a production line with positive contribution margin should be kept even if it causes negative total
profit when the contribution margin offsets part of the fixed cost. However, it should be dropped if contribution margin is
negative because the company would suffer from every unit it produces.
The contribution margin analysis is also applicable when the tax authority performs tax investigations, by identifying
target interviewees who have unusually high contribution margin ratios compared to other companies in the same
industry.
504 | P a g e
Fixed and Flexible Pricing
The term fixed price is a phrase used to mean the price of a good or a service is not subject to bargaining. The term
commonly indicates that an external agent, such as a merchant or the government, has set a price level, which may not be
changed for individual sales. In the case of governments, this may be due to price controls.
Bargaining is very common in many parts of the world, outside of retail stores in Europe or North America or Japan, this
makes this an exception from the general norm of pricing in these areas.
A fixed-price contract is a contract where the contract payment does not depend on the amount of resources or time
expended by the contractor, as opposed to cost-plus contracts. These contracts are often used in military and government
contractors to put the risk on the side of the vendor, and control costs.
Historically, when fixed-price contracts are used for new projects with untested or developmental technologies, the
programs may fail if unforeseen costs exceed the ability of the contractor to absorb the overruns. In spite of this, such
contracts continue to be popular. Fixed-price contracts tend to work when costs are well known in advance.
Variable pricing is a pricing strategy for products. Traditional examples include auctions, stock markets, foreign exchange
markets, bargaining, electricity, and discounts. More recent examples, driven in part by reduced transaction costs using
modern information technology, include yield management and some forms of congestion pricing. Increasingly, sport
venues, such as AT&T Park in San Francisco, have employed variable pricing to capture the most revenue possible out of
consumers and fans.
Due to advances in technology, another variant of variable pricing, called "real-time pricing," has arisen. In some markets,
events occur so fast that there is insufficient time to either set a fixed price or engage in lengthy negotiations. By the time
you have all the information to determine a price, everything has changed. Examples include airline tickets, stock markets,
and foreign exchange markets. In each case, prices can change in less than a second. By linking all the market participants
through internet connections, price changes are disseminated instantly as they occur.
A variant of real-time pricing is an online auction business model (such as eBay). All participants can view the price
changes soon after they occur (technically this is not quite real time pricing because there is a delay built into the eBay
system). Traditional auctions are inefficient because they require bidders (or their representatives) to be physically
present. By solving this problem, online auctions reduce the transaction costs for bidders, increase the number of bidders,
and increase the average bid price.
505 | P a g e
Sales are a traditional example of discriminatory pricing. During the Christmas shopping season, prices are high. Come
the New Year there are sales. Other examples of sales occur on various goods such as appliances and cars. Electronics,
clothes washers/dryers, etc. typically have a season of the year where sales occur. Cars are sold at discounts before the new
model year. Discriminatory pricing is not always bad. It helps people who will/cannot pay "list" or even street price an
opportunity to buy at a better price if they are willing to wait and/or to buy older models. At the same time, it helps
merchants clear out old stock and/or items that they misjudged the market for.
This kind of price discrimination is largely and widely used by rental car companies. Usually, those firms need to know
what your country of residence is so they can adjust the price. Depending on the answer you can get significantly different
quotes for the same vehicle, date and time of rental. It is also true when accessing the rental car site through the .com
main site.
Electricity real-time pricing allows charging higher prices when demand is highest, which is expected to reduce actual use
during peak demand periods, which increases production costs because it drives the expansion of costly equipment.
Revenue Sources - Revenue Model

A revenue model is a framework for generating revenues. It identifies which revenue source to pursue, what value to offer,
how to price the value, and who pays for the value. It is a key component of a company's business model. It primarily
identifies what product or service will be created in order to generate revenues and the ways in which the product or
service will be sold.
Without a well-defined revenue model, that is, a clear plan of how to generate revenues, new businesses will more likely
struggle due to costs which they will not be able to sustain. By having a clear revenue model, a business can focus on a
target audience, fund development plans for a product or service, establish marketing plans, begin a line of credit and
raise capital.
506 | P a g e
Types of revenue models
The type of revenue model that is available to a firm depends, in large part, on the activities the firm performs, and how it
charges for those. Various models by which to generate revenue include:
Production model
In the production model, the business that creates the product or service sells it to customers who value and thus pay for
it. An example would be a company that produces paper, who then sells it to either the direct public or to other businesses,
who pay for the paper, thus generating revenue for the paper company.
Manufacturing model
Manufacturing is the production of merchandise using labour, materials, and equipment, resulting in finished goods.
Revenue is generated by selling the finished goods. They may be sold to other manufacturers for the production of more
complex products (such as aircraft, household appliances or automobiles), or sold to wholesalers, who in turn sell them to
retailers, who then sell them to end users and consumers. Manufacturers may market directly to consumers, but generally
do not, for the benefits of specialization.
Construction model
Construction is the process of constructing a building or infrastructure. Construction differs from manufacturing in that
manufacturing typically involves mass production of similar items without a designated purchaser, while construction
typically takes place on location for a known client, but may be done speculatively for sale on the real estate market.
507 | P a g e
Rental or leasing model
Renting is an agreement where a payment is made for the temporary use of a good, service or property owned by another.
A gross lease is when the tenant pays a flat rental amount, and the landlord pays for all property charges regularly
incurred by the ownership. Things that can be rented or leased include land, buildings, vehicles, tools, equipment,
furniture, etc.
Advertising model
The advertising model is often used by Media businesses which use their platforms where content is provided to the
customer as an advertising space. Possible examples are newspapers and magazines which generate revenue through the
various adverts encountered in their issues. Internet businesses which often provide services will also have advertising
spaces on their platforms. Examples include Google and Taobao. Mobile applications also use this specific revenue model
to generate revenues. By incorporating some ad space, many popular apps such as Twitter and Instagram have
strengthened their mobile revenue potential after previously having no real revenue stream.
Commission model
The commission model is similar to the mark up model as it is used when a business charges a fee for a transaction that it
mediates between two parties. Brokerage companies or auction companies often use it as they provide a service as
intermediaries and generate revenue through commissions on the sales of either stock or products.
E-commerce model
This revenue model is the implementation of any of the other revenue models online.
508 | P a g e
Fee-for-service model
In the fee-for-service model, unlike in the subscription model, the business only charges customers for the amount of
service or product they use. Many phone companies provide pay as you go services whereby the customer only pays for the
amount of minutes he actually uses.
Licensing model
With the licensing model, the business that owns a particular content retains copyright while selling licenses to third
parties. Software publishers sell licenses to use their programs rather than straight-out sell copies of the program. Media
companies also obtain their revenues in this manner, as do patent holders of particular technologies.
Software licensing model

Rather than selling units of software, software publishers generally sell the right to use their software through a limited
license which defines what the purchaser can and cannot do with it.
Mark up model
In the mark-up model, unlike with previous models, the business buys a product or service and increases its price before
reselling it to customers. This model characterises wholesalers and retailers, who buy products from manufacturers, mark
up their prices, and resell them to end customers.
Wholesale
Wholesaling, jobbing, or distributing is the sale of goods or merchandise to retailers; to industrial, commercial,
institutional, or other professional business users; or to other wholesalers and related subordinated services. In general, it
is the sale of goods to anyone other than the end-consumer. Wholesaling can be implemented online via electronic
transactions.
509 | P a g e
Retail
Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a
profit. Demand is identified and then satisfied through a supply chain. Attempts are made to increase demand through
advertising.
Brick and mortar retail

Conventional retail or brick and mortar retail are selling products from a physical sales outlet or store.
Mail order
The mail order revenue model and distribution method entail sending goods by mail delivery. The buyer places an order
for the desired products with the merchant through some remote method such as by telephone call or website. Then, the
products are delivered to the customer, typically to a home address, but occasionally the orders are delivered to a nearby
retail location for the customer to pick up. Some merchants also allow the goods to be shipped directly to a third party
consumer, which is an effective way for someone to buy a gift for an out-of-town recipient.
E-tail
E-tail is on-line retail. Retail is the process of selling consumer goods and/or services directly to end-consumers to earn a
profit. Demand is created through promotion, and by satisfying consumers' wants and needs effectively (which generates
word-of-mouth advertising).
In the 21st century, an increasing amount of retailing is e-tailing, done online using electronic payment and delivery via a
courier or postal mail. Via e-tail, the customer can shop and order through the internet, and the merchandise is dropped at
the customer's doorstep. This format is ideal for customers who do not want to travel to retail stores and are interested in
home shopping.
The online retailer may handle the merchandise directly, or use the drop shipping technique in which they accept the
payment for the product but the customer receives the product directly from the manufacturer or a wholesaler.
510 | P a g e
Subscription model
In the subscription model, the business provides a product or service to a customer who in return pays a pre-determined
fee at contracted periods of time to the business. The customer will be required to pay the fee until the contract with the
business is terminated or expires, even if he is not utilising the product or service but is still adhering to the contract.
Possible examples are flat-rate cellular services, magazines, and newspapers.
Revenue Streams
A revenue stream is an amount of money coming into a business or organisation from a particular source. A revenue
model describes how a business generates revenue streams from its products and services. They are resultantly a key
aspect of the revenue model. They are generated through the use of the revenue model components listed in the section
above. Businesses continually seek new ways of generating revenues, thus new revenue streams. Finding a new revenue
stream has gradually taken on a distinct and specialized meaning in certain contexts to mean a new, novel, undiscovered,
potentially lucrative, innovative, and creative means of generating income or exploiting a potential. This approach, in
particular, can especially be applied to new technology and internet businesses which find extremely innovative ways of
generating revenues, often ways which seemed not to be possible. As a result, technology-based businesses are constantly
updating their revenue models in order to remain competitive. Advertising can be seen as a component of the revenue
model, however, when the business is advertising its own products, this would result in a cost for the business which is the
exact opposite of revenue. On the other hand, advertising can lead to an increase in sales thus revenue over a period of
time. For the majority of businesses which will add value to a product or service that will be purchased by a customer,
advertising is often a component of their business plan. Expenditure for this particular component is forecasted as it can
generate greater revenues over periods of time.
511 | P a g e
Growth Subsistence
"Subsistence" means supporting oneself at a minimum level; in a subsistence economy, economic surplus is minimal and
only used to trade for basic goods, and there is no industrialization.
In the history of the world, before the first cities, all humans lived in a subsistence economy. As urbanization, civilization,
and division of labour spread, various societies moved to other economic systems at various times. Some remain relatively
unchanged, ranging from uncontacted peoples to poor areas of developing countries, to some cultures that choose to
retain a traditional economy.
Capital can generally be defined as assets invested with the expectation that their value will increase, usually because there
is the expectation of profit, rent, interest, royalties, capital gain or some other kind of return. However, this type of
economy cannot usually become wealthy by virtue of the system, and instead, requires further investments to stimulate
economic growth. In other words, a subsistence economy only possesses enough goods to be used by a particular nation to
maintain its existence and provides little to no surplus for other investments.
Income model
- See revenue model
Growth model
Stages of growth strategy
There are three stages in implementing a growth planning process which is based on three basic questions:
1. "Where are we now?"
2. "Where do we want to go?"
3. "How do we get to here?"
512 | P a g e
Strategic analysis: referred to the environment (which could either be internal, external and marketing) where the
business operated. It also looked at the resources possessed by the business or that it could possibly have and at the
expectations and objectives of its main stakeholders and owners.
Strategic choice: it basically generates options which have to do with the strategic analysis. This process evaluates the
options based on acceptability, feasibility, and suitability and then selects the suitable strategy
Strategic implementation: this process focuses on achieving the correct organisational structure, planning the
resources (physical and financial) and sorting out the systems and the people by implementing the change process. This
process has been developed, and it can be considered one of the few "big company" management theories which can be
used effectively and simply.
Most businesses have a growth strategy which is based on "acquisitions and partnerships that create shareholder value by
creating or reinforcing platforms for long-term growth."
Growth Sustainability
When a business is in a high-growth industry, it is able to maintain high growth rates for a longer period of time. However,
many investors take this high growth as granted which usually lead to much slower growth rates once the industry stops
booming. It is believed that 65% of acquisitions which businesses buy in order to grow in size have destroyed more value
than they actually created, an acquisition can’t be a substitute for a growth platform.
513 | P a g e
New growth platforms help companies grew as they created families of products, services, and businesses and extended
their capabilities into multiple new domains. The NGPs acted as a method of growth in which each business was acquiring
new capabilities and further market knowledge. The size of the growth platform is strategic to the corporation. Small
scaled businesses can only have an NGP when provided through a partnership or government funding. Usually, these exist
in the agricultural sector and improve the knowledge and infrastructure ensuring better food security.
New growth platforms (NGPs)
Figure 9 Growth Platforms
Opportunities for building NGPs lie at the intersection of a company’s actual or potential capability set, unmet customer
needs, and forces of change in the broader environment.
514 | P a g e
Creating a new growth platform
Rediscovering the technology and the talent present in an organisation a company or exploring its external networks, a
business is able to find capabilities needed to create a new growth platform. Then a company should evaluate the potential
capabilities which it needs to develop. Companies tend to undermine the number of possible growth platforms that could
be created to increase customer needs. This is a consequence of senior managers not thinking more broadly and only
thinking about a product or service that would beat the competition. After identifying suitable new areas of growth, a
business needs to quantify and evaluate the opportunities to generate the lines of the business. In order to meet a new or
uncovered customer need a new growth platform has to form as a result of a force of change which includes new
technologies, social pressures or changes in the legal system.
Possible places for growth

In order to generate an opportunity for sustained growth, a business needs to widen its capabilities into innovative
domains. NGPs provide a structure for creating business processes, services and even families of products. The size of each
NGP is essential to the strategy of the organisation. A successful NGP requires "a well-tried process, high-quality
information, and external insights – often from well outside the company’s own market space."
Difficulties in finding a new growth platform

Some studies have shown that more than 90% of companies are not able to find new possible sources of growth. Through
the understanding of these difficulties, it makes it simpler to deal with the problem. Many argue that poor processes and
skills lead to this high failure rate. Consequently, the main advice given to these companies is to be willing to take more
risks and do the same "approaches used in the venture capital industry and build a pipeline of new businesses." It has
been detected that the success of companies lies in new growth areas which have existing mindsets fitting the critical
success factors of the business. Therefore, failure results when the company involves with factors that do not fit when the
company is trying to grow in different new areas. The low success rate of finding a new growth platform can also be
explained by the shortage of opportunities theory, which suggests a new way of resolving the problem. This theory
proposes that "efforts to generate additional ideas or to experiment with a portfolio of new ventures are likely to be
fruitless." In addition, failure can also be caused by less risk aversion and more broadmindedness of entrepreneurship. In
515 | P a g e
order to resolve this issue, the corporate mindsets need to change or to invest only in cases that match with what is needed
having a high chance of succeeding.
Examples of growth platforms

Examples of strategic growth platforms which in these cases are using specific and innovative product areas or entering
into a new distribution channel:
• In order to increase growth, Apple Computers targeted “personal music systems” using its personal business of
computers
• IBM invented the term "e-business" and used it as the organizing theme of what the company did during the late
1990s
Examples of tactical growth platforms include specific new sales force programmes or a new emphasis on the advertising
for the year.
Broken Down of the Business Model
Business Model
Definition
The rationale of how an organization creates, delivers and captures value. (Osterwalder and Pigneur, 2010)
516 | P a g e
COMPONENTS OF A BUSINESS MODEL
• Value Proposition – The benefit the firm intends to deliver

• Beneficiary – Who is your target market
• Operations – The structure or systems within which the firm can be a source of strength or weakness
• Product Differentiation – Finding a way to stand out from competitors
• Income Generation – How do you intend to make money
• Growth Model – medium and long term prospects
VALUE PROPOSITION
• The Product Offering - The actual good or service (or combination) that will be sold
• Standardized or Customized – Is it one set product or can you customize to the needs of the customer
• Distribution – Are you using direct or indirect distribution channels
• Make or Buy – Would you make the product yourself or buy and resell
517 | P a g e
BENEFICIARY
• What type of relationship is it? – Business to Business (B2B), Business to Customer (B2C), Business to
Government (B2G) or a combination?
• Geographical Scope – Local, regional or international?

