CAVENDISH UNIVERSITY ZAMBIA

BACHELOR OF BUSINESS ADMINISTRATION

(BBA)

Entrepreneurship (BBA324)

Module

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Notes 1

Introduction and General Overview of Entrepreneurship

Entrepreneurship is a relatively new development in Zambia and for most of African and
developing nations. However, in the developed world entrepreneurship is at the very
heart of a nation. It is responsible for national development to such an extent that
individuals frustrated with working life (working for someone and money and making
that someone rich) turn to entrepreneurship (making money work for you and make you
self-sufficient and rich) as the more permanent and viable alternative. The advantages of
entrepreneurship do not only accrue to one person but to the community and ultimately to
the whole nation.

In this presentation, entrepreneurship is defined as the art or science of applying

entrepreneurial skills, by taking risks and initiatives in organizing resources to make a
profit or money or an advantage. There are three most important entrepreneurial skills:
managing cash flow, people and time. These skills are vital to successful
entrepreneurship. In this lecture we take a look at developments of entrepreneurship in
the advanced nations of America and Europe and compare to the developments in
Zambia. we now turn our attention to the American and European developments..

Developments in the US and Europe

The late 1800s and the early 1900s represents a changing era for most of the world
including Africa. In terms of technological development it was a period during which
literal horse power was fast being replaced by mechanical power. It was also a period
during which consumerism in America and Europe was on the increase. It was also a
period during which people were making it rich through entrepreneurship.

In the US, early entrepreneurs were directly responsible for developments in the
economic and social sectors. Entrepreneurs took personal risks and invested in
knowledge and experiences into production and provision of services to meet the ever
growing demands of the society. Some entrepreneurs frustrated by poor services came up
with better services. For example Kemon Williams was frustrated by the poor holiday
accommodation offered by hotels, started the chain of Holiday Inns. Other entrepreneurs

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discovered products by accident (by serendipity), for example cornflakes by William
Kellogg. Others by sheer determination and fortitude like Heinz brought to the American
table, processed foods and condiments. Yet others through technological breakthroughs
like Ford, Bell and Edison introduced to the American society the automobile, the
telephone and the electric light bulb. These are men who have made what America is
today.

Similar developments were taking place in Europe with the focus on national economic
and military advancements which eventually resulted in the WWI. Inventions and results
of research by scientists were applied to every day life situations to improve rail and road
systems and military advantage. History is replete with details of what exactly transpired
but suffice to note that entrepreneurship was and still is responsible for a large proportion
of new developments in a nation. National governments are responsible for encouraging
and facilitating the development of entrepreneurship. It is not the national government
that is entirely responsible for development but rather individuals as well.

The Developing World

The end of the colonial era and the advent of self-government and full national
independence brought hopes of grandeur and socio-economic advancement. These were
false hopes that were soon overtaken by disillusionment with political leadership and the
lack of national development. Developing nations quickly became dependent on the
developed world. Instead of becoming international trade partners, neo-colonialism took
root. The developing nations became cheap sources of raw materials and food for the
developed world. Commodity prices fixed without due regard to the state of despondency
in source countries increased levels of poverty. Solutions to development problems
offered by the World Bank and the IMF were in many instances experiments and bitter
prescriptions that worsened poverty levels in the developing world. The situation still
persists, though today ethical reawakening is having a profound effect on the nouveau
riche and leaders of the developed world.

Liberalization as a way of managing the national economy embraced by many developing

nations brought about the final push towards entrepreneurship in Zambia. Liberalization
brought with it massive job losses and downsizing. The positive effect of liberalization

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particularly in Zambia has been the development of self-employment by many people
who previously relied on regular employment with large state owned organizations.
People with some trade skill offered services to others for a fee. Others embarked on
trading and similar income generating activities as people continued struggle with
making ends meet. Inability to raise capital for meaningful investments in addition to lack
of relevant skills, has inhibited the growth of small enterprises in Zambia and other
developing countries.

Furthermore, the growth of entrepreneurship in the developing world has been inhibited
by lack of government supportive policies. Instead current policies, for example in
Zambia, frustrate the growth of entrepreneurship and small business development. In the
developed world the situation is different, small businesses get better government support
and contribute more than 65% to job creation.

Challenges of Entrepreneurship in Zambia

The challenges are many. The most common challenge is the high frequency of failure;
personal failure as well as formal business failure. Personal failure is usually the loss of
investment brought about by a combination of factors including lack of business records
that aid in proper running of business, lack of business experience and poor management
of cash flow. Formal business failure is due to neglect of business, fraud and theft and
disaster.

A very common challenge for entrepreneurs is the problem of growth. To grow from the
starting business level is often constrained by many factors leading either to total failure
or stunted growth. The lack of government supportive policies is responsible directly or
indirectly for business failure and stunted growth. Government regulations, effects of
inflation rates, taxation and interest rates, corruption and crime contribute to a telling
effect on business success.

A serious challenge to entrepreneurs in Zambia is the lack of understanding of the

different business objectives. These are of two sets: overall business objectives and
subsidiary objectives of the individual parts of the business itself. Business objectives
include service, profit, growth and social objectives; all are interrelated into one overall

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business purpose. Services must be achieved if a profit is to be attained. Profits must be
used to reach social and growth objectives; social objectives must in turn enhance the
service objective. The service objective is to perform a useful service for the society by
producing goods and distributing goods and services to the public. In a profit oriented
businesses, the primary objective is service to the public in the form of goods/services at
a cost that will ensure a fair price to the consumer and adequate profits to the owners.
Consequently, an entrepreneur must keep in mind the prime objective of providing a
service, but with a profit as a natural consequence. If a business no longer gives service,
it will go out of business and cease to be a recognized as such. If profits do not result, the
entrepreneur will cease operating the business.

A business is expected to make a profit from its operations. They are needed to create
new jobs, to acquire new business facilities and to develop new product lines. However,
profits are not self-generating: they come into being through satisfying the demand for
products or services. Social objectives on the other hand relate to people in the
community other than customers: employees, suppliers, the government and the
community itself. Entrepreneurs must effectively serve the same groups: entrepreneurs
have a social responsibility toward the public. Entrepreneurs occupy a trusteeship
position and should act to protect the interests of their customers, employees, suppliers
and the general public, as well as make a profit. Entrepreneurs should therefore have a
moral code soundly based to act fairly and honestly in all relationships with the described
groups.

An entrepreneur should be concerned with the growth of his business early in the career.
An entrepreneur should be clear on: whether he seeks stability or survival of his business;
whether he seeks a satisfactory profit considering his efforts and investment; whether he
seeks to maximize profits; whether to be satisfied to remain small and; whether to grow
and challenge bigger businesses.

Although the primary objective of an entrepreneur is to direct business activities to

attaining the overall purpose, subsidiary objectives should be set for each functional units
such as production, marketing, R&D and others. The entrepreneur must consider and
direct the personal objectives of all individuals performing tasks within each functional

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unit towards the overall objectives. The process is not simple as each of objectives
consists of several related objectives. The attainment of two or more objectives on any
given level is achieved only at the expense of other objectives on the same level or
between levels. As a consequence, conflict arises between objectives. Conflict should be
resolved if productivity and profitability are to be realized. Unfortunately for most
entrepreneurs conflict of objectives constitutes a challenge that if not properly resolved
could lead to business disaster.

Lack of supportive policies is another serious challenge to the growth of small

businesses. Unlike the developed world, developing governments are experimenting with
and trying out policies to see if they will improve the situation.

Other challenges include the education system that emphasizes on academic excellence
rather than on business training especially financial skills. Money matters are not taught
in the public school system for no good reason. Someone or some people have a thing
about money and financial training. Financial literacy and intelligence are as equally
important as academic and professional excellence.

It is time to realize that entrepreneurship is a mindset that needs to be developed in

everyone if self-sufficiency and independence are to be part of our society in Zambia.

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Notes 2

Trends in Entrepreneurship and National Economic Development

National development only takes place if and when there has been economic
development. The importance of entrepreneurship in national development can only be
measured against the background of economic development that they create or the roles
they play in the economy of a nation. In this lecture we examine the role played by
entrepreneurs and the effect of small businesses in the national economy. We also look at
how some nations treat the development of entrepreneurship and small business
management.

The Role of Entrepreneurs and Small Businesses

Small businesses play many roles in the economic development of a nation. In the first
place, small businesses play the role of coordinating resources – an entrepreneur acts as
an agent that coordinates and supervises the process of production. He combines
necessary factors of production into new products.

Secondly, small businesses create employment by providing employment opportunities

for people in the communities or areas where their businesses are located and thus help to
improve living standards and foster social development. A study conducted in the US
during the period 1988 – 1992 revealed that small businesses accounted for 60% of the
net new jobs created.

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Thirdly, entrepreneurs and small businesses bring with them inventions and innovations
that ultimately improve the quality of life. Examples include contact lenses, air
conditioning email and many more. Two essential elements that have made this possible
are entrepreneurs’ creativity and risk taking. By nature entrepreneurs are people that want
to charge down a new path, staying alert to opportunity and taking risks to seize the
opportunity. Entrepreneurs have vision, optimism and the energy to do something new.
Another important role played by small businesses is the encouragement of competition
in two ways. One way is through price competitiveness. Entrepreneurs provide goods and
sell them in the same market as large businesses. Since small businesses have relatively
small overheads, their pricing is usually lower than that offered by the large
organisations. The second way competition is encouraged is through efficiency of
operations. Large organisations are characterised by bureaucratic procedures, which tend
to slow down the pace of transactions. Consequently buyers would rather deal with small
businesses that may only require confirmation of an order through a telephone call with a
formal order much later.

Small businesses play the arbitrageur role – having an ability to see profit or gainful
opportunities and act on them swiftly. Some people regard entrepreneurs as uncertainty
bearers since they conduct exchange activities in the market, such as buying and selling
entrepreneurs might have control over the purchasing price but might not have control
over the selling price, as this is determined through supply and demand. In this way an
entrepreneur is acting as a speculator. However speculators assist the market mechanism
to work: without them the market mechanism would not exist. A good example is the
stock exchange market.

Small businesses develop people in terms of skills and experience or exposure to running
business. Lin, Yates and Picot (1997) note that individuals are twice as likely to start a
business if they have stated one before. Therefore through exposure a large number of
nationals to entrepreneurial ventures and helping them to learn from mistakes and
successes will lead to the creation of more businesses contributing to national
development.

The EU Experience and Approach

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The European Communities (2002) Report on small and medium enterprises (SMEs) in
Europe reveals that the EU had about 20 million SMEs, which were the driving force
behind the economic prosperity in Europe in 2002 employing over 120 million people: an
average of 6 employees per firm.

EU leaders at the Feira European Council in 2000 approved the European Charter for
Small Enterprises calls on member states and the commission to take action to support
and encourage SMEs in 10 key areas: education and training for entrepreneurship,
cheaper and faster start up, better legislation and regulation, availability of skills,
improving online services, getting more out of the single market, taxation and financial
matters, strengthening the technological capacity of small enterprises, making use of
successful e-business models and developing top class small business support,
developing stronger more effective representation of small enterprises’ interests at union
and national level.

The Charter further emphasized the EU’s commitment to equipping small enterprises
being the EU’s most promising source of new jobs, innovation, economic dynamism and
greater social inclusion taking full advantage of the digital economy.

Highlights of the 2001 survey of European SMEs involving nearly 8,000 enterprises
throughout Europe revealed three major findings: the major growth constraint was the
lack of skilled labour, growth in international business contacts from 25% in 1999 to
33% in 2001 and, a growth in women owned small businesses (14% in Greece to 30%
in France).

The Euro News of 2002 revealed that: Europe’s 20 million non-primary sector private
enterprises employed approximately 122,000,000 workers with over 99% contribution
coming from SMEs; two thirds of all jobs were in small business firms, small firms
(under 10 employees) provided a third of all jobs and; the average size of a business
firm in Europe employed 6 workers (19 in USA and 10 in Japan).

The United Kingdom Experience and Approach

In the UK the Bolton Report of 1971 highlighted the importance and functions of the
small firms. The report recognized that SBs made a special contribution to the health of

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the economy, identifying eight important roles shown in Figure 2 below.

 A productive outlet for enterprising and independent individuals (some of

whom may be frustrated under-achievers in a larger controlled environment)

 The most efficient form of business organisation in some industries or markets

where the optimum size of the production unit or sales output is small,

 Specialist suppliers, or sub-contractors to larger companies,

 Contributors to the variety of products and services made available to

customers in specialised markets, too small for larger companies to consider
worthwhile,

 Competition to the monopolistic tendencies of large companies,

 Innovators of new products, services and processes,

 The breeding ground for new industries, and

 The seedbed from which tomorrow’s larger companies will grow, providing
entry points for entrepreneurial talent who will become the industrial captains
of the future.

Figure 2 Small Business Special Contribution to the Health of the Economy

According to U.K government statistics: 99.8% of all businesses in the UK economy

employ fewer than 250 people; 99.1% employ fewer than 50 people and 97.9% employ
fewer than 20 people. Most employment in the United Kingdom is in the small business
sector.

The Institute for Independent Business (IIB) of the United Kingdom was established in
1984 to provide practical advice and useful information to those responsible for making
day-to-day decisions in running businesses. IIB recognizes that SMEs often operate in
isolation without the network of contacts and information services available to large
companies. It also recognizes the lack of fundamental skills in key aspects of

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management that are required to develop a truly successful business. The Institute
realized that organizations expected to provide help and information to SMEs were
“poorly sign-posted” and inaccessible, and were largely governmental, bureaucratic and
remote in nature.

