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1. Of all the forces that foster entrepreneurship, which are the most
relevant ones in the world today?

a. Technological Evolution

A number of researchers have argued that the level of technological maturity

greatly impacts the number of entrepreneurial opportunities. Young
industries, in which needs are not well-defined, present many more
opportunities than more established markets. Once a dominant product
design appears in a market, incumbents often develop economies of scale,
and improve their processes in a way that creates large entry barriers for
potential newcomers. For instance, the car industry presented major
entrepreneurial opportunities at the end of the 19 thcentury and at the
beginning of the 20th century. However, by the middle of the century, in most
advanced economies, the bracket of entrepreneurial opportunities in the car
industry seems to have closed: not only did the number of entrepreneurial
ventures decrease dramatically, but many existing companies even went
bankrupt. Other researchers have shown that technological areas present
more opportunities when they include a well-respected organization, but that
this advantage decreases as the level of competition grows. For instance, the
fact that IBM entered the PC market increased the credibility of the
technology and consequently also increased the amount of entrepreneurial
opportunities for potential hardware and software developers.

b. Organizational Environment

The characteristics of the population of existing organizations in an industry

impacts entry opportunities. The number of opportunities in a particular
industry depends on how crowded the industry already is. Being the very
first to offer a product (or service) might be risky because consumers and
investors might not yet perceive the need for such product. On the other
hand, a crowded market generally presents fewer opportunities. In general,
new business opportunities depend on the presence of overlapping
competitors and the presence of complementary organizations. For instance,
new daycare centers tend to be more successful when they complement
existing centers covering a different age range. Similarly, the local
development of an industry can be an important source of entrepreneurial
opportunities because it facilitates the acquisition of tacit knowledge,
relevant social relationships, and opportunities to build self-confidence.

c. Demand Characteristics

Demand is not only unstable, but also never quite homogeneous: customer
preferences are generally diverse enough that parts of the market are always
underserved. This is especially the case when the supply is composed of a
few large generalists providing highly standardized products or services.
Tastes also evolve over time in a predictable manner. For instance,
customers might consider that technical performance is most important for
some time, and suddenly switch their value ordering, for instance toward
design or cost rather than performance once they are technologically

d. Institutional Context

Intellectual property regulation can significantly alter entrepreneurial

opportunities: countries innovation patterns and entrepreneurial activities
are systematically influenced by what can or cannot be patented. Some
researchers have gone as far as suggesting that entrepreneurs simply
choose to allocate their efforts toward productive ends like innovation or
destructive ones like organized crime, depending on the relative pay-offs
offered by the society.

Technological evolution, organizational environment, demand characteristics,

and institutional context are four paramount drivers of entrepreneurial
opportunities. Entrepreneurs and investors might find the proposed
framework useful in guiding them in their search for their next successful
business idea. After all, as Louis Pasteur famously said, Chance favors the
prepared mind.

2. What characteristics do entrepreneurs exhibit as part of their


a Commitment, determination, and perseverance

More than any other factor, total dedication to success as an
entrepreneur can overcome obstacles and setbacks. It can also
compensate for personal shortcomings.

b Drive to achieve
Entrepreneurs are self-starters who appear to others to be internally
driven by a strong desire to compete, to excel against self-imposed
standards, and to pursue and attain challenging goals.
c Opportunity orientation
One clear pattern among successful growth-minded entrepreneurs is
their focus on opportunity rather than on resources, structure, or

d Initiative and responsibility

Entrepreneurs are willing to put themselves in situations where they
are personally responsible for the success or failure of the operations.

e Persistent problem solving

Entrepreneurs are not intimidated by difficult situations. Simple
problems bore them, unsolvable ones do not warrant their time.

f Seeking feedback
Effective entrepreneurs are often described as quick learners.

g Internal locus of control

Successful entrepreneurs believe in themselves. They believe that
their accomplishments and setbacks are within their own control and
influence and that they can affect the outcome of their actions.

h Tolerance for ambiguity

Successful entrepreneurs thrive on the fluidity and excitement of
such an ambiguous existence.

