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ENTERPRENEURSHIP

Lecture 1: THE NATURE OF


ENTREPREURSHIP
What is entrepreneurship ?
DEFINING ENTREPRNEUSHIP

 Entrepreneurship is creating and building


something of value from practically nothing.
 It is the process of creating or seizing an
opportunity and pursuing it regardless of the
resources currently controlled.
 It involves the definition, creation, and
distribution of value and benefits to individuals,
groups, organization, and society.

 A dynamic process of creating incremental
wealth
 Creation of wealth by individuals who
assume major risks in terms of equity
and/or career, commitment of providing
value for some products
DEFINING ENTREPRNEUSHIP (cont..)

 The process of taking or bearing


uninsurable risks in buying and selling
good and services
 Process of combining factors of production
or resources such that wealth is created
 Creating and building something of value
from practically nothing
DEFINING ENTREPRNEUSHIP (cont..)

 Pursuing new opportunities without regard


to resources currently controlled
 The process of creating new organisation
DEFINING ENTREPRNEUSHIP (cont..)

An innovative process that involves bringing


new combinations into the production
process such that:
New products or services are offered
New methods or technology is applied
New markets are targeted or opened
New sources of supply and raw materials are
used
New forms of organisations are formed
DEFINING ENTREPRNEUSHIP (cont..)

 The process of creating something new


with value by devoting the necessary time
and effort, assuming the accompanying
financial, psychological and social risk,
and receiving the necessary reward of
monetary and personal satisfaction
Basic aspects of being an entrepreneur

 Entrepreneurship involves the creation


process
 creating something new of value

 Entrepreneurship requires devotion of the


necessary time and effort
In order to create something new and
make it operational
Basic aspects of being an entrepreneur
(cont..)
 Entrepreneurship means assuming the
necessary risks:
Financial
 psychological
 social etc
 It requires a willingness to take
calculated risks – both personal and
financial – and then doing everything
possible to influence the odds.
Basic aspects of being an entrepreneur
(cont..)
 Reward for being an entrepreneur:
Independence
Personal satisfaction
Financial
Is it a Get-Rich Quick
Plan?
Entrepreneurship
 Entrepreneurship is very rarely a get-rich-
quick proposition.
 Rather, it is one of building long term
value.
 This leads to long term cash flow
streams.
 Entrepreneurship is a human creative act.
 It involves using personal energy to
initiate and build an enterprise.
Entrepreneurship
 It also requires a willingness to take
calculated risks – both personal and
financial – and then doing everything
possible to influence the odds.
Common Myths About Entrepreneurs)

 Myth 1: Entrepreneurs Are Born Not Made


This myth is based on the mistaken belief that some
people are genetically predisposed to be
entrepreneurs.
The consensus of many studies is that no one is
“born” to be an entrepreneur; everyone has the
potential to become one.
Whether someone does or doesn’t become an
entrepreneur is a function of the environment, life
experiences, and personal choices.
Common Myths About Entrepreneurs

 Myth 2: Entrepreneurs Are Gamblers


A second myth about entrepreneurs is that they are
gamblers and take big risks. The truth is, most
entrepreneurs are moderate risk takers.
The idea that entrepreneurs are gamblers originates
from two sources:
 Entrepreneurs typically have jobs that are less structured,
and so they face a more uncertain set of possibilities than
people in traditional jobs.
 Many entrepreneurs have a strong need to achieve and set
challenging goals, a behavior that is often equated with risk
taking.
Common Myths About Entrepreneurs
(4 of 5)

 Myth 3: Entrepreneurs Are Motivated Primarily by


Money
While it is naïve to think that entrepreneurs don’t
seek financial rewards, money is rarely the reason
entrepreneurs start new firms.
In fact, some entrepreneurs warn that the pursuit of
money can be distracting.
Common Myths About Entrepreneurs
(5 of 5)

 Myth 4: Entrepreneurs Should Be Young And Energetic


The most vibrant age range for early stage
entrepreneurial activity is 25 to 34 years old.
While it is important to be energetic, investors often cite
the strength of the entrepreneur as their most important
criteria in making investment decisions.
 What makes an entrepreneur “strong” in the eyes of an investor
is experience, maturity, a solid reputation, and a track record of
success.
 These criteria often favor older rather than younger
entrepreneurs.
Other Myths about Entrepreneurs

 Myth5- Anyone can start a business


 Myth6- Entrepreneurs want the whole
show to themselves
 Myth7- Entrepreneurs are their own
bosses and completely
independent
 Myth8- Entrepreneurs work longer and
harder than managers in big
companies
Myths about Entrepreneurs

 Myth9- Entrepreneurs experience a great


deal of stress and pay a high price
 Myth10- Starting a business is risky and
often ends in failure
 Myth11- Money is the most important start-
up ingredient
Myths about Entrepreneurs

 Myth12- Entrepreneurs seek power and


control over others
 Myth13- If an entrepreneur is talented,
success will happen in a year or
two
 Myth14- Any entrepreneur with a good idea
can raise venture capital
 Myth15- If an entrepreneur has enough
start- up capital, he or she can’t
miss
Myths about Entrepreneurs

 Myth12- Entrepreneurs seek power and


control over others
 Myth13- If an entrepreneur is talented,
success will happen in a year or
two
 Myth14- Any entrepreneur with a good idea
can raise venture capital
 Myth15- If an entrepreneur has enough
start- up capital, he or she can’t
miss
INTRAPREPNEURSHIP
DEFINING INTRAPREPNEURSHIP
 The practice of entrepreneurship within the
confines of the organisation

 Creating something new and of value


within the confines of the organisation

 Thrives in organisations with an


entrepreneurial culture
Intrapreneurial culture

 Intrapreneurial culture:
Employees with talents to act with
freedom to take initiatives or try out
new ideas as if they were running
their own business
Differences between entrepreneurship
and entrepreneurship
Intrapreneurship Entrepreneurship
 Acts within the confines  Acts outside the
of existing organization organisation
 Challenges the status  Challenges the status
quo and fights to change quo outside the
the system from within organisation
 Has “free” resources  Has to look for his
found in the organisation resources
Factors retarding intraprenuership
 The cost of failure too high, the reward of
success too low
• No space is provided for failure
• No reward for innovative ideas
 Inertia caused by established systems that
no one is willing to changed
“we have always done it like this’ If it
ain’t broken, don’t fix it” “changing now
would be too much effort”
Factors retarding intraprenuership
(cont…)
 Hierarchy – the deeper the hierarchy, the more
difficult it is to get permission for anything new.
Support from top management
 Recognition that entrepreneurship culture needs
to be compatible with the overall organizational
culture
 Communication system within the organization is
strong so that entrepreneurs within the company
can be heard
Lecture 2
Characteristics of successful
entrepreneurs
Research has shown that
certain traits seem to be
associated with entrepreneurs
Who are entrepreneurs?
 Are opportunity driven, not resource driven
 Managers ask:
 “given the resources under my control,
what can I achieve?”
 Entrepreneurs ask:
 “Given what I want to achieve, what
resources do I need to acquire?”
 Good as seeing pattern changes within the
environment
Who are entrepreneurs? (cont…)
 “The reasonable man adopts him/herself
to the world: the unreasonable one persist
in trying to adapt the world to him/herself”
 The entrepreneur is the unreasonable
man/woman who is motivated by the
dream of things that conventional wisdom
says can’t, won’t or shouldn’t be
 Entrepreneurs have therefore stubborn
perseverance
Who are entrepreneurs? (cont…)

 Stand up to ridicule
 Stand up to failure, good at failure but
See failure as a temporary setback and an
opportunity to learn and do better next time
 “success is the ability to go from failure to
failure with no less of enthusiasm”
Who are entrepreneurs? (cont…)

 The two magic words of an entrepreneur


“what if …?”