• Market – General or Niche?
OPERATIONS
• Organizational Structure / Culture – does your structure or culture facilitate the kind of product you would like to
produce
• Skills – There may be unique skills or experiences amongst the owner or staff that give them an advantage
• Technology – the firm may have efficient or up to date technology
• Intellectual Property – there may be intellectual property rights that may give the firm a competitive advantage
• Resources – The can be other resources that the firm may acquire that may give them a competitive advantage such
as their location, brand manager or agent etc.
518 | P a g e
PRODUCT DIFFERENTIATION
• Operational Excellence – The way the firm works and its ability to deliver a superior customer experience
• Product Quality – Delivering a better product that customers value
• Innovative Leadership – The organizations prides itself on their ability to be innovative and creative
• Cost – Being efficient and keeping costs down
• Networks – Differentiate through the use of collaborative networks
INCOME GENERATION
• Operating Leverage – How best to use the finance that is available to manage cash and protect profits
• Volume and Margins – Are you aiming for high volume and lower margins or low volume with higher margins
• Pricing – What pricing strategy are you using? Cost plus, competitor based, price discrimination, fixed pricing,
variable pricing, market skimming, market penetration etc.
• Revenue Sources – How exactly will you be generation revenue? Is there one source or multiple sources?
519 | P a g e
GROWTH MODELS
• Subsistence Model (Survival) – Enters into entrepreneurship strictly for the purpose of survival
• Income Model (Lifestyle) – Focus is on enjoying a specific lifestyle.
• Growth Model – focus is on a long-term vision for the growth of the business. Short-term milestones are set in
order to achieve these long-term goals
• Speculative Model – The entrepreneur does not necessarily have a long term plan. A contingency based approach
for exploiting an attractive opportunity
520 | P a g e
BUSINESS MODEL CANVAS
521 | P a g e
SAMPLE FACEBOOK BUSINESS MODEL CANVAS
522 | P a g e
GOOGLE SAMPLE BUSINESS MODEL CANVAS
523 | P a g e
SKYPE SAMPLE BUSINESS MODEL CANVAS
524 | P a g e
525 | P a g e
526 | P a g e
527 | P a g e
Customer Segments Questions to be Answered:
• For whom are we creating value?
Defines the different groups of people or • Who are our most important customers?
organizations an enterprise aims to reach and
serve. Notes
Customers comprise the heart of any business model.

Without (profitable) customers, no company can survive
for long.
In order to better satisfy customers, a company may group
them into distinct segments with common needs, common
behaviors, or other attributes. A business model may define
one or several large or small Customer Segments. An
organization must make a conscious decision about which
segments to serve and which segments to ignore. Once this
decision is made, a business model can be carefully
designed around a strong understanding of specific
customer needs.
Customer groups represent separate segments if:

• Their needs require and justify a distinct offer
• They are reached through different Distribution
Channels
• They require different types of relationships
• They have substantially different profitability’s
• They are willing to pay for different aspects of the
offer
528 | P a g e
Value Propositions Questions to be Answered:
• What value do we deliver to the customer?
Describes the bundle of products and services • Which one of our customer’s problems are we
that create value for a specific Customer helping to solve? Which customer needs are we
Segment. satisfying?
• What bundles of products and services are we
The Value Proposition is the reason why customers turn to offering to each Customer Segment?
one company over another. It solves a customer problem
or satisfies a customer need. Each Value Proposition Notes
consists of a selected bundle of products and/or services
that caters to the requirements of a specific Customer
Segment. In this sense, the Value Proposition is an
aggregation, or bundle, of benefits that a company offers
customers. Some Value Propositions may be innovative
and represent a new or disruptive offer. Others may be
similar to existing market offers, but with added features
and attributes.
529 | P a g e
Channels Questions to be Answered:
Describes how a company communicates with • Through which Channels do our Customer
and reaches its Customer Segments to deliver a Segments want to be reached?
Value Proposition. • How are we reaching them now?
• How are our Channels integrated?
Communication, distribution, and sales Channels • Which ones work best?
comprise a company's interface with customers. Channels • Which ones are most cost-efficient? How are we
are customer touch points that play an important role in integrating them with customer routines?
the customer experience.
Notes
Channels serve several functions, including:
• Raising awareness among customers about a
company’s
• products and services
• Helping customers evaluate a company’s Value
Proposition
• Allowing customers to purchase specific products
and services
• Delivering a Value Proposition to customers
• Providing post-purchase customer support
Customer Relationships Questions to be Answered:

Describes the types of relationships a company • What type of relationship does each of our
establishes with specific Customer Segments. Customer
• Segments expect us to establish and maintain with
A company should clarify the type of relationship it wants them?
to establish with each Customer Segment. Relationships • Which ones have we established? How costly are
can range from personal to automate. they?
• How are they integrated with the rest of our
Customer relationships may be driven by the following business model?
motivations:
• Customer acquisition Notes
• Customer retention
Boosting sales (upselling)
530 | P a g e
Key Resources Questions to be Answered:
Describes the most important assets required to • What Key Resources do our Value Propositions
make a business model work. require?
• What Key Resources do our Distribution Channels
Every business model requires Key Resources. These require?
resources allow an enterprise to create and offer a Value • What Key Resources do our Customer Relationships
Proposition, reach markets, maintain relationships with require?
Customer Segments, and earn revenues. • What Key Resources do our Revenue Streams
require?
Different Key Resources are needed depending on the type
of business model. A microchip manufacturer requires Notes
capital-intensive production facilities, whereas a
microchip designer focuses more on human resources. Key
resources can be physical, financial, intellectual, or
human. Key resources can be owned or leased by the
company or acquired from key partners.
Key Activities
Describes the most important things a company Questions to be Answered:
must do to make its business model work. • What Key Activities do our Value Propositions
require?
Every business model calls for a number of Key Activities. • Our Distribution Channels?
These are the most important actions a company must • Customer Relationships?
take to operate successfully. Like Key Resources, they are • Revenue streams?
required to create and offer a Value Proposition, reach
markets, maintain Customer Relationships, and earn Notes
revenues. And like Key Resources, Key Activities differ
depending on business model type. For software maker
Microsoft, Key Activities include software development.
For PC manufacturer Dell, Key Activities include supply
chain management. For consultancy McKinsey, Key
Activities include problem solving.
531 | P a g e
Key Partnerships Questions to be Answered:
Describes the network of suppliers and partners • Who are our Key Partners?
that make the business model work. • Who are our key suppliers?
• Which Key Resources are we acquiring from
Companies forge partnerships for many reasons, and partners?
partnerships are becoming a cornerstone of many business • Which Key Activities do partners perform?
models. Companies create alliances to optimize their
business models, reduce risk, or acquire resources. Notes
We can distinguish between four different types of

partnerships:
• Strategic alliances between non-competitors
• Competition: strategic partnerships between
competitors
• Joint ventures to develop new businesses
532 | P a g e
Cost Structure Questions to be Answered:
Describes all costs incurred to operate a business • What are the most important costs inherent in our
model. business model?
• Which Key Resources are most expensive?
This building block describes the most important costs • Which Key Activities are most expensive?
incurred while operating under a particular business
model. Creating and delivering value, maintaining Notes
Customer Relationships, and generating revenue all incur
costs. Such costs can be calculated relatively easily after
defining Key Resources, Key Activities, and Key
Partnerships. Some business models, though, are more
cost-driven than others. So-called “no frills” airlines, for
instance, have built business models entirely around low
Cost Structures.
Questions to be Answered:
Revenue Streams • For what value are our customers really willing to
Represents the cash a company generates from pay?
each Customer Segment (costs must be subtracted • For what do they currently pay?
from revenues to create earnings). • How are they currently paying?
• How would they prefer to pay?
If customers comprise the heart of a business model, • How much does each Revenue Stream contribute to
Revenue Streams are its arteries. A company must ask overall revenues?
itself, For what value is each Customer Segment truly
willing to pay? Successfully answering that question allows Notes
the firm to generate one or more Revenue Streams from
each Customer Segment. Each Revenue Stream may have
533 | P a g e
different pricing mechanisms, such as fixed list prices,
bargaining, auctioning, market dependent, volume
dependent, or yield management.
A business model can involve two different types of

Revenue Streams:
• Transaction revenues resulting from one-time
customer payments
• Recurring revenues resulting from ongoing
payments to either deliver a Value Proposition to
customers or provide post-purchase customer
support
534 | P a g e
Key Partners (KP) Key Activities (KA) Value Propositions (VP) Customer Customer
Relationships (CR) Segments (CS)
Who are our Key What Key Activities do What value do we deliver to the
Partners? our Value Propositions customer? What type of For whom are we
require? relationship does each creating value?
Who are our key Which one of our customer’s of our Customer
suppliers? Our Distribution problems are we helping to Segments expect us to Who are our most
Channels? solve? establish and important
Which Key Resources customers?
maintain with them?
are we acquiring from Customer Relationships? What bundles of products and
Which ones have we
partners? services are we offering to each • Mass Market
established? How are
Revenue streams? Customer Segment? • Niche
they integrated with
Which Key Activities Market
the rest of our
do partners perform? CATEGORIES Which customer needs are we • Segmented
business model? How
satisfying? • Diversified
• Production costly are they?
MOTIVATIONS • Multi-sided
FOR • Problem Solving CHARACTERISTICS
EXAMPLES Platform
PARTNERSHIPS: • Platform/Network
• Newness
• Personal
• Optimization • Performance
assistance
and economy • Customization
• Dedicated
• Reduction of • “Getting the Job Done”
Personal
risk and • Design
Assistance
uncertainty • Brand/Status
• Self-Service
• Acquisition of • Price
• Automated
particular • Cost Reduction
Services
• Risk Reduction
• Communities
535 | P a g e
resources and • Accessibility • Co-creation
activities • Convenience/Usability
Key Resources (KR) Channels (CH)
What Key Resources do Through which

our Value Propositions Channels do our
require? Customer Segments
want to be reached?
Our Distribution
Channels? How are we reaching
them now?
Customer Relationships?
How are our Channels
Revenue Streams? integrated?
TYPES OF Which ones work

RESOURCES best?
• Physical Which ones are most

• Intellectual (brand cost-efficient?
patents,
copyrights, data) How are we
• Human integrating them with
• Financial customer routines?
536 | P a g e
CHANNEL
PHASES:
1. Awareness
How do we
raise
awareness
about our
company’s
products and
services?
2. Evaluation
How do we
help customers
evaluate our
organization’s
Value
Proposition?
3. Purchase
How do we
allow
customers to
purchase
537 | P a g e
specific
products and
services?
4. Delivery
How do we
deliver a Value
Proposition to
customers?
5. After sales
How do we
provide post-
purchase
customer
support?
Cost Structure (C$) Revenue Streams (R$)
What are the most important costs inherent in our business model? For what value are our customers really willing to pay?
Which Key Resources are most expensive? For what do they currently pay?
Which Key Activities are most expensive? How are they currently paying?
How would they prefer to pay?
538 | P a g e
IS YOUR BUSINESS MORE: How much does each Revenue Stream contribute to overall
revenues?
Cost Driven (leanest cost structure, low price value proposition,
maximum automation, extensive outsourcing)
Value Driven (focused on value creation, premium value

proposition)
SAMPLE CHARACTERISTICS:
• Fixed Costs (salaries, rents, utilities)

• Variable costs
• Economies of scale
• Economies of scope
TYPES: FIXED PRICING DYNAMIC PRICING
• Asset sale • List Price • Negotiation( bargaining)

• Usage fee • Product feature • Yield Management
• Subscription Fees dependent • Real-time-Market
• Lending/Renting/Leasing • Customer segment
• Licensing dependent
• Brokerage fees • Volume dependent
• Advertising
539 | P a g e
Types of Business Models
A business model is a description of how your business intends to operate and

make money.
At the most basic level, it involves a producer making something and selling it directly to customers at a profit.
540 | P a g e
Changing Business Models
In many respects the emergence of business model innovation started with Gillette and razor
blades. They worked out that if they sold the razor at low cost, consumers would happily pay for
the blades.
Uncertain Business Models

Twitter has become an influencer in the way information is shared around the world.
Twitter has gone virtually unanswered: how it plans to turn a profit.”
Well known business models

The Add-On model the core offering is priced competitively but there are numerous extras that drive the final price up so
the consumer is not getting the deal they initially assumed.
541 | P a g e
The Advertising Model
The advertising model became popular with the growth of radio and TV where the TV stations earned revenue indirectly
from people looking to promote services to the audience they attracted, rather than via consumers paying radio and TV
stations for the consumption of their TV programmes.
Some Internet businesses derive revenue predominantly as a result of being able to offer advertisers access to highly
targeted consumer niches (often in the absence of revenue from selling their goods or services).
An affiliate is simply someone who helps sell a product in return for commission. However they may never actually take
ownership of the product (or even handle it). They simply get rewarded for referring customers to a retailer when they
make a sale.
542 | P a g e
The Auction model
The auction model is synonymous with eBay, these days, but of course auctions have existed for hundreds and hundreds of
years.
The tulip market in Amsterdam is one of the more famous examples. and they all share certain characteristics: the price of
the good is not fixed; each individual assesses the value of the good independently; final value is determined via
competitive bids.
The Bait and Hook model

The mobile phone business also grew rapidly on the back of this model as handsets
were often supplied free of charge when you signed up for a contract.
Nowadays with SMART phones, such is the level of demand for some that consumers
have to pay hundreds of pounds for the phone and in many instances minimum
contracts are 18 months.
543 | P a g e
The Direct Sales model
The PC manufacturer Dell is a great example of a company who is very focused on the direct sales
business model.
You pay royalties for the privilege but get access to a winning recipe, a support network and an
established brand. Two famous franchise business models are McDonald’s and Subway.
The Freemium model

This is where the business gives away something for free in return for your personal details so they can then market to you
and hope to build up a relationship so that you buy from them in the future.
It is typically used in service-based businesses where the lifetime value of the average customer is high and is increasingly
popular with Internet services such as Spotify, Skype, or Flickr.
544 | P a g e
Internet Bubble Method
At one point, ‘unique visitor’ numbers to a site had a large perceived value. Many businesses offered free Internet services
and businesses were valued on the basis of potential rather than underlying profit and loss metrics.
Low Cost Model

The low-cost model can be summed up in one word: ‘Ryanair’. This is an extremely well established business model,
where the aim is to drive significant volumes of customers (at a low customer acquisition cost) and by charging a very low
price. In return, revenue is earned from a whole host of ancillary sources.
The recurring revenue Model

With the recurring revenue model, the aim is to secure the customer on a long term contract so that they are consuming
your product or service well into the future. Given that the cost of customer acquisition can be high, retaining customers is
a primary goal for most businesses. Magazine publishers
The Somali Pirate Business Model

Most of Somalia's modern-day pirates are fishermen who traded nets for guns. They've learned that ransom is more
profitable than robbery, and rather than squandering their loot, they reinvest in equipment and training. Today, no ship is
safe within several hundred miles of the Somali coast.
545 | P a g e
Introduction to the Business Plan
Elements of a Business Plan

A business plan is a description of the business, a road map that will help
you get to your desired destination. It gives you an idea of the obstacles
that lie ahead and can point out possible alternate routes. One of the
major benefits you will receive from developing a business plan is getting
to thoroughly know your industry and market. A well prepared business
plan will not only assist in plotting a course for the company, it can also
serve as a vital sales tool.
The following are the major elements of a business plan:
Executive Summary
▪ Most important part of your business plan

▪ Must be clear, concise and compelling so that people will read
further
▪ Should be written after you have completed the other sections of
your business plan
▪ Try to keep this section to around one page
Description of Company
▪ State company name, legal status and ownership structure

▪ Mission statement – should provide focus for your company and
define your business for at least the next few years
▪ Outline where your company has been and where you are at right
now. If you are a startup company describe what your company
intends to do. Only include information that is relevant to the
product or service you are describing.
▪ How will this new activity add to or enhance your existing business
546 | P a g e
Product or Service
▪ Describe your product or service – what is unique about it and why will you be a success
▪ Indicate any regulations that will affect you and show that you have or can meet the requirements
Market
▪ Outline the industry you are in, how you fit in and what will be your market share.
▪ Who is your primary customer? What are the demographics of this customer base? It is very important to know
your customers as success depends on you being able to meet customer needs.
▪ Why have you chosen this customer base and how large is it? You need to know that there is enough room in this
market for you and that it is not already saturated.
▪ What are the trends that are influencing and affecting your market (customer base)? How are you addressing these
trends?
▪ Who is your competition and how will you be able to compete? By knowing and understanding your competition
you will be able to better position your product or service in the market place.
▪ If your business is seasonal (i.e. u- pick operation), explain how you will handle this challenge
▪ What is the price of your product or service? How does this compare to similar products in the market?
▪ How will you distribute your product?
Marketing Plan
▪ The marketing plan is very important - you can have the best product in the world but if you have no sales, you have
no business.
▪ How will you make customers aware of your product or service?
▪ Where will you sell your product (i.e. farmers’ market, farm gate sales, retail, etc.)?
▪ When will you launch your marketing plan?
547 | P a g e
Operations
▪ Where will your business be located?