i Calculated risk taking

Successful entrepreneurs are not gamblers. When they decide to
participate in a venture, they do so in a very calculated, carefully
thought out manner.

j Integrity and reliability

Integrity and reliability help build and sustain trust and confidence.
Since word of mouth is a valuable tool, a successful small-business
owner must be respected in the community.

k Tolerance for failure

Entrepreneurs use failure as a learning experience. The most
effective entrepreneurs are realistic enough to expect such difficulties.

l High energy level

Many entrepreneurs fine tune their energy levels by carefully
monitoring what they eat and drink, establishing exercise routines, and
knowing when to get away for relaxation.
m Creativity and innovativeness
An expanding school of thought thinks that creativity can be learned.

n Vision
Not all entrepreneurs have predetermined vision for their firm. In
many cases this vision develops over time as the individual begins to
learn what the firm is and what it can become.

o Self-confidence and optimism

Although entrepreneurs often face major obstacles, their belief in
their ability seldom waivers.

p Independence
The desire for independence is a driving force behind contemporary

q Team building
The desire for independence and autonomy does not preclude the
entrepreneurs desire to build a strong entrepreneurial team. Most
successful entrepreneurs have highly qualified, well-motivated teams
that help handle the growth and development of the venture.

3 Briefly describe the role of the following groups in

entrepreneurship: women, minorities, immigrants, parttimers,
homebased business owners, family business owners,
copreneurs, corporate castoffs and corporate dropouts. (LO 5)

a. Young people can apply their knowledge and skills to take

advantage of the Internet, new technology and market
b. Women often face discrimination in the workplace.
Entrepreneurship offers women opportunities for economic growth.
c. Minorities also face discrimination in the workplace and can
benefit from entrepreneurship.
d. Immigrant entrepreneurs arrive with more education and
experience. Their dedication and desire to succeed enables them to
achieve their dreams.
e. Parttimers have the best of both worlds and can ease into a
business without sacrificing a steady paycheck and benefits.
f. Homebased businesses are booming. Technology and this
Homecoming support nearly 44 percent of US households with
some form of home office activity.
g. Family businesses are an integral part of our economy. 90 percent
of U.S businesses are family owned.
h. Copreneurs are entrepreneurial couples that work together. They
represent the fastest growing business sector.
i. Corporate Castoffs have extensive onthejob experience and are
dislocated workers due primarily to corporate downsizing.
j. Corporate Dropouts leave organizations to pursue a better way of
life spearheaded by the trust gap over job security.
k. Social Entrepreneurs address social problem and apply
entrepreneurial principles to organize, create and manage a social
venture to achieve a desired social change to further broaden
social, cultural, and environmental goals.
l. Retired Baby Boomers are often experienced business people and
remain active and the level of entrepreneurial activity among
people ages 55 to 64 is higher that people between 20 to 34.

4 Explain the differences among creativity, innovations, and


If you have a brainstorm meeting and dream up dozens of new ideas then
you have displayed creativity but there is no innovation until something gets
implemented. Somebody has to take a risk and deliver something for a
creative idea to be turned into an innovation.

Entrepreneurship, on the other hand, it the ability to create, develop and/or

lead an enterprise. It may be an enterprise centered on an innovation or it
may not be. It may also be a new or an existing enterprise. The word has
recently been expanded to include activities within an existing company,
usually within very large companies. That seems to stretch the definition, but
perhaps in useful ways.

For me, to attempt to draw these three words into too close a proximity of
meaning can stretch them to such a degree that they have no real meaning
at all. As a result, I have worked to make the distinctions clear and use them
not as synonyms, but as separate and important words that add clarity to
understanding the process of innovation.

Creativity has become a core business skill, and entrepreneurs lead the way
in developing and applying that skill. Successful entrepreneurs come up with
creative ideas and then find ways to make them work to solve a problem or
fill a need. In an ever-changing world, creativity and innovation are vital to a
companys success and survival. Sometimes creativity involves generating
something from nothing. When small business owners cannot outspend their
larger rivals, they can create powerful competitive advantages by out
creating and out innovating their larger rivals. Todays successful
businesses live and die according to the quality of their ideas.