What if telephone didn’t have to be connected


to each other with wires”

 Constantly scanning the environment for


opportunities
Who are entrepreneurs? (cont…)

 Entrepreneurs create their own future –


get up , look up for circumstances they
want, if they find them, make them”
Characteristics - internal locus
of control
Definition

 How you explain your successes and


failures.
 Locus of control refers to the extent to
which individuals believe that they can
control events that affect them
 Internals: : See themselves as responsible
for both success and failure.
 They attribute success and failure internally
 Believe that events result primarily from their
own behavior and actions
 Their effort and/or ability are the factors they
see at work to produce outcomes.
 “ I succeeded because I tried.”
 “I failed because I did not try hard enough.
 Externals: See the outside external factors
as responsible for their successes and failures.
 Believe that powerful others, fate, or chance
primarily determine events

 “Everything is going my way this semester.


That’s why I’m doing well.
 “I got a bad grade because the lecturer didn’t
like me
Cultural Origins of External Locus of
Control:

 Fatalism—God wanted it that way


 Submission to nature—Not challenging
nature
 Subservience according to humility of one’s
position in life, caste system—I accept my
position in life
 Mañana syndrome—Take care of it
tomorrow/procrastination
 Oral tradition—Pass down customs and
traditions
People with high internal locus of
control ……
 better control of their behavior,
 Will be more likely to attempt to influence
other people.
 more likely to assume that their efforts will be
successful.
 They are more active in seeking information
and knowledge concerning their situation.
 Active seekers of information that is useful to
them
People with high internal locus of
control ……cont..
 Have greater amounts of perceptual
alertness. The research shows that this
leads to spontaneous learning, defined as
". . . the discovery of the existence of an
opportunity“
 More likely to believe environmental
influences, such as the economy, can be
influenced rather than passively accepted
People with high internal locus of
control ……cont..
 Are alert, discover opportunities, and
scrutinize their environment to find
information needed to formulate the
optimal approach to developing those
opportunities.
 "Entrepreneurs are alert to unnoticed
opportunities.”
People with high internal locus of
control ……cont..
 exhibit two essential characteristics: high
achievement motivation and low outer-
directedness

 Entrepreneurs have a higher internal locus


of control than non entrepreneurs.
 Thus, locus of control may be viewed from
a theoretical viewpoint as a potential
determinant of whether or not a person
involved with a small business is aware of
and seeking opportunities overlooked by
others within a given economic
environment.
Characteristics of Successful Entrepreneurs
cont…

Passion for the Business


This passion typically stems from the entrepreneur’s
belief that the business will positively influence
people’s lives.
Product/Customer Focus
An entrepreneur’s keen focus on products and
customers typically stems from the fact that most
entrepreneurs are, at heart, craftspeople.
Characteristics of Successful Entrepreneurs

Tenacity Despite Failure


Because entrepreneurs are typically trying something new,
the failure rate is naturally high.
A defining characteristic for successful entrepreneurs is
their ability to persevere through setbacks and failures.
Execution Intelligence
The ability to fashion a solid business idea into a viable
business is a key characteristic of successful entrepreneurs.
The ability to translate thought, creativity, and imagination into
action and measurable results is the essence of execution
intelligence.
Characteristics of people with a high
n-Ach (entrepreneurs )
 commitment to excellence
 Commitment to the task
 Choosing moderate risk
 Seizing opportunities
 Objectivity
 Need for feedback
 Optimism in novel situations
 Attitude towards money
 proactive management
Commitment to excellence
 Successful entrepreneurs value excellence
 Demand high performance from themselves and
will not be satisfied with less
 Aim at accomplishment of worthwhile and
challenging tasks
 They are not content to let a dream go
 Their vision seem to stimulate an inner drive to
make their dream come true
 They find a special joy in winning – achievement is
an end in itself
 Do you have the desire to be a winner?
Commitment to the task
 Becomes absolved in the task
 Do not let go
 Cannot forget or forgive themselves for an
unfinished project
 Burden of failure bothers them for long
 They do not wait for a lucky break – they know that
achievement do not come easily or quickly
 They dig in for a long haul and stay with a project
until it is successfully completed
 do you have a quality of stick-to-it-itiveness?
Choosing a moderate risk
 Entrepreneurs are not gamblers
 They choose moderate risks rather than the
wild speculative gamble – high nAch people
take the middle course in risk taking – not
conservative or wild risk takers
 Choose something large enough, exciting ,
but with a reasonable hope for gain –
moderate risk
 Willingly assume responsibility for a project
or task they believe they can manage
successfully through their own competencies
Choosing a moderate risk ( cont…)

 They know their own skills


 Their attitude is one of aggressive realism
 Their commitment to task rests on considered
judgment of their ability to influence the
outcome successfully

 Do you prefer a middle course when you have


studied a risky problem objectively and think you can
solve it through your own knowledge and skills?
Seizing opportunities
 Entrepreneurial persons are quick to see and
seize opportunities
 They show an innovative turn of mind and
convert opportunities they observe into active
programmes for achievement
 They anticipate and plan carefully to get
where they want to be (they are intensely
realistic)
 They favour logical predictions based upon
facts
Seizing opportunities (cont..)
 In realizing an opportunity, they are not
overwhelmed by obstacles but rather are
challenged to future out ways to get around
them

 Often come out with innovative ways to


overcome obstacles

 Are you alert to opportunities; do you seize


them to your advantage?
Objectivity
 Are more realistic than others about
themselves and the ends they seek

 They are utterly unsentimental about


undertakings close to their hearts

 They are not likely to get personal like


and dislikes stand in their way
Objectivity (cont..)
 When they require assistance, they select
experts rather than friends or relatives to help
them

 They take a businesslike attitude towards


their business

 Do you choose the tough businesslike way to


solve problems rather than giving in to
personal likes and dislike in finding help?
Need for feedback
 Entrepreneurs seek immediate feedback on their
performance