The institute also recognized that SME owner operators are expected to “know
everything, keep up with everything and do everything”. In most cases, “they don’t know
what they don’t know.” This is in contrast to larger companies which readily buy-in
expertise and affords a full board of professional directors on whom the large company ‘s
Chief Executive can call at any time for specialist advice and assistance. Hence the
justification for the formation of IIB to assist SMEs in their operations.

The Arab World Experience and Approach

Studies conducted by El-Gamal et al (2001 revealed that SMEs play an important role in
economic growth, export promotion and employment creation and small business
development. The Arab Development Agency (ADA) reported that SMEs in the Arab
world increased from 114,000 in 1990 to 130,000 in 1995, and their employees increased
from 1,845,000 to 2,397,000. The SMEs’ output increased from $35 billion to $60
billion. Exports increased from $14.6 billion to $17.9 billion and imports from $24.4
billion to $26.9 billion.

El-Gamal et al (2001) classified SMEs in the Arab world into three as follows: i)
Traditional SMEs - these are classical type that specialize in producing goods and
services or components with technologies and managerial processes that do not exhibit
economics of scale, ii) Market-niche SMEs - these are dynamic businessmen who
discover unexploited market-niches in the domestic or world markets and move quickly
to capitalize on such market niches and iii) Avant-garde SMEs - also known as the “path-
finding’ type. Highly skilled risk takers operate these.

El-Gamal et al conclude that: Traditional SMEs contribute very little to long-term growth
and development and the best financial vehicle for funding such SMEs is group lending
through conventional banks and NGOs. Market niche seeking SMEs contribute more to
long term growth and development and serve as a vehicle for channeling private foreign

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savings through asset backed ‘securitization’ of leasing company accounts receivable. In
the long term, the third class of SMEs is the only type that promises to serve as an engine
of private sector-led export oriented growth. These SMEs are also best positioned for
enhancing the inflow of managerial and technology transfer and foreign direct investment
(FDI).

The South African Experience and Approach

According to Lester (2005) reported that South African President Thabo Mbeki recently
stated that South Africa had failed in small business and that corrective action would
follow. Lester believes this has happened as the Finance Minister has since released a
new package of incentives for small business, referred to as Small Business Corporation
(SBC) to be administered by the South African Revenue Service (SARS). Some of the
features of this package are preferential tax rates being: 0% on the first R35,000, 10% on
amounts between R35,000 and R250,000, 29% on income over R250,000 a year,
standard corporate rates applicable and, an SBC preferential tax treatment of R51,000
over a company on R250,000 taxable income.

Further accelerated tax allowances are: 100% write off in year of acquisition for
manufacturing assets, 50:30:20 for other assets (50% this year, 30% next year…).

Lester points out that SARS is offering advice, software and training free of charge. He
notes that the package “will do more to get South Africans economically active than any
initiative since 1994’’.

The Botswana Experience and Approach

A study by Temtime and Pansiri (2004) reveals that the discovery of diamonds propelled
Botswana from one of the poorest countries in 1966 to a middle-income country.
However, Botswana still experiences problems such as: economic diversification,
employment creation, income generation and distribution and poverty alleviation.

The Botswana Government working together with non-governmental organizations are

putting more efforts in the development of SMEs to diversify the economy away from
mining, create jobs, generate income and alleviate poverty.

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The study by Temtime and Pansiri (2004) carried out a study on SMEs in Botswana
investigated the perceived critical success or failure factors affecting the development of
SMEs in Botswana. They concluded that: the designing and implementation of small
business assistance programs should be based on the identification and prioritization of
identified critical success factors. The study of small business problems needed to target
on finding long lasting and sustainable solutions. Integration of entrepreneurship into the
school curriculum starting from kindergarten needed to be done. The small business
support groups needed not only to focus on material and financial assistance but also
education, training, strategic awareness and entrepreneurial orientation.

The Zambian Experience and Approach

In Zambia, the Small Enterprises Development Board (SEDB) is the apex national
agency for the promotion and development of SMEs. Its intentions are to facilitate the
development of SMEs and to create an appropriate conducive environment for SME
development. The categorization of SBs in Zambia is into small and micro enterprises. A
micro enterprise is defined as any enterprise a) whose total investment, excluding land
and buildings, does not exceed K10 million b) whose annual turnover does not exceed
K20 Million and c) employing up to 10 people. A small enterprise is defined as any
enterprise a) whose total investment excluding land and buildings does not exceed K50
million in plant and machinery for manufacturing and processing enterprises or does not
exceed K10 million for trading and service enterprises, b) whose annual turnover does
not exceed K80 million and c) employing up to 30 people.

In conclusion SMEs are the backbone of even advanced economies of the world. The
developing world including Zambia should take a leaf from the experiences of the EU and
provide necessary incentives and support to the small business sector. Socio-economic
development of Zambia to large extent will depend on how well the informal business
sector develops.

Case study 1

The Life of Henry Ford

Childhood

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Henry Ford, born July 30, 1863, was the first of William and Mary Ford's six children. He
grew up on a prosperous family farm in what is today Dearborn, Michigan. Henry enjoyed
a childhood typical of the rural nineteenth century, spending days in a one-room school
and doing farm chores. At an early age, he showed an interest in mechanical things and a
dislike for farm work.

In 1879, sixteen-year-old Ford left home for the nearby city of Detroit to work as an
apprentice machinist, although he did occasionally return to help on the farm. He
remained an apprentice for three years and then returned to Dearborn. During the next few
years, Henry divided his time between operating or repairing steam engines, finding
occasional work in a Detroit factory, and over-hauling his father's farm implements, as
well as lending a reluctant hand with other farm work. Upon his marriage to Clara Bryant
in 1888, Henry supported himself and his wife by running a sawmill.

The engineer

In 1891, Ford became an engineer with the Edison Illuminating Company in Detroit. This
event signified a conscious decision on Ford's part to dedicate his life to industrial
pursuits. His promotion to Chief Engineer in 1893 gave him enough time and money to
devote attention to his personal experiments on internal combustion engines.

These experiments culminated in 1896 with the completion of his own self-propelled
vehicle-the Quadricycle. The Quadricycle had four wire wheels that looked like heavy
bicycle wheels, was steered with a tiller like a boat, and had only two forward speeds with
no reverse. Although Ford was not the first to build a self-propelled vehicle with a
gasoline engine, he was, however, one of several automotive pioneers who helped this
country become a nation of motorists.

Ford Motor Company

After two unsuccessful attempts to establish a company to manufacture automobiles,

the Ford Motor Company was incorporated in 1903 with Henry Ford as vice-
president and chief engineer. The infant company produced only a few cars a day at
the Ford factory on Mack Avenue in Detroit. Groups of two or three men worked on
each car from components made to order by other companies.

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Henry Ford realized his dream of producing an automobile that was reasonably
priced, reliable, and efficient with the introduction of the Model T in 1908. This
vehicle initiated a new era in personal transportation. It was easy to operate, maintain,
and handle on rough roads, immediately becoming a huge success.

By 1918, half of all cars in America were Model Ts. To meet the growing demand for
the Model T, the company opened a large factory at Highland Park, Michigan, in 1910.
Here, Henry Ford combined precision manufacturing, standardized and interchangeable
parts, a division of labor, and, in 1913, a continuous moving assembly line. Workers
remained in place, adding one component to each automobile as it moved past them on
the line. Delivery of parts by conveyor belt to the workers was carefully timed to keep
the assembly line moving smoothly and efficiently. The introduction of the moving
assembly line revolutionized automobile production by significantly reducing assembly
time per vehicle, thus lowering costs. Ford's production of Model Ts made his company
the largest automobile manufacturer in the world.

The company began construction of the world's largest industrial complex along
the banks of the Rouge River in Dearborn, Michigan, during the late 1910s and
early 1920s. The massive Rouge Plant included all the elements needed for
automobile production: a steel mill, glass factory, and automobile assembly line.
Iron ore and coal were brought in on Great Lakes steamers and by railroad, and
were used to produce both iron and steel. Rolling mills, forges, and assembly shops
transformed the steel into springs, axles, and car bodies. Foundries converted iron
into engine blocks and cylinder heads that were assembled with other components
into engines. By September 1927, all steps in the manufacturing process from
refining raw materials to final assembly of the automobile took place at the vast
Rouge Plant, characterizing Henry Ford's idea of mass production.

Chronology

1863 Born July 30 in Greenfield Township, Michigan.

1879 Leaves family farm for Detroit to work in machine shops.

1888 Marries Clara Bryant of Greenfield Township and moves to 80-

acre farm in what is today Dearborn.
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1891 Secures position as engineer with the Edison Illuminating

Company; returns to Detroit.

1893 Edsel Bryant Ford, only child of Henry and Clara Ford, born.

1896 Completes his first automobile, the Quadricycle, and drives it

through the streets of Detroit.

1899 Ends eight years of employment with the Edison Illuminating

Company to devote full attention to the many manufacture of
automobiles. Made chief engineer and partner in the newly
formed Detroit Automobile Company, which produced only a
few cars.

1901 Henry Ford Company organized with Ford as engineer. Ford

resigns over dispute with bankers in 1902 and the company
becomes the Cadillac Motor Car Co.

1903 Ford Motor Company is officially incorporated. Ford's first

Model A appears on the market in Detroit.

1908 Ford begins manufacturing the famous Model T.

1910 Begins operations at factory in Highland Park, Michigan.

1913 Introduces first moving automobile assembly line at Highland

Park.

1914 Announces his plan to share the Ford Motor Company's profits
with workers, paying them $5.00 for an eight-hour day.

1915 The Oscar II, Ford's "Peace Ship," sets sail for Norway on a
pacifist expedition to end World War I.

1917 Begins construction of industrial facility on the Rouge River in

Dearborn, Michigan.
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 1918 Loses his bid for the U.S. Senate.

1919 Edsel B. Ford, son of Henry Ford, is named president of Ford

Motor Company

1921 Ford Motor Company dominates auto production with 55 percent

of industry's total output.

1926 Focuses on air transportation and develops the Tri-Motor

airplane.

1927 Transfers final assembly line from Highland Park plant to the
Rouge. Production of the Model T ends, and the Model A is
introduced.

1929 Dedicates his Edison Institute of Technology and Greenfield

Village with a celebration of 50 years of the electric light.

1932 Builds first V-8 Ford car.

1933 Successfully resists first efforts to unionize workers at Ford

plants.

1937 "Battle of the Overpass" occurs between Ford security staff and
United Auto Workers union organizers. As a result, the court
orders Ford not to interfere with union activity.

1941 Ford Motor Company signs a contract with UAW.

1943 Edsel B. Ford dies at age 49.

1947 Henry Ford dies at age 83, at Fair Lane, his Dearborn home.

Quick facts

Henry Ford was a complex and at times, contradictory personality with a wide range of
interests and strongly held opinions. You probably know about Ford's achievements in
automobile production, but did you also know that Henry Ford...
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 • Built and drove racecars early in his career to demonstrate that his
engineering designs produced reliable vehicles?

• Financed a pacifist expedition to Europe during WWI?

• Adopted a paternalistic policy to reform his workers' lives both at

home and at work?

• Was an unsuccessful candidate for the United States Senate in 1918?

• Owned a controversial newspaper, The Dearborn Independent, that published anti-

Jewish articles, which offended many and tarnished his image?

• Promoted the early use of aviation technology?

• Built Village Industries, small factories in rural Michigan, where

people could work and farm during different seasons, thereby bridging
the urban and rural experience?

• Sought ways to use agricultural products in industrial production,

including soybean-based plastic automobile components such as this
experimental automobile trunk?

• Was one of the nation's foremost opponents of labor unions in the 1930s and was
the last automobile manufacturer to unionize his work force?

• Mobilized his factories for the war effort and produced bombers,
Jeeps, and tanks for World War II?

• Established schools in several areas of the country that provided

educational experiences based on traditional one-room school
techniques, modern teaching methods, and "learning through doing"?

• Established an indoor/outdoor museum--The Henry Ford--to preserve

historical items that illustrated the American experience and American
ingenuity?

Review Questions For Discussion

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What entrepreneurship do you see in Henry Ford?

Discuss the personal attributes of Henry Ford that contributed to his entrepreneurship

Was Henry Ford born or shaped an entrepreneur. Justify your answer.

It has been observed that the socio-psychological view of an entrepreneur is that he/she is
deviant in society, nature and behaviour. How true is this of Henry Ford?

How close was the Ford Motor Company to its customers and workers in the early days
of the Company? Discuss.

Was the Ford Motor Company a source for innovation? Explain.

Was Henry Ford as an entrepreneur, a craftsman, a promoter or a professional manager?

Explain.

What role has the Ford Motor Company played in national development?
Describe Ford’s attempt to improve production methods?

What lessons have you learnt from the life and experiences of Henry Ford that you can
incorporate in your life as a businessperson?

What attributes and character of Henry Ford would you wish to see acquired by Zambian
entrepreneurs?