5 How are creativity, innovation, and entrepreneurship related?

At present, the rapid changes are happening so fast that have prompted
today's organizations to ensure their survival by the launch of innovative
products and services with advanced technology, and this requires creativity,
innovation and entrepreneurship.

The relationship of these three important factors can be summarized:

Creativity is an individual ability that can lead to an intact invention or idea

by the creative person.
Innovation is the process to convert invention or idea into a marketable
product or service.
Entrepreneurship is an individual characteristic that leads the innovation
process successfully in bringing a product or offering a new service to market
despite many obstacles.

6 What differentiates an entrepreneur from a regular person with an

A regular people with an idea are like dreamers: They create the
prototypes, work out the kinks and then get bored, anxious to return to
what they do best, which is inventing more prototypes. They are rarely
concerned, ultimately, with the financial viability of what they do.

Entrepreneurs are builders: They turn prototypes into going concerns.

They secure the future by installing and overseeing the systems and
infrastructure needed to make sure the going concern keeps going.

7 The worlds economy is shifting from financial to intellectual capital.

With respect to a small company, what does the intellectual
capital consists of?

Intellectual capital is defined as the difference between a firms market

value and the cost of replacing its assets. It is those things that we
normally cannot put a price tag on, such as expertise, knowledge and a
firms organizational learning ability. Market value equals book value plus
intellectual capital, with book value usually only the tip of the iceberg of
Intellectual capital encompasses much more than patents, copyrights and
other forms of intellectual property. It is the sum and synergy of a
companys knowledge, experience, relationships, processes, discoveries,
innovations, market presence and community influence.

The most widely used definition of intellectual capital is knowledge that

is of value to an organization. Its main elements are human capital,
structural capital, and customer capital. That definition suggests that the
management of knowledge (the sum of what is known) creates
intellectual capital.

a. Human Capital

Human capital is defined as the knowledge, skills, experience, intuition

and attitudes of the workforce. Intellectual capital can be increased by
increasing the capacity of each worker.
Human capital is the knowledge, skill and capability of individual
employees providing solutions to customers. Human capital is the firms
collective capability to extract the best solutions from the knowledge of
its people. It is important because it is a source of innovation and
strategic renewal, whether it is from brainstorming in a research lab,
daydreaming at the office, throwing out old files, re-engineering new
processes, improving personal skills or developing new sales leads.

Individual competence is important for organizations. This is peoples

capacity to act in various situations. It includes skill, education,
experience, values and social skills. People are the only true agents in
business; all assets and structures, whether tangible physical products or
intangible relations, are the result of human action and depend ultimately
on people for their continued existence.

People create knowledge, new ideas, and new products, and they
establish relationships that make processes truly work. Unfortunately,
when people leave, they take along their knowledge, including internal,
external, formal, and informal relationships.

b. Structural Capital

This consists of a wide range of patents, concepts, models, and computer

and administrative systems. These are created by the employees and are
thus generally owned by the organisation, and adhere to it. Sometimes
they can be acquired from elsewhere.

Decisions to develop or invest in such assets can be made with some

degree of confidence, because the work is done in-house, or bought from
outside. Also, the informal organisation, the internal networks, the
culture or the spirit, belongs to the internal structure. The internal
structure and the people together constitute what we generally call the

Structural capital is the firms organizational capabilities to meet market

It involves the organizations routines and structures that support
employees quests for optimum intellectual performance and, therefore,
overall business performance. An individual can have a high level of
intellect, but if the organization has poor systems and procedures by
which to track his or her actions, the overall intellectual capital will not
reach its fullest potential.

According to Van Buren, structural capital consists of innovation capital

(the capability of an organization to innovate and to create new products
and services) and process capital (An organizations processes,
techniques, systems, and tools).