▪ What facilities and equipment do you have and what do you need?
▪ How will you run the business?
▪ How will you keep track of inventory?
▪ How will you keep costs down to remain competitive?
▪ What is your plan for growth?
▪ How does this business mesh with your existing business? It is important that you keep separate records for each
different business you have. This way you will know what is making you money and what is not.
Management Team
▪ Investors pay particular attention to this section. They want to know that you have the right people for your
business.
▪ The quality of your people will determine the success of the business.
▪ Indicate who is on your team, their qualifications and responsibilities (i.e. production, marketing, accounting etc.).
▪ If you do not have people in these positions right know because of the size of your business, provide a time frame to
put your team together.
▪ How will you overcome any labor shortages?
548 | P a g e
Financials
▪ Financial statements show where your business is at right now and provides you with the information you need to
make decisions.
▪ It is important to keep your statements current and to refer to them on a monthly basis.
▪ You should include the following financial forms with projections for three to five years:
▪ Income statement
▪ Cash-flow projections
▪ Balance sheet
▪ When making financial projections, it is important to explain any assumptions - how you determined the figures
you used.
▪ If you are looking for financial assistance, lenders will want to know where you will get financing for your business
and how you will spend the money. They will also want to see historical records for the past three to five years.
Broken Down of Introduction to the Business Plan
Introduction
If you want to start a business, you must prepare a business plan. This essential document should tell the story of your
business concept, provide an overview of the industry in which you will operate, describe the goods or services you will
provide, identify your customers and proposed marketing activities, explain the qualifications of your management team,
and state your projected income and borrowing needs.
A business plan is a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may
also contain background information about the organization or team attempting to reach those goals.
549 | P a g e
Business plans may target changes in perception and branding by the customer, client, taxpayer, or larger community.
When the existing business is to assume a major change or when planning a new venture, a 3 to 5-year business plan is
required since investors will look for their investment return in that timeframe.
Purpose of a Business Plan

The business plan is a plan or blueprint for the company, and it is an indispensable tool in attracting investors, obtaining
loans, or both. Remember, too, that the value of your business plan is not limited to the planning stages of your business
and the process of finding start-up money. Once you have acquired start-up capital, do not just stuff your plan in a drawer.
Treat it as an ongoing guide to your business and its operations, as well as a yardstick by which you can measure your
performance. Keep it handy, update it periodically, and use it to assess your progress.
The most common use of a business plan is persuading investors, lenders, or both, to provide financing. These two groups
look for different things. Investors are particularly interested in the quality of your business concept and the ability of
management to make your venture successful. Bankers and other lenders are primarily concerned with your company’s
ability to generate cash to repay loans. To persuade investors and lenders to support your business, you need a
professional, well-written business plan that paints a clear picture of your proposed business.
Sections of the Business Plan

Though formats can vary, a business plan generally includes the following sections: executive summary, description of
proposed business, industry analysis, mission statement and core values, management plan, goods or services and (if
applicable) production processes, marketing, global issues, and financial plan. Let’s explore each of these sections in more
detail. (Note: More detailed documents and an Excel template are available for those classes in which the optional
business plan project is assigned.)
550 | P a g e
Executive Summary
The executive summary is a one- to a three-page overview of the business plan. It is actually the most important part of the
business plan: it is what the reader looks at first, and if it doesn’t capture the reader’s attention, it might be the only thing
that he or she looks at. It should, therefore, emphasize the key points of the plan and get the reader excited about the
prospects of the business.
Even though the executive summary is the first thing read, it is written after the other sections of the plan are completed.
An effective approach in writing the executive summary is to paraphrase key sentences from each section of the business
plan. This process will ensure that the key information of each section is included in the executive summary.
Description of Proposed Business

Here, you present a brief description of the company and tell the reader why you are starting your business, what benefits
it provides, and why it will be successful. Some of the questions to answer in this section include the following:
• What will your proposed company do? Will it be a manufacturer, a retailer, or a service provider?
• What goods or services will it provide?
• Why are your goods or services unique?
• Who will be your main customers?
• How will your goods or services be sold?
• Where will your business be located?
Because later parts of the plan will provide more detailed discussions of many of these issues, this section should provide
only an overview of these topics.
551 | P a g e
Industry Analysis
This section provides a brief introduction to the industry in which you propose to operate. It describes both the current
situation and the future possibilities, and it addresses such questions as the following:
• How large is the industry? What are total sales for the industry, in volume and dollars?
• Is the industry mature or are new companies successfully entering it?
• What opportunities exist in the industry? What threats exist?
• What factors will influence future expansion or contraction of the industry?
• What is the overall outlook for the industry?
• Who are your major competitors in the industry?
• How does your product differ from those of your competitors?
Mission Statement and Core Values

This portion of the business plan states the company’s mission statement and core values. The mission statement
describes the purpose or mission of your organization—its reason for existence. It tells the reader what the organization is
committed to doing. For example, one mission statement reads, “The mission of Southwest Airlines is a dedication to the
highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit”
(Southwest Airline’s, 2011).
Core values are fundamental beliefs about what is important and what is (and is not) appropriate in conducting company
activities. Core values are not about profits, but rather about ideals. They should help guide the behavior of individuals in
the organization. Coca-Cola, for example, intends that its core values—leadership, passion, integrity, collaboration,
diversity, quality, and accountability—will let employees know what behaviors are (and aren’t) acceptable (The Coca-Cola
Company, 2011).
552 | P a g e
Management Plan
Management makes the key decisions for the business, such as its legal form and organizational structure. This section of
the business plan should outline these decisions and provide information about the qualifications of the key management
personnel.
A. Legal Form of Organization

This section identifies the chosen legal form of business ownership: sole proprietorship (personal ownership), partnership
(ownership shared with one or more partners), or corporation (ownership through shares of stock).
B. Qualifications of Management Team and Compensation Package

It is not enough merely to have a good business idea: you need a talented management team that can turn your concept
into a profitable venture. This part of the management plan section provides information about the qualifications of each
member of the management team. Its purpose is to convince the reader that the company will be run by experienced, well-
qualified managers. It describes each individual’s education, experience, and expertise, as well as each person’s
responsibilities. It also indicates the estimated annual salary to be paid to each member of the management team.
C. Organizational Structure
This section of the management plan describes the relationships among individuals within the company, listing the major
responsibilities of each member of the management team.
553 | P a g e
Goods, Services, and the Production Process
To succeed in attracting investors and lenders, you must be able to describe your goods or services clearly (and
enthusiastically). Here, you describe all the goods and services that you will provide the marketplace. This section explains
why your proposed offerings are better than those of competitors and indicate what market needs will be met by your
goods or services. In other words, it addresses a key question: What competitive advantage will the company’s goods and
services have over similar products on the market?
This section also indicates how you plan to obtain or make your products. Naturally, the write-up will vary, depending on
whether you are proposing a service company, a retailer, or a manufacturer. If it is a service company, describe the process
by which you’ll deliver your services. If it is a retail company, tell the reader where you’ll purchase products for resale.
If you are going to be a manufacturer, you must furnish information on product design, development, and production
processes. You must address questions such as the following:
• How will products be designed?
• What technology will be needed to design and manufacture products?
• Will the company run its own production facilities, or will its products be manufactured by someone else?
• Where will production facilities be located?
• What type of equipment will be used?
• What are the design and layout of the facilities?
• How many workers will be employed in the production process?
• How many units will be produced?
• How will the company ensure that products are of high quality?
554 | P a g e
Marketing
This critical section focuses on four marketing-related areas—target market, pricing, distribution, and promotion:
1. Target market. Describe future customers and profile them according to age, gender, income, interests, and so
forth. If your company sells to other companies, describe your typical business customer.
2. Pricing. State the proposed price for each product. Compare your pricing strategy to that of competitors.
3. Distribution. Explain how your goods or services will be distributed to customers. Indicate whether they will be
sold directly to customers or through retail outlets.
4. Promotion. Explain your promotion strategy, indicating what types of advertising you’ll be using.
In addition, if you intend to use the Internet to promote or sell your products, also provide answers to these questions:
• Will your company have a Web site? Who will visit the site?
• What will the site look like? What information will it supply?
• Will you sell products over the Internet?
• How will you attract customers to your site and entice them to buy from your company?
Global Issues
In this section, indicate whether you’ll be involved in international markets, by either buying or selling in other countries.
If you are going to operate across borders, identify the challenges that you’ll face in your global environment, and explain
how you’ll meet them. If you do not plan initially to be involved in international markets, state what strategies, if any,
you’ll use to move into international markets when the time comes.
Financial Plan
In preparing the financial section of your business plan, specify the company’s cash needs and explain how you’ll be able
to repay debt. This information is vital in obtaining financing. It reports the amount of cash needed by the company for
start-up and initial operations and provides an overview of proposed funding sources. It presents financial projections,
including expected sales, costs, and profits (or losses). It refers to a set of financial statements included in an appendix to
the business plan.
555 | P a g e
A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and
outlines the route a company intends to take to grow revenues.
Needed components:
1. Executive Summary: a snapshot of your business plan as a whole and touches on your company profile and goals
2. Company Description: provides information on what you do, what differentiates your business from others, and the
markets your business serves
3. Market Analysis: showcases your research on your industry, market, and competitors
4. Organization and Management: details the structure of your business and how it will be managed
5. Service or Product Line: tells the story of how your product or service will be exactly what your customers need
6. Marketing and Sales: outlines the marketing and sales strategy of your business
7. Funding Request: if you are seeking funding for your business, this is the section to outline that request
8. Financial Projections: make a plan for where you see your company in five years
9. Appendix: if you have additional documents like permits or leases, these can be included here
Definition
A business plan is a written document covering all aspects of a business, beginning with the objectives of the business and
explaining in detail how the business will be run.
The business plan is a roadmap outlining every aspect of the proposed venture. It describes the what, how, where and why
with regard to the new venture and is thus a structured guideline for achieving your objectives.
Where Does The Business Plan Fit Into The Whole Context Of Planning A Business?
The business plan is the first formal planning instrument, because:
• It organizes all the information gathered by the entrepreneur with the market research done earlier;
• It helps the entrepreneur to set realistic goals and make logical decisions;
• Simply put, it is the business’s pathway to success if an entrepreneur uses it to help him or her manage the
business.
556 | P a g e
If you are considering starting your own business, the business plan will guide you on what areas you have to address in
setting up your enterprise. It further guides you to decide whether you should go ahead with your business idea or not.
The question that all of you will ask now is how to draw up a business plan. Let us look at the basic structure of the
business plan starting with a brief explanation of its different components.
Basic Components of a Business Plan

It is essential for any entrepreneur to know what basic elements should be included in a business plan, as well as what a
good business plan should look like. The exact points that you include in a business plan can vary depending on your
needs and specific situation. However, there are a few main sections or components that should always be included. Let’s
briefly look at the different components of a business plan.
Background/Introduction
This section of your plan involves giving a full description of your business such as the name, type of ownership and
detailed description of the qualities and/or skills that the entrepreneur possesses. This section also includes your vision
statement, mission, goals, and objectives.
Market
Market research is the process of finding out if there is a market for a specific product or service.
Input materials
After conducting the market research, you will know what your customers want. You then have to find out what input
materials you need for the business, where to get them and what they cost.
557 | P a g e
Location
There are a number of factors that will influence your choice of a location for a business. To find a location is not easy and
you have to consider the following:
Is it close to the market?
Are the input materials close by?
Are there skilled workers in that vicinity?
Are there services like electricity available?
Technical Planning
This part of a business plan must determine the business’ requirements with regard to equipment, land and buildings and
infrastructure. That means the owner must put down in writing what is needed for the specific business, e.g., a saw, a
sewing machine, etc. A detailed list of all equipment with their specifications as well as offers from suppliers must
accompany the business plan.
Is there a building available? Does it have running water and electricity? Are there facilities for waste disposal? These are
also questions that need to be tackled in this part of the business plan.
Marketing
Your marketing plan provides a description of your target market and your marketing mix. In this part of the business
plan, you have to explain how you are going to use the (four) 4 P’s (product, price, place, and promotion) to let people
know about your product.
558 | P a g e
Production
This section includes methods that will be followed in manufacturing the product or service. Remember to give thought to
quality control standards and methods. Suppliers are important to the success of your business, and your relationship with
them should be discussed.
Organization/Management
An organizational plan shows the number of people that will be employed and their responsibilities. Experience has shown
that entrepreneurs often need a good management team to manage and grow the business and therefore the need to
appoint people who have the necessary skills.
Finances
A financial plan for your business is very important and needs time and attention. You must be realistic with your financial
planning and plan to make a profit. Statistics have shown that many new businesses experience serious financial
difficulties in the beginning and fail because no financial planning was done.
559 | P a g e
Unit Two Module Two
1. Identify three areas you should research to aid in understanding your market
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
2. How can a market research assist an entrepreneur in obtaining capital?
____________________________________________________________________________
____________________________________________________________________________
560 | P a g e
3. Why is it important to know what your competitors are doing?
____________________________________________________________________________
____________________________________________________________________________
4. What is the purpose of conducting a market research?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
5. Explain THREE negative effects should a business choose not to conduct a market research.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
561 | P a g e
6. Evaluate the advantages and disadvantages of using secondary data of a market research for a new venture.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Answer the following questions to test your knowledge on the information covered.
Answer true or false
1. A market research should only be done at the start of a business ________________________
2. Collecting research data can guide an entrepreneur in selecting a target market ____________________
3. Market research does not tell you who your competitors are _____________________
4. Secondary data is given by potential competitors ________________________
5. Market research is only conducted when there is a problem _______________________
562 | P a g e
6 Market research
(a) Does not include global factors
(b) Increases sales
(c) Occurs at the start of a venture
(d) All of the above
Ans. B
7. The first stage before gathering data is
(a) Determine research methods
(b) Identify target market
(c) Obtain research resources
(d) Identify research objectives
Ans. D
563 | P a g e
8. _________________ is information that already exists somewhere, having been collected for another purpose.
(a) Primary data
(b) External information
(c) Secondary data
(d) Experimental information
Ans. C
9. Primary research
(a) Involves a focus group
(b) Requires direct contact with people
(c) Must have a questionnaire
(d) Collected for a specific purpose
Ans. D
564 | P a g e
10 An entrepreneur decides to outsource a project to a marketing research company to determine if the business should
launch a new product into a new market. The entrepreneur would expect the research company to:
(a) Provide market research that relies on secondary data
(b) Provide a definitive go/no-go launch recommendation
(c) Recommend the use of a syndicated service of new product success and failure rates
(d) Recommend a custom or standardized new product evaluation study
Ans. D
Case Study
Smooth Smoothies
Ronnie was a painter who enjoyed making fruit smoothies for his family. His family enjoyed his smoothies and
encouraged him to open a smoothie bar. Ronnie had knowledge in business as he was a sole proprietor for 20 years. With
skills in time management, creativity, and customer service, Ronnie felt that it would not be hard to operate a smoothie
shop.
He decided to try this new venture opened “Smooth Smoothies” within 5 weeks of registering his business and obtaining
the relevant food documents. Ronnie was able to use savings from his paint shop to start the business. He sourced local
fruits from the market as the main ingredients for his smoothies. He was certain the business would be profitable, and he
would gain a return on his investment.
565 | P a g e
Smooth Smoothies was located on Cloud Street, on the outskirts of Sky Town. There were no other smoothie stores within
a 5-mile radius. However, there were many fast food stores in town which sold ice-cream smoothies, local juices and
sodas.
For the first 6 months, the business barely made break-even. Sometimes, customers complained that Smooth Smoothies
was too far to walk from town, and sometimes the fruits had a sour taste. Ronnie ignored the customers’ complaints as he
felt there was nothing wrong with them. After the first year, Ronnie decided to close Smooth Smoothies for as he was not
making the profit, he expected.
Questions:
1. Define the term ‘market research’.
____________________________________________________________________________
____________________________________________________________________________
2. Discuss TWO ways in which market research would have contributed to the success of Smooth Smoothies.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
566 | P a g e
3. Identify TWO factors that may have caused the decline in sales for Smooth Smoothies.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
CASE 1 – Indoor Skating Ring

Okema and Abigail developed an idea to start an indoor skating ring on the compound of Trincity Mall. They have
therefore decided to form a partnership. Okema, who has had ten years of experience as a financial analyst at a reputable
accounting firm was able to contribute $500,000 to the venture. Abigail, on the other hand, has now graduated from
university, with a degree in Accounting, and therefore has no job experience however, her family is very wealthy and
therefore, she is able to contribute $1,500,000 toward this venture with the possibility of contributing more if needed.
Okema has indicated that she still prefers to keep her job at the accounting firm until the business picks up. Abigail will
therefore be left to run the business. They will also hire five employees to assist in running the business. They have
identified that they will recruit on a part time basis from students of the University.
Both Okema and Abigail have approached the Trincity Mall manager and they have indicated that they are excited about
the idea. They have indicated that they will allocate a parcel of land on the compound for them and they were willing to
sell them that parcel at a significantly reduced price of $1,000,000 on the condition that they are given royalties of 10% of
revenues for a period of ten years. Okema and Abigail indicted that they will need some time to decide on this issue.
Construction of this facility is expected to take approximately one year at a cost of approximately $2,000,000. Roller
skates and other miscellaneous items will be sourced from a foreign supplier at a further cost of $500,000. Operational
expenses such as salaries, utilities and maintenance are expected to be approximately $60,000 per month whilst expected
revenue per month is $100,000. The revenue was calculated based on an estimated 2,000 visitors per month being
charged $50 each to use the ring for a period of three hours.
567 | P a g e
Based on research done by both Abigail and Okema, they realized that there was one other skating ring located in
Barataria. Although there was a lot of demand, at first, for the skating ring, demand eventually dropped. In addition, they
have discovered that 50% of the population in the Trincity area is made up of persons between the ages of ten to thirty five
and 90% of these persons belong to middle income households. 80% of the population works during the week and seek
leisure over the weekend such as going to the movies.
Okema and Abigail have decided to hire a you as a consultant in order to conduct a feasibility analysis since the would not
like to put all their effort and resources into a venture that is not worth it. Based on the case, conduct a feasibility analysis
and advise Okema and Abigail as to whether they should proceed with their business concept.
CASE 2 – Fashion with a Conscience

