CHAPTER ONE: THE NATURE AND IMPORTANCE OF ENTREPRENEURS

Learning objectives
1. To introduce the concept of entrepreneurship and its historical development/historical
perspective and give the definition of entrepreneurship /entrepreneur.
2. To describe the nature and characteristics of entrepreneurship and entrepreneurs
3. To identify the motivations for starting a business
4. To explain the entrepreneurial decision process
5. To identify the basic types of start-up ventures
6. To discuss the role of entrepreneurship in socio-economic development
7. To explain the entrepreneurial process and its distinctive phases

HISTORICAL PERSPECTIVE OF ENTREPRENEURSHIP

The term entrepreneur comes from a French word: ‘entre’-between and ‘prendre’-taker; literally
translated it means between- taker or go- between. So the word entrepreneur refers to individuals who
were “undertakers” meaning those who undertake the risk (failure) of new enterprises.
The definition of an entrepreneur has evolved over time as the world’s economic structure has changed
and become more complex. for instance in the 11 th century, Marco Polo who established trade routes to
Asian countries was a go- between. Like many merchant adventurers in his time, he signed a contract
with people who had money (capitalists), but had to give up most of the profit (up to 75%) to the
capitalist upon the successful completion of his journey, even though, the capitalist was a passive risk
taker
In the middle ages, the term entrepreneur was used in relation to specific occupations like people
managing large production projects. A typical entrepreneur during this time was the cleric who undertook
great architectural works such as castles and fortifications, public buildings and cathedrals.

Richard Cantillon, a noted economist and author in the 1700s, developed one of the early theories of the
entrepreneur and is regarded by some as the founder of the term. Cantillon viewed the entrepreneur as a
risk taker, seeing the merchants, farmers, craftsmen, and other sole proprietors who buys at a certain
price and sell at an uncertain price, therefore operating at a risk.

The notion of the entrepreneur has been refined and broadened to include concepts that are related to
the person rather than the occupation. In the 18 th century, the person with capital was differentiated
from the one who needs capital. It means that, the role of the entrepreneur was clearly distinguished
from the role of the capitalist who provided capital. The later role is the basis for the present day venture
capitalist. One reason for this differentiation was the industrialization occurring throughout the world.
Many of the inventions developed during this time were reactions to the changing world, as was the case
with Eli Whitney and Thomas Edison. Both Whitney and Edison were entering new technologies and were
unable to finance their inventions themselves. While Eli Whitney financed his cotton gin with
expropriated British Crown property, Thomas Edison raised his capital from private sources to experiment
and develop in more complex felids of electricity and chemistry. Both Edison and Whitney were capital
users (entrepreneurs), not providers (venture capitalists). A venture capitalist is a professional money

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manager who invests in risky ventures (enterprises) from a pool of equity capital to obtain a high rate of
return on the investments.

In the middle of the 20th century, the notion of an entrepreneur as an innovator was established. The
function of entrepreneurs throughout this century was to reform or revolutionize the pattern of
production by exploiting an invention or, more generally, an untried technological possibility for
producing a new commodity or through producing an old one in a new way, like by opening a new source
of supply of materials or a new outlet for products, by reorganizing a new industry.

According to economist Joseph Alois Schumpeter (1883-1950), entrepreneurs are not necessarily
motivated by profit but regard it as a standard for measuring achievement or success. Schumpeter
discovered that they greatly value self-reliance, strive for distinction through excellence, are highly
optimistic (otherwise nothing would be undertaken), and always favor challenges of medium risk (neither
too easy, nor ruinous).

WHO IS AN ENTREPRENEUR?
• Entrepreneur is a person who is willing to bear the personal financial risk of a business venture
(Cantillon 1730)
• Entrepreneur is innovator (Schumpeter 1934)
• Entrepreneur is a person with a high need for achievement (McClleland 1961)
• Entrepreneur is responsible for change (Drucker 1964)
Entrepreneurship is a dynamic process of creating incremental wealth. The wealth is created by
individuals who assume the major risks in terms of equity, time, and/or career commitment or provide
value for some product or service. The product or service may or may not be new or unique, but value
must somehow be infused by the entrepreneur by receiving and locating the necessary skills and
resources.
Entrepreneurship is defined as, the process of creating something new with value by devoting the
necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving
the resulting rewards of monetary and personal satisfaction and independence.
This definition stresses four aspects of being an entrepreneur regardless of the field:
1. Entrepreneurship involves the creation process – creating something new of value. The creation has
to have value to the entrepreneur and value to the audience for which it is developed. The audience
can be
a. the market of buyers in the case of a business innovation
b. the hospital’s administration in the case of a new admitting procedure and software
c. prospective students in the case of a new course or even college of entrepreneurship, or
d. the constituency for a new service provided by a nonprofit agency.
2. Entrepreneurship requires the devotion of the necessary time and effort. Only those going through
the entrepreneurial process appreciate the significant amount of time and effort it takes to create
something new and make it operational.