Structural capital, consists of an organizations strategies, internal

networks, systems, databases, and files, as well as its legal rights to
technology, processes, inventions, copyrights, trademarks, trade secrets,
brands, and licenses. Structural capital improves when organizations
invest in technology and develop processes and other internal initiatives.

The structural capital of a firm consists of four elements2:

Systems - the way in which an organizations processes (information,
communication, decision-making) and outputs (products/services
and capital) proceed.
Structure - the arrangement of responsibilities and accountabilities that
defines the position of and relationship between members of an
Strategy - the goals of the organization and the ways it seeks to achieve
Culture - the sum of individual opinions, shared mindsets, values, and
norms within the organization.

There is a stronger linkage between strategy and culture than is generally

assumed. In the beginning, an organizations culture acts as a powerful
filter on its perceptions of the business environment and, thus,
contributes to the shape of the business strategies that are adopted.
Later, when specific strategies are in place, they cannot be successfully
implemented if the culture does not shape the organizations behavior in
ways that are congruent with these strategies.

The largest barrier to success in implementing change is the lack of fit

between strategies and the organizations structures and culture.
Organizations often respond to their business environment by adopting
new strategies and developing the structures and processes to make
them work. Because the culture element tends to be more implicit,
however, it is usually ignored. Management has relatively little
understanding of how to intervene in order to make the necessary culture
changes. Ultimately, the competitive advantages meant to be derived
from new strategies and the accompanying organizational changes will
not be realized if they are not supported by an organizational culture that
is appropriately aligned.

An organization with strong structural capital will have a supportive

culture that allows individuals to try, fail, learn and try again. A culture
that unduly penalizes failure, will have minimal success.

c. External Capital

External capital is also named relational capital and customer capital.

External - relational capital refers to the organizations relationships or
network of associates and their satisfaction with and loyalty to the
company. It includes knowledge of market channels, customer and
supplier relationships, industry associations and a sound understanding of
the impacts of government public policy. Frustrated managers often do
not recognize that they can tap into a wealth of knowledge from their own
clients and suppliers.

Understanding better than anyone else what customers want in a product

or a service, is what makes someone a business leader as opposed to a
follower. Customer and supplier loyalty, target marketing, longevity of
relationships and satisfaction are all measurable elements of this form of
intellectual capital1.

External structure consists of relationships with customers and suppliers,

brand names, trademarks and reputation. Some of these can be
considered legal property. Coca-Cola, for instance, is the worlds most
valuable brand name, worth about US$39 billion. But customer capital will
show up in complaint letters, renewal rates, cross selling, referrals and the
speed with which phone calls are returned.

External capital, defines an organizations vital, external relationships. The

components of external capital include:
Customer capital-the loyalty of valuable customers created by
understanding their needs and meeting them consistently
Supplier capital - the mutual trust, commitment, and creativity of key
Alliance capital - reliable and beneficial partners.
Community capital - an organizations capabilities and reputation in its
surrounding community.
Regulatory capital - knowledge of laws and regulations as well as lobbying
skills and contacts.
Competitor capital - critical understanding and intelligence about

These relationships can only be managed; they cannot be controlled.

Improvement in external capital involves looking outside an organizations
boundaries to such things as developing relationships and trust with
customers, suppliers, and surrounding communities.

8 It is imperative for a small company to establish a competitive

advantage. What are the various factors on which competitive
advantage is based? Keeping this in mind, what else is equally, if
not more important, for the company to possess in order to be
successful over time?

a Cost
Cost is simpleits the price you are charging for your product or
service. What will your product or service cost? All too often people are
under the impression that the cheaper the product is, the more likely it
is to sell. While that is partially true, companies that only compete on
cost generally dont offer a quality product.

b Quality
The general public does know what to think in terms of quality. The
common viewpoint is that the higher the quality the better. The quality
that is generally assessed is in relation to the standard of excellence.
From an engineering standpoint, the quality of a product relates to the
elimination of variability. If a product goes out the door the same way
every time it is a quality product. If each time a part is ordered it has
a high degree of variation, it is be considered a low-quality product.
This extends also to the customer service you provide.

c Lead
The lead refers to the turnaround time required from the moment the
order is received to the moment the item is in the mail. The fastest
turnaround time exists when items are in stock.