References

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Drucker P. (1986) Innovation and Entrepreneurship. Heinemann

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Studies [Online] Available from: http://www.eces.org.eg/ [Accessed 19 July 2004]

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Euro News (2003) SMEs Redefined [Online] Available from:

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http://www.waleseic.org.uk/euronews/0603d_main.htm [Accessed 19 July 2004]

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2004]

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[Online] Available from:
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[Accessed 19 July 2004]

Stokes, D. (2003) Small Business Management. Cornwall: Thomson

Stokes, D. & Blackburn, R. (2001). Unlocking Business Exits: A Study Of Businesses

That Close. Small Business Research Centre, Kingston University.

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Developing Economies: Some Evidences From Botswana. [Online] Available from:
http://www.ansinet.org/fulltext/ajas/ajas1118-25.pdf [Accessed 20 January 2005]
www.fortune.com/fortune.smallbusiness/articles accessed March 23, 2005.

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Not
es 3

General Perspectives of
Entrepreneurship

In this lecture we look at entrepreneurship and its related terms to give students an
overall understanding of entrepreneurship. More specifically at the end of the lecture,
students will have an awareness of the challenges of owning a business; be able to
explain problems of business failure and; discuss the pattern of business growth. We
begin by defining the general terms.

Entrepreneurship is the art or science of taking risks to achieve some gain.

Entrepreneurship usually involves taking financial risks to achieve some profit. For
example a man who invests money in some venture has taken a financial risk since he
is not certain that a profit will be realized, nevertheless he has risked his money in the
hope that the outcome will yield some return. Entrepreneurship is associated with any
form of risk taking with the possible outcome of a gain.

Hisreach and Peters (1995) define entrepreneurship as “the process of creating

something different with value by devoting the necessary time and effort, assuming the
accompanying financial, psychic, and social risks and receiving the resultant rewards
of monetary and personal satisfaction”.

Drucker (1986) defined an entrepreneur as ‘someone who always searched for change,
responded to it and exploited it as an opportunity’. Drucker in addition made
innovation a necessary part of entrepreneurship.

Stokes (2002) lists vital skills and characteristics that form the ‘building blocks’ of
successful entrepreneurship as comprising:

Technical skills: having product/service knowledge, market/industry

understanding

The technical skills relate to an understanding of the products or services on offer and
the market and industry environment in which they exist. Whilst the successful

21
entrepreneur may not be a technical expert in their chosen field, they have an intuitive
feel for their chosen marketplace and develop business relationships with those who
do have the necessary expertise.

Management competencies: competence in marketing finance and

human relations.

Management competencies relate to managing key functions of the business. Research

indicates that problems in young firms are most likely to arise in the areas of
marketing, finance and the management of people. The competency to deal with these
areas depends particularly on the entrepreneur in the early years of venture when they
are less likely to employ specialists. The model entrepreneur has all round
competence in these key management functions.

Personal Attributes: being innovative and being determined, having

an external focus and being a team leader. Personal attributes
make the difference between entrepreneurial and other styles of
management and form the basis of a successful approach to
owner-management. They cover many of the areas such as:

Innovative: Innovation is needed if a business is to develop, that is, different from the
competition, and continue to seek advantages over other firms.

Determined: A common motive that pulls entrepreneurs into a small business is a desire
for independence and control over their own destinies. To succeed, this needs translating
into a single-minded determination to ride the inevitable ups and downs that this freedom
brings.

External Focus: Entrepreneurs who start a successful venture, and continue to grow it,
maintain an external focus in what they do. The pressure on owner-managers in the early
years is on the day to day running of the enterprise. This may become so all consuming
that they take their eye off the external environment as they concentrate on internal
operations and become internally focused. An external focus maintains the foresight to
identify and exploit new opportunities on a continuous basis. It helps retain flexibility in
the face of changing market forces.

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Team Leader: Whilst some owner-managers seem lonely figures relying only on their
abilities, successful entrepreneurs know that long term-growth relies on leading a team of
people who influence the enterprise. The owner-manager is unable to develop a business
beyond a certain size if it is totally reliant on his or her efforts. Thus effective delegation
and training and involvement of others are important prerequisites for sustained growth.

Entrepreneurship is the ability to formulate, start up an enterprise and run it

successfully. An enterprise is defined as a venture, a project, an activity or an endevour.
More specifically, a business enterprise is an undertaking or a scheme that involves risk
or speculation in an effort to achieve a desired end. Business enterprises are of three
general types: sole proprietorship, partnership and corporation. Students are urged to read
about the distinctive differences, unique advantages and disadvantages.

Since people’s abilities differ, those venturing out should be aware of the requisite
attributes in order to succeed.

An entrepreneur is a capitalist, an industrialist an individual who is willing and able to

convert a new idea into a successful innovation or creation. An entrepreneur also means
an person who undertakes and operates a new enterprise, a decision-maker who uses
available resources in novel ways while bearing the risk of loss of investment.

An entrepreneur is a person motivated by a strong desire to achieve through hard work

and determination. He or she is a person who desires to work for oneself and
responsibility for achievement. He or she is reward oriented, optimistic and oriented to
excellence and has strong profit orientation.

The modern view of an entrepreneur is that he or she is a person with a bias for action,
very close to his or her customers, consumed by a passion for autonomy and
entrepreneurship, one who achieves productivity through people.

An entrepreneur is defined as business risk taker; one who exercises initiative,

organizes resources and takes risks; one who takes the present situation and modifies it to
his advantage; one who makes money by starting and running a business especially when
this involves taking financial risks. The socio-psychological view of an entrepreneur is
that he/she is deviant in society, nature and behaviour. He/she does not behave in a

‘normal’ way as other people do. He/she stands out from among others and is more
23
inclined to take on challenges as they thrive on these and obtain a thrill through
overcoming the challenge. The nature of a typical entrepreneur is that he/she will take on
any challenges.

An intrapreneur is an entrepreneur in the corporate world with the same disposition for
creativity and innovation. The difference between the two is in motivation: an
intrapreneur is generally motivated by a strong need for security but simultaneously he is
averse to close control. Intrapreneurship is constrained by organisational demands of
authority and control systems.

This brings us to the question “Are entrepreneurs born or shaped?” It’s an interesting
question. The truth of the matter is that anyone of us can become an entrepreneur.
Circumstances and the prevailing environment play a big role in shaping our behaviour
and how we cope with change. Each one of us is endowed with an ability to adapt and
shape our behaviour to align with changed circumstances. Since we are unique
individuals, there is a myriad of entrepreneurs ranging from one extreme of total
dependence and exploitation of others to the other extreme of total autonomy and self-
reliance. Unfortunately in our society we are tolerating dependence and exploitation
through the extended family culture. These are hangers-on and parasites sucking away all
the entrepreneurial energy from the host rendering him ineffective and ultimately a
complete failure. Hangers-on migrate in search of other hosts to exploit. Does this sound
familiar? If it does, do something about it! If you do not take measures to contain the
extended family and other relatives the success of your business will be severely limited.

In the Zambian context and the context of our study, entrepreneurship is associated with
small business management. Small businesses are distinguished from large businesses by
size (financial turnover), motives, type of customers and number of employees.
Furthermore a small business is distinguished as a business that is independently owned
and operated and is not dominant in its field of operations. Distinction by size is ill
defined: there is no generally accepted definition of size. It can depend on financial
strength or on the number of employees. Motives or intentions tend to be different from
those of professional managers of large organizations. The intentions of professional
managers are typically: desire for job security, desire for place, power, and prestige and
desire for high income.

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Motives for small business owners are basically the same as those for managers in large
businesses. The big difference is largely that of independence – freedom from
interference or control by superiors. The desire is autonomy in exercising their initiative
and ambition, which results in innovations leading to great flexibility – one of the virtues
of small businesses.

Small businesses have many unique advantages that large businesses fail to acquire. The
unique advantages include in general:

◊ Closeness with customers, employees and suppliers thus small businesses have better
employee relations than larger organisations.

◊ Doing more individualized work for customers than large organisations and thereby
can attract and retain customers on the basis of specialty product, quality, and
personal services rather than on impersonal factors of price and or mass production of
identical products.

◊ Relatively small overheads and other costs make it possible for small businesses to
perform some functions more efficiently than large organisations.

Specific small business unique advantages include:

◊ Sources of innovation, new materials, processes, ideas, services, and products that
large organisations are reluctant to provide.

◊ Flexibility of operation. Large businesses are committed by their investment in tools,

inventory and personnel to producing the same product in large quantities for long
periods of time and are not as flexible as small businesses.

◊ Produce (experienced) people – small businesses enable their employees to achieve a

better-rounded, balanced development than they could enjoy in large organisations.
Employees are provided a greater variety of learning experiences not open to
individuals holding more specialized jobs in large organisations.

◊ Keep large businesses on their toes. Small businesses help to check the development
of monopolies in large organisations thus small businesses encourage competition in
prices, design and efficiency.

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◊ Developing risk takers and fostering flexibilities. A small business can switch its
production readily to meet changing market conditions and can adapt itself quickly to
changing demands within its field and capacity. It can even change its business field.

◊ Provides employment opportunities for many people. They account for more than
45% of annual new employment creation in developed nations of the world.

Unique disadvantages of small businesses are basically of three types: inadequate

management ability, inadequate financing (including unfair taxation) and, a poor
competitive position. Other disadvantages are: lack and or poor record keeping, lack or
poor selling techniques, especially market research specialty advertising and personal
selling, too rapid and unplanned expansion and, difficulty in coping with increasing
internal complexity as business grows.

Differences between Small and Large Businesses

Small businesses differ from large businesses in three important aspects:

Uncertainty - a persistent feature of small firms, which tend to have small customer
bases and limited resources

Innovation of either new products, or marginal differences to well established ones are
considered a key factor in the success or failure of new business start-ups.

Evolution, being the state of constant structural and market changes which a small firm
is likely to experience as it struggles to survive and develop.

Typical in small business ownership are three types of owner-managers. These are

The craftsman – small business owners ranging from joiners to hairdressers, who
themselves directly provide a product or service, and enjoy doing it. Electricians,
plumbers, metal and pipe workers and numerous ladies plaiting hair occupy certain
sections of Chisokone Market in Kitwe.

The promoter – the archetypal ‘wheeler-dealer’ who does deals, often starting, growing
and running several different businesses in the pursuit of personal wealth. Examples are
business people who made money through supply over the years and have diversified into
taxis and bus companies, property development, import/export business and
26
subcontracting.

The professional manager – the owner who adopts a more structured approach to
building an organization on the lines of a ‘little big business’. Many of the successful
lawyers in Zambia are into tourism promotion, running airlines and property
development.

Rothwell (1986) analyses the differences between small and large firms from the
viewpoint of technological innovation. He notes that small businesses have advantages in
the management of internal communications and marketing stemming from their flexible
and ‘opportunistic behavioural patterns’. He further notes that ‘Small firms usually have a
lack of in-depth resources of qualified people and finance. Larger firms have greater
material resources which give them advantages in attracting the necessary staff and
funding the growth and other activities to which successful innovation can lead’’.

The differences are contrasted as shown in figure 1 below.

Function Small business Large Business
Advantage Disadvantage Advantage Disadvantage
Management Entrepreneurial Unable to cope with Professional managers Managers become
Managers seeking high growth and controlling complex administrators
new opportunities adapt to increased organisations controlled by risk
and taking risks complexity averse accountants

Personnel Lack of specialists Attract highly skilled

which limits scale specialists.
of R&D effort
Can support large
R&D facility

Finance Difficulties in Able to raise venture

raising risk capital capital, spread risk and
and inability to fund any resulting
spread risk over diversification
portfolio of projects

Communication Internal Difficulty to link Able to plug into Internal

communication with outside external sources for communication
fast and efficient expertise expertise, and can buy bureaucratic and
able to adapt to crucial technical slow to react
solving problems information and
services

Marketing Fast reaction time Lack of resources to Marketing of existing Management remote
to changing set up expensive products with from market place
market distribution systems comprehensive
requirements distribution and
servicing networks

Patents and Difficulty to cope Able to employ patent

legal with patents and and legal specialists.
requirements subsequent Able to defend patents
litigation. High unit and spread costs of
costs of meeting compliance with

27
 complex regulations complex regulations
in some industries

Source: Stokes 2002

Figure 1 Innovation in Small versus Large Firms

Common Pitfalls, Problems of Failure and Growth

Listed in the figure 3 below are some common drawbacks to small businesses.

Drawbacks Possible solutions

Lack of experience Recognize own limitations

Lack of money Plan appropriately

Wrong location of business Keep records and analyze

Inventory mismanagement Watch the balance sheet

Too much capital in fixed assets Investigate and adjust

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Poor credit Mgt practices Cooperate with suppliers and bankers

Taking too much out of business for yourself Learn to control your appetites

Unplanned expansion Use professional assistance

Having the wrong attitude to business Change your attitude & watch health

Source Schumacher (1986)

Figure 3 Common Drawbacks to Small businesses

The problem of business failure

There are two types of business failure: formal and personal.

Formal failure ends up in the courts of law with some kind of loss to creditors. These are
relatively few. The underlying causes are as follows: neglect (1%) due to bad habits, poor
health, marital difficulties etc, fraud (1/2%) false financial statements, premeditated
overbuy, irregular disposal of assets, etc, lack of experience in the business (12%), lack
of managerial experience (15%), unbalanced experience (18%), incompetence (47%) –
evidenced by inadequate sales, heavy operating expenses, and receivable difficulties,
excessive fixed assets, poor location competitive weakness etc, disaster (1/2%) – fire,
flood, burglary, employee fraud etc. insurance cushions against factor, and unknown
reasons (6%).