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 3. Risk taking is the third aspect of entrepreneurship. These risks take a variety of forms, depending
on the field of effort of the entrepreneur, but usually center around financial, psychological, and
social areas.
4. The final part of the definition involves the rewards of being an entrepreneur. The most important
of these rewards is independence, followed by personal satisfaction.
In almost all of the definitions of entrepreneurship, there is a common behavioral attitude of the
entrepreneurs that include: (1) initiative taking (2) the organizing and reorganizing of social and economic
mechanisms to turn resources and situations to practical account, (3) the acceptance of risk or failure.

MOTIVATION FOR STARTING A BUSINESS

There are both pushing and pulling influences that motivate individuals to leave a present career and to
start small businesses.

“PUSH” INFLUENCE
Many people are pushed into founding a new enterprise by a variety of factors including:

● Redundancy (being without a job, idleness): this has proved as a considerable push into
entrepreneurship, particularly where employment opportunities are low locally.
● Unemployment: job insecurity and unemployment varies from region to region and also depends
on the prevailing economic climate of the country. Research has indicated that at least 50% of
entrepreneurs are in this way pushed into the entrepreneurial ventures.
● Disagreement with previous employer: uncomfortable relation at work has also pushed new
entrants into small businesses.

“PULL” INFLUENCE
Some people are attracted towards small business ownership by positive motives such as a specific idea
which they are convinced will work. The following are among “pull” motives.

● Desire for independence: in several research studies this feature is prominently taken as the key
motivator. The Bolton report singled out the need to gain and keep independence as a
distinguishing feature of small business owner-managers. A study of female entrepreneurs in
Britain found that women were motivated particularly by the need for autonomy, which has been
frustrated by the individual’s prior training and background.
● Desire to exploit an opportunity: the identification of a perceived gap in the market place
through personal observation or experience is also a common reason for starting a business.
Entrepreneurs may seek to exploit this opportunity through special knowledge, product
development or they may hire the appropriate technology and skills.
The dividing line between those pushed and pulled is often blurred. Many people, considering an
opportunity or having a desire for independence, still need some form of push to help them make their
decision.

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 THE ENTREPRENEURIAL DECISION
Millions of ventures are formed despite recession, inflation, high interest rates, lack of infrastructure,
intense competition, lack of capital, economics of uncertainty, and the high probability of failure. The
financial and emotional risk can also be very high.
Each of these ventures is formed through a very personal human process that, although unique, has some
characteristics common to all. Like all processes, the entrepreneurial decision process entails a moment,
from something to something - a moment from a present lifestyle to forming a new enterprise as
indicated in the table below.
The decision to start an entrepreneurial venture consists of several sequential sub decisions. These are
● The decision to change/leave a present career or lifestyle.
● The decision that an entrepreneurial venture is desirable, and
● The decision that both external and internal factors make the venture possible.

Decisions for a potential entrepreneur

Change from personal lifestyle Form new enterprise
Work environment Desirable
Disruption Cultural
Subcultural
Family
Teachers
Peers
Possible
Government
Background
Marketing
Financing
Role models

Decision to change from present life style

The decision to leave a present career and lifestyle is not an easy one. It takes a great deal of energy to
change and create something new. The two most important incentives to leave a personal life style and
start a business are work environment and disruption.

Work environment: two work environments tend to be particularly good in spawning new enterprises:
research and development (R&D), and marketing. Working in technology (research and development),
individuals develop new product ideas or processes and often leave to form new companies when the
present employers do not accept the new ideas. Similarly, individuals in marketing become familiar with
the market and unfilled customers want and frequently start new enterprises to fill these needs.

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Disruptions: perhaps even more incentive to leave a present life style and to overcome the inertial by
creating something new comes from a negative force disruption. A significant number of companies are
formed by people who have retired, who are relocated or who have been fired. There is no greater force
than personal dislocation to galvanize a person into action. Another cause of disruption that results in
company formation is the completion of an education degree.