 They want prompt, accurate data on they result they a


re getting – does not matter whether the information is
good or bad

 Stimulated by feedback to pour more energy into


accomplishing the task

 Do you find it important to know how you are doing


when you are working on a project?
Optimism in novel situations
 High nAch persons tend to be optimistic in
unfamiliar situations
 The odds may not be clear, but the
circumstances may be appealing
 Sees no reason why they can win out through
their own abilities
 Not put off by lack of guidelines
 Frequently make more of whatever
opportunities they are than more cautious
persons who wait for the odds to become
better
 As they begin to understand the situation and
its elements, they revert to their more usual
habit and begin to calculate their chances
very closely
 Thus they present a paradoxical picture -
boldness in the face of unknown, prudence in
the face of the familiar

 Do you welcome tackling and solving an


unfamiliar but interesting problem?
Attitude towards money
 Tend to respect money but they are not
greedy
 They do not see money as something to
hoard, rather they see money as counters in
a game
 When their operations are profitable, they
view the profits as an indictor that they are
winning the game
 Profits or lack if it, gives entrepreneurs the
feedback signal they want
 When business is profitable, it tells them their
activities are sound and should be
strengthened or enlarged,
 when profits begin to slide off, it tells them
that they had better identity and solve the
problems causing the decline

 Do you see money as an end in itself, or do


you see it as a valuable asset that tells you
how you are doing?
Proactive management
 Although high nAch persons are careful to
keep an eye on the present, they keep a
significant part of their thinking directed
toward the future
 They plan their business world the way they
would like it to be
 They work hard to bring their plan to actuality

 Do you like to think ahead and plan your


future – then work to make it come true?
Reinforcing achievement motivation

 Think like an achiever


Direct your fantasies towards accomplishment
of worthwhile goals
Incorporate standards of excellence
considering what you do
Think of newer and better things to do and
newer and better ways of doing the things you
must do
 Adopting the language of achievement
and using it all the time
We choose our personal worlds by the words
we choose to describe them
Try using positive language to support your
positive thinking, without of course being brash
about it
Need a strong, continuing effort to think and
talk constructively
 Planning for achievement
Plan your goals in writing
Set down on paper what you want to achieve in
the nest year, next month, next week
Check how you are doing in meeting your
stated goals form week to week
This help in stimulating you to take corrective
and more effective actions from the feedback
you get and you will be enhancing your nAch
 Behaving in a positive and confidence fashion
 Successful entrepreneurs seize opportunities for
improvement and gain by creative positive actions
 Creativity and innovation underlie a major part of
successful enterprise activity
 Those who don’t think very well of themselves are poorly
equipped to take the risk step of venturing into the
unknown, which creativity and innovation imply
 Learn to have confidence in yourself
 Have a positive self image
 Practice behavior aimed at building personal
effectiveness
Entrepreneurial qualities as potential
liabilities
 Can some of the qualities that make an
entrepreneur cause problems in operating
a business once it is underway?
 Can an entrepreneurs personal assets
become a liability in managing a small
business?
Entrepreneurial qualities as potential
liabilities
 Some entrepreneurial qualities can become
a liability if not properly managed
 Recognizing that if carried to the extreme
some behaviour tendencies detract your
ability to run the business well
 This means that you need a thorough
understanding of yourself and the
willingness to adapt your behaviour to the
changing environment of your business
Negative behaviours of
entrepreneurs who do not adjust
 Reinventing the wheel:
Automatically rejecting techniques successfully
practiced in the other businesses
Convinced that you have the gift of perception
and sound intuitive judgment you may tend to
insist on reinventing the wheel and use
practices that have failed elsewhere
 Overreacting to business problems:
 The high risk environment of the new business
and the compulsion to make the business
successful often result in entrepreneurs
overreacting to problems
 As a business grow, problems are bound to
increase, delays in delivery, faulty equipment,
employees hired not performing, missed
opportunity because nobody returned the call….
All seem to happen at once.
 Hurried and impatient, you might react
rashly, damage future relationship with
supplies, customer or employees by
blowing up
 The entrepreneur should cultivate an
even temperament to deal with each
problem on its own merit
 Dealing ineffectively with employees:
 As the venture grows, personnel problems that are
common in older companies quickly surface
 Entrepreneurial qualities can conflict to some extent
with the objective capabilities need to select, hire,
train, mediate conflict and harmonize the purposes of
diverse human being. -
 You got into business because you need independence,
once you have employee, this independence is reduce
 You got into business to succeed not to work with others
Characteristics ( cont…)
 A desire to achieve: The push to conquer problems,
and give birth to a successful venture. A strong urge to
build
 Hard work: It is often suggested that many
entrepreneurs are workaholics.
 Desire to work for themselves/need for
independence Entrepreneurs like to work for
themselves rather than working for an organization or
any other individual. They may work for someone to gain
the knowledge of the product or service that they may
want to produce. They seldom are willing to submit to
authority
 Nurturing quality: Willing to take charge of, and watch
over a venture until it can stand alone.
 Acceptance of responsibility: Are morally, legally, and
mentally accountable for their ventures. Some
entrepreneurs may be driven more by altruism than by
self-interest.
 Reward orientation: Desire to achieve, work hard, and
take responsibility, but also with a commensurate desire
to be rewarded handsomely for their efforts; rewards can
be in forms other than money, such as recognition and
respect.
 Optimism: Live by the philosophy that this is the best of
times, and that anything is possible.
 Orientation to excellence: Often desire to
achieve something outstanding that they can be
proud of.
 Organization: Are good at bringing together the
components (including people) of a venture.
 Profit orientation: Want to make a profit; but
the profit serves primarily as a meter to gauge
their success and achievement.
 Ingenious and resourceful, they are
cunning, opportunistic, creative and non
sentimental
 Innovative, calculating inventor, over-
optimistic promoter, organizational
builder. These four terms are used to
describe the characteristics which is not
based on personality but on the type of
opportunity the entrepreneur faces
 Visionary – the entrepreneur ha an
enthusiastic vision which is the driving
force of the enterprise. This vision is
supported by an interlocked collection of
specific ideas not available to the market
 Persistence and determination - this
helps the entrepreneur to develop
strategies to make the vision into a reality
 Risk taker – calculated risks which
includes assessment of costs,
market/customer needs and persuading
others to join and help
Additional Characteristic of successful
entrepreneurs
 Competitive  Takes initiative
 Hardworking  Independent
 Forceful  Problem solver
 Knowledgeable  Time conscious
 Networking  Leadership traits
 Persuasive  Adaptive to change
 Good communicator  Likes people
Reward and penalties for being your
own boss
Reward penalties
Your enjoy the satisfaction of You are not your own boss in
being your own boss, for most some major respects – your
part – power to do things your customers, investors, and
own way government agencies are your
bosses
You can experience the reward
of ownership in tangible and Scope of operations is limited
intangible ways - create job for by your limited resources -
others, help others grow, have hence abandoning dreams f
your profits major projects because of lack of
resources
You command the respect of
others You work long and hard
especially when starting - cutting
on social and family time
Reward Penalties
You have opportunity to use Often you experience failure
your skills and develop before you achieve success –
potential as you engage in recovery required courage and
varied duties of an entrepreneur stick-to-itiveness