You can think of these three factors as three vertices of a cube, or the
X, Y, and Z axes. While there are three axes, companies usually only
compete in one or two of the three areas.
If a company is known as a high-quality, low-cost company, they will
probably have a longer lead time. Conversely, if they are known as a
high-quality, short-lead company, they will generally demand a higher
price for their goods. The nature of a free market regulates this give
and take.

A company can have the advantage in all three areas only at the point
of a paradigm shift, when a company breaks into a new unsaturated
market. Once a competitor is on the scene, the ability to maintain a
100% advantage is lost.

d Relationship
A fourth factor that fits in with a long-term competitive advantage is
relationship. The three factors above will help you win someone over in
order to build a relationship with them; however, the relationship itself
will give you an edge once it is established.

This is a very important business truth that will be extremely helpful in

assessing your market. Understanding the competitive advantage your
company strives to maintain will allow you to focus your efforts on
those areas that support your overall vision. It will also help you to
understand where your competition is coming from and what market
segments they are likely to facilitate.

9 How can small companies build business strategies to exploit all the
competitive advantages that size gives them?

An organization can achieve an edge over its competitors in the following

two ways:

a Through external changes.

When PEST factors change, many opportunities can appear that, if
seized upon, could provide many benefits for an organization. A
company can also gain an upper hand over its competitors when its
capable to respond to external changes faster than other

Changes in PEST factors. PEST stands for political, economic, socio-

cultural and technological factors that affect firms external
environment. When these factors change many opportunities arise that
can be exploited by an organization to achieve superiority over its
rivals. For example, new superior machinery, which is manufactured
and sold only in South Korea, would result in lower production costs for
Korean companies and they would gain cost advantage against
competitors in a global environment. Changes in consumer demand,
such as trend for eating more healthy food, can be used to gain at
least temporary differentiation advantage if a company would opt to
sell mainly healthy food products while competitors wouldnt.
If opportunities appear due to changes in external environment why
not all companies are able to profit from that? Its simple, companies
have different resources, competences and capabilities and are
differently affected by industry or macro environment changes.

Companys ability to respond fast to changes. The advantage can also

be gained when a company is the first one to exploit the external
change. Otherwise, if a company is slow to respond to changes it may
never benefit from the arising opportunities.

b By developing them inside the company.

A firm can achieve cost or differentiation advantage when it develops
VRIO resources, unique competences or through innovative processes
and products.

VRIO resources. A company that possesses VRIO (valuable, rare, hard

to imitate and organized) resources has an edge over its competitors
due to superiority of such resources. If one company has gained VRIO
resource, no other company can acquire it (at least temporarily). The
following resources have VRIO attributes:

Intellectual property (patents, copyrights, trademarks)

Brand equity

Unique competences. Competence is an ability to perform tasks

successfully and is a cluster of related skills, knowledge, capabilities
and processes. A company that has developed a competence in
producing miniaturized electronics would get at least temporary
advantage as other companies would find it very hard to replicate the
processes, skills, knowledge and capabilities needed for that
Innovative capabilities. Most often, a company gains superiority
through innovation. Innovative products, processes or new business
models provide strong competitive edge due to the first mover
advantage. For example, Apples introduction of tablets or its business
model combining mp3 device and iTunes online music store.

10 Elaborate the difference between a feasibility analysis and a

business plan, and the need for both.

A feasibility analysis demonstrate to a prospective project owner or
investor that a given concept is financially viable and whether further
study and/or a business plan is warranted.

For a feasibility study, basic data is obtained from the client through a
series of queries, questions and meetings, wherein the client provides
some of the research and other data and facts need to be gained from a
variety of sources.