DECISION TO FORM A NEW COMPANY

The decision to start a new company occurs usually when an individual perceives that it is both desirable
and possible.
Factors that affect desirability of starting a new business: the perception that starting a new
business is desirable results from an individual’s culture, subculture, family, teachers, and peers.
● Culture: a culture that values an individual who successfully creates a new business will spawn
more company formation than one that does not. For example, the American culture places a high
value on being your own boss, having individual opportunity, being a success, and making money all
aspects of entrepreneurship. Therefore, it is not surprising to find a high rate of company formation
in the United States. On the other hand, in countries like Ethiopia establishing a successful new
business that makes money is not highly valued and failure may be a disgrace.
● Subculture: an entire culture is not totally for or against entrepreneurship. Many different sub
cultures that shape value systems are operant within a cultural framework. There are pockets of
entrepreneurial subcultures in every culture. More individuals actively plan to form new enterprises
in these supportive environments.
● Family: family traits play important role in entrepreneurship. For example, studies of companies in
a variety of industries in many countries indicate that 50 to 72 percent of founders of companies
had fathers and/or mothers who valued their independence. The independence achieved by being
company owners, professionals, artists, or farmers permeates the entire family life, thereby giving
encouragement and value to the company formation activity.
● Teachers: encouragement to form a company is further gained from teachers who can significantly
influence individuals regarding not only business careers, but also entrepreneurship as one career
path.
● Peers: peers are also very important in the decision to form a company. An area with an
entrepreneurial pool and meeting places where entrepreneurs and potential entrepreneurs meet
and discuss ideas, problems, and solution initiates the formation of more new companies than an
area where this does not occur.

Factors affecting the possibility of starting a new business

While the desire generated from the individual’s culture, subculture, family, teachers, and peers must
be present before any action is taken, other factors that make possible the establishment of a new
company also subsist. Factors like government, background, marketing, role models, and finances
contribute to the creation of a new venture.
● Government: the government contributes to the creation of new companies by providing the
infrastructure that supports new ventures. It is no wonder that more companies are formed

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 in the United States given the roads, communication and transportation systems, utilities,
and economic stability, the opportunities that are not sufficiently available in other countries
of the world. Even the tax rate for companies and individuals in the United States is lower
than that of other countries. Countries having regressive tax rate, particularly on individuals,
usually suppress company formation since a significant monetary gain cannot be achieved
even though the social, psychological, and financial risks still persist.
● Background: the entrepreneur must also have the background needed to make the company
formation possible. Knowledge acquired from formal education and previous business
experience makes a potential entrepreneur be capable of forming a new enterprise. While
education acquired in an educational system is essential in providing the needed knowledge
of business, individuals still tend to start successful businesses in fields in which they have not
worked. In fact, in many cases, the idea for the new venture occurs while the individual is
working in a particular business position. Indeed entrepreneurs are not born but made (they
develop).
● Marketing: marketing plays a crucial role in forming a new company. Not only a market must
be of a sufficient size, but there should be the marketing knowhow, to put together the best
total package of product, price, distribution and promotion needed for successful product
launching. A company is more easily formed in an area where there is market demand.
● Role Model: role models are perhaps among the most powerful influences that makes
company formation possible. To see someone else succeed, makes it easier to picture
yourself doing a similar activity –better. A frequent comment of entrepreneurs when asked
about their motivation for starting their new ventures is “if the person can do it, so can I”.
● Finance: finally, financial resources required to form a new company must be readily available.
While most of the start-up money for any new company comes from personal savings,
friends, relatives, and credit, there is still often a need for seed (start-up) capital. Each
venture has common attributes-the need for seed and other types of risk capital. Risk capital
investors play essential role in the development and growth of entrepreneurial activity. More
new companies are formed when seed capital is readily available.

TYPES OF START-UPS
Start-ups can be divided into three categories: lifestyle firms, foundation companies, and high potential
ventures.
A lifestyle firm is privately held and usually achieves only modest growth due to the nature of the
business, the objectives of the entrepreneur, and the limited money devoted to research and
development. This type of firm may grow after several years to 30 or 40 employees and have annual
revenues of about $2million. A lifestyle firm exists primarily to support the owners and usually has little
opportunity for significant growth and expansion.