Personal failure on the other hand involves situations where individuals have put their
savings or income into a business only to see losses wipe out their investments. This can
come about through many personal inabilities. Individual attributes-lack of personal
capacity and creativity – an individual’s reluctance to become a businessperson,
willingness is determined by the anticipated economic benefits that will accrue to an
entrepreneur if his venture is profitable. However no one can succeed in a line of business
that he does not like. It should be realized that to be successful it is important to associate
with knowledgeable people and establish friendships. It should also be noted that nothing
is ever attained without effort. An entrepreneur is required to possess energy, zeal,

29
optimism and ambition.

Most important of all, an entrepreneur must possess specific knowledge of what he’s
doing. A person’s limits are those that he sets up in his own mind. Another related reason
is lack of creativity – lack of creative financing methods and how to draw up a business
plan. The lack of capacity and inability to realize the need for planning gets people into
problems which if not sorted out quickly may spell doom. Entrepreneurs should use the
services of consultants to set up plans. Once a business is set up there is need for
continuous creativity.

Self- preparation: Starting a business takes motivation, desire and talent and it also takes
research and planning. Success in small business starts with decisive and correct opening
actions. Although initial mistakes are not fatal, it takes skill, discipline and hard work to
regain the advantage. To increase the chance for success, an entrepreneur needs to take
the time up front to explore and evaluate one’s business and personal goals. Then use this
information to build a comprehensive and well thought out business plan that will help
them to reach set goals. The process of developing a business plan will help the
entrepreneur think through some important issues that one may not have considered yet.
The plan will become a valuable tool as one sets out to raise money for your business. It
should also provide milestones to gauge your success.

Lack of knowledge arising from not keeping abreast with trends; A lot of information and
knowledge is resident in business journals and magazines. Collaboration with business
circles and various forums can be a source of knowledge and a wealth of useful
information to the would-be entrepreneur. Many entrepreneurs do not get to know the
demand for what type of business and thus end up getting into the wrong business that
does not have a demand in the market.

Sources of fun; Would be entrepreneurs should realize that the best source of financing is
personal savings first and foremost. There is a tendency to rush for bank financing, and
lease-purchase agreements by many businessmen without realizing the cost implications
that go with it.

Starting big; Many of the big businesses to day started off small operating from

30
warehouses with one small office. This arrangement not only keeps overhead cost low
but also allows the entrepreneur to price his products competitively and to offer volume
discounts to his customers. When one starts small he is able to learn how to manage the
business as it grows and would not be swamped by the daily demands of big business
when they are not yet ready.

Inability to plow back profits; There is a tendency not to plow back profits into business
that leads to bankruptcy and lack of steady expansion. One needs to be very precise about
his plans for growth. Being in business for oneself causes high achieving entrepreneurs to
sacrifice material possessions now for future rewards. Some of business hurdles are
psychological, failure can deal one a temporary setback, but it can get your attitude
straightened out and come back even stronger.

Other causes of personal failure include; lack of proper business records, lack of business
experience, insufficient stock turnover, uncollected accounts receivables, inventory
shrinkage, poor inventory control, lack of finances, improper mark up and lack of sales.
These causes are related to incompetence.

External causes; environmental conditions, lack of entrepreneurship development

programs, market reforms, government policies.

Lack of development programs; The absence of encouragement programs is a severe

constraint on the development and success of entrepreneurship by passing legislation that
is friendly towards small business, nations make it more culturally acceptable and less
risky to be an entrepreneur. In addition development programs assist small businesses in
finding capital, drawing up a business plan, and complying with the various business and
tax regulations.

Market reform; Reforming market regulations through improving entry into formal sector
increases the number of small businesses in the national economy. Many least developed
countries use licenses and permits to regulate entry and participation in the formal sector.
Although these policies earn government revenue and protect state owned enterprises,
they effectively make markets inefficient and prevent would-be entrepreneurs starting
new ventures. By reforming market-entry regulations, countries will be able to increase

31
the number of entrepreneurs in the national economy.

Government policy; A deliberate policy to increase entrepreneurial opportunities

available to women and young persons could aid the success of small business sector.
Many women and young persons are excluded from the formal sector inmost LDCs
because of cultural values or legal restrictions. By preventing these groups from
participating in the formal market, countries are essentially limiting the size of their pool
of would-be entrepreneurs. By eliminating discriminatory employment and licensing
policies, countries could create an influx of possible entrepreneurs.

The worst constraint facing an entrepreneur is ignorance and its consequences. Olm and
Eddy (1985) cite several multifarious facets of ignorance that plague entrepreneurs. First
is lack of knowledge about environmental factors – an entrepreneur who does not scan
the political, economic, demographic, technological and socio-cultural environment to
identify the target market for proposed services, will fail to conduct his business. Failure
to pinpoint or profile the most likely customers means that the future of business is left to
chance and luck.

Second, is the formal plan – although studies indicate that not all successful
entrepreneurs began business with a formal plan, the evidence suggests that failures can
be attributed to the lack of a formal plan. Risk is reduced by a thorough analysis of the
proposed business.

A third facet is lack of information – before any plan can be drawn up, an entrepreneur
must be in possession of pertinent information. Collecting useful information is a
fundamental and primary task.

The fourth is lack of skills – an entrepreneur must realize at the outset when the business
requires more skills than he possesses, and not try to go it alone. He should not deceive
himself that he can figure it out later but plan for acquisition of requisite skills.

The last two causes are resource related, especially the human resource that must be
properly organized to best utilize their energies, skills and interests, and to control
activities. An appropriate record-keeping system is a prerequisite; inaccurate, insufficient

32
and untimely data plague small business. Employee theft, inventory mismanagement,
indifference and many shortcomings create storage, insurance and other costs tying up
funds critical for other purposes.

Stancill (1985) raises several points relating to the issue of potential markets. He advises
that entrepreneurs must carefully evaluate products they propose to sell. Furthermore
entrepreneurs should screen out ideas that require sizable sunk investment before
justification by sales performance. The point is that a start up should not involve only
small amounts of money since this might guarantee failure. The selling price should have
little or nothing to do with the cost of the product. Rather pricing should reflect the
potential buyer’s perception of the intrinsic value equal or greater than the asking price.
Entrepreneurs entering an existing market must have a very good idea of how much profit
he will realize and plan accordingly.

Problem of growth

The problem of growth appears to be a built-in dilemma facing many small businesses.
Firstly, if the owners are inefficient and lack initiative, their business will flounder and
fail. Secondly, if the owners are mediocre, their businesses will continue to be small and
to be constantly plagued with problems of smallness.

Thirdly, loss of advantages of smallness will occur if the owners are efficient and
capable, and their businesses grow and become successful. Owners of successful
businesses run the risk of losing the very things they seek from their business firms –
autonomy and control.

Growth Pattern for Businesses

Business growth pattern appears to follow the pattern described below.

Stage I

This is a one-person operation; where the owner does all the business activities.

Stage II

33
Separation of management and non-management functions: hired subordinates do some
of the manual and/or simple mental activities while the owner manages the business.

Stage III

Separation of ownership and management functions: owner delegates some of the

authority for the day-to-day managing of business to a professional manager.

Common Problems of Small businesses

Whether growing stabilizing or failing, small businesses tend to have common problems
that are a bother to them. These are as follows:

Government regulations in general and paper work: Talk with anyone who has been to
the offices dealing in business registration, licensing offices and many others, the
common report is that of frustration caused by officials who show no concern. This is
expected of bureaucracy, which goes counter the nature of an entrepreneur. Some
businesses never get registered right away; others engage agents to do the donkeywork.
Others cannot afford the demands and have to wait until they are able to do so.

Inflation levels and high interest rates: high inflation levels can kill small businesses
easily, especially those that are engaged in buying and reselling. Interest rates also work
against borrowing money for business. Many businesspersons in Zambia complain of the
difficulty in obtaining credit from financial institutions for business purposes. Earlier we
reviewed the approach taken by South Africa and the EU regarding SMEs. We noted the
deliberate policy to assist SMEs in this regard.

Taxes and national budget deficits: ZRA has been cited by many businesspersons as
being a heartless organisation intent on bringing businesses down through unreasonable
high taxation. The intentions of taxation are noble: the way tax is collected is what is
objectionable to business. The solution is to lobby government to provide tax incentives
to SMEs as practiced by South Africa. National budget deficits translate into taxation
levels to raise funds to meet shortfalls in the national budget. Unfortunately it is business
that suffers the most as levy upon levy is imposed on business activities.

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Labour unions and minimum wage laws; strong labour unions can be an anathema to
business. Many business houses deliberately and openly keep the influence of unions to
zero effect. Investors have exploited the loopholes in the labour laws and use these
loopholes to their advantage. This should not be the case as employees are human assets
of a business. Entrepreneurs should learn how to manage people in an enterprise. Those
that have poor management skills have a big problem on their hands: openly inviting the
entry of union influence.

Environmental restrictions: the growing influence of environmentalists has developed

into legislation intended to keep the environment safe from pollution by toxic substance
emission and dumping. Such legislation has in some respects restricted the activities and
location of some businesses. However, entrepreneurs should be conscious of the demands
of ecologists and environmentalists to ensure that they are not party to the destruction and
deliberate polluting of the environment on which life in general depends.

Lack of capital: capital in short supply affects the expansion and health of a business.
Capital that does not seem to be growing will result in a stunted business that is frail.
Capital availability and accessibility are vital to business growth and survival.

Insufficient depreciation allowances; this is a result of ignorance of accounting

procedures for business assets. Entrepreneurs should have an appreciation of accounting
knowledge to avoid this pitfall in their businesses.

Crime: people commit crime to keep their business afloat and growing. The extreme
practice is dabbling into occultism and blood sacrifices. Others steal from or physically
damage other people’s businesses through organized crime. Others are engaged in illicit
business such as money laundering, pushing drugs and prostitution. Entrepreneurs should
have a working idea of law and what it stands for.

Corruption: many businesspersons commonly practice it. It can be in many forms. The
most common form is that of inducing a favour by offering money or sex. A business that
is run on such practices does not last long. Good business is run on the premise of
excellent business ethics and personal value system of high morals. Corrupt entrepreneurs
are an abomination to society. One example is a government Minister in the First

35
Republic who tried to use his position to force a district hospital in the Southern Province
to buy rotten chicken from his farm. The hospital administrator refused to buy but soon
found himself out of a job. To day corruption thrives unabated and has been reported to
reach the highest echelons of government. The solution is shun corrupt practices and to
be content with what we have or to work with good intentions.

Case study 2 By Paul Lukas

Gillette: Blade Runner

In his early days the inventor of the razor and the company he built survived many close
shaves with financial ruin. But his fame never translated into a personal fortune.

Utopia is where you find it, whether in grandiose visions of futuristic metropolises or in
something as mundane as the never-ending quest for a cleaner, irritation-free shave. For
King Camp Gillette, it was both. Best known as the man who invented the safety razor,
he also published several books in which he envisioned an idealized and, frankly,
ludicrous incarnation of modern society. It's not such a surprising parallel, really--
inventors, much like utopians, are often dismissed as crackpots, and both camps have to
suspend an unhealthy measure of dismal business life to pursue their vision. In any case,
while Gillette's loftier fantasies of a single "World Corporation" that eliminated the evils
of competition never materialized, they didn't cloud his sharp business sense, which he
used to achieve a more pedestrian utopia: revolutionizing the way people shave.

Shaving has always been a rather bizarre ritual. It's not clear who first proposed that men
should scrape a sharp piece of metal across their faces, although straight razors did come
into common use in England around 1660. By the 1890s, not much had changed: There
were crude safety razors, but their blades had to be stropped daily and eventually
resharpened by a cutler. Even the most perfectly honed blade typically caused nicks and
cuts. Many men, agreeing with the Russian proverb "It is easier to bear a child once a
year than to shave every day," spent time and money entrusting the task to their local
barbers.

Such was the state of shaving when King Gillette was working as a traveling salesman.

36
His first utopian tome, The Human Drift, published in 1894, had somehow failed to
catapult him to world renown. Gillette had always had a tinkerer's bent--he already had
several patents to his name--but, as he put it 25 years later in his company's newsletter,
the Gillette Blade, "They made money for others, but seldom for myself, for I was
unfortunately situated not having much time and little money with which to promote my
inventions." During a conversation with his boss, William Painter, who'd become rich by
inventing a cork-lined bottle cap, Gillette got some provocative advice. "Why don't you
try to think of something like the Crown Cork, which when once used is thrown away,
and the customer keeps coming back for more?" Gillette replied, "It is easy to give that
kind of advice, but how many things are like corks, pins, and needles?"

Founder King Camp Gillette

Year founded 1869

Family run 30 years

2002 revenues $8.5 billion

37
Factoid Gillette handed out razor blades with his picture the way
Rockefeller gave out dimes.

Within that exchange lies the keen anticipation of 20th-century disposable culture, as
well as the inherent struggles of the lone inventor. It set Gillette on a path that would
ultimately make his name one of the world's most valuable brands and his face among the
most recognized. It also contains the germ of a very modern startup story, complete with
power struggles between the inventor and his investors, last-minute reversals that
changed the fate of the company, financial scandal, and moments of genius and madness
along the way to becoming established.