The typical feasibility study contains, among other items, notes on

financial projections, a general description of the business, general details
describing how the company / project will be formed, managed and
marketed, statements concerning the competition and a cash-flow
projection based on averages. Further notes can be included as to general
details of the project and revelations found during the research stage. The
study will normally be completed quickly and in very general format
compared to that of a business plan. A feasibility study should answer five
Will it work or not?
Is it profitable or not?
What will it basically cost to fund or start?
Is it worth doing?
Is it worth commissioning a business plan?


A Business Plan is a detailed blueprint for building a given company. A

business plan contains all that the Feasibility study has plus specific time-
lines, detailed budgets with monthly and seasonal forecasts, letters of
intent, resumes of staff, background, competition, strengths &
weaknesses, work sheets and full notations, appendix and all related and
required documents that will be referenced as the company is being

A well-written business plan will show exactly what revenues can be

expected and when to expect them, what overheads and expenses will
need to be paid and exactly when they will be due.

It will also show staffing levels and salaries along with costs of
employment, sales levels with monthly and seasonal trends, setup costs,
building/office costs, utility and telephone costs, legal, insurance and
accounting costs, office furniture and supplies costs and a myriad of other
costs and projections as well as legal requirements and conformation to
In addition to the projections and costs, the business plan will feature
sections on demographics, sales and sales methods, objectives,
expansion plans, contingency exercises, product/services market
introductions, regulatory requirements, laws of City, State and Federal
government relating to the business / project and much more.

A well-written business plan can help maximize potential and minimize

overheads, liabilities and risk associated with any project.

11 Describe the major components of a business plan.

There are many resources available as a guide to create a business plan. The
seemingly overwhelming task is easily broken down into workable parts that
any entrepreneuror studentcan undertake. Most business plans begin by
including these key elements:

a Title Page and Table of Contents

The bound business plan should have a title page and a table of
contents. Each section of the plan has a purpose to accomplish a
specific objective.

b The Executive Summary

This section summarizes the presentation to each potential financial

institution or investors. It should be concisea maximum of two pages
summarizing the relevant points of the proposed deal. The executive
summary is not an introduction, it is a synopsis of the entire plan,
capturing its essence in a capsulized form. An effective executive
summary enables the readers to understand the entire business
concept and what differentiates the company from the competition.

The executive summary should:

- Explain the basic business model,

- Describe the problem the business will solve for customers,

- Briefly describe the owners and key employees, target market(s),

financial highlights (e.g. sales and earnings projections, the
dollar amount requested, how the funds will be used, and how
and when any loans will be repaid), and

- Present the companys competitive advantage through key

c Mission Statement

A mission statement expresses an entrepreneurs vision for what the

company is, what it is to become, and what it stands for. It is the broadest
expression of a companys purpose. The mission statement defines the
direction in which it will move and serves as the thesis statement for the
entire business plan.

d Company History

The manager of an existing small business should prepare a brief history

of the operation, highlighting the significant financial and operational
events in the companys life. It should describe when and why the
company was formed, how it has evolved over time, and what the owner
envisions for the future. The company history should highlight the
successful accomplishment of past objectives and should convey the
firms image in the marketplace.

e Business and Industry Profile

This section should provide with an overview of the industry or market

segment in which the new venture will operate. It should include
information regarding:

- Industry data such as market size, growth trends, and the

relative economic and competitive strength of the major firms in
the industry all set the stage for a better understanding of the
viability of the new product or service.

- Strategic issues such as ease of market entry and exit, the ability
to achieve economies of scale or scope, and the existence of
cyclical or seasonal economic trends further help the reader
evaluate the new venture.

f Business Strategy

This section presents the owners view of the strategy needed to meet
and exceedthe competition. It addresses the question of how to
get there. An entrepreneur must explain how he or she plans to gain
a competitive edge in the market and what sets his business apart
from the competition. The entrepreneur should comment to how he or
she plans to achieve business goals and objectives in the face of
competition and government regulation and should identify the image
the business will project. An important theme is what makes the
company unique in the eyes of its customers. It should outline the
methods the company can use to meet the key success factors.
g Description of Firms Product/Service

This section should describe the companys overall product line, giving an
overview of how customers use its goods or services. Drawings, diagrams,
and illustrations may be required if the product is highly technical. It is
best to write product and service descriptions so that laypeople can
understand them. A statement of a products position in the product life
cycle might also be helpful. It should include a summary of any patents,
trademarks, or copyrights protecting the product or service from
infringement by competitors.