Sasha has always been environmentally conscious and she also shares a love for fashion. Sasha is thinking about making a
clothing line with discarded material. She thinks this is a unique idea and believes that society is also becoming more
environmentally sensitive and therefore they will be willing to buy her products. Sasha graduated from UTT with a degree
in Fashion Management and has worked with some top designers in the country for the past five years. She, however, has
no experience in running her own business but she is excellent at developing fashionable items from the discarded
material. She is thinking that she may have to hire a business manager on a full time basis.
Sasha has identified a building in Arima where she can rent at a cost of $10,000 per month. She has spoken to the
management at the Beetham Dump and they are willing to assign a staff member to collect discarded material for her at a
cost of $5,000 per month. Other expenses are expected to be approximately $10,000 per month. This includes the hiring
of two staff members to assist her at a cost of $3,000 each. She expects that she will make a monthly income of $40,000
per month.
Once it is decided that the business venture is worthwhile, the business can be set up in one month at an estimated cost of
$100,000. This should not be a problem for Sasha since she has saved up over time and therefore has approximately
$200,000 to invest in the business.
Based on research done, Sasha realized that there are three other persons in a similar line of business. One is said to be the
market leader and on average makes approximately $50,000 per month. The other two are not quite as successful and
therefore makes approximately $20,000 each per month. Sasha however, believes that she can do a lot better than that.
All three however, are located in the Port of Spain area since that is where most of their sales are from. Sasha however
believes that she can create the demand in Arima. The population in Arima is 70% lower to middle income earners. 60% of
the population is between the ages of thirty to seventy.
568 | P a g e
Sasha thinks that her business idea has a great possibility of success since she believes that she has the passion for what
she is doing but she is hoping that it is not her enthusiasm getting the better of her. She has therefore hired you as a
consultant to conduct a feasibility study. Based on the information provided in the case, advice Sasha as to whether she
should proceed to develop her business model further.
Case Study 3 – Corn Dogs

Jeneile learnt to make corn dogs from her grandmother since she was ten. Over the years she has even improved on this
recipe. It can be said that she has perfected it. Jeniele was working for a reputable firm as a manager, after attaining a
degree in Leadership and Entrepreneurship, however; she believed that there was more in store for her. She believed that
it was her destiny to own her own business. This is when she realized that she has never seen corn dogs for sale in
Trinidad. This is when she started thinking that maybe she should set up her own business selling corn dogs. She believed
that she could build her brand and maybe, one day, develop it into a franchise.
Jeniele decided that starting off with a cart may be a good idea since it may assist in keeping expenses to a minimum. The
cost of the cart is approximately $15,000 and that is a one-time fee. Rental for the area, where the cart is located, is
$1,500 per month. She currently has $30,000 saved up to invest. She is will operate the business on her own. Other
operational expenses are expected to be $2,000 per month. She estimates that she can sell 1,000 corn dogs per month at a
cost of $10 each. It is expected that it will take her approximately one month to fully set up operations.
After doing some market research, Jeniele realized that she really had no competitors, in Trinidad, selling corn dogs
however, she is located around persons selling gyros, doubles, hamburgers and wings. She however believes that the taste
she has developed over time will beat back all of these other products. Sales for the other businesses usually occur between
the hours of 6 pm and 4 am since most customers are those that visit the popular clubs and bars in the area. 90% of these
customers are middle to upper income earners.
Jeniele really thinks that her business has potential especially because of her recipe that she has developed over time. She
has decided to hire you as a consultant to advise her as to whether to start her business or not. Conduct a feasibility study
based on the information in the case and advise Jeniele as to whether she should proceed in developing her business plan.
569 | P a g e
1. Define the term operating leverage.
____________________________________________________________________________
____________________________________________________________________________
2. Explain the relationship between operating leverage and fixed costs.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
3. Distinguish between fixed and variable costs.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
570 | P a g e
4. Define the revenue model.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
5. Discuss the ways in which the revenue model is used to generate income.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
571 | P a g e
Fill in the blanks
1. _________________ means supporting oneself at a minimum level
2. _________ ______________ referred to the environment where the business operated. It also looked at the
resources possessed by the business or that it could possibly have and at the expectations and objectives of its main
stakeholders and owners.
3. __________ ______________ is the process which evaluates the options based on acceptability, feasibility and
suitability and then selects the suitable strategy.
4. __________ _______________ is the process which focuses on achieving the correct organizational structure,
planning the resources (physical and financial) and sorting out the systems and the people by implementing the change
process.
5. __________ ____________ is defined as able to maintain high growth rates for a longer period of time.
572 | P a g e
Why do we need to have a business plan?
Catina Davis, owner of Pizza World in Antigua, believes in the value of a business plan. Before buying her small business
in 2016, she wrote a detailed business plan that analyzed the strengths, weaknesses, target markets and growth potential
of the business. With her years of experience, Catina could easily have decided that she did not need to write a business
plan, but she realized the importance of it and chose to write one. She said, “I needed to determine if the objectives of my
business plan justified the need for another Pizza business in Antigua. To help me decide if I was doing the right thing, I
also examined the list of equipment that the business needed and considered where I wanted to have the agency”. Catina
runs a successful business with ten employees and an office that has expanded into two hundred square metres. Catina
says, “A business plan allows you to be proactive and gives you a greater chance of success.” Unfortunately, not many
entrepreneurs take the time to draw up a business plan, even though it is such an important document.
1. Identify two main purposes of a business plan.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
573 | P a g e
2. Why do so many entrepreneurs not draw up a business plan?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
3. Imagine you were Catina and you are considering opening a pizza business in your town.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
574 | P a g e
(i) What are the most important parts that you should include in your complete business plan?
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(ii) Prepare a business plan for your business.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
575 | P a g e
4. Explain the uses of the business plan to Catina the entrepreneur, his employees, and financiers.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
576 | P a g e
Module 3:
Managing and Growing the
Venture
577 | P a g e
Overview
Welcome to the final module of the Entrepreneurship course. Module 3 will prepare you in understanding the different
activities that occur at the individual stage as your business grows. The module includes models that can be adapted to
show the process of the venture, as the business reaches the final stage, you will learn about analyzing the venture and
devising strategies and calculate various means of assessing the value of the venture.
Venture Life Cycle
Introduction
As humans go through a lifecycle from birth, business goes through a similar cycle. From the conception of the business
until it matures, the entrepreneur may encounter varying challenges as it thrives on remaining competitive in the market.
The venture life cycle demands entrepreneurs to be innovative in the drive for competitive advantage to increase growth
and market share.
Entrepreneurs are able to implement strategic plans applicable and beneficial to the business from understanding the
events taking place during the business cycles. The entrepreneur has the opportunity to identify challenges and potential
opportunities to develop the business in order to remain competitive. As the business grows, goals and objectives will
change during the months and at different stages of the business.
Entrepreneurs must be aware of conditions which may affect the business growth.
578 | P a g e
The stages of the venture life cycle vary in different texts. However, the initial, growth and maturity process stages remain
the same. For example, a venture life cycle stage can take the format:
Stages of the Venture Life Cycle

Start-up
Expansion
Maturity
Diversification
Lifestyle
Capped growth
Another format of a venture life cycle may have five stages:

New venture development
Start-up activities
Venture growth
Business stabilization
Innovation or decline
New venture development: At this stage, the entrepreneur searches for ideas from brainstorming, family, friends,
competitors in deciding the type of venture.
Start-up activities: The entrepreneur may then decide to focus on a product or service within a niche market. Building
and strengthening resources are important at this stage as it is time to launch the business.
579 | P a g e
Venture Growth: The business is making revenue and covering its expenses. As customers increase, the business
increases its market share and may dominate the market. The industry becomes more competitive; however, in order to
maintain market leadership, a strategic approach is explored.
Business Stabilization: The business has matured, and profits are stable. Experience from the prior stages contributes
to a structured and sustainable venture over time.
Innovation or Decline: The entrepreneur may decide to implement diversification strategies and offer new products to
the market. These strategies will make the business more competitive thus increasing growth and profitability. The
entrepreneur or the management team will draw on resources and human expertise in being more creative and innovative
in its product offering.
The venture may decline as sales and profits will eventually start to decrease. Sales may decline due to technological
advancement, changes in consumer demand and increased competition. The entrepreneur may choose to exit the market
at this stage.
Broken Down of Venture Life Cycle
Life Cycle of an Entrepreneurial Venture
Entrepreneur
The term entrepreneur has been derive from the French word “entreprenere” means to undertake a business venture.
“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are
able to turn both their advantage.”
580 | P a g e
Entrepreneurship
It is the process of creating something new, with value, by devoting the necessary time and effort, assuming the
accompanying financial, psychic, and social risk, and receiving the resulting rewards monetary and personal satisfaction
and independence.
The New Venture Creation Process

• The environment is the most comprehensive component in the venture creation process.
• It includes all the factors that affect the decision to start a business, for example, government regulation,
competitiveness, and life cycle stage.
• Within specific industries and in specific geographic regions, environmental variables and the degree of their
impact will differ.
• The new venture process begins with an idea for a product, service, or business.
Key Issues about the Venture Cycle

• There are static and dynamic forces which need a special attention of the entrepreneur
• Entrepreneur needs to manage for changes and not changes
• The growth stage of the venture is more sophisticated with competition and dilemmas
• At a certain stage, you need to decide whether to do more innovation or allow decline
Life Cycle of an Entrepreneurial Venture

➢ Life cycle of entrepreneurial firms
• Birth stage
• Breakthrough stage
• Maturity stage
➢ Each stage poses different managerial challenges and requires different managerial competencies.
581 | P a g e
Stages in the Life Cycle of an Entrepreneurial Firm
The Five Stages of a Business’s Life Cycle
There are five key stages (just typical)

i. New Venture Development
ii. Start-up Activities
iii. Growth of the Venture
iv. Stabilization
New Venture Development

• Creativity and assessment
• Resource base analysis
• Networking including vertical marketing
• Vision, Mission, Objectives, Strategies & Tactics
582 | P a g e
Start-up Stage
• Formal Business plan
• Searching for capital (Analyze the risks)
• Marketing research
• Developing a working team
• Identifying any core competencies for Competitive Advantage
Growth Stage
• Any modification on the operating strategy
• Positioning and re-positioning
• Knowing more details about the competitors (Survival of the fittest)
Stabilization Stage
• Increased competition
• High bargaining power of customers
• Saturation of the market
• The entrepreneur needs to think where will the business be in the near future
• It is a stage preceding a great dilemma: to innovate or exit the business
Innovation or Decline
• Without innovation the clear option is ‘death’
• Possibility of acquiring or being acquired
• Might design new products for new markets (Diversification)
583 | P a g e
A Venture’s Typical Life Cycle
Limitations of Life Cycle Models

• Growth is rarely as smooth as the curve of the graph suggests. It is more likely to represent spikes of growth and
contraction rather than rounded peaks. For example many small businesses have relatively few customers, so that
the addition of one new significant client will lead to a sudden growth spurt. Conversely, the loss of one large client
can significantly shrink the size of the business.
• The transition from one stage to another does not necessarily take place in the order predicted by the model.
Economic or trade cycles outside the control of the firm may contribute substantially to the growth or decline of an
enterprise at any time irrespective of the stage of development. The economic downturn of 2008/9 forced a large
number of businesses to decline in size, whatever stage in their development they had reached.
584 | P a g e
• The contention that the transition from one stage to the next is triggered by a particular kind of crisis has not been
tested through empirical research. The development of an enterprise is likely to be subject to many different
internal and external variables so that isolating one primary cause for the evolution of a firm from one stage to
another is an over simplification of a very complex process.
• Many enterprises reach a stable size and never make the transition out of this phase. Once they have developed a
business to a stage of survival, life-style entrepreneurs will have little motivation to grow it further. Some take
deliberate steps to avoid growth which they see as sought when they created the enterprise.
Conclusion
“All stages are strategic points of the venture hence a need for specific strategies for every stage!”
Venture Models
Introduction
This chapter discusses organizational issues owners face while operating and attempting to grow their businesses. We
examine four stages of organizational growth, and the choices business owners face when deciding how to manage tasks
and responsibilities. Those management decisions shape an organization’s structure, which in turn influences lines of
communication and decision-making processes.
The end of the chapter includes a short description of business legal entities. Also, you will find exercises to help you better
grasp these concepts and to determine what type of organizational structure and legal entity might best suit your venture.
Moving from a one-person band to an orchestra
Most businesses start as a one-person band. The owner plays all the instruments, some better than others, but all out of
necessity.
585 | P a g e
Like any musical ensemble, a small business includes many roles. In the beginning, the owners are often the best at
making or delivering the product or service. Since they have the most at stake, they often assume a wide variety of roles,
including sales, accounting, and much more.
Through a combination of skill, planning, talent, and perhaps luck, some businesses manage to grow. This growth leads to
new and changing roles in the business for everyone, including the owner. Of all the roles an owner has in the business,
perhaps the most important one is to be the designer for the business.
In the role of chief designer, business owners have three critical duties:
• Provide the vision and direction for the company. Owners set the direction for the values of the company, develop
its product and service strategies, and set the tone for its relationships with customers.
• Develop and refine processes and procedures. Owners design the "business model," or the big picture formulas and
processes of doing business. In addition, they must fill in the details by analyzing processes and finding bottlenecks.
• Create the organization’s human resource structure. Owners identify the positions and types of people the business
needs, and then they find the people to fill those roles. In the words of Jim Collins, author of the bestseller Good to
Great, "Get the right people on the bus, the wrong people off the bus, and get everyone in the right seats.”
The payoff for a well-designed business is immense. With the clarity of vision, expectations, and processes, and with the
right people pulling together, there is a strong foundation for growth. Instead of a grim "never take a day off" grind, the
business owner can now enjoy scheduled vacations from time to time. It is also now possible for the owner to think about a
profitable exit because a business that can run without the owner is worth a lot more than one that falls apart when he or
she is not at the controls.
Owners of a growing business eventually have to decide how to organize employees and delegate authority. This can be a
frustrating task for many entrepreneurs. In fact, the majority would rather concentrate on closing sales, producing
product, or managing cash. However, they do so at the peril of putting off planning for the future needs of their enterprise.
586 | P a g e
Start-up Company
A start-up company is an entrepreneurial venture which is typically a newly emerged, fast-growing business that aims
to meet a marketplace need by developing or offering an innovative product, process or service. A start-up is usually a
company such as a small business, a partnership or an organization designed to rapidly develop a scalable business model.
Figure 10 Start-up development phases

Start-up companies can come in all forms and sizes. Some of the critical tasks are to build a co-founder team to secure key
competencies, knowhow, financial resources and other elements to conduct research on the target market. Typically, a
start-up will begin by building a first minimum viable product (MVP), a prototype, to validate, assess and develop the new
ideas or business concepts. In addition, start-ups founders do research to deepen their understanding of the ideas,
technologies or business concepts and their commercial potential. A Shareholders' Agreement (SHA) is often agreed early
on to confirm the commitment, ownership, and contributions of the founders and investors and to deal with the
intellectual properties and assets that may be generated by the start-up.
587 | P a g e
Business models for start-ups usually utilize via a "bottom-up" or "top down" approach. A company may cease to be a
startup as it passes various milestones. In other words, deciding to trade publicly on the stock market in an Initial Public
Offering (IPO), or ceasing to exist as an independent entity via a merger or acquisition. Companies may also fail and cease
to operate altogether, because of developing disruptive innovations which may not function as expected and for which
there may not be market demand, even when the product or service is finally developed. Given that start-ups operate in
high-risk sectors, it can also be hard to attract investors to support the product/service development or attract buyers.
The size and maturity of the start-up ecosystem where the venture launches and grows have an effect on the volume and
success of the business. The start-up ecosystem consists of:
• the individuals: these may include entrepreneurs, venture capitalists, Angel investors, and mentors;
• institutions and organizations such as top research universities and institutes, business schools and
entrepreneurship programs operated by universities and colleges, non-profit entrepreneurship support
organizations, government entrepreneurship programmes, and services, Chambers of Commerce.
• business incubators; and business accelerators; and
• Top-performing entrepreneurial firms and start-ups.
A “strong” entrepreneurship ecosystem in a region must have all of the above elements. Some of the most famous
entrepreneurial ecosystems are Silicon Valley in California, where major computer and Internet firms and top universities
such as Stanford University create a stimulating start-up environment. Also, Boston (where Massachusetts Institute of
Technology is located) and Berlin, home of WISTA (a top research area), numerous creative industries, leading
entrepreneurs and start-up firms.
Investors are generally most attracted to new companies distinguished by:

• their strong co-founding team,
• a balanced "risk/reward" profile (in which high risk due to the untested, disruptive innovations is balanced out by
high potential returns), and
• "scalability" (the likelihood that a start-up can expand its operations by serving more markets or more customers).
588 | P a g e
Attractive start-ups generally have lower "bootstrapping" (self-funding of start-ups by the founders) costs, higher risk, and
higher potential return on investment. However, a successful stratus is typically more scalable than an established
business, in the sense that the start-up has the potential to grow rapidly with a limited investment of capital, labour or
land. Given consideration that start-ups are one of the hardest things to master by many serial entrepreneurs and
investors, timing has often been the single most important factor for biggest start-up successes. Additionally, start-ups
have several options for funding.
1. Venture capital firms and angel investors may help startup companies begin operations, exchanging seed
money for an equity stake in the firm. Moreover, such investors provide financing to a range of start-ups (a
portfolio), with the expectation that a very small number of the start-ups will become viable and make money.
However, in practice, the founders themselves make use of “bootstrapping,” in which loans initially fund many
start-ups or monetary gifts from friends and family in combination with savings and credit card debt to finance the
venture.
2. Factoring is another option, though it is not unique to start-ups.
3. Crowdfunding, for example, equity crowdfunding, in which the start-up seeks funding from a large number of
individuals, typically by pitching their idea on the Internet.
Business partnering
Start-ups usually need to form partnerships with other firms to enable their business model to operate. To become
attractive to other businesses, a startup needs to align their internal features, such as management style and products with
the market situation. In their 2013 study, Kask and Linton develop two ideal profiles, or also known as configurations or
archetypes, for a start-up that are commercializing inventions. The inheritor profile calls for a management style that is
not too entrepreneurial (more conservative), and the start-up should have an incremental invention (building on a
previous standard). This profile is set out to be more successful (in finding a business partner) in a market that has a
dominant design (a clear standard is applied in this market). In contrast to this profile is the originator who has a
management style that is highly entrepreneurial and in which a radical invention or a disruptive innovation (totally new
standard) is being developed. This profile is set out to be more successful (in finding a business partner) in a market that
does not have a dominant design (established standard). A new start-up should align themselves to one of the profiles
when commercializing an invention to be able to find and be attractive to a business partner. By finding a business
partner, a start-up will have greater chances to become successful.
589 | P a g e
Culture
Figure 11 Start-up Ecosystem
A strong start-up ecosystem is vital to a thriving local entrepreneurial culture. Furthermore, start-up founders often have a
more casual or offbeat attitude in their dress, office space, and marketing, as compared to traditional corporations. Small
business owners in the 2010s may wear hoodies, sneakers and other casual clothes to business meetings because some
have installed recreational facilities in their offices, such as pool tables, ping-pong tables, and pinball machines. These
strategies create an attractive, fun working environment, stimulate team development and team spirit, as well as
encourage creativity.
The majority of the casual approaches promote and contribute to a more efficient workplace that is necessary to get the
business off the ground. These may include the use of "flat" organizational structures, in which regular employees can
communicate with the founders and chief executive officers informally. In a 1960 study, Douglas McGregor stressed that
punishments and rewards for uniformity in the workplace are not necessary because some people are born with the
motivation to work without incentives. Some initiatives do not use a strict command and control hierarchical structure,
with executives, managers, supervisors and employees. In fact, some start-ups offer employees stock options, to increase
their "buy in" to the business (as these employees stand to gain if the company is profitable). Removing of stressors allows
590 | P a g e
the workers and researchers in the business to focus less on the work environment around them, and more on achieving
the task. As a result, it provides employees with the opportunity to achieve something great for their company.
Contritely, the business culture today has evolved to include larger companies aiming at acquiring the innovative minds
pioneering start-ups. For example, Google has incorporated such practices with their purchased start-ups by allowing
their workers to feel at home in the workplace, even letting them bring their dogs to work. The objective of the cultural
changes in the small business workplace, or a company hiring workers from a startup to do similar work, is to make
employees comfortable so they can increase productivity in the office. Some companies even try to hide how large they
are to capture a particular demographic, as is the case with Heineken recently.
Co-founders
Co-founders are individuals involved in the initial launch of start-up companies. Furthermore, anyone can be a co-
founder. Although, an existing company can also be a co-founder, frequently co-founders of startups are entrepreneurs,
engineers, hackers, venture capitalists, web developers, web designers and others involved in the ground level of a new,
often high-tech, venture. Actually, the language of securities regulation in the United States considers co-founders to be
"promoters" under Regulation D.
The U.S. Securities and Exchange Commission define the term "Promoter" as any person who, acting alone or in
conjunction with one or more other persons, directly or indirectly and takes the initiative in founding and organizing the
business or enterprise of an issuer. However, not every promoter is a co-founder. In fact, there is no formal, legal
definition of what makes an individual a co-founder. The right to call oneself a cofounder can be established through an
agreement with one's fellow cofounders or with permission of the board of directors, investors, or shareholders of a start-
up company. When there is no definitive agreement (like SHA), disputes relevant to the distinguishing of co-founders can
arise.
591 | P a g e
Startup investing
Figure 12 Diagram of the typical financing cycle for a startup company
Evolution of investing
After the Great Depression, start-up investing was primarily a word of mouth activity reserved for the friends and family
of a small business’ cofounders, business angels, and Venture Capital funds. In the United States, this has been the case
ever since the implementation of the Securities Act of 1933. Many nations implemented similar legislation to prohibit
general solicitation and general advertising of unregistered securities, including shares offered by start-up companies. In
2005, Y Combinator introduced a new accelerator investment model; a combination of fixed terms investment model with
fixed period intense boot camp style training program. Moreover, it is used to streamline the seed/early stage investment
process with training to be more systematic as well as becoming the trend setter for the future.
Following Y Combinator, many accelerators with similar models have emerged around the world. The accelerator model
became very common and widely spread as the key organizations of any Start-up ecosystem. Title II of the Jumpstart Our
Business Start-ups Act (JOBS Act), first implemented on September 23, 2013, granted start-ups as well as the cofounders
or promoters in the US the right to generally solicit and advertise publicly using any method of communication.
592 | P a g e
Furthermore, the satisfaction of the right rested with the condition that only accredited investors can purchase the
securities. However, the regulations affecting equity crowdfunding in different countries vary a lot with different levels
and models of freedom and restrictions. In many countries, there are no limitations restricting the public from investing in
start-ups. Nevertheless, considerations of enforcing other restrictions such as limiting the amount companies seek from
investors encircled the mind. Due to positive development and growth of crowdfunding, many countries are actively
updating their regulation in regards to crowdfunding.
Investing rounds
When investing in an initial business, there are different stages in which the investor can participate. The first round is
commonly known as the seed round generally is when the business is still in the very early phase of execution and the
product is still in the prototype phase. At this level angel, investors will be the ones participating. The next round is called
Series A. At this point the company already has traction and may be making revenue. In Series A rounds venture capital
firms will be participating alongside angels or super angel investors. The next rounds are Series B, C, and D. These three
rounds are the ones leading towards the IPO. Venture capital firms and private equity firms will be participating.
Investing online
The first known investment-based crowdfunding platform for start-ups was launched in Feb. 2010 by Grow VC, followed
by the first US based company profounder launching model for start-ups to raise investments directly on the site.
However, Profounder later decided to shut down its business due to regulatory reasons preventing them from continuing,
having launched their model for the US markets prior to JOBS Act. With the positive progress of the JOBS Act for crowd
investing in the US, equity crowdfunding platforms like Seed Invest and Circle Up started to emerge in 2011 and platforms
such as investiere, Companisto, and Seeders in Europe and Our Crowd in Israel. The idea of these platforms is to
streamline the process and resolve the two main points that were taking place in the market. The first problem was for
start-ups to be able to access capital and to decrease the amount of time that it takes to close a round of financing. The
second problem was intended to increase the amount of deal flow for the investor and also to centralize the process.
593 | P a g e
Internal start-up
Large or well-established companies often try to promote innovation by setting up "internal start-ups," new business
divisions that operate at arm's length from the rest of the company. Examples include Bell Labs, a research unit within
Bell Corporation and Target Corporation (which began as an internal start-up of the Dayton's department store chain) and
three degrees, a product developed by an internal start-up of Microsoft.
Re-starters
Failed entrepreneurs, or restarters, who after some time restart in the same sector with more or less the same activities,
have an increased chance of becoming a better entrepreneur. However, some studies indicate that restarters are more
heavily discouraged in Europe than in the US. Trends and obstacles
If a company's value is based on its technology, it is often equally important for the business owners to obtain intellectual
property protection for their idea. The newsmagazine The Economist estimated that up to 75% of the value of US public
companies is now based on their intellectual property (up from 40% in 1980). Often, 100% of a small start-up company's
value resonates on its intellectual property. As such, it is important for technology-oriented start-up companies to develop
a sound strategy for protecting their intellectual capital as early as possible.
Start-up companies, particularly those associated with new technology, sometimes produce huge returns to their creators
and investors—a recent example of such is Google, whose creators became billionaires through their stock ownership and
options. However, the failure rate of start-up companies is very high. One common reason for failure is that start-up
companies can run out of funding, without securing their next round of investment or before becoming profitable enough
to pay their staff. When this happens, it can leave employees without paychecks. Sometimes these companies are
purchased by other companies if they are deemed to be viable, but oftentimes they leave employees with very little
recourse to recoup lost income for a worked time.
594 | P a g e
Although there are start-ups created in all types of businesses, and all over the world, some locations and business sectors
are particularly associated with start-up companies. The internet bubble of the late 1990s was associated with huge
numbers of initial internet companies, some selling the technology to provide internet access, others using the internet to
provide services. Most of this start-up activity was located in the most commonly known start-up ecosystem - Silicon
Valley, an area of northern California renowned for the high level of start-up company activity:
The spark that set off the explosive boom of "Silicon start-ups" in Stanford Industrial Park was a personal dispute in 1957
between employees of Shockley Semiconductor and the company’s namesake and founder, Nobel laureate and co-inventor
of the transistor William Shockley... (His employees) formed Fairchild Semiconductor immediately following their
departure.
After several years, Fairchild gained its footing, becoming a formidable presence in this sector. Its founders began leaving
to start companies based on their own latest ideas and were followed on this path by their own former leading employees...
The process gained momentum and what had once begun in Stanford’s research park became a veritable start-up
avalanche... Thus, over the course of just 20 years, a mere eight of Shockley’s former employees gave forth 65 new
enterprises, which then went on to do the same.
Importance of venture valuation and valuation methods
Introduction
In the previous lesson, you reviewed the venture models and how a venture model can grow. In this lesson, you will
continue your probe on venture models with a focus on the valuation of business ventures.
595 | P a g e
In finance, valuation analysis is required for many reasons including tax assessment, wills and estates, divorce
settlements, business analysis, and basic bookkeeping and accounting. Since the value of goods and services fluctuates
over time, valuations are as of a specific date similar to the end of the accounting quarter or year. They may alternatively
be mark-to market estimates of the current value of assets or liabilities as of this minute or this day for the purposes of
managing portfolios and associated financial risk (for example, within large financial firms including investment banks
and stockbrokers).
Some balance sheet items are much easier to value than others are. Publicly traded stocks and bonds have prices that are
quoted frequently and readily available. Other assets are harder to value. For instance, private firms that have no
frequently quoted price. Additionally, financial instruments that have prices that are partly dependent on theoretical
models of one kind or another are difficult to value. For example, options are generally valued using the Black–Scholes
model while the liabilities of life assurance firms are valued using the theory of present value. Intangible business assets,
like goodwill and intellectual property, are open to a wide range of value interpretations.
It is possible and conventional for financial professionals to make their own estimates of the valuations of assets or
liabilities of interest to them. Their calculations are of various kinds including analyses of companies that focus on price-
to-book, price-to-earnings, price-to-cash-flow and present value calculations, and analyses of bonds that focus on credit
ratings, assessments of default risk, risk premia, and levels of real interest rates. All of these approaches may be thought of
as creating estimates of value that compete for credibility with the prevailing share or bond prices, where applicable, and
may or may not result in buying or selling by market participants. Where the valuation is for the purpose of a merger or
acquisition, the respective businesses make further detailed financial information available, usually on the completion of a
non-disclosure agreement.
It is important to note that valuation requires judgment and assumptions:
• There are different circumstances and purposes to value an asset (e.g., distressed firm, tax purposes, mergers and
acquisitions, financial reporting). Such differences can lead to different valuation methods or different
interpretations of the method results
• All valuation models and methods have limitations (e.g., degree of complexity, relevance of observations,
mathematical form)
• Model inputs can vary significantly because of necessary judgment and differing assumptions
596 | P a g e
Users of valuations benefit when key information, assumptions, and limitations are disclosed to them. Then they can
weigh the degree of reliability of the result and make their decision.
Asset sale or an entity sale allows for the selling of businesses, and the transferring of their assets. In an asset sale, the
entity sells its tangible and intangible assets to the buyer, while the entity’s owners retain equity in the entity. On the other
hand, in an entity sale, the seller transfers his or her equity to the buyer, who acquires the entity with all of its assets.
Where the business is a sole proprietorship, the sale by default will be a sale of assets, because there is no entity apart from
the owner. Where the entity is a partnership, LLC or corporation, the buyer and seller will generally have some choice over
the selling process of the business.
Structuring a business sale as a sale of assets or as an entity sale depends on a number of factors, regardless of what the
buyer is willing to accept. Other crucial factors that will weigh on both the buyer’s and seller’s choice will be (1) the
existence of outstanding liabilities; and (2) the disparate tax effects that would result from the sale of assets when
compared with the sale of the business entity. The tax implications are especially important where the seller’s business is a
C Corporation because a sale of assets might result in double taxation. Where the business is converting from an investor-
owned or closely held C Corporation to an employee-owned business, the incentive to sell the business’ equity to the
employees is increased. Unfortunately, tax and liability considerations often pit seller and buyer against one another. For
tax purposes, typically, the seller would prefer to transfer equity, while the buyer would prefer to buy a pool of assets.
Moreover, where both parties have agreed to an asset sale, the parties’ interests often conflict as to how the sales price
should be allocated across assets.
Growth Capital
Growth capital (also called expansion capital and growth equity) is a type of private equity investment. Usually, a
minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter
new markets or finance a significant acquisition without a change of control of the business.
597 | P a g e
Companies that seek growth capital often do so to finance a transformational event in their lifecycle. These companies are
likely to be more mature than venture capital funded companies, able to generate revenue and operating profits but
unable to generate sufficient cash to fund major expansions, acquisitions or other investments. Due to the lack of scale,
these companies generally can find few alternative conduits to secure capital for growth. Thus, access to growth equity can
be critical to pursue necessary facility expansion, sales and marketing initiatives, equipment purchases, and new product
development. Growth capital can also facilitate the restructuring of a company's balance sheet, particularly to reduce the
amount of debt the company has on its balance sheet.
Although growth capital often structured as preferred equity, certain investors will use various hybrid securities that
include a contractual return (i.e., interest payments) in addition to an ownership interest in the company. Often,
companies that seek growth capital investments are not good candidates to borrow additional debt, either because of the
stability of the company's earnings or because of its existing debt levels.
What is an ESOP?
An Employee Stock Options Plan (ESOP) is an allocation of shares that will be granted to employees in the future in the
form of stock options
• How much equity should we set aside for employees?
A plan for how these options will be distributed:

• How many shares will individual employees receive?
• What terms will govern these grants?
598 | P a g e
An option is a right (but not an obligation) to purchase a quantity of a company’s stock at a set price for a certain period of
time. “Options” also refer to several types of securities often issued to start-up employees to provide for effective equity
ownership, including:
- Stock options (the right to buy common stock a set strike price)
- Restricted stock (common stock issued early on to top employees)
- Restricted stock units (a promise to issue common stock in the future)
Appropriate use of these securities will vary based on local regulatory and tax considerations.
Figure 13 ACCION
599 | P a g e
Why Issue Options to Employees?
• Attract Talent: options can be used to attract top recruits, particularly engineers, product managers and other
technical team members
• Retain Employees: options vest over several years, creating strong incentives for employees to remain employees
• Align Incentives: by making employees equity owners, options align incentives with the long-term goals of the
company
• Reward Value Creation: options reward tangible contributions that increase corporate valuation by giving
employees a slice of that value
• Encourage Long-term Thinking: options typically pay off only in a liquidity event or exit and thus push employees
to build the company for long-term success
HOW MUCH TO GRANT
Figure 14 ACCION-Approaches to ESOP
600 | P a g e
The Top-Down Process
1. Determine how much equity to set aside for non-founder employees
2. Create a schedule of how this equity will be distributed over time
Figure 15 ACCION
601 | P a g e
Figure 16 ACCION
The Bottom-Up Process