A variety of physical problems


You experience a sense of accompany entrepreneurial act –
achievement – gain pressure by resulting from stress – hence
playing the business game and need to develop strategies for
winning managing stress
Other factors to consider in starting a
business
 1. Know your business - have experience
in the business you want to start. This
includes
 Technical competence in the business -
have know-how to get the product or render
the service
 If you do not have know how – get a job in
that area . Learn everything technical and
marketing aspects of the product or service,
observe the strong and weak point to improve
 2. Management skills. These includes
 Marketing competence – how to find a
special niche in the market, identify your
customers, sell enough of what you offer at
the price that will have adequate returns
 Financial competence - plan for and get the
money you need to start your business and
keep it running
 3. Business planning skills
ENTREPRENEURIAL
BEHAVIOUR THEORIES
Entrepreneurial behaviour theories
 Entrepreneurial behaviour looks at activities,
interactions, competences and feeling of
entrepreneurs
 There exist a number of schools of thought
which view entrepreneurship from a
fundamentally different perspective.
 Such perspectives are:
 Economic
 Psychological
 Social
 Managerial
Economic theories perspective
 Economic theories of entrepreneurship focus on the
effects that economic environment has on
entrepreneurial activities and what impact entrepreneurs
have upon the economy

 From the economic perspective, an entrepreneur is a


person who brings together the resources or factors of
production into combinations that make their value
greater than before

 Economic theories help in providing missing links in the


economic environment that are necessary for business
startup and survival
Economic perspective (cont…)
 Proponents of economic theory believe that
entrepreneurship and small business
development is influenced by factors such as:
 Market structures and opportunities
 Investment climate
 Government restrictions or encouragement
 An entrepreneur is seen as a person who
specializes in taking judgmental decisions about
the coordination of scarce resources (Casson,
1982)
Economic perspective (Cont..)

 Classical economist like Keynes emphasis


optimization of existing resources in order
to reach equilibrium.
 Here the entrepreneur is defined as:
 The stabilizing force that brings market forces
closer to an equilibrium
 He/she shifts economic resources out of an
area of lower risk/productivity to areas of higher
productivity/greater yield
Here the entrepreneur is defined as:…

 An entrepreneur is the person involved in allocating


scarce resources in order to produce goods/services
with utility, hence a forth factor of production he/she
distributes and organizes resources

 An entrepreneur is the stabilizing force which brings


markets closer to equilibrium and which makes market
forces work more smoothly

 The entrepreneur is the person driven by profit motive


(profit maximization and cost minimization) and gains
socially and financially from economic activities.
Here the entrepreneur is defined as:…
 Entrepreneurs create a dynamic disequilibrium in the economy as
opposed to static equilibrium

 This he does by creating innovations which introduce new


combinations and production

 Entrepreneurial activity is a destabilizing force that starts the


process of creative destruction, the essence of economic
development

 Entrepreneurs are not manage who undertake routine activities on


the basis of past experience without idea of change, rather they are
risk takers in the area of uncertainty and engage in activities that
have not been undertaken before
In summary, the economists see
entrepreneurs as:

 Risk takers or the bearer of uninsurable risks


(Cantillon, 1755)
 A combiner of resources or factors of production
such that wealth is created (Say, 1832)
 Innovators who bring new combinations into
production process (Schumpeter, 1942)
 Schumpeter saw entrepreneurship as the engine
of economic development which resulted in new
combinations (called an enterprise)
The new combinations may include:
 Introductions of new products or services
 Introduction of new method s of production
 Opening on new markets
 Finding new sources of supply of raw
materials or components
 Providing induction reorganization
Implications/comments on this theory

 You can train entrepreneurs by enhancing


their creativity and supporting innovating
ideas
 People can be trained to sharpen their
decision making abilities to see and
analyse opportunities creatively
SOCIOLOGICAL THEORIST
PERSPECTIVE
 According the this perspective environmental factors
such as belief systems, cultural values, social
structure for the basis of entrepreneurial behaviour
 Studies by some sociologist indicate that the decision
to become self employed is related to having
association with another person who is a close relative
 Social interactions provide potential entrepreneurs
with:
 Market/market information
 Credit
 Social support
SOCIOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 The sociological theories have been based
on the premise that members of a given
society generally adhere to system of
structured roles which can encourage or
discourage entrepreneurships.
 Entrepreneurship activities will be high in
those cultures where entrepreneurships is
held in high esteem.
SOCIOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 The social influence of entrepreneurship
behaviour can be explained in terms of:
 Family background - the general hypothesis is
that those whose parents are self employed or
business owners are significantly more like to
become business owners themselves
 Religion – research findings indicate that some
particular religious persuasions tend to have
entrepreneurial spirit. For example, Jews are
commonly perceived as having an enterprising
nature
SOCIOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 Ethnicity – research indicates that some ethnic
groups are more inclines to entrepreneurial
activities than others
 Education and training – research studies
indicate that entrepreneurial activities can be
enhances through educational and training
programmes .Relevant training provides
prerequisites for business ownership and helps
in reducing business failure rates
 Cultural values – some cultural values
discourage/encourage entrepreneurship
Comments of this perspective:

 It perpetrates the myth and stereotypes in


society related to superiority and class
system and are not healthiest for
development

PYSCHOLOGICAL THEORISTS
PERSPECTIVE
 The psychological theories of entrepreneurship
are based on traits and personality
characteristics that are exhibited by successful
entrepreneurs
 The central focus of this perspective is that the
entrepreneurs have unique values, attitudes
and needs which drive them to business
creation
 People behave according to their values, and
attitudes irrespective of the different situations
they might be
PYSCHOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 The psychological school focuses on personality
factors
 Believe that entrepreneurs have unique values
and attitudes towards work and life
 This propel the individual to behave in a certain
way
 According to this theory, some people are more
likely to become entrepreneurs because of their
mental attitude for independence or with
dissatisfaction with operating under the direction
of others
PYSCHOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 Entrepreneurs, as other people acquire
these values attitudes and needs as they
grow up from:
Families
Schools
Churches
Communities
 These values are learned in the process of
socialization into a culture.
PYSCHOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 Since values are leaned early in life ad are well
established prior to adulthood, characteristics
can only be reinforced in those who portray them
or have them in latent (dormant, concealed) form