But first Gillette had to solve Painter's riddle and find the perfect disposable product.
Gillette thought constantly about what Painter had advised. "I applied the thought to
every material need, but nothing came of it," he wrote. One spring morning in 1895, the
idea struck Gillette as he went to shave and found that his razor had grown unworkably
dull. As he later explained, he envisioned a new type of razor blade, one that could be
"made cheap enough to do away with honing and stropping and permit the user to replace
dull blades by new ones." This concept, which challenged the centuries-old notion of a
razor as something that could last a lifetime and even be bequeathed to a son, became
Gillette's new obsession. He wrote to his wife, "I have got it; our fortune is made."

Executing the idea, however, proved challenging. Machinists and metallurgists told
Gillette there was no way to manufacture the thin blades he had in mind, making it
impossible to find financial backers. "The razor was looked upon as a joke by all my
friends," said Gillette. "A common greeting was 'Well, Gillette how's the razor?' If I had
been technically trained, I would have quit." The project stalled until 1900, when Gillette
met William Nickerson, a chemist accustomed to difficult projects: He'd once
manufactured light bulbs via a process that Thomas Edison had deemed impossible.
Nickerson was initially skeptical, but one of Gillette's few backers "all but begged
Nickerson to try his hand at the razor," reported biographer Russell Adams in King C.
Gillette: The Man and his Wonderful Shaving Device. He soon became enthusiastic
about Gillette's invention and developed a clear idea of how to manufacture the blades. In
1901, with Gillette serving as president and some ground-floor partners providing a
$5,000 stake to get Nickerson started, they formed the American Safety Razor Co.--a

38
name that changed the following year, at the president's insistence, to the Gillette Safety
Razor Co. (Nickerson's name, of course, was not an option for a shaving concern.)

The young company struggled with its limited capital and was quickly in the hole
$12,000. "Delays were so serious that Gillette was almost persuaded to shut down and
say goodbye to all the rainbows," recalled a friend to the Wall Street Journal. Nickerson,
whose business judgment had an inverse relationship to his technical skill, solicited an
offer from some New York acquaintances. "They agreed to put up $150,000 for 51% of
the stock of the company," he wrote in his exhaustive, nine-part story, which appeared in
the Gillette Blade. Gillette and company flatly rejected Nickerson’s deal. Gillette turned
to John Joyce, an investor in one of his earlier failed schemes, who provided additional
cash infusions that let Nickerson create the production equipment. But Gillette did so at a
significant price: He sold Joyce much of his own stock, making Gillette a minority
shareholder in his invention and ultimately setting the two men on a collision course.

The first Gillette razors and blades appeared in mid-1903: A razor plus one blade was
priced at $5, and 20 blades--each in a decorative wrapper bearing King Gillette's stately
visage, printed in ink the color of money--cost $1. The firm announced its entry into the
safety-razor market with a magazine ad that began, "We offer a new razor," the first
volley in what would eventually become a full-scale advertising broadside, no small
irony since one tenet of King Gillette's utopian vision was that society would be ad-free.
But then, just the idea of a utopian thinker's devoting himself to making money was
jarring. "It was almost as if Karl Marx had paused between The Communist Manifesto
and Das Kapital to develop a dissolving toothbrush or collapsible comb," cracked
biographer Adams.

The company sold only 51 razors and 168 blades that first year. But testimonials from
grateful men began to pour in, and Gillette's invention appeared to be on the verge of
fulfilling its promise. The inventor, however, was miserable, as he had kept his day job
working for his old boss selling corks and had been transferred to London at the
beginning of 1904. "I did not wish to go," Gillette said in his company account, "and
urged the razor company to make a salaried position for me. But those in control
[meaning Joyce] refused to meet my wishes, giving as a reason the need of every dollar
for development of the business." Gillette resigned as president before sailing with his
family for London.
39
As the product started to take off--Gillette Co. sold more than 90,000 razors and 10,000
blade packets in 1904--the company ran into significant production woes, and it needed
money to solve them. Joyce proposed licensing the international rights for an ongoing
royalty in an effort to raise capital, and when Gillette got word, the inventor immediately
set sail for the U.S. to block the move and takes a more active role in the company.
(Gillette, in the long run, was right to do so, since foreign sales sustained the company in
times of trouble during the 1930s and 1960s.) Gillette made some fancy boardroom and
stock market maneuvers to regain a controlling stake in his company, push Joyce aside to
vice president, and finally take a salary.

Although Gillette truly was more idea generator than manager, he did oversee the
company as it first established itself. "Two keys to the company's rapid sales growth were
distribution and advertising, areas in which it was destined nearly always to excel," wrote
Adams. In distribution, the company quickly shifted from mail order to a dealer network,
and it kept a close eye on retailers, particularly in an effort to prevent discounting of the
pricey $5 razor. Gillette first devoted 25 cents per razor to advertising but doubled it in

1905 as sales increased. "The whole success of this business depends on advertising,"
Gillette told company directors in a 1912 memo, perhaps overstating matters slightly. The
company's early ads focused on the advantages of the new razor when compared with the
old ways, but by the late 1900s, ads began featuring testimonials from baseball players
like Hall of Fame shortstop Honus Wagner. It was the first link between shaving and
sports, one that would prove more valuable to the company a few decades later.

Gillette understood that the key to the company's success was always in selling blades,
not razors. "The greatest feature of the business is the almost endless chain of blade
consumption, each razor paying tribute to the company as long as the user lives," he
wrote in a 1906 memo. And when the company boosted blade prices by packaging just a
dozen for $1, a canny profiteering move that many consumer-products companies would
later copy, Gillette knew how to assuage the customer. "We hope to have a better blade,"
he wrote to his brother-in-law, "and have it machine polished, which will improve its
appearance very greatly."

Overall, Joyce's assessment of Gillette's management as "increasingly capricious, unclear,

and contradictory" is probably not far from the truth. A flood of copycat products had

40
necessitated a series of stressful patent-infringement suits, and Gillette held up assigning
the company some patents he held personally, leading Joyce to wonder whether he
planned to leave and start a competing firm. He also didn't like Gillette's squirreling away
cash for unspecified future projects when that money could have been issued as dividends
to shareholders like Joyce. Finally Joyce bought out two-thirds of Gillette's holdings in

1910 for $900,000 and a yearly stipend in exchange for the patents, and the founder was
happy to secure his wealth and avoid corporate battling. Gillette retained the title of
president, but it was largely ceremonial.

Although he didn't have a role in day-to-day operations, Gillette kept abreast of company
affairs through letters to associates in management, occasionally chiming in with ideas.
During World War I he proposed that the company give a Gillette razor to every soldier
as he entered the military. Even better, decided company execs, why not sell the razors to
the government at cost and let it do it? The company designed a metal-cased shaving kit
for American infantrymen, pitched that "Every man in khaki ought to have one," and by
the war's end, American GIs had used 3.5 million Gillette razors and a staggering 32
million blades. More important, this military monopoly seeded Gillette's future, since
many of the young recruits continued to shave with Gillette upon returning home.

Besides attracting customers, Gillette inspired a wave of knockoffs as its original patents
were expiring in 1921. Anticipating that avalanche, the company designed and patented
an improved model, promoting it by knocking its predecessor. "Any other razor you've
ever known is crude," read the ads. Gillette didn't discontinue its old model, though.
Instead it repackaged the razors, sold them at a cut-rate discount, and introduced an
intermediate version as well. That gave Gillette a market presence at three price points--a
forerunner of approaches that would later become common--and strengthened its overall
market share.

In its pursuit of ever-increasing growth in the 1920s, though, Gillette made a number of
moves that almost killed the company when they came home to roost in the early 1930s--
and tarnished its founder's golden years as well. "Every effort was made to get the
Gillette razor in the hands of as many men as possible," said Joseph Spang, Gillette's
CEO from the late 1930s to the late 1950s, in a 1951 speech. "The idea of making a profit
on the razor became unimportant. That period might be termed the 'give-away' years."

41
Razors were given away with Wrigley's gum, pocketknives, and canned meat, among
many other products, all in an effort to seed the market and sell more blades. And in the
short term it worked: Gillette sold four times as many blades in the six years after the
original patents expired.

But the market got turbulent in 1928, when a longtime competitor named Henry Gaisman
patented a new blade design and offered to sell it to Gillette. Rebuffed, he produced it
himself and then sued Gillette for patent infringement after the company brought out a
similar blade. Each side accused the other of design theft, but Gaisman was in a stronger
legal position, having beaten Gillette both to the market and to the patent office. With its
position crumbling on several fronts, Gillette agreed to a merger with Gaisman's
AutoStrop Company. As FORTUNE put it in a blow-by-blow recap in 1931, "That
simple formality, the review of each other's books, brought to light a situation which was
to stun the Gillette Company. Actual consolidated earnings [for the previous five years]
were $11.8 million less than had been published!" In yet another move that anticipated
modern developments--this time presaging financial scandals such as the Enron debacle--
Gillette had been stuffing the channel with goods and reporting them as sales while they
piled up in warehouses in the late 1920s. "More darkly, as it turned out, the whole
exercise seemed also to be a means by which the ruling Gillette triumvirate assured
themselves of fat bonuses, computed as a percentage of reported earnings," wrote
Gillette's biographer, Adams. Gaisman, his hand now stronger than ever, set forth new
merger terms that would put him in control. He began cleaning house and reorganizing
the company, a process that would take most of the 1930s before delivering any
dividends.

King Gillette served as the company's global good-will ambassador, traveling around the
world in his ostensible retirement. When he wasn't on the go, he tried to help his only
son, Kingie, to follow in his footsteps and be an inventor, but it never took. He settled in
Southern California, bought land, and grew oranges and dates. He told a Boston reporter
in 1926, "Business is good in California, and with the state's climatic advantages in mind,
I can see nothing ahead but permanent prosperity."

The Great Depression, compounded by Gillette Co.'s financial woes, cost him dearly.
Two weeks before the stock market crashed, he wrote Gillette Co.'s director to inform
him that he planned to sell a block of his company stock to pay off mortgages he had in
42
California real estate. In failing health, the 75-year-old Gillette didn't want to have any
debt when he died. Company execs talked him out of the sale, thinking about what Wall
Street would do when news of the founder's sale spread. Of course, the bottom soon fell
out of the stock market and Gillette Co., and "within five years the wealth that the
inventor had gained from his razor would be largely gone," according to Adams. Gillette
died in 1932, a year after he formally resigned as president.

His company's clever use of advertising lived on without Gillette. The company returned
to the key promotional relationship between men's grooming products and sports: In

1939, under CEO Spang's leadership, Gillette obtained exclusive radio sponsorship rights
to the World Series (it continued as the Series' sole sponsor into the 1950s), and the
company tied its name to the Kentucky Derby, college and pro football, and boxing. In

1942 all this promotional activity was collectively dubbed the "Gillette Cavalcade of
Sports," a sort of umbrella brand that cemented Gillette's connection to the sporting
world. "Most males in the 1940s and 1950s did not have to be told that the Cavalcade of
Sports meant Gillette was sponsoring another ball game or horse race," wrote Gordon
McKibben in his Gillette history, Cutting Edge.

Meanwhile, Gillette engineers continually tried to advance shaving technology. The

company's litany of industry firsts includes the blade dispenser (1946), which eliminated
the need to unwrap individual blades; the twin-blade razor, the Trac II (1971); the
pivoting-head razor, the Atra (1977); the spring-mounted blade system, the Sensor
(1990); and the triple-blade razor, the Mach3 (1998).

Not that there haven't been some bumps in the road. In the '70s and '80s, "Gillette was
pushed relentlessly down market, as cheap throwaway razors made their presence felt in
its markets," write Des Dearlove and Stuart Crainer in The Ultimate Book of Business
Brands (1999), which ranks Gillette as the world's ninth most valuable brand. Disposable
products like Gillette's Good News cut against the company's heritage of premium
quality. Gillette also had to fight off two takeover attempts in the mid-1980s.
Diversification, which had moved into high gear with the 1955 acquisition of Paper Mate,
the maker of writing implements, has yielded uneven results over the years. It has largely
been successful in changing Gillette from a one-product company to one focused on
grooming--adding items for women (see A Permanent Contribution), as well as hits like
43
Right Guard deodorant. But some of its ventures outside the bathroom have been
disappointments. Bic consistently undercut Gillette's Cricket disposable cigarette lighter,
introduced in 1970, and the company's Duracell battery division suffered through 21
straight months of market-share decline from 1999 through 2001.

A century after King Gillette's invention, Gillette still sells five times as many razor
blades as anyone else. That may not quite be utopia, but it's certainly as much of a
validation as any visionary could ever dream of.

Despite the setbacks and Gillette’s personal failures the company continued to grow and
play a leading role in the advancement of personal grooming. What were the main
“pushing” factors?

Review Questions for Discussion

What have you observed about Gillette’s character as an entrepreneur?

Discuss the major obstacles to implementing Gillette’s ideas.

What were the effects of setbacks that Gillette experienced on business development?
Discuss how he overcame the setbacks.

Explain the major factors that ensured business success.

What led to the rejection of Gaisman’s invention?

In your opinion what are some of the aspects of business failure that Gillette experienced
and how did he overcome them?

References

Gevirtz D (1984) The New Entrepreneurs Penguin Books, NY

Olm K W, Eddy G G (1985) Entrepreneurship and Venture Management Merrill,

London

Bennet, R (1989). Small business Survival. Pitman. London

Smith Gerald R. (1985). Enterprise: A Stimulation. Houghton. Boston

Kreitner R, (2001) Management Houghton Mifflin, Boston

44
Bridge, S., O’Neill, K., Cromie, S. (2003), Understanding Enterprise, Entrepreneurship
and Small business. Macmillan, London

Curran, J. (1996), Small business Strategy Routledge, London.

www.fortune.com/fortune.smallbusiness/articles accessed March 23, 2005.