1. Segment your human resources
2. Create pay multipliers for each job function
3. Determine the dollar value of an options grant
4. Determine the current share price
5. Calculate options grants
602 | P a g e
Figure 17 ACCION
Figure 18 ACCION
603 | P a g e
Figure 19 ACCION
Figure 20 ACCION
Figure 21 ACCION
604 | P a g e
Important Takeaways
• Top-down planning (“the allocation”)
– Holistically consider what percentage of the company should belong to employees

– Allocate these shares to an ESOP
• Bottom-up planning (“the plan”)
– Give specific consideration to the amount of equity awarded to each employee
– Use this framework for individual equity grants
• Key Takeaway: Get away from ad hoc equity awards and personal negotiations by standardizing both the amount of
equity available to employees and the process by which packages are awarded
Tax Obligations
The law stipulates that businesses must pay income tax on revenues, if any, after deducting the expense of operation such
as the cost of inventory, rent, insurance premiums, salaries, and utilities. Additionally, businesses have to file tax returns
and pay taxes to the government.
605 | P a g e
Some businesses may be required to collect taxes on behalf of government such as sales taxes (ABST) based on the value of
goods or services sold. In these cases, it is clear that the money does not belong to the business owner as he or she is only a
collection agent and must turn over the money to the government.
Other taxes that a business collect and pay over to the government are income taxes, Medical Benefits and social security
taxes deducted from the salaries and wages of workers. These funds technically belong to the employee and are being
transmitted to the government on the workers’ behalf.
Failure to pay income tax and other taxes may result in penalties and interest being added to the taxes due. In the case of
businesses that underreport income or refuse to pay taxes, the principals may be the subject of criminal prosecution as
well.
The type of business operated determines the formula used to calculate the tax
contribution that should be paid. The three types of businesses are as follows:
Sole Traders business - the owner and the business is treated as one entity,
so the owner is required to pay the Unincorporated Business Tax
Partnership business – the business itself is not taxed, but, under the
Personal Income Tax system, the individual partners are required to pay taxes.
Corporation – shareholders of corporations are taxed as is the business itself taxed as a separate entity. Shareholders
are taxed according to the PIT rates, whereas the corporation is required to pay 20% of its gross profits yearly.
606 | P a g e
Social Security
Antigua and Barbuda Social Security
Every employed individual is required by law to make month contributions to the Social Security Scheme. For employed
individuals contributions is shared between employee and employer. Contribution rates are as follows:
Private Sector employees pay 5%; Private Sector employers pay 7%

Public Sector employees pay 4%; Public Sector employers pay 7%
Self-employed individuals are required to make a ten percent (10%) contribution whenever they are employed.
Contributions to the scheme should be paid in on or before the 14th of the following month or face a penalty of ten percent
(10%).
Monthly remittance forms are submitted to the Social Security Office on a monthly basis. They show the employees'
earnings, both employees' and employers' contributions and the number of weeks worked within the month. Monthly
remittance forms can be obtained from the Social Security Office on Long Street or from its website
http://www.socialsecurity.gov.ag/downloads.php
607 | P a g e
Medical Benefits
Antigua and Barbuda Medical Benefits Scheme
By law, every employed individual is required to make contributions to the Medical Benefits Scheme. Under the present
Act, employees are required to make a three and a half percent (3.5%) and employers an additional three and a half
percent (3.5 %) on behalf of the employee for a total contribution of seven percent (7%).
Self-employed individuals are required to make the seven percent (7%) contribution to the scheme.
Remittance forms should be submitted to the Medical Benefits Office on Nevis Street no later than the 14th day of the
following month or face a ten percent (10 %) on the outstanding amount. Remittance forms can be obtained from the
Medical Benefits Office or from the website
http://www.mbs.gov.ag/information/forms_downloads.php
608 | P a g e
Education Levy
Every employee and the self-employed individual are required by law to make Education Levy contributions. Unlike
Social Security and Medical Benefits, the contributions are paid fully by the employee the employer does not contribute to
this deduction. Contributions should be paid to the Board of Education no later than the 14th of the following month.
There is a penalty of six percent (6%) compounded for all late contributions.
Monthly deductions
Individuals earning five thousand dollars ($5000) or less will have a $541.67 exemption with two and a half percent
(2.5%) on the balance.
Gross salary 5000.00
Exemption 541.67
Balance 4458.33
BOE deduction 2.5% * 4458.33 = $111.46
Individuals earning over $5000 pays an additional five percent (5%) on the amount over $5000.
Example for an individual earning $7500 monthly
Gross salary 7500.00

Less 5000.00
2500.00
609 | P a g e
BOE deductions 2500 * 5% = 125.00
Plus 111.46
Total BOE Deduction 236.46
Weekly Deductions
Weekly contributors receive an exemption of $125.00 for individuals earning $1156 or less weekly
Gross wage 1156.00

Less exemption 125.00
1031.00
BOE deduction 2.5% * 1031 = 25.78
Individuals earning $1800 weekly

Gross wage 1800.00
Less 1156.00
644.00
BOE deductions 644.00 * 5% = 32.20

Plus 25.78
Total BOE Deductions 57.98
610 | P a g e
Valuation methods
In order to evaluate a company, one must have an initial understanding of it. Therefore, at Venture Valuation, we pursue a
holistic evaluation approach. All valuations are based on a careful consideration of both hard facts and soft factors. We
apply a thorough risk assessment of factors which include:
• Management
• Market
• Science and technology
• Financials / funding phase
To determine the value of a company as accurately and as objectively as possible, we use a mixture of different assessment
methods. All methods are specifically suited for the evaluation of technology companies, with high growth potential and
start-up companies of all types. Although not every kind of valuation method is appropriate, Venture Valuation assesses
each company according to their industry and financing phase.
Discounted Cash Flow (DCF)

Method: The discounted cash flow method takes free cash flows generated in the future by a specific project / company
and discounts them to derive a present value (i.e. today’s value).
The discounting value usually used is the weighted average cost of capital (WACC) and is symbolized as the ‘r’ in the
following formula:
DCF = Calculated DCF value

CF = Cash Flow
611 | P a g e
r = Discount rate (WACC: Weighted average cost of capital)
Uses: DCF calculations are used to estimate the value of potential investments. When DCF calculations produce values
that are higher than the initial investment, this usually indicates that the investment may be worthwhile and should be
considered.
Risk-adjusted NPV
Method: The risk-adjusted net present value (NPV) method employs the same principle as the DCF method, except that
each future cash flow is risk adjusted to the probability of it actually occurring.
The probability of the cash flow occurring is also known as the ‘success rate.'
Uses: Risk-adjusted NPV is a common method of valuing compounds or products in the pharmaceutical and biotech
industry, for example. The success rates of a particular compound/drug can be estimated, by comparing the probability
that the compound/drug will pass the various development phases (i.e. phases I, II or III) often undertaken in the drug
development process.
Also known as: rNPV, eNPV (e=estimated/expected)
Venture Capital method

Method: The venture capital method reflects the process of investors, where they are looking for an exit within 3 to 7
years. First, an expected exit price for the investment is estimated. From there, one calculates back to the post-money
valuation today taking into account the time and the risk the investors takes.
The return on investment can be estimated by determining what return an investor could expect from that investment
with the specific level of risk attached.
612 | P a g e
Uses: The Venture Capital Method is an often used in valuations of prerevenue companies where it is easier to estimate a
potential exit value once certain milestones are reached.
Market comparables method
Method: The market comparables method attempts to estimate a valuation based on the market capitalization of
comparable listed companies.
Uses: The market comparables method is a simple calculation using different key ratios like earning, sales, R&D
investments, to estimate the value of a company.
Also known as Multiples
Comparable Transaction method

Method: The comparable transaction method attempts to value an entire company by comparing a similar sized private
company in a similar field, and using different key ratios. The price for a similar company can either come from an M&A
transaction or a financing round.
Uses: The comparable transaction method is a simple calculation estimating the value of a target company based on
comparable investments or M&A deals.
Decision Tree Analysis

Method: Decision trees are used to forecast future outcomes by assigning a certain probability to a particular decision.
The name decision tree analysis comes from the ‘tree’ like shape the analysis creates where each ‘branch’ is a particular
decision that can be undertaken.
613 | P a g e
Uses: Decision trees are used to give a graphical representation of options, strategies or decisions that can be undertaken
to reach a particular goal or “decision.”
E-commerce and Growing the Venture
Introduction
In this lesson you with review how the use of the internet can impact your business. You will also examine various
approaches to e-commerce and the elements to consider before launching into e-commerce for your business.
E-commerce is a transaction of buying or selling online. Electronic commerce draws on technologies such as mobile
commerce, electronic funds transfer, supply chain management, Internet marketing, online transaction processing,
electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern
electronic commerce typically uses the World Wide Web for at least one part of the transaction's life cycle although it may
also use other technologies such as e-mail.
E-commerce businesses may employ some or all of the following:

• Online shopping websites for retail sales direct to consumers
• Providing or participating in online marketplaces, which process third-party business-to-consumer or consumer-
to-consumer sales
• Business-to-business buying and selling
• Gathering and using demographic data through web contacts and social media
• Business-to-business (B2B) electronic data interchange
• Marketing to prospective and established customers by e-mail or fax (for example, with newsletters)
• Engaging in pretail for launching new products and services
• Online financial exchanges for currency exchanges or trading purposes
614 | P a g e
Business application
Some common applications related to electronic commerce are:
• Document automation in supply chain and logistics
• Domestic and international payment systems
• Enterprise content management
• Group buying
• Print on demand
• Automated online assistant
• Newsgroups
• Online shopping and order tracking
• Online banking
• Online office suites
• Shopping cart software
• Teleconferencing
• Electronic tickets
• Social networking
• Instant messaging
• Pretail
• Digital Wallet
How Can a Website Benefit Your Business?
1. Why should you have a website?

In order to succeed in today's world, you must have an Internet presence. More and more people log on to the internet
every day; there are billions of users worldwide, and there are several reasons why one needs a website. A website is a
powerful first impression.
615 | P a g e
Placing your business on the World Wide Web gives your business the potential for global exposure, no matter the size of
your business – be it large or small; singular or multi-national. To have your own website gives your invaluable business
advantages, which is illustrated in answer to the next question, viz-a-viz:
2. How can a website be useful?
The website helps you leverage web services for streamlining data transfer to and from your organization.
There are myriad reasons for - How a website can be useful and why you should bring your business online? Some of them
are, briefly, mentioned below:
a. Enhanced customer convenience:

Your business concern can be more easily and quickly reached, every time a potential or an existing client searches for
relevant businesses, products, and services over the Internet. Your customers can always keep in touch with you and your
business, just by knowing your website address.
b. Greater reachability of your business profile:

Your business profile can be accessible from anywhere in the world. No other ad medium provides such global coverage.
You need not depend on phone book entry or restricted yellow pages and newspaper ad presentations, any longer.
616 | P a g e
c. Greater possibilities for promoting your business portfolio:
People will not buy your products or services unless they know that they actually exist. You can tell your potential
audience much more through a WEBSITE than you could possibly do via any print advertisements, Yellow Pages listings,
or TV/radio commercials. There are no limitations as far as space, time, nationality and residency are concerned. You can
say as many things as you want, to as many people as you wish. And your business representation can be as resourceful as
is the Internet itself.
d. Efficient, low-cost advertising:

Your customers will always be able to obtain thorough, up-to-date information about your services or products. Instead of
having to rely on randomly aired TV or radio commercials, they can simply browse through your website whenever they
like.
e. 24/7 availability:
The website is available to you 24 hours a day, 7 days a week, and 365 days a year. It will be your hardest working
employee, never getting sick, or taking a holiday. And you can rest assured that your website is always there for you – to
answer your customers’ questions or to collect their feedback on your behalf.
f. Time-saving:
Prospective clients can learn about you and your business at any time of the day simply by visiting your website, so you
won’t have to be present or involved in the process in any way. Your precious time can be saved and invested in other
activities that can increase your profits and further enhance the scope of your business.
617 | P a g e
g. Cost -cutting:
You can save a lot of money cutting your costs on print ads, brochures, coupons, flyers, specials, newsletters or mailings.
What is more! It's always quick easy and extremely efficient to update real time information on your website; whereas
regular renewals of printed materials turn out to be very expensive and time-consuming. The fact optimized productivity
at minimal cost is more valued in any business, and it is possible only through World Wide Web.
Web services provide a standard way to implement a business function that can also be managed remotely. It employs an
effective exchange of information and data feeds between B2B and B2C portals, information warehouses, news providers,
shopping portals like e-bay and search engines like Google, MSN, Yahoo, etc.
Your website must work hard in today's competitive online environment — attracting visitors, providing a rich user
experience and converting them into loyal customers.
3. What makes a site work successfully?

It is a hotly debated question – “What makes a website work well that will genuinely help your business and attract more
customers?”
A well-designed website can certainly lead to increased business. By following simple guidelines, it is possible to create a
good-looking website that will really give your business the best chance of being noticed.
For your online presence to really count, your brand needs to exude credibility, confidence, and efficiency through your
website. A well designed website can certainly leverage your business processes. One can achieve this by blending strong
design and content, with seamless functionality, and expert support throughout - with time-tested processes.
Web Designing is “a process of conceptualization, planning, modeling, and execution of electronic media delivery via the
Internet in the form of Markup language suitable for interpretation by Web browser and display as Graphical user
interface” (ref- Wikipedia).
618 | P a g e
Web Design can have a powerful effect. Web Design is important, and it must be right! The right design kindles in a
website visitor the right perception of your business. It engenders confidence and trust in your business. Success online is
vital to the overall strength of your business.
It is essential that –
• In an arena saturated with billions of web pages, it requires innovation and expertise, to represent your brand
effectively.
• Your site must be easy to navigate and simple to use. If your users and potential customers cannot find what they
want, this will undermine your site’s performance, in relation to your business goals.
• Your website should clearly and concisely, reflect your business, values, and products since your website is now the
first point of contact for a new user or potential customer.
• A good and innovative design ensures that the site is memorable and encourages the viewer to explore beyond the
home page.
• The web functionality and programming should use only standard, compliant, valid coding as well as provide an
alternative programming, to ensure that your site is viewable in any Browser and at any Screen Resolution.
Most Web design and development companies possess skills in one or the other – rarely both. This is where ImagiNET
Ventures web solutions differ, as we understand how to design a website that will most effectively present you, your
business or organization, with your products and services.
4. What are the common mistakes of a website?