The foundation company is created from research and development and lays the foundation for a new
business area. This firm can grow in 5 to 10 years from 40 to 400 employees and from $10 million to $20
million in yearly revenues. Since this type of start-up rarely goes public, it usually draws the interest of
private investors only, not the venture-capital community.

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The high potential venture is the one that receives the greatest investment interest and publicity.
While the company may start out like a foundation company its growth is far more rapid. After 5 to 10
years, the company could employ around 500 employees, with $20 million to $30 million in revenue.
These firms are also called gazelles and are integral to the economic development of an area.

ROLE OF ENTREPRENEURSHIP IN SOCIO-ECONOMIC DEVELOPMENT

Entrepreneurship plays an influential role in the economic growth and alleviation of the standard of living
of a country. As a startup founder or small business owner, you may think that you are simply working
hard to build your own business and provide for yourself and your family. But you are actually doing a
whole lot more for your local community, state, region, and the country as a whole. Here are the top 7
important roles an entrepreneur plays in the economic development of a country
1. Wealth Creation and Sharing: By establishing the business entity, entrepreneurs invest their own
resources and attract capital (in the form of debt, equity, etc.) from investors, lenders and the public.
This mobilizes public wealth and allows people to benefit from the success of entrepreneurs and
growing businesses. This kind of pooled capital that results in wealth creation and distribution is one
of the basic imperatives and goals of economic development.
2. Create Jobs: Entrepreneurs are by nature and definition job creators, as opposed to job seekers. The
simple translation is that when you become an entrepreneur, there is one less job seeker in the
economy, and then you provide employment for multiple other job seekers. This kind of job creation
by new and existing businesses is again one of the basic goals of economic development.
3. Balanced Regional Development: Entrepreneurs setting up new businesses and industrial units help
with regional development by locating in less developed and backward areas. The growth of industries
and business in these areas leads to infrastructure improvements like better roads and rail links,
airports, stable electricity and water supply, schools, hospitals, shopping malls and other public and
private services that would not otherwise be available.
Every new business that locates in a less developed area will create both direct and indirect jobs,
helping lift regional economies in many different ways. The combined spending by all the new
employees of the new businesses and the supporting jobs in other businesses adds to the local and
regional economic output. Both central and state governments promote this kind of regional
development by providing registered MSME businesses various benefits and concessions.
4. Increase GDP and Per Capita Income: entrepreneurs are always on the lookout for opportunities. They
explore and exploit opportunities, encourage effective resource mobilization of land, capital and labor,
bring in new products and services and develop markets for growth of the economy. In this way, they
help increase gross national product as well as per capita income of the people in a country. Increase
in gross national product and per capita income of the people in a country, is a sign of economic
growth.
5. Improvement in the standard of living: Increase in the standard of living of people in a community is
yet another key goal of economic development. Entrepreneurs again play a key role in increasing the
standard of living in a community. They do this not just by creating jobs, but also by developing and
adopting innovations that lead to improvements in the quality of life of their employees, customers,

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 and other stakeholders in the community. For example, automation that reduces production costs and
enables faster production will make a business unit more productive, while also providing its
customers with the same goods at lower prices.
6. Exports: Any growing business will eventually want to get started with exports to expand their business
to foreign markets. This is an important ingredient of economic development since it provides access
to bigger markets, and leads to currency inflows and access to the latest cutting-edge technologies and
processes being used in more developed foreign markets. Another key benefit is that this expansion
leads to more stable business revenue during economic downturns in the local economy.
7. Community Development: Economic development doesn’t always translate into community
development. Community development requires infrastructure for education and training, healthcare,
and other public services. For example, you need highly educated and skilled workers in a community
to attract new businesses. If there are educational institutions, technical training schools and
internship opportunities, that will help build the pool of educated and skilled workers.
The role of entrepreneurship in economic development involves more than just increasing per capita
output and income; it involves initiating and constituting change in the structure of business and society.
This change is accompanied by growth and increased output, which allows more wealth to be divided by
various participants. One theory of economic growth depicts innovation as the key not only in developing
new products (or services) for the market but also in stimulating investment interest in the new ventures
being created. This new investment works on both the demand and the supply sides of the growth
equation. The new capital created expands the capacity for growth (supply side), and the resultant new
spending utilizes the new capacity and output (demand side).
In spite of the importance of investment and innovation in the economic development of an area, there is
still a lack of understanding of the process of product evolution process. This is the process through which
innovation develops and commercializes through entrepreneurial activity, which in turn stimulates
economic growth.
The product evolution process begins with knowledge in the base technology and science- such as
thermodynamics, fluid mechanics, or electronics- and ends with products or services available for
purchase in the market place.
Innovation can be of varying degrees of uniqueness.
● Ordinary innovation- innovation with little uniqueness or technological change.
● Technological innovation -new products with significant technological advancement.
● Breakthrough innovation - new products with some technological change.
Most innovations introduced to the market are ordinary innovations. As expected, there are fewer
technological innovations and breakthrough innovations, with the number of actual innovations
decreasing as the technology involved increases. Regardless of its level of uniqueness, or technology,
each innovation (particularly the latter two types) evolves into and develops toward commercialization
through one of three mechanisms: the government, intrapreneurship, or entrepreneurship.