45
Notes 4

Planning a New Enterprise

Planning a business is not a straight forward matter, rather it requires among many things,
self examination, innovation and business acumen. In this lecture we examine the
innovation process and intrapreneurship and what it takes to make a success of
entrepreneurship. First of we examine the innovation process and consider the various
types of enterprises and lastly we look at what considerations to make prior to business
planning.

The Innovation Process and

Intrapreneurship

The innovation process is the systematic development and practical application of a new
concept or idea. To develop a new concept into a marketable product/service is time
consuming. Not all good ideas become marketable products, only one out of 20 or 25
ideas makes a business hit.

The innovation process is a three step process: the first step is conceptualization during
which new ideas occur to someone; the second step is the development of a prototype
(product technology), the actual creation of a product that will work as intended and the
third step is the development of a profitable production process (production technology).

Successful innovation depends on the right combination of new ideas, product technology
and production technology. Any deficiency in any of the steps can ruin the innovation
process.

An important aspect of innovation is the innovation lag which is the time taken to
translate an idea into satisfied demand. The longer the innovation lag, the longer that
market or society must wait to benefit from the idea. Shortening the innovation lag is a
high priority goal for modern managers. Shorter innovation lags constitute a competitive
edge. Concurrent/parallel engineering is a team approach to product design, involving
specialists from all functional areas including research, production and marketing. The
practice of concurrent engineering substantially reduces the innovation lag by letting
research, design, production, and finance and marketing specialists ha a direct say in the
product design process from the outset. The traditional approach is a much slower
practice of having a product move serially from research to design, from design to
manufacturing and so on down the line toward the market place.

Promoting innovation is through intrapreneurship. An entrepreneur is general thought of

as a creative individual who has risked everything while starting his own business. An
intrapreneur is less known, but is equally important in the national economy. An
intrapreneur is defined as an employee who takes personal ‘hands-on’ responsibility for
pushing any type of innovation through the organisation.

Intrapreneurs differ from entrepreneurs in several ways: i) intrapreneurs strive for

innovation within existing organisations, while entrepreneurs tend to leave organisational
confines to pursue their dreams; ii) intrapreneurs tend to have a higher need for security
than entrepreneurs who venture out on their own and; iii) intrapreneurs pay the price for
being employees rather than owners.

An intrapreneur is an entrepreneur in the corporate world with the same disposition for
creativity and innovation. The most significant difference between the two is in
motivation: an intrapreneur is generally motivated by a strong need for security but
simultaneously he is averse to close control. Intrapreneurship is constrained by
organisational demands of authority and control systems.

Intrapreneurs (corporate entrepreneurs) despite their success, have no capital of their own
to start other ventures. They begin from zero by persuading management that their ideas
are promising. Unlike successful independent entrepreneurs, intrapreneurs are not free to
guide their ventures by their own intuitive judgments: they still have to justify every
move to their superiors.

To achieve corporate competitive advantage/edge through innovation, organisations need

to foster a supportive climate for intrapreneurs. An organisation can foster
intrapreneurship if it i) focuses on results and teamwork, ii) rewards innovation and risk-
taking, iii) tolerates and learns from mistakes and, iv) remains flexible and change-
oriented.

Entrepreneurs can have among employees, people who are highly innovative. Most of the
successful entrepreneurs have the ability to identify innovative and creative persons,
nurture, develop and reward them accordingly.

Types of
Enterprises

Enterprises are of various legal forms: proprietorship, partnership, corporation, holding

company and trusteeship. A proprietorship is an enterprise or business that is owned by a
single individual. It is the easiest and simplest form of business to organize. It is preferred
for its simplicity and freedom of action and control. However this form of enterprise has
two major negative facets: first the business and its owner are one and the same and
cannot be legally distinguished and separated; secondly, the owner has unlimited liability
for the debts of the enterprise. Personal assets can be used to offset debts and pay for all
obligations.

We see many such businesses in Zambia as ‘sole traders’ or family owned businesses.
Only a trading license is required as a legal requirement to start business. Proper book of
accounts are required for tax purposes. Record keeping is very basic. However the major
advantage of this type of business is that it is not involved in legal and auditing expenses.
The principle downside of this type of enterprise is that should the business fail, creditors
may demand the sale of personal assets in order to pay liabilities. This implies that
liability is unlimited and bankruptcy results out of business being insolvent.

Partnerships – lawyers, accountants and doctors mostly operate as partnerships. This

type of enterprise is not popular as it has all the disadvantages of a sole proprietor and
none of the limited company. Partnerships arise when two or more people who know
each other well decide to establish a business together. The agreement is normally drafted
by a lawyer otherwise a misunderstanding can arise leading to the possible break-up of
the business.

A partnership is useful in some circumstances such as when one of the partners has bright
business ideas and business acumen and the other has the funds, or one has one skill
(business management), for example, the famous Calvin Klein fashion house. See case
study attached. The advantages of a partnership are i) the pooling together of more than
one individual, ii) having specific specialized skills possessed by individual partners, iii)
division of labour and management responsibilities. Partnerships are more effective in
raising financial resources and in obtaining better management than proprietorships.

The disadvantages include are: i) the death of a partner terminates the life of a
partnership. This may be offset by a clause allowing for the purchase of shares of the
deceased partner: ii) members of a general partnership have unlimited liability for the
debts of the business; iii) partners are responsible for the acts of each and every other
partner; iv) a partner cannot obtain a bonding protection against the acts of other partners
and; v) an impasse may develop when partners become incompatible. This can be offset
by inserting a clause for buy-sell arrangement in the partnership agreement. The clause
can be activated on any of the following: a) an impasse develops in reaching agreement
on an important issue; b) one or more partners develop interest in other businesses and
wish to leave the partnership; c) a partner dies and; d) a conflict of interest develops.

Corporations –usually owned by several individuals or other corporate entities that hold
stock in the enterprise. This type of an enterprise has none of the disadvantages discussed
above and it has more advantage s than either r the proprietorship or the partnership.
Students are encouraged to research this part of topic to gain a comprehensive
understanding.

In the Zambian context and the context of our study, entrepreneurship is associated with
small business management. Small businesses are distinguished from large businesses by
size (financial turnover), motives, type of customers and number of employees.
Furthermore a small business is distinguished as a business that is independently owned
and operated and is not dominant in its field of operations. Distinction by size is ill
defined: there is no generally accepted definition of size. It can depend on financial
strength or on the number of employees. Motives or intentions tend to be different from
those of professional managers of large organizations. The intentions of professional
managers are typically: desire for job security, desire for place, power, and prestige and
desire for high income.

Motives for small business owners are basically the same as those for managers in large
businesses. The big difference is largely that of independence – freedom from
interference or control by superiors. The desire is autonomy in exercising their initiative
and ambition, which results in innovations leading to great flexibility – one of the virtues
of small businesses.

Becoming an
Entrepreneur

We discuss in detail the driving force of the desire to be an entrepreneur, consider

theoretical aspects and examine motives for small business owners. We begin with the
relevant theories of entrepreneurship.

Theory of
entrepreneurship

Small business management as an occupation represents a way of life for many people
who are not in formal and regular employment. It provides and determines both physical
and psychological environment in which the person lives. Small business management
selects and strengthens the traits that the person most frequently uses.

Many writers on entrepreneurship have noted that small business ownership and
management usually carries with it a status in the community and provides individuals
social roles and patterns of living. Furthermore, small business ownership greatly
influences value judgment and ethical standards whether good or bad.

The choice of small business ownership as the ultimate objective leads to the satisfaction
of individual needs. These individual needs are described fully in Maslow’s theory of
hierarchy of needs. In accordance with Maslow the needs exist at several levels:
physiological needs which are the basic biological needs for staying alive, safety/security
needs that are related to freedom from danger or accidents or having a secure job not
threatened by company closure or retrenchment, social needs related to belongingness
and interpersonal relations. These needs are classified as biogenic needs that are related
to the survival and well being of a person. The other two classes of needs referred to as
psychogenic are those that relate to ego/esteem focusing on recognition and status of the
individual in the community or company, and self-fulfillment or self-actualization
focusing on achievement, growth, and responsibility.

Psychogenic needs are predominant in entrepreneurs especially the need for autonomy
and self-direction. It does not mean that to start a business a person needs to have strong
psychogenic needs. On the contrary, one can start a business and manage it successfully,
out of the desire or need to survive.

Another theory that underlies entrepreneurship is theory of human motives by

McClelland. This theory stresses that certain needs are socially acquired as a person
interacts with environmental factors. The theory concerns three motives: need for
achievement, need for power and the need for affiliation.

The need for achievement is the predominant force in entrepreneurship – this need varies
considerably among individuals and is influenced by the following factors:

◊ The level of satisfaction a person can obtain from achieving is derived mainly from
the act of achieving itself, rather than from other external rewards for example,
financial rewards. Enjoying an exotic meal derives from the actual eating of the meal
rather from the fact that you have eaten an exotic meal.

◊ Individuals proactively want to assume responsibility for achieving a particular task

they are expected to achieve. Kalusha Bwalya for example, has assumed the
responsibility for Zambian glory and achievement in African football. He got himself
elected to the FAZ.

◊ Individuals seek to set realistic achievement goals which involve calculated risks.

Easy tasks are avoided. Difficult responsibilities are also avoided because
probabilities of success are too low.

◊ Individuals who look to fulfill achievement need have a need for ongoing and specific
feedback in order that guidance can be received as to how well they have done. These
 individuals always want to be aware of how they are progressing against their targets
or objectives.

The need for power is not the prime objective in entrepreneurship. However power
accumulates with the success achieved in entrepreneurship. The need for power
(politically oriented) causes an individual to seek to influence or control others. Such
individuals are characterized by the following types of behaviour:

◊ High concern for acquiring, exercising, or retaining power or influence over

others.

◊ Likes to compete with others in situations that allow him to be

dominant

◊ Enjoys confrontation with

others.

The need for affiliation places a great deal of importance on human relations in terms of
being with and getting along with other people. This need is the least of the worries in
entrepreneurship. Individuals do not go into business to befriend others but to compete in
the market and be successful. The need for affiliation is opposite to the need for
achievement. People with a strong need for affiliation are characterized as follows:

◊ One who derives great satisfaction from people he/she works with rather than work
itself.

◊ Tendency to respond more favourably to compliments about their attitude to work,

and how valuable they are to the organisation

◊ Preference for jobs or even career path on the basis of who they will work with rather
than on the nature of the work itself. They would rather have their work suffer should
tasks achievement conflict in any way with the need to be accepted or well regarded
by colleagues.

◊ Tendency to prefer roles with high prestige rather than a job that demands excellence
of performance.
◊ Not motivated by achievement but rather prefer not to accept demanding levels of
personal responsibility.

We can thus conclude that successful entrepreneurs possess a high need for achievement
and power. They have a high level of individualism and also have a high need for
independence. Successful entrepreneurs have a high ability to take calculated risks. They
are individuals with an internal locus of control – believing in one’s ability to influence
or manipulate situations to his advantage. They do not believe in fate or outside
intervention in their affairs. They are strong believers in their own abilities.

Other characteristics about successful entrepreneurs are listed in the box below.

Box 1. Successful Entrepreneurs

Highly determined to achieve set business goals

Highly dedicated to what they are doing and do not stray form activity until done

Highly focused on achieving task or solving problem to his satisfaction

Highly motivated by family/personal need to be successful

Highly committed to an activity and very enthusiastic about it.
Highly innovative in situations where it is demanded

High level of morale at most times.

Seize chances as they occur and exploit them to own advantage. Know
how to manage people, especially employees and customers. Pragmatic
problem solvers and decision makers – will stick to what works.

It should be quite clear by now that entrepreneurship is a mindset that can be successfully
developed by anyone with a passion for achievement and is not easily put off by
challenges but thrives on these on a regular basis.

One of the most obscure biblical characters Shamgar used an ox goad to fight against the
Philistines that were pillaging Israel. He was so successful that he became one of the
Judges of Israel. Three things about his success are that he started where he was (right
where he was growing crops – on his farm) he used what he had (an ox goad with which
he was very familiar and expert at its use) and he did all he could (he applied all his
cunning and might). He ended up killing 600 of the enemies. That was some feat
considering that a goad is just a stick with one sharpened end, which Shamgar used to
fight against well-armed Philistines. Not much is written about Shamgar in the book of
Judges, but it serves to illustrate that it does not take much to succeed, except
determination and being focused. In the case of Shamgar survival was the focus of his
determination. There are of course many biblical characters with similar stories, they
include Jacob, Moses, David, the widow of Zarephath who survived hunger by
ministering to Elijah, the widow who used a little oil to pay off her debts and save her
children from slavery after approaching Elisha the prophet.

It is not only biblical characters that we can look to for secretes of success. In modern
times there are many to refer to: H J Heinz, Henry Ford, Bill Gates and even here in
Zambia, the likes of David Nama, Jeremiah Phiri, Altrin Kapelembe and many others are
good examples to emulate.

Entrepreneurial
Drive

Entrepreneurship is the art of finding profitable solutions to problems. American

entrepreneurs of the late1800s and early 1900s were men who found practical and
profitable solutions to many problems of their time. Even today entrepreneurs are men
and women continually coming up with new solutions to prevailing problems. Some of
the contemporary entrepreneurs are coming up with products and services to satisfy the
needs of the 21st century man.