Let us face it! If visitors get lost or become confused while attempting to surf your website, they might hit the back button,
and look for a more user- friendly website. People do not like to think when it comes to finding their way around websites.
Do not make them tick. You need to plan your website from stage to stage and make a difference between a very poor
website and a very good website.
619 | P a g e
Let us now see – what are the pitfalls inherent in designing and setting up a website? You may know some of them
already, but by avoiding and correcting them, you can be sure to keep a constant flow of visitors entering and re-entering
into your portal! The list of most common errors is unending but invaluable for new designers, web developers and
content writers – who need a list for their website spot check.
1. Site best viewed:
New designers usually use this “site best viewed” with a disclaimer statement regarding which web browser or
screen resolution they designed their site, for best viewing. It does not impress the visitor. Instead, invest in a
skilfully designed website that renders well in multiple browsers, and in any screen resolution.
2. Shabby layout and glaring design:
Some sites are totally unbalanced in their layout and overloaded design. The designs do not match the page content
and appear misplaced and misfit in the entire scene. Give your pages a pleasing appearance, with just the necessary
facts and place your design outlay with a professional touch. Always take screenshots of designs in different
resolutions, before uploading the appropriate one.
3. Horizontal scrolling:
The horizontal scroll makes it extremely difficult to read the content on your site, and often your visitors will lose
patience and leave. Check your website in a site resolution viewer. A professional website can be viewed without
horizontal scrolling in, both, a smaller and larger screen resolution. User's find scrolling from the top to the bottom
of your pages, more clear to view and easy to read.
4. Free Web Hosting:
This is a common web page mistake you definitely need to avoid. Often business owners claim that the business is
"just starting,” and that is why they have not yet moved their site to a domain host. Do not use free web hosting if
you want your business to be taken seriously. It reflects on your image and credibility.
620 | P a g e
To resolve this issue, you must choose and purchase a domain name if you, already, do not have one. You also need
to choose a professional domain host. There is no getting around this one. If you want to run a successful online
business, you absolutely must have a reliable domain host.
5. Appalling Images
Do not allow your visitor view badly shaped or terribly cropped images and missing graphics files. Optimize your
images, using the best height and width. Keep your files in the best formats - jpeg for Photographs and gif for
artwork.
6. Blaring and ghastly color schemes:
Avoid using ghastly and loud colours that do not match your website concept and mission. Although your text may
be easy to read, overly-bright colours distract and repels the reader away from your site's purpose. Your designs
must reflect class and designer quality, with state-of-the-art designs and pleasantly eye-catching color schemes for
your web pages.
7. Slow loading:
If your page does not download rapidly, visitors will quickly move on to find another site. Take action now to reduce
the "weight" of your pages. Each image on your site must be correctly sized and optimized for web use. Keep your
pages clean and fast for the visitor to move on quickly, with interest.
8. Spell check:
Always spell check the text, keeping it free of grammatical error, punctuations, and spelling mistakes. Without spell
check, the site looks amateurish and shabby.
621 | P a g e
9. Ineffective Text Content:
A major mistake is to fill the pages with long text, without any headings and sub-headings. Do not cram your web
pages with loaded decorative words and hi-funda text. Readers do not have time to fill their heads with all details.
Make your text more effective. Keep your text simple, crisp and to-the point. Use decorative words in the right
context.
Your language should spell clarity, consistency, and coherence in content, style, structure and font. The pages
should be easy to read and simple to understand, with a smooth flow. The fonts should be rightly used, with
appropriate side headings and the text need to be phrased in short paragraphs, giving a pleasing feel to the reader.
Your website must provide a clear message with a goal-oriented direction, setting you apart from your competitors.
Your content should easily answer his question - “what is in it for me?” The reader must be able to identify with
your write-up and find you as his 'partner' for addressing his solutions.
10. Absence of an Email Subscription Form:
This critical aspect is often neglected by most website owners. It is very important to have a lead generation to your
website via Email subscription form, for optimal business returns. Having a mailing list gives you several
advantages like maintaining a visitors list who allows you to contact them, build a relationship, and establish
yourself as an expert for solving their problems.
11. Using a weak message 'join my newsletter':
Your content, design layout and solutions should be so user-friendly such that it compels the reader to subscribe
your mailing list. Do not use a weak message like – “join my free newsletter.” The reader would wonder “Why?” and
“If I subscribe, will you give me a bonus, or a free gift instantly, as soon as I join?” If your design and text work
impresses the reader for availing your services, you would automatically get email subscriptions for membership,
from your visitors. It speaks to your credibility.
12. No Contact Information - Just giving your email id and the web address is not sufficient for your readers – who
may be prospective clients. Keep your detailed contact information easy to find and easy to read. The inclusion of a
sitemap works wonders for your business.
622 | P a g e
13. Advertising – Advertisements provide huge revenue if executed skillfully and with reference to the current times.
Appropriate advertisements should be placed - reflecting the different verticals of your business. Do not overload
your page with ads, especially the big flashy banners. Well placed, well-designed ads are okay if you do not overload
the page.
14. Prices – Do not waste your time, hoping you will get email inquiries on your prices. The moment a visitor sees your
product or services, his prime question will be “what is the price of this item?” Do not keep the visitor guessing the
price; it will give him an opportunity to jump into another website where the price is mentioned, and you may end
up losing a prospective customer. You need to include a price with the item description if you sell something.
15. Under Construction - Avoid having a “closed – under construction” or “yet to open” website. Give your visitors at
least a single page of content, with a notice - when the whole site will be open.
16. Music: Include a soft and soothing music or that which is relevant to the content. Do not include music, if it is not
needed. Music should not be out-of-control and keep the control buttons easy-to-use. Music can turn one's mind on
but at the same time put your mood off, if it is not rightly timed, controlled and soft.
The list of common mistakes is innumerable. The above general tips give you an idea of what to avoid and how to resolve.
By keeping your website design in good shape and ensuring your web content writing is in good taste, you will find more
people visiting and enjoying your website!
The benefits of a website in selling through the internet
Capacity to enhance customer service

Online stores must describe products for sale with text, photos, and multimedia files, whereas in a physical retail store, the
actual product and the manufacturer's packaging will be available for direct inspection (which might involve a test drive,
fitting, or other experimentation). Some online stores provide or link to supplemental product information, such as
instructions, safety procedures, demonstrations, or manufacturer specifications. Some provide background information,
advice, or how-to guides designed to help consumers decide which product to buy. Some stores even allow customers to
623 | P a g e
comment or rate their items. There are also dedicated review sites that host user reviews for different products. Reviews
and even some blogs give customers the option of shopping for cheaper purchases from all over the world without having
to depend on local retailers. In a conventional retail store, clerks are generally available to answer questions. Some online
stores have real-time chat features, but most rely on e-mails or phone calls to handle customer questions. Even if an online
store is open 24 hours a day, seven days a week, the customer service team may only be available during regular business
hours.
Interactive communication
When somebody buys something online, he or she want to know when it is going to arrive at his or her door. People are
impatient, after all. Giving them an estimated delivery date during the checkout process is a good start. Emailing them
when their product is dispatched is great. Giving them a tracking number if using a delivery service that supports online
tracking is even better. Keep the user informed at every step of the process, before and after the sale, about as much as you
can.
How will this improve your conversion rate? Leaving the customer happy once they have made a sale means they are more
likely to speak favourably about you later. They may even recommend you to their friends and within online communities.
They are also far more likely to buy from you again.
Think about it like this - if a salesman is doing their absolute best to help you, and to make your life easy, and answering
your questions, you might buy what they were selling. If they completely ignored you after you'd bought from them, how
would you feel about them? They might well have undone all the good work they put in because once you'd completed your
purchase, they see no immediate value in you. A company that shows it cares about their customers, even after they've
finished shopping, will make a user far happier and far more likely to return.
624 | P a g e
Lower cost of doing business; ability to grow faster
One of the best Advantages E-Commerce has to Overcome Geographical Limitations. If you have a physical store, you are
limited by the geographical area that you can service. With an e-commerce website, the whole world is your playground.
Additionally, the advent of m-commerce, i.e., e-commerce on mobile devices, has dissolved every remaining limitation of
geography.
Track sales results

Many people make the mistake of only tracking small pieces of information. Or tracking everything but only looking at a
small part of the data. Data is your friend, and you need to understand what the different metrics available to you are
actually measures of if you want to have any clue what effect your work is actually having.
Most important, of course, when looking at the conversion rate, is the volume of sales. Some people only look at that
number. But other numbers can tell you about how useful your site is throughout the shopping process.
The percentage of repeat visitors tells you something, about whether you are engaging visitors early in the purchasing
process and bringing them back for the sale. A high bounce rate indicates pages that are failing to deliver on their
promises. Add to cart rates, cart abandonment rates, login vs. registration vs. abandonment rates, product removal (from
cart) rates - all of these will identify areas of your checkout and purchase process that are underperforming, or improving.
Ability to spot new business opportunities

It is extremely difficult to predict accurately what changes will have a significant positive effect. So many factors work
together, and there are so many differences between users of one site compared to another, that experience can often work
against you when you are trying to improve a conversion rate.
Let me take you on a journey through Site A (an online shop I had the pleasure of advising). The owner of Site A had
changed his product listing.
625 | P a g e
He used to have ten items per page, and he increased it to 20. The extra products listed on each page gave the users more
choice, but his conversion rate didn't change. Next, he added larger product imagery to the listing - unfortunately this
slowed the site down considerably, and his conversion rate went down 10%. Finally, he split his categories up, as they were
getting a bit crowded and unwieldy. After this last change, his conversion rate increased back to its original level.
After three rounds of changes, the owner of Site A had the same conversion rate for his site, and viewed the only positive
change as the last one, change 3. He attributed it to better organization of products. And here we have the problem - he
was wrong. The positive change was actually change 2.
I am going to run through this slowly, as this is counter-intuitive - after all, how can the change with the measured
negative effect actually be positive? The reason the change was actually positive is that these things work together - they
are not independent.
The first change to Site A was neutral. When the second change was made, 20 extra images per page were being loaded.
These images slowed the site to a crawl. When the third change was made, several categories contained fewer products
than before - around half of his categories had 10 products or less - and these new, smaller category pages loaded faster.
Much faster. These smaller category pages were much faster to load, and the extra imagery did a good job of helping to sell
to the users. The increase in sales came from these pages, after the third change, came from these smaller categories.
After change 3, Site A still has the same conversion rate as it did before starting. But once the changes were correctly
identified as positive (change 2), negative (change 1) and neutral (change 3), it is a simple matter of reversing the negative.
So, the new categories were kept, the images were kept, and the number of items per page was reduced back down to 10.
The final result of all of this was a positive change to the conversion rate.
And the moral of the story - it is very easy, in hindsight, to attribute positive and negative effects to changes, but it is
extremely difficult to do so accurately and correctly. Examine the effects of changes and, if you can, isolate and test
individual effects.
626 | P a g e
MYTHS ABOUT ECOMMERCE
Ten (10) Widespread Myths about Starting an Online Business
We live in a digital world, where the internet, smart devices, and digital tools are widely used. The market, like always, is
evolving and rapidly adapting to the newest trends. A lot of entrepreneurs prefer starting an online business rather than
an offline one.
There’s even a new big niche floating around: “how to make money online.” It is one of the most popular niches
nowadays, along with the weight loss niches. Because there are so many “gurus” that are teaching how one can have online
business success, there are lots of myths that new entrepreneurs take as facts and truths.
Online business success is harder than you could probably imagine. Besides the huge effort, one has to make in order
to succeed; there are also a thousand variables and setbacks around the way. Good choices and a lot of commitment until
the end of the project are essential!
As new online entrepreneurs do not know what to expect, we have gathered a list of ten myth-breakers explanations. You
will learn what to do, and what not to do in order to start your online business on the right foot.
Let’s begin.
Myth 1: If You Have a Lot of Passion, You Will Have Success
Being passionate about what you do is always a good thing. It will boost your motivation when you are feeling down, and
you’ll have an easier time while putting the hard work that’s required.
627 | P a g e
But, there is a huge but: passion doesn’t equal success. Everyone is passionate, but surely not everyone is driving
expensive cars and holds successful online business. The big “gurus” are doing everything they can to make more profits
out of you, so they are telling you whatever you want to hear.
When you hear that the road to endless profits is paved by your passion only, understand that you are misguided. Business
systems – that it, what makes a business successful. The way you organize it, the tools you use, the strategies you
approach, and so on!
Myth 2: You Can Work Full Time and Be an Online Business Entrepreneur in the Meanwhile
Of course, some people can have different side hustles while still working an 8-hour shift every day. But that leaves them
what? Maximum of three to four hours to develop their online business. It is possible, yes, but an online business can
mean a thousand things. It could be a huge e-commerce store or just a very small affiliate marketing blog.
Especially if you are new, I can assure you that entering the online business world and doing it successfully requires a
lot of time and hard work. Some successful entrepreneurs work from ten to twelve hours per day, and they complain that
they do not have enough time.
If you are just starting out, the best suggestion would be to keep your full- time job and start doing the extra work during
your evening hours. When you see the potential, and you are confident that things are going to work out, only then quit
your job and go pro.
Myth 3: You Can Start Your Business with a Few Bucks
Have you ever read about the “free methods” of starting a business? If you check out Google results, you’ll find dozens of
articles pretending to teach you the right ways of starting a business for free.
628 | P a g e
Let me tell you from the start: there’s no such thing as a free online business startup. There are indeed a lot of online
websites building services, free domains, or maybe even free hosting.
The last thing you want to do is to set the foundation of your future business with low-quality resources. Usually, free
resources are just a small part of what it is required in order to succeed. The best advice would be to save up some dollars
and establish a budget for your business. Depending on what you want to start, you can find good solutions and go for
cheaper (but paid) options.
Myth 4: You Need Investors in Order to Pursue Your Idea
Myths are quite funny, as many times they tend to contradict other myths. As mentioned earlier, you can’t start a serious
online business without having an at least decent budget. Well, some people believe that they stand no chance if they do
not have proper investors and funds.
While getting investors for your project can prove to be truly beneficial for your future success, you have to be aware that
you can do it without having thousands of dollars to invest. There are ways, and so many people start from scratch.
Myth 5: You Can Automate Every Aspect of Your Business
Again, here’s another myth that is widely spread among newbie entrepreneurs. Automation means allowing tools,
software, and employees to run your online business on autopilot. It is everyone’s dream to be a “boss” and has passive
income while just sitting and doing nothing.
Well, in reality, it is nothing like that. Entrepreneurs that start their business from nothing will always still have work to
do. They must make decisions, take care of important aspects that no employee or software can, and be present for the
important events.
629 | P a g e
Myth 6: You Must Take Care of Every Aspect of Your Business
You do not have to do everything alone. Most of the successful entrepreneurs realize that their time is extremely
important. In order to learn all of the required skills, they choose to outsource what they do not know what to do.
For example, every online business needs content. Also, most of the businesses rely on websites to perform their activity.
In case you do not know the technicalities of building good-looking websites, you can choose to go for a website
building service.
If you are bad with words, definitely go for a writing service that provides well-written content with good research.
Outsourcing is awesome because it allows you to focus your time on aspects that only you can deal with.
Myth 7: Being an Online Entrepreneur Equals Non-Stop Travelling
Even though this dream life possibility is widely spread among online entrepreneur communities; however, things are not
so simple. Indeed, there are a lot of successful entrepreneurs that are living that life, but out of 100, maybe 5 are actually
doing it.
You have to understand that in order to leave everything behind and start travelling, your online business needs to be
extremely stable, and you have to outsource human resources and professional software. You need a great business
stability and responsible employees that can deal with everything.
If you create your business from scratch, you’ll be the only person who will understand and be aware of the ins and outs
of the entire operation. More than often, it is hard to leave and make someone else responsible for everything.
630 | P a g e
Myth 8: Social Media Promotion is Cheap and Easy
You may have heard people saying that social media is a great way to promote your business. That, in fact, is a true
statement. What crosses the boundaries of truth is the fact that getting targeted traffic through social media is extremely
cheap and easy.
Nope, it is not easy. In fact, in order to organize a successful social media campaign, you have to go through a lot of testing
and optimizing.
You will lose money, and it won’t be easy. When you start your online business journey, you got to have the right
expectations.
Myth 9: You Can Work Whenever You Want
Most of the times, you can work on your online business from your own place, from office, or from a beautiful beach. The
only things you need are an internet connection, a device, and time. Many new entrepreneurs are fooled and live with the
illusion that they can work whenever they want.
Even though it is possible to work whenever you feel like, you must understand that developing a successful business takes
away 99% of your effort and time. Maybe you think this is bull, but just take a look at what other established
entrepreneurs are saying.
Taking advice from people who can show results is one thing, and taking the word of “online gurus” that only teach people
how to make money online is another thing. Be careful whom you listen to; they might prove to be frauds.
631 | P a g e
Myth 10: Online Business Success is Easier than the Offline One
You can often start an online business with less financial resources than it would otherwise be required for starting an
offline one. Everything happens on the web, and you will only have to deal with online tools and communication.
When I first got into internet marketing (or the online business activity), everyone promised me an overnight success. E-
books, webinars, articles, and so many other resources claim that they hold the formula to quick success. I soon found out
that that’s a big lie meant to make me spend more money on training material.
STRATEGIES FOR E-COMMERCE SUCCESS
Six (6) essential qualities for a successful ecommerce website
For any business or activity success results from a complex interplay of factors. Similarly, ecommerce websites’
success depends on many aspects. Setting apart the financial, logistic, and industrial ones, the ecommerce digital
marketing strategy is crucial since it is the main instrument to promote services and market products online.
E-commerce marketing lies on 6 main elements:
• Real and perceived value in relation to sale price;
• Website usability;
• Pleasant navigation and entertainment;
• Security and trust;
• Social media influence;
• Online marketing strategies.
632 | P a g e
1. Real and perceived value in relation to sale price
Otherwise than in the physical world, in internet comparing products features and prices is easy, immediate and zero cost:
just a few click of a mouse. In order to be competitive, it is needed to shrink profit margins and, at the same time,
communicate efficaciously the own added value and the advantages compared to other competitors. Meanwhile, it is
necessary to work on the identification of the right target consumers through online analysis and marketing after setting a
clear goal: bringing to the website leads and prospects.
2. Website usability
Online shops remove human mediation from the purchasing process; for this reason, it is paramount that it works
perfectly and be easy to do.
Purchase funnel, from products adding to cart to final payment, have to be short and require the minimum work. A good
ecommerce website conforms to web usability guidelines and is accessible to everybody. It should be accessible to any type
of device included smartphones and tablets (mobile website version).
3. Pleasant navigation and entertainment

A perfectly functional website may be highly inadequate in aesthetic, ergonomic and communicational terms. If the user
experience is not pleasant and engaging - finally sales are limited. The buying experience always has an emotional side
that an ecommerce shop needs to include during the website planning and in the marketing strategies. Graphic and design
should be likable, information clear, contents interesting and, why not, entertaining.
4. Security and trust