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Entrepreneurship can assist in revitalizing areas of inner city. Examples are, a model project in New York
City has changed a depressed area into one having many small entrepreneurial companies.

Government as an innovator
The government is one conduit for commercializing the results of the synthesis of social and technology.
This is frequently called technology transfer and has been the focus of a significant amount of research
effort. Despite this effort, relatively few inventions resulting from sound scientific government-sponsored
research have reached (been transferred to) the commercial market. In addition, government
bureaucracy and red tape often inhibit the business from being formed in a timely manner.

Intrapreneurship
Intrapreneurship (entrepreneurship within an existing business structure) can bridge the gap between
science and the marketplace. Existing businesses have the financial resources, business skills, and
frequently the marketing and distribution systems to commercialize innovation successfully. In the
present era of hyper competition, the need for new products and intrapreneurial spirit has become so
great that more and more companies are developing an intrapreneurial environment, often in the of
strategic business units (SBUs).

Entrepreneurship
The third method for bridging the gap between science and the market place is via entrepreneurship.
Many entrepreneurs have a difficult time bridging this gap and creating new ventures. They may lack
managerial skills, marketing capability, or financial resources. Their inventions are often unrealistic ,
requiring significant modification to be marketable. In addition, entrepreneurs frequently do not know
how to interface with all the necessary entities, such as banks, suppliers, customers, venture capitalists,
distributors, and advertising agencies.
Yet, in spite of these difficulties, entrepreneurship is presently the most effective method for bridging the
gap between science and the marketplace, creating new enterprises, and bringing new products and
services to the market.
THE ENTREPRENEURIAL PROCESS
The process of starting a new venture is embodied in the entrepreneurial process, which involves
more than just problem solving in a typical management position. An entrepreneur must find,
evaluate, and develop an opportunity by overcoming the forces that resist the creation of
something new. The process has four distinctive phases:
1. Identification and evaluation of the opportunity
2. Development of the business plan
3. Determination of the required resources
4. Management of the resulting enterprise
Although these phases proceed progressively, none is dealt with in isolation or is totally
completed before factors are being dealt within a sequential phase. For example, to successfully

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identify and evaluate an opportunity (phase 1), an entrepreneur must have in mind the type of
business desired (phase 4).

Identify and evaluate the opportunity

Opportunity identification and evaluation is a difficult task. Most good business opportunities do not
suddenly appear, but rather result from an entrepreneur’s alertness to possibilities or in some cases, the
establishment of mechanisms that identify potential opportunities.
Although most entrepreneurs do not have formal mechanisms for identifying business opportunities,
some sources are often fruitful: consumers and business associates, members of the distribution system,
and technical people. Often, consumers, such as business associates purchasing products to fit a certain
life style, are the best source of ideas for a new venture. How many times have you heard someone
comment, “If only there was a product that would…..” This comment occasionally results in the creation
of a new business.
Due to their close contact with the end user, channel members of the distribution system also see
product needs. Many entrepreneurs have identified business opportunities through a discussion with a
retailer, wholesaler, or manufacturer’s representative.
Technically oriented individuals often conceptualize business opportunities when working on other
projects.
Whether the opportunity is identified by using input from consumers, business associates, channel
members, or technical people, each opportunity must be carefully screened and evaluated.

Develop a business plan

A good business plan must be developed in order to exploit the defined opportunity. This is perhaps the
most difficult phase of the entrepreneurial process. An entrepreneur usually has not prepared a business
plan before and does not have the resources available to do a good job. A good business plan is not only
important in developing the opportunity but also essential in determining the resources required,
obtaining those resources, and successfully managing the resulting venture.