Manufacturers should describe their production process, strategic raw

materials required, sources of supply they will use, and their costs.
Explain the companys environmental impact and degree of sustainability.
If necessary, explain how the entrepreneur plans to mitigate any negative
consequences the manufacturing process may produce.

The description of the products and services should include an honest

comparison of the companys product or service with those of
competitors, citing specific advantages or improvements that make its
goods or services unique and indicating plans for creating the next
generation of goods and services that will evolve from the present
product line.

- What competitive advantage does the ventures product or

service offer?

- Avoid dwelling on the features of their products or services.

h Marketing Strategy

The marketing strategy section of a business plan identifies and describes

the companys target customers and their characteristics and habits.
Defining the target audience and its potential is one of the most important
parts of building a business plan.

i Competitor Analysis

Entrepreneurs should assess honestly their new ventures competition. Trade

associations, customers, industry journals, sales representatives, and sales
literature are valuable sources of data. The competitor analysis should focus
on demonstrating that the entrepreneurs company has an advantage over
its competitors. These questions apply?
Who are the companys key competitors?
What are their strengths and weaknesses?
What are their strategies?
What images do they have in the marketplace?
How successful are they?
What distinguishes the entrepreneurs product or service from others
already on the market, and how will these differences produce a
competitive edge?

j. Plan of Operation

An entrepreneur should construct an organizational chart identifying the

businesss key positions and the people occupying them. The
entrepreneur should describe briefly the steps taken to encourage
important officers to remain with the company. Employment contracts,
shares of ownership, and perks are commonly used to keep and motivate
key employees. A description of the form of ownership (partnership, joint
venture, S Corporation, LLC) and of any leases, contracts, and other
relevant agreements pertaining to the operation is helpful.

k. Financial Forecasts
One of the most common reasons for creating and reading a business
plan relates for financing. In those cases, this section is critical.
Entrepreneurs must avoid the tendency to fudge the numbers since
some venture capitalists automatically discount an entrepreneurs
financial projections by as much as 50 percent

12 While a business plan is being formulated, a ventures chances

of success are assessed very objectively. After this, there is a set
of tests that the plan must pass to get external financing. What
are they?

Building the plan forces a potential entrepreneur to look at her business idea
in the harsh light of reality. It also requires the owner to assess the ventures
chances of success more objectively. A well-assembled plan helps prove to
outsiders that a business idea can be successful. To get external financing,
an entrepreneurs plan must pass three tests with potential lenders and

a The Reality Test

The external component of the reality test revolves around proving
that a market for the product or service really does exist. It focuses on
industry attractiveness, market niches, potential customers, market
size, degree of competition, and similar factors. The internal
component of the reality test focuses on the product or service itself.
The reality text poses these questions:
- Can the company really build it for the cost estimates in the
business plan?
- Is it truly different from what competitors are already selling?
- Does it offer customers something of value?

b The Competitive Test

The external part of the competitive test evaluates the companys relative
position to its key competitors. The competitive test asks these questions:
- How do the companys strengths and weaknesses match up with
those of the competition?
- How are existing competitors likely to react when the new
business enters the market?
- Do these reactions threaten the new companys success and
- The internal competitive test focuses on managements ability to
create a company that will gain an edge over existing rivals.
- What other resources does the company have that can give it a
competitive edge in the market?

c The Value Test

A business plan must prove to them that it offers a high probability of
repayment or an attractive rate of return. A plan must convince lenders
and investors that they will earn an attractive return on their money.

13 What factors should an entrepreneur consider before choosing a

form of ownership?