In all E-Commerce surveys and investigations, the customer’s perception of the buying process arises as a critical factor to
increase online sales. A digital shop must reassure users by means of all possible signals. Security and trust are key
concepts. Users have to be able to contact the merchant by phone, email and possibly live chat. It is very important to offer
transparency of shipping and delivery times, customer’s refund and return rights. Guarantee security of payments is
clearly showing methods and possibly credit card logos. All details contribute to foster the conversion of visitors into
clients/customers.
633 | P a g e
5. Social media influence
In our real life our purchases are influenced by opinions and suggestions coming from people we know, likewise, on the
internet, many sales occur only after reading recommendations and comments made by friends or unknown customers.
An E-Commerce website that integrates social networks and their sharing functions have certainly more chances to be
successful. Similarly, conversion rate improves when a system to publish user’s opinions and reviews is added to the
products pages.
6. Digital marketing strategies

The previous five points somehow are all different aspects of an articulated E-Commerce marketing strategy and should
always be included in the digital marketing services provided to companies. Considerately, they are the backbone of the E-
Commerce marketing from which to develop specific tactics to promote the online shop. The amount of these tactics is
endless; nonetheless, a good plan should strive to coordinate them all to make E-Commerce online marketing more
effective.
634 | P a g e
Figure 23 some of the most popular sites that USE E-Commerce are shown above.
E-commerce online marketing
Without pretending to be exhaustive, a compendium of relevant ecommerce marketing strategies should include:
Competitor’s analysis and prices benchmark;

Website design and user experience improvement;
• SEM – Search Engine Marketing:
• SEO (Search Engine Optimization) and SMO (Social Media Optimization);
• SEA (Search Engine Advertising) and Social Network Advertising;
• Remarketing and Retargeting;
• Email marketing;
• Social Media Marketing:
635 | P a g e
• Conversational and Viral Marketing;
• Social media integration into the E-Commerce website;
• Social login implementation;
• Content Marketing;
• Affiliate marketing;
• Marketplaces sales;
• Digital marketing across price comparison websites;
• Data mining and analysis.
In other website’s sections it is possible to examine more in depth different types of online marketing; here we confine
ourselves to list 27 advises very useful to increase e-Commerce sales.
1. Create the E-Commerce website planning from the beginning at least part of the digital marketing strategy. Reflecting
on marketing at this stage allows to better define features and functions that online shop is going to need.
2. Start search engine optimization at the beginning of the E-Commerce platform development.
3. Strive to specialize: big online shops are run by huge commercial entities.
4. Develop some unique product/service capable of giving popularity to you on the market. Promote it across all web
channels.
5. Reduce profit margins of products in highly competitive markets: prices are a critical factor according to all E-
Commerce studies.
6. Comply with delivery times especially in the case of international E-Commerce: making mistakes on this issue decrease
significantly customer’s retention.
7. Allocate an adequate budget on SEO. All leads coming from organic search means money saved from different
advertising investments.
636 | P a g e
8. Aim at the “long tail.” Most of the website’s visits coming from organic searches are made of a variety of keywords and
key phrases of low occurrence.
9. There is not only Google. Leverage all search engines.
10. Use social networks to promote your brand and take advantage of word of mouth.
11. Be aware of your target, find out what it is told about you, monitor market sentiment and analyze your online
reputation.
12. Launch a blog and produce valuable contents. All traffic generated by blog marketing reinforce brand reputation and
impact positively on the Ecommerce shop.
13. Take care of product sheets and use high-quality photos.
14. Take on the challenge of product reviews: they boost sales and improve ranking on search engines.
15. Incentivize first purchase with a gift or enticing discount.
16. Leverage discounts coupons and promotions to increase transactions.
17. Prepare bundles and gift packages, exploit cross and up selling to raise the average order value (AOV).
18. Push on email marketing which usually results in high conversion rates.
19. Incentivize in all ways newsletter sign-ups.
20. Chase users and customers with remarketing and retargeting campaigns.
21. Do not forget incentives for the purchase like scarcity and sense of urgency.
22. Facilitate impulse buying.
637 | P a g e
23. Exploit dynamic pricing technique. Products price is a critical aspect of online shopping. There are soft-wares that
monitor prices on different E-Commerce websites allowing an excellent benchmarking service in real time. The year
Amazon has implemented this system profits raised a 27, 2%. At Amazon, online shop prices change every 10 minutes.
24. Invest in Internet advertising and PPC campaigns knowing that each advertisement exposes your brand to a large
audience; it is not just a strategy to generate leads.
25. Diminish as much as possible web pages loading time: it can make the difference.
26. Rely on website’s traffic statistics, analyze users’ behavior and draw information to optimize digital marketing
strategies.
27. Be opened to innovations, year by year internet gives birth to new marketing tools. E-commerce websites must be the
quickest to integrate them into their online strategy.
Figure 24
638 | P a g e
Ecommerce and the Entrepreneur
The Internet: Changing the Face of Business

• The most successful companies embrace the Internet as a mechanism for transforming their companies and for
changing everything about the way they do business.
• In the world of e-commerce, size matters less than speed and flexibility.
• High-volume, low-margin commodity products are best suited for selling on the Web.
639 | P a g e
Benefits of Selling on the Web
• Opportunity to increase revenues
• Ability to expand into global markets
• Ability to remain open 24 hours a day, seven days a week
• Capacity to use the Web’s interactive nature to enhance customer service
• Power to educate and inform
• Ability to lower the cost of doing business
• Ability to spot new business opportunities and capitalize on them
• Power to track sales results
E-Commerce
• Survey: 3 out of 4 small businesses do not yet have a Web site.
• Small companies account for more than 50% of all retail sales in the U.S., but they generate only 9% of online retail
sales.
• By 2003, small companies will generate just 6% of online retail sales.
• Why?
Factors to Consider Before Launching into E-Commerce

• How a company exploits the Web’s interconnectivity and the opportunities it creates to transform relationships
with suppliers, customers, and others is crucial to its success.
• Web success requires a company to develop a plan for integrating the Web into its overall strategy.
• Developing a deep, lasting relationship with customers takes on even greater importance on the Web.
• Creating a meaningful presence on the Web requires an ongoing investment of resources – time, money, energy,
and talent.
• Measuring the success of a Web-based sales effort is essential to remaining relevant to customers whose tastes,
needs, and preferences constantly change.
640 | P a g e
12 Myths of E-Commerce
Myth 1: Setting up a business on the Web is easy and inexpensive.
641 | P a g e
12 Myths of E-Commerce
Myth 1: Setting up a business on the Web is easy and inexpensive.

Myth 2: If I launch a site, customers will flock to it.
Myth 3: Making money on the Web is easy.
Myth 4: Privacy is not an important issue on the Web.
Myth 5: The most important part of any e-commerce effort is technology.
Myth 6: Strategy? I don’t need a strategy to sell on the Web! Just give me a Web site and the rest will take care of itself.
Myth 7: On the Web, customer service is not as important as it is in a traditional retail store.
The Importance of Service on the Web.
Study: 75% of Web shoppers who fill their on-line shopping carts become frustrated and leave the site before checking out.
Reasons:
• Site too slow
• Site looks unprofessional
• Site does not take credit cards
• Checkout area too hard to find
• No return policy posted
642 | P a g e
What Web Shoppers Want
Retail Customers Business Customers

1. Competitive prices 1. On-time delivery
2. Well-designed presentation 2. Competitive prices
3. Good selection 3. Well-designed presentation
4. Reliable shipping 4. Good selection
5. On-time delivery 5. Easy ordering
6. Easy ordering 6. Valuable product info
7. Customer support 7. Customer support
8. Valuable product info 8. Reliable shipping
9. Posted privacy policy 9. Posted privacy policy
10. User-friendly navigation 10. User-friendly navigation
Myth 8: Flash makes a Web site better.

Myth 9: It’s what’s up front that counts.
Myth 10: E-commerce will cause brick-and-mortar retail stores to disappear.
Myth 11: The greatest opportunity for e-commerce lies in the retail sector.
Myth 12: It’s too late to get on the Web.
643 | P a g e
Approaches to E-Commerce
• Online shopping malls
• Storefront building services
• Internet service providers (ISPs)
• Hiring professionals to design a custom site
• Building a site in-house
Online Shopping Malls
Advantages:
• Simplicity
• Low cost
Disadvantages:
• Lack of prominence
• Lack of control over site
Storefront-Building Services
Advantages:
• Simplicity
• Low cost – as little as $100 to $500 per month
644 | P a g e
Disadvantages
• Cookie-cutter approach
• Handle only a limited number of products
Internet Service Providers

• Provide many of the same features as store-front design services but offer more flexibility and customized designs.
• Can grow with a company as its online sales volume grows.
• What to consider when choosing:
o Cost
o Downtime
o Quality of backup systems
o Capacity for hosting sites
Hiring Professionals
• Key advantage: Ability to customize a site, making it anything an entrepreneur wants.
• Major disadvantage: Cost
o A custom-designed site can cost between $10,000 and $30,000
o A site with complete front-office and back-office integration can cost more than $500,000!
Building a Site in-House

• Key advantage: Complete control over the site and its design, operation, and maintenance.
• Major disadvantage: Cost of hiring staff.
o Cost can reach $250,000 to $500,000
645 | P a g e
Strategies for E-Success
• Consider focusing on a market niche.
• Develop a community.
• Attract visitors by giving away “freebies.”
• Make creative use of e-mail, but avoid becoming a “spammer.”
• Make sure your Web site says “credibility.”
• Consider forming strategic alliances.
• Make the most of the Web’s global reach.
• Promote your site online and offline.
Designing a Killer Web Site

• Select a domain name that is consistent with the image you want to create for your company and register it.
• Short
• Memorable
• Indicative of a company’s business
• Easy to spell
• Be easy to find.
• Give customers what they want.
• Establish hyperlinks with other businesses, preferably those selling complementary products.
• Include an e-mail option and a telephone number in your site.
• Give shoppers the ability to track their orders online.
• Offer Web shoppers a special all their own.
• Follow a simple design.
• Assure customers that their
• Online transactions are secure.
• Keep your site updated.
• Consider hiring a professional to design your site.
646 | P a g e
Tracking Web Results
• Counter
• Log-analysis software
• Clustering
• Collaborative filtering
• Profiling systems
• Artificial intelligence
Ensuring Web Privacy

• Take an inventory of the customer data collected.
• Develop a company policy for the information you collect.
• Post your company’s privacy policy prominently on your Web site and follow it.
• Virus detection software
• Intrusion detection software
• Firewall
647 | P a g e
Entrepreneurship Review Content
Unit Two Module Three
Let us apply this information to context.
Case Study
Tiquan Benjwall, an upcoming entrepreneur, attended a seminar on the venture life cycle. The facilitator spoke to
attendees on the stages of the venture lifecycle. She addressed the importance of developing the idea, building the venture
and growing the venture. She emphasized that the entrepreneur can add value to the product offering by being innovated
throughout the venture cycle to reduce the risk of the business declining after maturity. Tiquan learned to utilize the
internet to strengthen the innovative phase for improvement of speed and flexibility in customer relations.
Questions:
1. Identify the THREE stages of the venture life cycle.
___________________________________________________________________________________
___________________________________________________________________________________
2. Explain TWO of the stages in the venture life cycle.
___________________________________________________________________________________
___________________________________________________________________________________
648 | P a g e
3. Outline THREE positive impacts of the Internet on the development of a venture.
___________________________________________________________________________________
___________________________________________________________________________________
Match the list in column A with the concepts in column B.

Column A Column B
A. Start-up company The action of making an investment in an early-stage company.
_____________
B. Business partnering
Large or well-established companies often try to promote
innovation by setting up, new business divisions that operate at
arm's length from the rest of the company. _________
C. Cofounder
Failed entrepreneurs who after some time restart in the same sector
with more or less the same activities.
_______________
649 | P a g e
D. Start-up investing An entrepreneurial venture which is typically a newly emerged,
fast-growing business that aims to meet a marketplace need by
developing or offering an innovative product, process or service.
__________
E. Internal Start-ups Forming partnerships with other firms to enable start-up

business models to operate.___________
F. Re-starts People involved in the initial launch of startup companies.
_____________
1. Identify two business in your community that use e-commerce.
___________________________________________________________________________________
___________________________________________________________________________________
2. Identify the ways in which each of the business mentioned in part an are using e-commerce.
___________________________________________________________________________________
___________________________________________________________________________________
650 | P a g e
3. Identify one business in your community that is not engaged in e-commerce suggest two ways in which they can begin
to use e-commerce in their business.
___________________________________________________________________________________
___________________________________________________________________________________
Case Study
You are a small business consultant, Mr. and Mrs. Breads run a small bakery called Tasty Treats. Mr. and Mrs. Breads
cannot agree upon whether or not their Outline three reasons why a website would be beneficial to their business.
A. Outline two benefits that their customers would receive from them having a website.
___________________________________________________________________________________
___________________________________________________________________________________
B. Discuss two common ways in which a website can be unsuccessful and provide a remedy for each.
___________________________________________________________________________________
___________________________________________________________________________________
651 | P a g e
E-Commerce HuMoR!!
ASSIGNMENT QUESTION:
Study the scenario in the picture above, identify three benefits to the customer and three benefits to the seller of what is
shown there.
Select any three sites from EACH category (International sites, Online Marketplace and B2C/Specialty stores. For each
site, indicate two types of products that are offered for sale.
652 | P a g e
Your local business has been doing well. However, you wish to expand your market. A business consultant suggests that
you create a website to assist in boosting sales for your goods. Using the subheadings from the diagram above to create a
blueprint for your website, discuss (in no less than 1200 words) the impact of those issues and describe how you will
ensure that those e-commerce development facets are addressed in the creation of your website.
E-commerce websites must be the quickest to integrate them into their online strategy.
Activity
One the line provided write true if the answer is true or false if the answer is false.
1. One of the main elements of e-commerce marking is website usability._______
2. The poor user experience on an e-commerce website can reduce e-commerce sales. _______
3. Two e-commerce marketing strategies are search engine marketing and social media marketing. __________
4. One way to increase sale is to use Google as the only search engine because of its popularity. _______
5. The use of high-quality photos on an e-commerce website can be used to boost sales. ________
653 | P a g e

Entrepreneurship Study Guide

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Entrepreneurship Study Guide

Caricato da

Copyright:

Formati disponibili

ENTREPRENEURSHIP

Compiled By: Jahmel Brown Contains Both Unit: 1&2

Property Of: __________________

Unit 1: Entrepreneurship Theory

Module 1 - The Entrepreneurial Mindset

Unit 2: Entrepreneurship Practice

Module 1 - Essentials of Business Ownership

a) Introduction to the origins and concept of entrepreneurship

i. Evolution: Schumpeter, Drucker, Cantillon;

b) Emerging drivers of contemporary entrepreneurship

2. Entrepreneurship and Intrapreneurship

i. Factors that contribute to enterprises becoming more entrepreneurial.

3. Entrepreneurship and Small Business Management

7. Cultural diversity of Entrepreneurship

10. Myths of Entrepreneurship

5. Implementing and managing the venture

Unit 1 Module 3: Creativity and Innovation

3. Disruptive, Incremental and Open innovations

b) Macro/National level Policy development:

5. Methods of protecting Innovation and creativity

2. Risk and Benefits

3. Legal and Regulatory Framework

Unit 2 Module 2: New Venture Planning and Creation

3. Start-up capital and Financial Statements

Unit 2 Module 3: Managing, Growing and Harvesting the Venture

1. Venture Life Cycle

Stages of the venture life cycle:

a) New venture development;

3. Importance of venture valuation

4. Venture Valuation Methods

Including but not limited to:

i. Book value (balance sheet value);

(a) The Internet and its impact on venture development:

i. Speed and flexibility;

(b) Approaches to E-Commerce:

i. On-line shopping malls;

(c) Elements to consider before launching into E-Commerce:

(d) Assessing the online potential of the venture:

i. Capacity to enhance customer service;

(f) Myths about E-Commerce:

i. Setting up the site is easy and inexpensive;

(g) Strategies for E-Commerce Success:

The Concept of Entrepreneurship

Entrepreneur Entrepreneurship Enterprise

Person Process of Action Object

• Introduction of new goods ;

4. Production Innovations: changes in the production process.

Figure 4.3: Functions of an Entrepreneur

– High degree of independence – freedom from constraints

Entrepreneur vs. Entrepreneurship

➢ 1985: G. Pinchot: Intrapreneur is an entrepreneur within an already established organization.

Frank Knight and Peter Drucker

Entrepreneurship: What is the Modern Definition of Entrepreneur?

Four aspects of being an entrepreneur today:

Entrepreneur vs. Manager

1. Difference Between Wage Entrepreneurship and Employment

Wage Employment Entrepreneurial

Earning Fixed (Subsistence) Growing (Generating Surplus)

2. Difference Between Trader and An Entrepreneur

The Importance of Entrepreneurship

2. A Creation of job opportunities

4. Impact on community development

5. Consequence of business failure

6. Political and economic integration of outsiders