Determine the resources required

The process of determining the resources needed starts with an appraisal of the entrepreneur’s present
resources. Any resources that are critical must then be distinguished from those that are just helpful. Care
must be taken not to underestimate the amount and variety of resources needed. Every entrepreneur
should give up an ownership position in the venture only after other alternative has been explored.
Alternative suppliers of these resources, along with their needs and desires must be identified.

Manage the enterprise

After resources are acquired, the entrepreneur must employ them through the implementation of the
business plan. The operational problems of the growing enterprise must also be examined. This involves
implementing a manager style and structure, as well as determining the key variables for success. A
control system must be identified so that any problem areas can be carefully monitored. Some

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entrepreneurs have difficulty managing and growing the venture they created. This is one difference
between entrepreneurial and managerial decision making.

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CHAPTER TWO: CHARACTERISTICS AND BACKGROUND OF ENTREPRENEURS
Learning objectives
1. To discuss the personal traits and characteristics of entrepreneurs
2. To identify some key entrepreneurial feelings and motivations
3. To identify the key elements in an entrepreneur’s background
4. To discuss the importance of role models and support system
5. To determine the common myths about entrepreneurs
6. To discuss the importance of role models and support system
7. To identify the similarities and differences between male and female entrepreneurs
8. To explain the differences between inventions and entrepreneurs

PERSONAL TRAITS /CHARACTERISTICS OF ENTREPRENEURS

Are All Entrepreneurs Alike?
While entrepreneurs have in common certain characteristics and skills, there is a wide range of
individuality among them. Some receive formal training and skill development. Others have a natural flair
for it. Still others break every rule or\devise very unusual approaches, but still succeed. Which do you
think would be your style?
While there is no recipe for becoming a successful entrepreneur, certain characteristics are associated
with entrepreneurial success. Here are the important ones.
1.Risk taking: This is the ability to take calculated risks and to manage those risks. While most people
try to avoid risk, entrepreneurs understand that risk is a natural part of trying to achieve goals.
Their self-confidence helps them accept the challenges of the risks they take.
2.Innovative (creative): Entrepreneurs take an abstract idea and make it real. Innovation basically
means generating a new idea with which you can start a business and achieve substantial amount
of profit. Innovation can be in the form of a product, i.e., launching a product that no one is
selling in the market. It can also be in the form of process, i.e., doing the same work in a more
efficient and economical way. Entrepreneurs always look for new and better ways to do things—
ways that have not occurred to others. Believe in your ability to be creative. Experts tell us that
the biggest block to creativity is thinking you are not creative.
3.Visionary: an entrepreneur without a vision for the future of his venture, he or she would just be
working aimlessly without reaching any point of success.
4.Self-Confidence and be well informed: If I Think I Can . . . I Can! Another key quality of the
successful entrepreneur is self-confidence. If you are thinking that you would like to be an
entrepreneur, do you have confidence in your ability to succeed? Every entrepreneur encounters
problems, and you have to believe you can overcome them. If you feel you lack self-confidence,
perhaps you’re not fully appreciative of your past accomplishments. Think about all the things
you’ve done.
Have you participated in activities at school like music, art and sports? Have you held part-time
jobs? Do you do chores regularly at home? When you think about all of the things you have
accomplished, you will find that you have every right to be self-confident. Successful

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 entrepreneurs believe not only that they are capable of success but also believe that they are
worthy of success. Self- confidence also inspires the confidence of the people working for him as
well as the other stakeholders involved in his business. An entrepreneur who is well informed
about the industry and the environment (legal and political policies and business opportunities)
could be able to make the right decision at the right time.

5. Entrepreneurs as information seekers may already know a great deal, yet they recognize that no
one knows everything, and that they can learn valuable information from others. Entrepreneurs
who are not open to learning often compromise the degree of success they will be able to
achieve.
6. persistent (Tenacity)- not giving up but keep trying; the determination
7. Passion (Do What You Love): Usually E-ship is not just about money. Entrepreneurs have a
passion for their ideas. According to research, one of the most important qualities
associated with successful entrepreneurship is passion. When people feel committed to
what they are doing and when they care deeply about it, they stand the best chance of
being successful at it. The heart must become an ally of the mind. Think about this
popular business saying: (If your mind can conceive it, and your heart can believe it, then you can achieve it!)
8. Flexibility (Tolerance of ambiguity): it is the quality of being adaptable and variable)
9. Team-building (leadership) – Successful enterprise almost always requires partners. A single
person cannot perform all the tasks and therefore it is important to bring some more people to
do it. This also makes leadership very important as a leader provides the required direction to the
efforts of the employees.
10. Putting the Pieces Together – Entrepreneurs must find the resources they need and put those
resources together.
11. Self-reliant (independent). Entrepreneurs do not wait for others to tell them what to do.
They are self-starters and feel confident making decisions
12. Rule-breaking (combination of smart, aggressive, illicit behavior in youth