 It would not be cost effective to try to develop


them in people who do not possess them but to
reinforce them in those who already have them
PYSCHOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 The major distinguishing features, or quality of
characters that have been widely explored within the
psychological perspectives that make entrepreneurs
different from others are:
 Need for achievement
 Locus of control
 Risk taking propensity
 Positive self image
 Initiative
 Independence
 Future orientation
 Goal setting
 Time bound planning
 Environmental searching
PYSCHOLOGICAL THEORISTS
PERSPECTIVE (cont..)
 Extreme psychologist further suggests
that:
The entrepreneur has an ability, sixth sense
and instinct which is inborn
The entrepreneur portrays intuition, energy,
persistence and self-esteem
Entrepreneurs according to this version are
born as they have natural abilities, training
cannot influence in any way
Comments of this perspective:
 It perpetrates the myth and stereotypes in society related
to superiority and class system and are not healthiest for
development
 It simply says people are not equal and it would be
difficult to organize

training programmes suitable for all


 It can give negative attitude towards young people who
might not be lucky to possess the unique abilities and
traits
MANAGEMENT PERSPECTIVE

 This school emphasize organisation of resources in a


systematic way to attain maximum profit
 Entrepreneurs are therefore organizers of an economic
resource venture
 They organise, own, manage and assume risks
 Entrepreneurships is therefore a series of activists which
focus on the central function of managing a business
such as production, planning, marketing,
coordinating, controlling, evaluating and financing
Management perspective (cont..)
 The managerial school therefore emphasizes on
improving a persons capacity through
developing his/her
 Analytical
 Rational
 Cause-effect relationship
 Another stand of management view
entrepreneurs as leaders on people
 They have the capacity to adapt their styles in
order to get maximum out of people
Management perspective (cont..)
 They view people as their greatest resource and
realize that they cannot accomplish goals alone
but must depend on other people and their skills
 Training is therefore possible by knowing how to
motivate, lead and direct people
 Basic questions that people who follow this
school of thought would be asking themselves
are:
 What are my plans?
 What are my capabilities?
 What are my credentials?
 How do I get most from the people around me?
CONCLUSION

1. All these theories provide a useful insight in


understanding and explaining entrepreneurship
2. It is possible that they can complement each
other in developing a rich entrepreneurial
programme
3. Pre- starters can benefit a lot form
psychological, social and economic schools of
thought
4. Start ups and on going entrepreneurs can
benefit more from management school
Challenges of
entrepreneurship in Africa
CHALLENGE: ENTERPRISE
CULTURE
ENTERPRISE CULTURE
Enterprise culture
 Culture is a pattern of share beliefs and values
that provide the members of an organization with
rules of behaviour or accepted norms for
conducting their operations
 It is the philosophies, ideologies, values,
assumptions, beliefs, expectations, attitudes and
norms that knit an organization or a community
together and are shared by members
Enterprise culture (cont..)

 Enterprise culture, therefore can be


defined as a set of altitudes, values, and
beliefs operating within a community or
environment that lead both to the entering
behaviour and aspiration towards self
employment or venture creation
Research on enterprise culture

Research findings indicate that:


 Those who have parents or relative who
own small businesses are likely to become
entrepreneurs than those without similar
acquaintances
 Those who have worked in small
enterprises are more likely to establish
such enterprises later
Research on enterprise culture
 Those who work in organizations which allow
them greater deal of independence and freedom
of operations under conditions of uncertainty are
more likely to establish businesses than others

 Those coming from a culture which supports


individual small business ownership whether for
religious purposes, ethical or moral reasons are
more likely to establish businesses than others
outside the culture
Components of an enterprise culture
1. Abundant positive role models of successful independent
businesses

2. Ample opportunity for familiarization with small business tasks


especially during youth

3. Network of independent businesses family contacts and


acquaintances reinforcing familiarity and providing market entry
opportunities

4. Provision of formal/informal knowledge and insight into the


process of independent business management

5. Opportunity to practice entrepreneurial attributes reinforced by


society culture during formative years
CHALLENGE: -
ENTREPRENEURIAL
MOTIVATION
CHALLENGE: -
ENTREPRENEURIAL
MOTIVATION
ENTREPRENEURAIL MOTIVATION

 Successful entrepreneurship starts with


entrepreneurial motivation
 This can come from within you - internal
motivating
 OR
 From other actors -External motivation
ENTREPRENEURAIL MOTIVATION

 Entrepreneurial motivation is affected by


two main factors

internal motivating factors


External motivating factors
Internal motivation

 Internal motivation is the inner drive you


get as a result of desire to achieve a
certain goal or fulfill some needs

 The goals are the aspirations that define


the base of inner drive of an entrepreneur
Internal factors affecting motivation
 Self actualization
 One of the powerful motivators that form the base for
inner drive on an entrepreneur is self actualization.
Usually a successful venture offers various form of
reward in terms of benefits identity and prestige. Having
achieved the basic human needs, entrepreneurs become
more confident in their abilities to realize their capability
of achieving more

 Profit maximization
 The drive to maximize profits will make potential
entrepreneurs work harder, be more innovative and even
venture into other enterprises
Internal factors affecting motivation
(cont…)
 Desire to succeed
 This is an aspiration to achieve success toward ones
welfare to maximize pleasure and happiness. This will
give an entrepreneur public appreciation and recognition,
especially if they have accomplished difficult tasks where
others have failed

 Survival
 An entrepreneur has to face many challenges,
completion, internal and external forces. To succeed,
entrepreneurs have to strive to overcome these
obstacles. This sprit of survive sustains them through a
challenging environment
Internal factors affecting motivation
(cont…)
 Adventure
 This is a way of taking risks or challenges without knowing the end
result. This gives a potential entrepreneur an opportunity to explore
and this helps and enhances his knowledge and innovativeness

 Independence/self reliance
 An entrepreneur does not like being controlled by others. They have
their own original thoughts and ideas and generally do not conform
to routine jobs and practices. To satisfy their needs they seek
opportunities that provide independent hence become masters of
their own activist and taking full responsibilities for their outcome

 Power
 The desire to feel in total control of all situations
External motivation

 What external factors would motivate me


to start a business?