Browse the Internet and visit www.AskMen.com for biographies on entrepreneurs such
as Henry Ford, H J Heinz, Calvin Klein, Oprah Winfrey, Bill Gates and, many other
famous people in business. You will discover that these are people with extraordinary
resilience and determination to overcome challenges. As you learn more about
entrepreneurs you will discover that they are ambitious and have a strong passion to
achieve results or to overcome challenges. You will also discover that these men and
women were and still are proactive and respond to challenges with enthusiasm: they are
full of self – confidence and determination that they have the potential to achieve and
make a big difference. Essentially, they create change and thrive on it.

A recent survey of 500 entrepreneurs in hi-tech industry conducted by Oxford University

revealed that 12% were motivated by money, 39% by the desire for independence, 30%
by the challenge of owning a business and making a success of it, and 19% by other
factors. A similar survey of 500 fast-growing businesses in the US conducted by Richard
Daft revealed that these businessmen went into business for the following reasons: 29%
to create something new, 24% to control own life, 14% to make money, 14% to be his
own boss, 10% to prove he/she can do it, 8% frustration and, 2% other reasons. From the
two surveys, the desire for independence and the challenge of owning a business are
primary drives. Notice that making money is not a primary issue at all.

Earlier we noted that entrepreneurial personalities differ from each successful

businessman since individuals are born with unique traits. Some of the characteristics
based on personality are internal locus of control, high energy levels, need to achieve,
tolerance for ambiguity, awareness of passing time and self-confidence. The survey by
Richard Daft revealed that the time put into work by businessmen in terms of hours per
week is distributed as follows: 24% less than 50hours, 24% between 50 – 60hours, 28%
between 60 –69hours, 13% between 70 – 79hours and, 11% more than 80hours.

What It Takes To Be an
Entrepreneur

In the mid 1980s, Thomas Bagley and David Boyd studied the psychological literature on
entrepreneurship in an effort to distinguish between entrepreneurs and people managing
existing small businesses. Five dimensions were identified:

◊ Need achievement: entrepreneurs are high on the McClelland’s concept of need

achievement.

◊ Locus of control; the idea that individuals, not luck or fate, control their own lives.

Entrepreneurs and managers like to think they are pulling their own strings.
◊ Tolerance for risk: entrepreneurs who are willing to take moderate risks seem to earn
higher returns on assets than those who either take no risk or take extravagant risks.

◊ High tolerance for ambiguity: to some extent, every manager needs this since many
decisions must be made with incomplete or unclear information. But entrepreneurs
face more ambiguity, since they are doing uncertain things for the first time ever and
because they are risking their livelihood.

◊ Type A behaviour: refers to the drive to get more done in less time, and if required to
do so, despite the objection of others. Both founders and managers of small
businesses tend to have much more higher rates of Type A behaviour than do other
business executives.

Clearly entrepreneurs need self-confidence, drive, optimism and courage to launch and
operate a business beyond the safety of a steady corporate pay cheque. Sometimes
entrepreneurs decide to launch a new venture because they cannot ignore their dream and
their vision. They are more willing to risk security for financial gain. In other cases, they
are pushed by circumstances beyond their control such as corporate cutback or frustrated
by limited opportunities for advancement or the need to coordinate personal or
professional goals. Faced with such circumstances, many individuals find courage and
confidence to take control of their professional fate. Are you willing to do so?

Needs and Motives for

Success

To be a successful entrepreneur you need to understand the motives for being a

businessman and that is, as an owner of a business, you have the potential of fulfilling all
the needs discussed earlier. However, the manner in which needs are fulfilled depends on
your knowledge of the business (ins and outs), your skills and abilities and personality
traits you bring to your business. Therefore, there is need for some soul searching or
more aptly, some heavy introspection and self-analysis.

Business
rewards
To help with our introspection we will proceed by asking and answering three questions.
The first question asks, “In what ways can owning a business reward you?” You need to
be quite clear in your understanding that owning a business can reward you in the
following ways:

◊ You can earn a lot of money – bearing in mind all the legal obligations
including taxes. A word of caution here is appropriate: money should not be the prime
focus but the service/product you are going to offer to the public at a fee or price.
More will be shared on this issue later. In addition, in the Daft survey money is not
the main motivation for going into business.

◊ You can perform a satisfying service to the community through the provision of
services, products, employment, facilities etc. You need to realize that you are
working in a society that has needs to be satisfied and that you will be contributing to
its well being. You should also realize that you would be dealing with people with
sentiments and changeable needs and wants. This will call for tact and interpersonal
skills to get along with many varied personalities.

◊ Depending on how well you treat people you can obtain prestige and recognition in
the community, which would be a plus to your business. Your reputation and standing
in the community will cause many individuals to do business with you out of respect.
Other people will speak well of you and your business and even persuade companies
to open dealings with your business. Solomon once noted that a good name is better
than precious ointment. It simply means that reputation is worth more than what you
precious.

◊ You can find new challenges, experiences and connections that could lead you into
expanding your business activities. Challenges are new business opportunities that
arise in the community. As entrepreneur it is to your advantage to exploit new
opportunities. Through your experiences and connections in the community people
will open up and offer you inside information on possible new business.

◊ You can be proud of what you have built. There is a unique satisfaction experienced
in managing a business you have built that does not come from directing a business
 that others have built. You are in better standing than managers of other people’s
businesses, knowing that you in total control of the business.

Personal
Abilities

The second question of introspection is precautionary in nature and asks: “Before going
into business, what do you need to ensure success?” Here the self-analysis revolves
around your ambition, desire and willingness to invest. Specifically you need to assess
your abilities:

◊ Technical and managerial know-how: do you have sufficient technical knowledge to

run the business successfully and how much managerial experience do you bring to
your business. If you do not have sufficient technical and managerial experience, you
can either do one or both of these alternatives, hire a consultant to help or attend
training courses run by ILO Business Development Programs or do both if you can
afford the expenses. The ILO programs include: Start Your Business (SYB), Improve
Your Business (IYB) And Expand Your Business (EYB

◊ Preparation – how much preparation have you undertaken for going into the chosen
business? Have you undertaken any feasibility studies in the business area or have
you undertaken a market research to assure you of the potential in the business?
These and many other questions need adequate answers to convince you of the
viability of the business. Do not go into business if you are not completely aware of
the complexities of chosen business. Very often people have entered business because
they have seen others do so and succeed forgetting that others may have a better
understanding and preparation. Take time to prepare for business: there are no
shortcuts. People like David Nama started small and learnt the intricacies of business
operations before going on the growth curve.

◊ Experience – have you worked in the chosen business before or are you just learning
about it? If you do not have the requisite experience spend some time doing the
chosen business on a much smaller scale with very little risk involved. The essence of
practice is that it prepares and makes improvement. Biblical characters like David had
 some vital experiences before becoming who they were. David learnt to fight giants
while tending sheep and he learnt royal protocol while serving Saul. Even in business
you need to be like David. An alternative way to look at experience is to examine
your background and the relevance of any exposure to business.

◊ Ability – do you have any relevant abilities relevant to production, marketing, supply,
finance and managing people? Any of these abilities are essential to business
management. You need a combination of at least two of the business management
abilities to ensure that your business will take off smoothly with few headaches.
There many short training programs that you can consider attending to improve your
abilities in the area you are seemingly lacking. Alternatively you can engage someone
who has the ability where you are lacking.

◊ Perseverance – how convinced are you to persist with an activity you believe will
ultimately yield sought after results? How patient are you? How long can you stand
disappointment with business outcomes? You need to know your strengths and
weaknesses. Business can be stressful and if you are easily susceptible to stress you
need to reconsider and make appropriate adjustments in your personal involvement.

◊ Willingness to work – how much of your time are you going to put into business? We
have already learnt that entrepreneurs surveyed by Richard Daft, put in many hours
per week in their businesses. The more time you put into business the less time you
will have to spend with your family members and friends. You may have to forego
some of your leisure. This calls for a sacrifice of your personal time. If you believe
that business is worth your time then be prepared to work odd hours and change your
time wasting habits. You will need to learn how to spend your time productively.
Attend a course in time management.

◊ Outgoing personality – the kind of personality that literary goes out to others. In
business people meet with others of different persuasions. You need to exhibit a
personality that helps you to relate to all sorts of people in order to do business with
them. For example, if you are on the quiet side and reserved customers will pass you
by thinking that you are really not interested in selling what you have on offer. On the
other hand if your personality is overly aggressive customers will shun no matter how
 persuasive you might be. Customers prefer to do business with warm and vivacious
personalities, people who make them feel good even though they are parting with
their hard earned money.

◊ Judgment – shrewdness and common sense in business, the use of one’s intelligence,
wisdom and prudence in dealing with customers and suppliers. Customers and
suppliers are the most important people you will have to deal with in business.
Customers can be shrewd and get goods from you at a very low price, so can
suppliers give you items at high prices. You will need to be shrewd as well to get a
good deal out of customers and suppliers. For example, women are very good at
persuading male customers simply by smiling and complimentary. Women customers
can buy items cheaply from you by smiling at the same time suggesting a lower price.
It is hard to resist a soft and warm smile but if your judgment is right you will resist
and insist on paying the going price.

◊ Competitive spirit – being ready for action or aggressive when required to be so in

business. For example, when a supplier of items on high demand wants to sell you at
twice the normal price, you will need to be aggressive and ready for action such as
offering cash right away at a much lower price. In business a cash transaction is very
hard to resist. Chances are that the supplier will agree to close the deal quickly when
cash is offered.

◊ Health and stamina – in business your physical condition is very important for
obvious reasons. Nobody wants to do business with a sickly looking person.
Customers will shun your business for fear of being contaminated or infected. You
will also need to exhibit stamina, tenacity and resilience in your business activities,
putting in many hours per week as we have earlier noted. These characteristics send
powerful signals to whomever you are dealing with that you are dogged, tenacious
and steadfast and not a pushover. Suppliers and customers alike will approach you
with caution.

Personal
Ambitions
The third question to help with self-analysis is based on you as a person. The questions
ask you to consider your position before risking your money, time and effort to become
an entrepreneur. Consider the following questions:

◊ Why do you want to start a business? You need to have a clear vision or dream of
what you intend to do in business and how you see that business in relation to your
life goals and your family and in relation to the market whether you will play a
dominant role or just significant enough to make an impact. The vision must be
simple, yet so compelling that it permeates your very being. For example your vision
statement could read, “to be the best supplier of fresh eggs in Kitwe”.

◊ What business are you going to enter into and make a success of it? Once your vision
is fairly clear in your mind you can now prepare your mission, which spells out what
business activities you will engage in to realize your vision. A mission statement
provides a written guideline to your business. For example, “to keep healthy hens fed
on quality feed made from a mixture of grains grown organically and delivering eggs
to customers every twelve hours at a minimum cost”. This statement can be split into
discrete business activities: keeping hens and ensuring that they are healthy, making
feed from organically grown grains and mixing them in right proportions, buying or
growing grains with organic origins, collecting, packing and distributing eggs to
customers.

◊ What is more important – to make lots of money of to perform a useful

service?

Performing a useful service is a goal and making lots of money is an objective. As a

businessperson you need to be quite clear on what your goals and objectives you
intend achieving in your business. Business goals tend to be more open-ended and
shift to another level. For example, in this egg business the goal would be to improve
customer relations. On the other hand, an objective is specific in nature, measurable
and realistic. In the goal example given above, an objective in customer relations
would be to establish a customer affairs section in six months time. In general,
objectives are specific, measurable, achievable, realistic/reasonable, and time
bound/related. Performing a useful service is related to mission and vision of the
 business whereas making lots of money constitutes a milestone to help you check
how well you are doing on the long journey to your dream. Notice that as a business
abandons or neglects performing a useful service business fails or falters.

◊ When is the right time to start running a business? A suitable time to start a business
is when a strong desire to do so occurs or when the need to do so arises. It is also
possible to go into business by chance, that is without a conscious intention. It is
equally important to make a deliberate start, especially while in employment when
part of the earnings can be invested in a small venture. However, waiting for a perfect
time to come can prove to be illusive. Once the business is running scheduling of
activities becomes paramount, as the intention is to exchange products or provide
services for money in the shortest time possible. Poor scheduling of activities can be
anathema to business management.

◊ Where do you wish to conduct your business? The location of business is very
important. A business should be located close to its market or customers. A business
must serve the needs of its market and customers. It is pointless to locate a business
where customers do not exist or where customers have to travel a long distance to be
served. For example it is pointless locating a business in Chimwemwe catering for
high-class clientele – not many will purchase any of the items neither will any of the
high-class clientele travel all the way to buy from Chimwemwe. A business location
is arrived at after a thorough market analysis ending up with identification of a market
niche and then locating the business where most of the population of the identified
niche frequent for shopping.

◊ How are you going to establish the business? There are legal procedures to follow
when setting up a business. The status of the business should be properly defined:
sole proprietor, partnership, incorporated and limited liability. Whatever status a
business requires some legal sanction to exist and operate. The accompanying red
tape should be endured to fulfill the legal requirements for business registration.
There are no shortcuts – otherwise the legal system would be condoning illegal
business activities that could prove to be disastrous.