There are different forms or ways of getting into a business. An

entrepreneur therefore should consider all the factors, such as liability for
the business' debts, before choosing the best form of ownership. The four
major forms of owning a business are sole proprietorship, partnership and

a Legal Liability
The reason why most owners incorporate their businesses is to guard
their individual assets. That way, if your company files bankruptcy
proceedings in a court of law, no one can take away your personal
property. Investors choose to incorporate their businesses depending on
the potential and risk involved in the venture. Certain form of ownership
offer business owners greater protection from personal liability for the
financial problems. Entrepreneurs must weigh the potential for legal and
financial liabilities for their companies' obligations.

b Tax
Business owners should also consider tax laws, because some businesses
are taxed heavily than others. Tax rates for each form of ownership
constantly change due to amendments to the tax code. These fluctuations
affect the amount of tax a company pays to the government. Sole
proprietorships and partnerships pay income tax based on their net
earnings, while corporations usually have more tax options.

c Expenses
Sole proprietorships and partnerships are easier to form than other forms
of business. They require less time and money to register. They also do
not have strict operating rules.

d Future Capital Requirements

Some forms of ownership differ in their ability to raise capital.
Corporations require large amounts of capital to finance their operations.
As a business grows, its capital requirements rise. Corporations may find
it easier to raise capital than sole proprietorships because they can issue
additional shares or table rights issues. Banks also prefer giving loans to
corporations over partnerships due to their perceived stability.

14 When setting up a new business, one needs to name it. It is said

that a name is a cornerstone for branding. But a wrong name
might well be a bad message to the prospective customers. What
steps should be followed to adopt and apt an ideal name for new

a. Go Back to the Basics

There are many different moving parts to consider when you start a
business, and you probably have a handful of different ideas floating around
in your head. The best way to start the process of choosing a name for your
business is by reviewing the foundation of your business. Consider your
mission statement, your business plan and your unique selling proposition.
And don't forget to think about your target audience.

b. Conduct a Brainstorming Session

Once you have outlined the guidelines for choosing your business name, it's
time to introduce some creativity.

In fact, the more creative and free-thinking you can be during this stage, the
more ideas you will generate, and the more possibilities you will have to
choose from. You may want to conduct a series of brainstorming sessions,
some with just you, some with a colleague or partner, to come up with as
many business name ideas as possible.

During your brainstorming, you should keep your guidelines in mind, but
allow yourself some unrestricted time to be creative. Some common ways to
start a brainstorming session include brain dumping, list making, mind
mapping and word association. If you're new to brainstorming, review these
brainstorming tips to get started.

c. Give It Time

Now that you have conducted your brainstorming session(s) and have a long
list of possibilities, it's time to review and analyze your results. Go through
your list and remove any non-contenders, sort similar names and mark the
names that immediately resonate with you. This step should take a few
different sessions. It's important to let your ideas, preconceptions and biases
settle before you create your shortlist of best possible business names.

When you have your shortlist of potential business names, walk away, do
something else or sleep on it.

Choosing a name for your business is a big decision and the final result will
stay with you for a very long time. Let your ideas percolate for a day or two,
then come back to it and review again. In many cases, after a brief hiatus,
you will return and instantly know which of your options is the right business
name. And if none of the possibilities feel right, start your brainstorming
process again.

d. Check Availability

Before you officially decide on your business name, you'll want to check to
make sure it's not already trademarked. Search the federal database of the
Department of Trade and Industry. You should also run a series of searches
with Google and other search engines for your desired business name to
make sure there isn't another company already using your name.

Part of your availability search should include a domain name search, if you
intend to have a website to promote your company, products and services. If
your business name is not available as a domain, you may need to use an
abbreviation, hyphens, or an alternate top level domain. Or, you may want to
move down your list of possibilities to the next name if there is a better
domain name available.

e. Register It

At last! You are now ready to register your business!

Note that this doesnt give you any legal protection against other people
using your business name. If you want to do that then you will need to
trademark your name.

Also, this doesnt give you any protection online with other people
purchasing your business web address.

In the end it is far more important how you use your business name
consistently over time, the way your logo and corporate identity works, your
branding, images and packaging etc. It is all those elements together with
your work and behaviour that will make your business name recognised and
remembered by the right people.