 External motivation factors are those


factors that expose you to the available
public resources and facilities which
would encourage you to start a business
External motivators
 Credit facilities
 These are the facilities which would help you to acquire
the necessary capital outlay to be able to set up an
enterprise
 This capital outlay will assist you to purchase raw
materials, machinery, equipment and other inputs
 Infrastructure
 Includes building, communication, information
technology, transport and other auxiliary services and
utilities
 Lack of adequate infrastructure creates physical
constraint to you when implementing your ideas.
 Access to business information
 This includes investment information, small
business development assistance and
consultancy services, fairs and exhibitions
 Training
 In entrepreneurship, small business
management, business planning, services,
Access to technology
 Technology linkages through research institution
 Business incubation services – to guide
growth
 Access to markets
 Access to local markets though subcontracting,
international or regional markets through trade
agreements e.g. AGOA, COMESA
 Export and import incentive schemes:
 These are government schemes used to provide
concessions to you, when you are involved in the export
or import activities. Concessions on taxes, customs and
excise duties, speedy licensing with regard to export and
importation of machinery equipment and raw materials
by the government will reduce your operating costs if
your are involved in import and export activities. This will
reduce your costs of imports and encourage you to set
up an enterprise or expand the existing one
 Pricing policy
 This is part of government policy which assists
or encourages you to produce and sell goods
and services
 It is important that a pricing system must take
into account the total cost require to produce a
good or services whereby you are able to
recover production cost and be left with
reasonable profit margins which could de used
to improve your business

 Export processing zones (EPZ)
 This is a government scheme to assist investors
manufacture internally competitive goods aimed
entirely for export markets
 You as a local invest will benefit from not paying
heavy freight costs, additional fees on insurance
in transit, no delays form lengthy shipping
durations when you purchase from EPZ
 If you invest in the EPZ you will benefit form
exemption form export earning, raw materials,
capital transactions, inputs relating to
manufacturing activities
Other Challenges Of Doing Business
In East Africa
 Corruption -There are estimates that put
the price of goods and services at 15 per
cent more expensive because of the
corruption input in the cost of goods. At
the very basic level, it’s difficult still to have
a truck move from Mombasa to Rwanda
without having to part with a tidy sum to
facilitate the movement across the patch
Other Challenges Of Doing Business
In East Africa (cont…
 Availability of reliable data and
information - population distribution,
economy size and growth rates, and so on.
is still a challenge which varies from
country to country.
 Lack of common regulatory Standards.
This is especially true of manufacturing,
where in some cases you have to satisfy
different regulatory
Other Challenges Of Doing Business
In East Africa (cont…
 The challenge of real east Africa
integration. Work permits, customs union.
 Mutual suspicion amongst East Africa
states. Its much easier for a Chinese
company to get licensed to do business in
any of the East Africa countries than it is for
any local companies moving across the
borders.
 Security – terrorism etc
Entrepreneurship Process
Is everybody who starts a
business an entrepreneur?
Entrepreneurship Process
Steps:
 Appreciating entrepreneurship
 Getting the motivation
 Idea generation
 Opportunity assessment
 Business planning
 Registration
 Financing
 Start up
Appreciating entrepreneurship

 Right attitude:
Positive – entrepreneurship can be a
way of life
Not a get rich quick business

 Be motivated to an entrepreneur
Lecture 3
Idea Generation and
Opportunity Assessment
What is a business idea

 What is a business idea?


 Start by explaining the concept of a
business idea and sources of a business
idea

 An idea is a thought that generates in the
mind.
 One of the biggest challenges of many
people is to come up with a business idea.
 A concept that you can use for financial
gain by offering goods/services.
 An idea is a first milestone in the process
of building a successful business
Idea generation – sources of business
ideas
 Vocational training and experience
 Hobbies
 Through networking, talking to bankers,
sales people, peers
 Observing the environment – the
unexpected, process needs, change in
technology, demographic changes, law
changes
 Shows, exhibitions, fairs
 Brainstorming in groups or community
 Newspapers and magazine – from special features ( e.g.
on value addition), to tenders, adverts, etc
 Survey
 Talking to successful business people - they can advise
you on certain businesses that are profitable
 Talking to potential customers - one can get to know
their preferences for certain products or services
Business opportunity

 Not all ideas are opportunities


 An opportnity is an attractive project idea
which an entrepreneur accepts for
investment on the basis of what he knows
about the possible success of the project.
Opportunity assessment/validating an
idea

Purpose:
 To assess whether an idea is feasible
(workable) and viable (give the owner
good returns)
Characteristics of a good business
opportunity - check points
 For an idea to be an opportunity, it has to
have several characteristics
A Good Opportunities - characteristics

Good Business
Opportunity

Value
Attractive creating

Achievable Durable

Before launching opportunity as a business


•Consider the resources available to undertake it
•Consider the characteristics of the entrepreneur
pursuing it
Characteristics of a good business
opportunity
 Demand
 There is a good market scope for the product – the
available products are not enough to everybody or its not
what the customers want – there is a gap in the market
 Questions : Is there a market? Is there a need that
needs to be fulfilled? Do you understand the customers?
What is the industry trends
Good return on investment /profitability
 what is the expected return on investment,
when are you likely to break even
Questions:
 How profitable is the business
 How long will it take to break even, can
you wait that long
 What are the expected risks.
Availability of inputs
 Raw materials, technology, labour
 Skill required available – especially
specialized skills
Your strengths

Do you have:
 The required skills and appropriate
technology
 An entry strategy
 Organizational plan (Technical and
management)
 Enough capital to finance the business
6. The environment – PESTEL
 Evaluate the environment in terms of:
 Political environment
 Economic environment – market conditions,
competition, resource availability, business trends,
infrastructure
 Social environment - culture, demographics
 Legal environment – government policies and laws and
regulations, eg taxes, quality regulations
 Technology environment – technology advancement,
social media etc
 Environmental - climate, land, soil,
Business Planning

“Failing to plan is planning to


fail”
Business plan - what it is (cont..)

 A written document with specific


procedures for achieving results within a
specified period of time
 It determines what a a business will is, will
be and should be
 It is a document which summarizes a
business opportunity ( why the opportunity
exists and why the management team has
what it takes to achieve it)
Business plan - what it is (cont..)

 It defines and articulates how the


management team will seize and execute
the opportunity identified
 It specifies procedures for achieving
objectives/results within a specified period
of time
It states:

 What will be done, how it will be done, by


who the work will be performed, under
what time constraints
 It is a document which defines the most
desirable, most timely, least hazardous
route to a given destination
Why plan
 Helps provide direction by making you discuss where you
want to take the venture and define what you want out of it.
 business plan provides structure to your thinking and helps
you make sure you’ve covered all of the important areas.
 A business plan prompts you to think about the future - what
you would do when, where, how etc
 A good business plan will include ideas for dealing with new
competitors in your market,
 A business plan will help you communicate your idea, not only
to financers, but also to employees, potential employees,
suppliers, and customers. As a communication tool, a
carefully developed plan will provide something that other
people can react to. Y
Why plan

 To raise capital – to convince investors


that the new venture:
Has an opportunity
Has an entrepreneurial talent
Has management talent to exploit the
opportunity
Has rational and coherent and believable
programme for achieving revenue and
expenses targets on time  
Why plan

 As a means for guiding business growth


to understand growth
to guide growth
it is a flight stimulator
gives confidence in decision making
helps in redefining strategy and in making
difficult decisions
Claries the venture financial requirements
Why plan
 Save management time
 Ensures management and market
opportunities are not missed
 Provide for effective utilization of firms
resources
 Encompasses strategies for carrying out
decisions
 Provides systematic feedback as a means
of measuring results
Why plan (cont…