◊ How much money do you need to get started and from where do you get it?
 Businesses need funding to get started and sustained. How much is required depends
on how much risk you are willing to take. It is advisable to start small and continue
operating at that scale until you are confident enough to invest more in the business.
There are many sources of funding but most are expensive. The cheapest source is
from personal savings or from friends or relatives who can lend you some of their
savings to get you started. Other sources include investors lending institutions and
government agencies. These funds come at price (interest charges) and some
conditions such as part ownership and financial control of the business.

◊ How much are you going to sacrifice of your family? Running a business demands a
lot of attention to detail and sacrifice in terms of effort and personal time. We have
already learnt how much time entrepreneurs spend per week: quite considerable. The
more time you spend doing business the less time you will have left for friends and
family. As entrepreneur you need an understanding spouse otherwise, you will always
experience stressful times which could lead to a worse situation. Business in the early
stages requires more of your time in the same way that a baby demands attention. A
time will come when you can take things easy as business becomes more stable.
However depending on prevailing circumstances business will demand your attention
and you should be able to do so without hesitation, hindrance and regret.

◊ How much of yourself do you put in the business? Business calls for commitment. As
a businessperson you cannot afford to be uncommitted. It implies that you have the
wrong attitude to business. You need to reexamine your intentions, vision and
mission. If these have significantly changed it is only fair that you adjust business
operations to reflect the new reality that can make you recommit yourself and show a
fresh dedication. Frequently external circumstances can cause a reassessment of your
commitment. A positive commitment leads to adjustments in business operations. HJ
Heinz faced such circumstances and responded positively by starting all over and
making a success that to day is evidenced by the global presence of his business
empire. Commitment to business is an attitude of dedication to and a strong belief in
an idea that translates into success and profit.

◊ Can you direct all the business activities and succeed? Business calls for a number of
 abilities in combination to make a success of it. If for some reason you cannot
adequately perform some business functions seek some assistance until you can
afford to hire a trained person. Identify your weaknesses and work to reduce the
handicap. In addition you need to update yourself frequently to keep abreast with
developments in your line of business. This could help you prepare well in advance of
anticipated changes. David prepared all he could for the building of the temple and
handed over the responsibility to Solomon. HJ Heinz did likewise and upon his death
the company was in the safe hands of his son Howard who likewise passed on the
responsibility in due course to his son HJ Heinz II who is credited with the
multinational expansion of the company into a global empire it is today.

Case Study 3

H.J. Heinz: Shake It Up

At a time when prepared food was a shady business, Heinz's transparent jars,
factory tours, and focus on food safety made his store-bought condiments king.

By Paul Lukas

Numbers can be magic. Sevens are lucky, of course, and if you add three of them
together, you get the special "21," both a classic New York City club and blackjack
perfection. Pittsburgh food purveyor Henry John Heinz understood the intrinsic power of
numbers when he found himself on an elevated train in New York looking at an
advertising placard for a shoe store with "21 styles" in the summer of 1896. He didn't
have styles--he had varieties--but he began adding up the assorted pickles, relishes, and
other foodstuffs in his product line, thinking he could copy the shoe ad. "Counting up
how many products we had," he later recalled, "I counted well beyond 57, but '57' kept
coming back in my mind. Seven, seven--there are so many illustrations of the
psychological influences of that figure ... that '58 Varieties' or '59 Varieties' did not
appeal at all." Heinz immediately got off the train and made arrangements for an ad blitz
featuring his inspired idea.

H.J. Heinz was a marketing genius and a branding guru before those clichés even existed.
He used those skills--along with a prescient emphasis on purity in food processing--to
invent a market for his condiments at a time when people commonly made their own. He
also understood that railroads and other technological advancements were creating global
markets, and he seized that opportunity to build one of the country's first multinationals.
As he wrote in his diary, "Mountains and oceans do not furnish any impassable barrier to
the extension of trade.... Our market is the world."

The son of working-class German immigrants, Henry Heinz grew up in western

Pennsylvania, where his mother tended a family garden. He loved to garden and he
would take the family's surplus vegetables into town to sell to grocers. By age 12, Heinz
had his own plot, a horse-drawn cart, and a growing list of customers. In addition to
vegetables, he began to sell a grated horseradish product based on his mother's
recipe. Most producers sold prepared horseradish in dark jars because, as a business
writer of the day noted, "The dealers had adulterated it to so great an extent by adding
turnip and wood fibers as filler." To set his horseradish apart and attract those naturally
suspicious of food they couldn't see, Heinz bottled his in clear glass and offered samples.
"A wide market awaited the manufacturer of food products who set purity and quality
above everything else in their preparation," Heinz wrote. In 1861, when he was just 17,
Heinz made $2,400 (about $43,000 in today's money).

Founder Henry John Heinz

Year Started 1869

Family run 97 years

2002 Revenues $9.4 billion

Factoid Some 28% of sales still stem from Henry's condiments like
ketchup and relish.

Eight years later Heinz and his friend Clarence Noble founded Heinz & Noble, selling
bottled food products out of Heinz's home. A growing railroad and telegraph system
"provided the fast, regular, and dependable transportation and communication so
essential to high-volume production and distribution," wrote Alfred D. Chandler Jr.
in The Visible Hand: The Managerial Revolution in American Business (1980).
Heinz traveled constantly to expand the market for his goods--via train to New York,
Cleveland, and other growing cities. He observed gardens becoming scarce in urban
areas, so he targeted those regions for his expanding array of prepared goods. Heinz was
also an early practitioner of what we would call branding. "He was always looking for
ways to build the company's connection to the consumer," says Nancy Koehn, author of
Brand New (2001), which examined entrepreneurial branding efforts like Heinz's. At a
time most prepared-food products were sold out of anonymous barrels and jugs, Heinz &
Noble's products were often individually bottled and labeled with a distinctive anchor
logo.

The business would ultimately fail at the end of 1875 because of a credit crunch caused
by the economic depression known as the Panic of 1873. Sales had continued to rise, but
expenses incurred in processing a bumper crop of cucumbers before it could recoup them
with sales squeezed the company. Heinz was devastated, both financially and personally.
The stress left its mark on him--literally--as Heinz developed boils all over his body. "I
am wearing brain and body out," he wrote in a diary entry titled "Panic Times." He also
felt ostracized by the negative attention--A Trio in a Pickle read a headline in the
Pittsburgh Leader. But within three months he had rallied, scrounging together $3,000 in
capital and recruiting his brother and a cousin to front a new food concern, F&J. Heinz
Co. Because of the bankruptcy, Heinz couldn't legally own the company, but he ran the
enterprise, and his relatives agreed to sell him a piece of the business after he had paid his
debts. He marked that occasion by introducing a new specialty: a tomato-based
condiment called ketchup. Eventually it replaced horseradish as the company's signature
product.

Heinz's wares had been doing well before his liquidity problems, and the rejuvenated
brand picked up where it had left off. By the end of 1876 the business generated $44,474
in revenues (about $665,000 today), and the next five years saw impressive growth as
sales exceeded $284,000 in 1881 ($4.7 million today). Heinz took advantage of new
technological developments like railroad refrigeration, steam pressure-cooking, and
vacuum canning to introduce products like baked beans while increasing the production
of others. H.J. also continued to travel extensively, making his first trip to London in
1886, ostensibly on vacation. Impulsively, he popped into the renowned food
emporium Fortnum & Mason--purveyors to the royal family--and offered samples to the
purchasing manager. "I think, Mr. Heinz, we will take all of them," he said, much to
Heinz's surprise. With that successful sale, Heinz made the company one of the first
American packaged- food brands to gain a foothold overseas. In 1890 the company hit
upon the now familiar combination of the keystone label (so named for the company's
home state of Pennsylvania), the neckband, the screw cap, and the octagonal bottle for its
ketchup. Marketing the product as a "blessed relief for mother and other women in the
household" because of the arduous process required to make ketchup, Heinz had become
the largest ketchup producer in the world by the turn of the century. Heinz paid off his
debts in 1879 (a year ahead of his goal), and he ultimately bought out his family members
in 1888, renaming the business the H.J. Heinz Co.

Heinz's persistent and creative advertising, promotion, and sales tactics fueled product
sales. He arranged tastings at every opportunity, from local and state fairs nationwide--
most notably at the 1893 World's Fair in Chicago [see A World (Fair) of Invention]--to
weekly setups in neighborhood grocery stores in which salespeople provided samples to
customers while explaining how the products were made. At each site Heinz offered
promotional giveaways, like a pickle pin (after the company's most popular item at the
time), that would also reinforce an important attribute of the product, such as purity. "We
keep our shingle out and then let the public blow our horn, and that counts," wrote Heinz.

"Fifty-Seven Varieties" was H.J. Heinz's most famous promotional idea, and he exploited
it with a number of big splashes. In 1899 the Heinz Ocean Pier debuted: It was a
proprietary stretch of boardwalk jutting out into the sea in Atlantic City. Crowned by a
70-foot-high "57" sign, it featured a company museum, free samples, and live
entertainment. It drew millions of visitors before it was wrecked in a 1944 hurricane. In
1900, Heinz unveiled New York City's first large electric billboard. Six stories high with
1,200 incandescent lights, it promoted the Ocean Pier and boasted of Heinz's "57 Good
Things for the Table." Situated at the corner of Fifth Avenue and 23rd Street, it came
down in 1902, when the famed Flatiron building was erected on that site.

Despite his status as a clever showman, Heinz was a deeply religious man who believed
strongly in his products and, especially, his employees. Having seen the bloody effects of
labor strife on Pittsburgh's steel industry, he had resolved from the outset to treat his
workers well. His mantra was "Heart power is stronger than horsepower," and he lived up
to it by providing a bevy of unusual amenities: Workers got regular breaks and could
spend them relaxing in a rooftop garden. "It was a paternalistic, benevolent workplace,"
said Charles McCollester, director of the Pennsylvania Center for the Study of Labor
Relations, who has just completed a study on Heinz. "The women who worked cleaning
the cucumbers got weekly manicures. There were singing groups and lectures given at the
company." Such benefits earned the "Pickle King" another nickname: the "Prince of
Paternalism."

As demand for government oversight of food quality grew around the turn of the century,
Heinz stepped up his offensive to differentiate himself from the hordes of unscrupulous
producers adding unadvertised preservatives and filler to their products. In 1897, Heinz
opened his Pittsburgh facility to the public. "He's the first I've come across that opened up
his factory for public tours," says Nancy Koehn, who teaches at the Harvard Business
School. "You really build customer trust by saying, literally, 'Come in and see how we
make this stuff.” The tours were an immediate hit and by 1900 were attracting 20,000
visitors annually.

When advocates mobilized in Washington, D.C., to lobby for a law governing food
production and labeling, Heinz vocally supported them and dispatched his son Howard
there to get President Theodore Roosevelt behind the movement. His motives weren't
fully altruistic, of course. Heinz resented being tainted by the dubious tactics of others,
and, more important, he understood that if poor quality control brought down processed
foods, Heinz would go down with the rest. With regulation, others would have to spend
more money to comply and maybe go out of business. In June 1906, the Pure Food and
Drug Act became law, outlawing trade in adulterated and misbranded food, drinks, and
drugs. Some Heinz competitors, unhappy with the new federal oversight and furious at
H.J. for his role in bringing it about, began spreading rumors about Heinz products.
There's no such thing as truly preservative-free ketchup, they whispered: Heinz is using a
secret chemical agent. But the company countered by making purity a central theme of its
advertising to customers and sellers. "Artificially preserved foods are dangerous to your
business as they are to health," warned Heinz ads in The American Grocer in January
1909. Inspectors affirmed the company's claims, and as H.J. had expected, the new
regulations ultimately legitimized the industry and set the stage for Heinz's further
growth. In 1909, Heinz's sales were $6.13 million. By 1914 they'd almost doubled, to $12
million.

By the time H.J. Heinz died in 1919 at the age of 75, the company's revenue
exceeded $20 million and it employed more than 6,500 people. Two Heinz heirs followed
in his footsteps. Son Howard steered the company through the Depression, cutting costs
and adding important new lines like baby food and ready-to-serve soups. The founder's
grandson, H.J. "Jack" Heinz II, succeeded his father in 1941, took the company public in
1946, and oversaw its first acquisitions, including the StarKist and Ore-Ida brands, in the
1960s. But the founder's heirs ran the company much as he had, even though it was now
far larger and times had changed. The company was slow to modernize marketing and
distribution techniques, clinging to the old ways. Forbes summed up the company's state
in a 1964 profile, saying, "Heinz is not doing nearly as well as its competitors in the U.S.
and, without the European market, it would be barely getting along." Jack Heinz
voluntarily stepped aside as CEO in 1966 (he remained chairman until 1987), and the
company moved to professional management. He was the last Heinz to run the company;
his son John Heinz III worked there briefly but made his name as an influential Senator.

Meanwhile, "57 Varieties" remains part of the public lexicon, even though it's no longer
the official Heinz slogan. It was quietly retired in 1969, the company's centennial year.
And with good reason: By that point, Heinz was making more than 1,100 products.

Review Questions

What was the motive for Heinz to go into business? Explain.

Describe and discuss Heinz’s character that made him successful in business.

Explain the circumstances that led to business success for Heinz (compare with
Shamgar).
In your opinion what entrepreneurial drive made Heinz a success?
Discuss the circumstances that made Heinz go into business.

How would you describe Heinz’s character?

Discuss any aspect of Heinz’s character that makes him standout from other American
entrepreneurs.

How would you go about developing the Heinz character in Zambian entrepreneurs?