 Analyse the impact of competition


 Track changes in customers lifestyles,
wants and needs
 Aid in decision making
Why plan (cont…

 Analyse the impact of competition


 Track changes in customers lifestyles,
wants and needs
 Aid in decision making
Business plan outline
 Phase 1: the industry the company,
products or services
 Phase 2: marketing research, analysis and
marketing plan
Marketing research and analysis – customers,
market size, trends, competition, estimated
market share
Marketing plan – overall marketing strategy,
pricing strategies, sales tactics, advertising and
promotion programs, distribution plan
Business plan outline ( cont…)

 Phase 3: operational analysis and


organizational plan
Designer and development plans
Manufacturing and operational plans
( geographical location, facilities and capacity
improvement, strategy and plans
The management team ( organizational
structure, key personnel, compensation,
incentives, support advisors
Business plan outline ( cont…)

 Phase 4: financial analysis and plan


The economics of the business – gross and
operating margins, profit potential, fixed and
variable costs
Financial plan –pro forma income statements
balance sheet and cash flow, breakeven
analysis
Proposed company financing – desired,
sources and uses
Business plan outline ( cont…)

 Phase 5: Executive summary


Summary description of the business
The opportunity and entry strategy
Target market and sales projection
Competitive advantage
Economics and profit potential
The team
Financial plan
Overall schedule, critical risks and assumptions
Phase 1: The industry the
company, products or services
( business description )
PHASE 1: BUSINESS DESCRIPTION

 PURPOSE: To give an insight of your products and its market


 Presents:
 What business you will be in
 The product you will be offering
 The nature of the industry
 The opportunities available for you to exploit
  Sections:
 Nature of business and industry trends
 The company – vision, mission, values
 The products or services
 Opportunity and entry strategies
 
 Nature of business and industry trends
Description of the business
what solutions are you offering
The industry
 The current status and prospects of the industry in
which your proposed business will operate
 Any new products/development , new
markets/customers, new companies
 Any other national and economic trends and factors that
could affect the business positively or negatively
 Technical advancement in the industry.
 If you are in a rapidly changing environment, then the
entrepreneur will have to make short term marketing
decisions as well as being prepared with contingency
plans given new technology advancement
The industry cont….
 Culture – evaluate the cultural changes that may have
an impact of your business e.g., the gym craze,
nutritional craze
 Industry demands and trends
 Number of competitors
 Possible changes in customer needs
  Who are the industry major player
 Competition:
 Who are the competitors and what are their strengths
and weaknesses
The company
 Name of the company
 Company vision and mission statement of the company
 What business are you in (business goals and objective)
 Are you in the direction of business creation, survival or
profitability
 Reasons for selecting this type of business
 Location of the business
 Expected date of incorporation
 Type of business ownership
 Products or services being offered
 Principal customers
The product/services
 Product/service description – its application, unique
features
 The product/service configuration – the bundle of
physical and psychological attributes that form or are
associated with the core benefits to be derived from the
products
 Physical attributes - style of the product, packaging,
colour, size etc
 Psychological attributes – image the product will
generate, brand, warranty and after sakes service
Product/services cont..
 If you have may products, you may want to talk
about the product mix with three different
attributes
Width – how may different product lines are there
depth – average number of times offered within
each product line
Consistence – how closely related are the products
in tem of end use, production and distribution
requirements, target market or segment appeal
 
 Difference between what is currently in the market and
what you will offer
 ( include a photograph if any)
 The technology necessary to make and deliver the
product
 Proprietary position
 Any patent, trade secrets, copy rights and trade mark
 Any headstart that you might have that might enable you
to achieve a favoured position in the market
 Potential
Any features of your product that gives it an
advantage over your competitors
Any opportunity for expansion of the product line
or development of related products or services
Any opportunities for expansion of your market
Emphasis on your opportunities and how you
intend to take advantage of them
 
Entry and growth strategy
 How will you gain a foothold in the market place and secure rapid
market penetration
 Entry strategy is also derived from your sustainable competitive
advantage and the weaknesses among competitors that you can
exploit e.g. lack of innovation, slow response in time, full capacity
 Include also your success variables ( innovate product, or
marketing approach) and your pricing, distribution, advertising,
promotional plans
 In summary, how fast do you intend to grow, to what size in the
first five years etc
  Identify some sources of all the information you will use to
describe the industry trends
PHASE 2:
Marketing Research, Analysis and
Marketing Plan
Purpose
 To present enough facts to convince the invest
or reader that your venture/products has
substantial market in a growing industry and can
achieve sales in the face of competition
 This phase deals with:
 An analysis of market opportunities
 Developing market strategies, tactics and policies,
 Establishing pricing policies, strategies and tactics
 Plan for promotions
 All subsequent sections of the BP will
depend on this section i.e. sales
estimates developed from this section
because sales level influence the
manufacturing, operational, marketing
plans, debt and equity capital
requirements
This phase has two sections:

  1. Marketing research and analysis –


customers, market size, trends,
competition, estimated market share,
sales projection
 2. Marketing plan – overall marketing
strategy, pricing strategies, sales tactics,
advertising and promotion programs,
distribution plan
Market research and analysis –
customer
 Who are they – identifiable characteristics
 Where are they found ( location)
 How will you reach them ( distribution )
 What do they base their buying decision on – price,
quality, service, personal contacts, politics
 Any potential customers who have expressed an interest
in your product or services
 Any customer who has expressed NO interest and why
 What will you do to overcome customers negative
reaction
Market research and analysis –
market size and trends
 Size of the total market – units and shilling value -source
of data - discussion with potential distributors, dealers,
sales reps, customers can be a useful source)
 Extent of your market – regional or countrywide
 What share are you expecting to have ( in the segment,
region or country)
 Describe the potential annual market growth rate of the
total market of the product ( four at least 3 future years)
 Discuss major factors affecting market growth (industry
trends, social and economic trends, government policy,
and population shift)  
Market research and analysis –
competition and competitive edge
 A realistic assessment of strengths and weaknesses of competitive
products and services
 Who are they
 Current advantages and disadvantages of competing
products/services and how they are not meeting customer’s needs
 Determine the market share of each of the competing company and
distribution and production capabilities
 Which company is the price leader, quality leader
 Any companies who have entered and dropped out of the market in
recent years
 Discus your 3 – 4 competitors and why customers buy from them
 Do you think you can capture their share of the market?
 What makes you think it will be easy or difficult to compete with them 
Market research and analysis -
Estimated market share
 Identify major customer that are willing to make a
purchase commitment
 Which customers could be major purchasers in future
years and why?
 What are the advantages of you product
 What is the market size and trends
 Estimate your market share and sales in units and shillings
that you will acquire in each of the next three years
 On going market evaluation -Explain how you will continue
to evaluate your target markets so as to assess your
customer needs
Marketing plan

 This describes how the sales projects will


be attained. It It details:
Sales project
Overall marketing strategy
Sales and service policies
Pricing
Distribution
Advertising strategies that will be used to
achieve the estimated market share
Marketing plan

 The market plan should therefore


describe:
What is to be done?
How it will be done
Who will do it?
When it will be done?
Marketing plan - Overall marketing
strategy
 What is your marketing philosophy and marketing
strategy? i.e.
 What kind of customers will be targeting at the initial
intensive selling and for later selling effort?
 How will you identify potential customers and how will
they be contacted
 What features of the product or service (e.g. price,
quality, delivery) will be emphasized to generate sales
 Indicate whether the product will be introduced
regionally or nationally, why and what are the plans
for expansion
Marketing plan – pricing
 Your price must be right” to penetrate the market and
maintain a market position and produce profits
 What price will you charge – compare your price and
your strategy with our competitors
 What will be the gross profit margin?
 Is the margin large enough to allow for distribution,
warranty, services, depreciation and advertising etc and
still allow you to make a profit
Pricing strategies
Pricing strategies – based on quality
Pricing strategies
 Premium pricing – high quality , high price
 Uses a high price, but gives a good product/service
exchange – eg business/first class travel

 Penetration pricing – high quality, low price
 offers low price to gain market share - then increases price
 to attract new clients)
 Economy pricing – low quality, low price
 placed at ‘no frills’, low price
 ‘economy’ brands
 Price skimming – low quality, high price
 where prices are high - usually during introduction
 e.g new albums or films on release, some set up boxes for Television
 ultimately prices will reduce to the later
 Psychological pricing
to get a customer to respond on an emotional,
rather than rational basis
.e.g sh 99 not sh 101 ‘price point perspective
 Product line pricing
rationale of a product range
e.g., Four-pack sh 99,
 Pricing variations
 ‘off-peak’ pricing, early booking discounts,etc
Pricing strategies cont..

 Optional pricing
 e.g. optional extras
 Captive product pricing
 products that complement others
 e.g Gillette razors (low price) and blades (high price)
 Product-bundle pricing
 sellers combine several products at the same price
 e.g software, books, CDs
 Promotional pricing
 Geographical pricing
 different prices for customers in different parts of
the world
 e.g. Include shipping costs
 Value pricing
 usually during difficult economic conditions
 e.g. Value menus

 Predatory pricing
 If your price is higher than competitors,
justify it( on the basis of newness, quality,
services etc)
 
 If lower explain how you can do this and
maintain profitability e.g. greater efficiency
labour market costs, lower overheads,
lower material costs, lower distribution costs
Marketing plan – sales tactics

 This describes the methods that will be


used to make sales and distribute the
product or service
 Will the company use:
Own sales force
Sales representatives
Distributors
Sales tactics cont…
 What are the initial plans and long range plans?
 What margins will be given to retailers, wholesalers, sales
persons if any
 How will you select the distributors if any
 Any exclusive distributor rights
 If direct dales force will be used, indicate how it will be
structured and at what rate will it be built up
 Sales expected per person, commissions, incentives, salaries
 Compare figures with industry average
 Present: Sales budget including all marketing, promotion and
service costs
 
 Warranties and service (if need be)
  Indicate why it will be necessary
  
 e) Advertising and promotion
  Approaches that the company will use to bring the
attention of the prospective customers e.g. trade shows
participation, trade magazines, advertising is specific media
 
 f) Distribution plans
 Use of commission sales representatives, retailers, branch
offices, dealers, direct sales etc
PHASE 3:
OPERATIONAL ANALYSIS AND
ORGANIZATIONAL PLAN
Includes:

 Design and development plans -development status


and tasks, difficulties and risk, product improvement
and new products, cost of design and development,
proprietary issues
 Manufacturing and operational plans ( geographical
location, facilities and capacity improvement,
strategy and plans
 The management team ( organizational structure,
key personnel, management compensation and
ownership, incentives and employment agreements,,
support advisors
Design and development plans

 Development status and tasks


Describes the extent and nature f design and
development plans e.g. engineering works
What is the current status and what needs to be
done to make it to be ready for the market
What competence or expertise does the company
have or will have to acquire in order to complete
the task
What is the cost and time required to be able to
achieve a marketable product
Design and development plans
cont…
 Difficulties and risks
What are the anticipated problems and what will be
your approach to solution
 
 Cost of design and development
Labour, materials, consulting fees
This forms a budget and will be part of the financial
plan
Manufacturing and operational plans
This section describes:
 The kind of facilities
 The manufacturing and operational process - Whether some
parts of the process will be subcontracted
 Locations - The geographical location, reasons for selecting
that location, and amount of space and improvements
required
 Capital equipment required
 Labour force
 Inventory control systems
 Production plans ( cost/volume information at various levels
of sales)

Strategy and plans

 Lay out of the production process


 Raw materials which will be needed and
where they will come from (suppliers)
 What are the costs of manufacturing?
 What equipment will be needed?
 How will inventory control system be
operated?  
Organisational plan
 The organizational chart indicating the line of
authority
 Management team – key management roles and
individuals filling each position. Exact duties and
responsibilities
 Management compensation and ownership –
salaries, shareholdings
 Incentives and employment agreement
 Support/professional advisors and services
 
Phase 4
Financial analysis and plans
Financial analysis and plans

 This is the financial evaluation of business


opportunity.
 It indicates the ventures potential and
presents a timetable of financial viability
 It includes:
The economics of the business
Financial plan
Proposed company financing
The economics of the business
 Gross and operating margins ( selling price –
variable costs
 Profit potential and durability/ perishability, the
magnitude and expected durability - using
industry benchmarks, competitive intelligence
and own experience
 Fixed and variable costs – provide detailed
summary of these per year
Economics of the business cont..
 Breakeven. How long will it take to break even? Provide a
break even chart. Discuss the break even and whether it will
be easy or difficult to achieve
 Proforma cash flow analysis – projected cash flow. Year one
should be month and year 2 and 3 should be quarterly
To determine the need for and timing for additional
financing
Indicates how additional financing will be obtained
Discuss cash flow sensitivity to a variety of assumptions
about business factors
Months to reach a positive cash flow -when
 
Financial plan

 The assumptions you have made in the


financial plan – assumptions on bad
debts, discounts, administrative expenses
 The pro forma income statements –
prepared using sales forecasts and
accompanying production cost
 Proforma csha flow statements
 Proforma balance sheet
Proposed company financing
 This indicates the amount of money being sought and the nature
and amount of securities being offered.
 It also gives a brief description of the uses of capital raised.
 This section will therefore include:
 Desired financing over the next three years – This is based on
your real time cash flow projections and your estimates of how
much money is required over the next three years
 Sources/capitalization - loans, savings, shares
 Uses – design and development, equipment, marketing,
working capital
 Assumptions (security will be acceptable for loan)