Entrepreneurs have other qualities as well. To accomplish their goals and make their vision a
reality, successful entrepreneurs must have drive, persistence, the ability to complete tasks, and be
willing to work hard. Additionally, they are opportunity-focused and forward-looking.
They are able to set both short- and long-term goals. They create a vision of what they want
their future to be, and then they work to achieve it. These are some of the qualities that help
them see problems as opportunities.

ENTREPRENEURIAL FEELINGS: LOCUS OF CONTROL (LOC)

A. Locus of control
One concern that people have when they consider forming a new venture is whether they will be
able to sustain the drive and energy required not only to overcome the inertia in forming
something new but also to manage the new enterprise and make it grow. Are you driven by an

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 inner need to succeed and win? Studies have indicated that entrepreneurs overall are more
internal than the general populace
An important trait in the entrepreneurship literature is locus of control (LOC). A person with an
internal LOC conceptualizes that their own decisions control their lives, while those with an
external LOC believe the true controlling factors are chance, fate, or environmental features that
they cannot influence.
Notably, LOC is considered to be a culturally dependent trait. Mueller and Thomas (2000) find that
countries with more individualistic cultures (as opposed to collectivist cultures) show greater
internal LOC, and that LOC and innovativeness are both learned traits. The difference could be
related to variations in cultural characteristics such as individualism, uncertainty avoidance, and
risk propensity. (Hofstede’s (1980)
B. Feelings about independence and need for achievement
An entrepreneur’s feeling for independence results from the person’s needs to do things
in his or her own way and has a difficult time working for someone else. The
entrepreneur’s need for achievement derives from the psychological characteristics
present in that person. Three attributes that form the entrepreneur’s need for
achievement are: (1) individual’s responsibility for solving problems, seeing goals, and
reaching these goals through their own efforts; (2) moderate risk taking as a function of
skill, not chance, and (3) knowledge of results of decision/task accomplishment.
C. Risk taking
Risk taking- whether financial, social, or psychological - is part of the entrepreneurial
process.

Entrepreneurial Skills You Must Have for Success

As with any sport, having the right attitudes and characteristics can carry you only so far. You also need
the skills that will help you succeed. However, unlike personal characteristics and attitudes—which can
often be hard or impossible to change—entrepreneurs can acquire skills if they are willing to learn them.
Additionally, they can hire people to work for them who have the needed skills. Either way, the following
skills are important if the entrepreneur’s business is to succeed.
Ability to Plan: The ability to plan is a key skill for entrepreneurs. They must be able to develop plans to
meet goals in a variety of areas, including finance, marketing, production, sales and personnel (hiring and
maintaining productive and satisfied employees).
Communication Skills: Entrepreneurs should be able to explain, discuss, sell and market their good or
service. It is important to be able to interact effectively with your business team. Additionally,
entrepreneurs need to be able to express themselves clearly both verbally and in writing. They also
should have strong reading comprehension skills to understand contracts and other forms of written
business communication.
Marketing Skills: A business’s success or failure is very dependent on whether the business reaches the
market (its potential customers), interests the market and results in those in the market deciding to buy.
Many entrepreneurs who failed started with an innovative good or service that with proper marketing
could have been very successful. Good marketing skills—that results in people wanting to buy your good
or service—are critical for entrepreneurial success.

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Interpersonal Skills: Entrepreneurs constantly interact with people, including customers and clients,
employees, financial lenders, investors, lawyers and accountants, to name a few. The ability to establish
and maintain positive relationships is crucial to the success of the entrepreneur’s business venture.
Basic Management Skills: The entrepreneur must be able to manage every component of a business.
Even if entrepreneurs hire managers to attend to daily details, they must understand if their business has
the right resources and if those resources are being used effectively. They must ensure that all the
positions in their business are occupied by effective people.
Personal Effectiveness: In order to handle the pressures of their busy lifestyles, entrepreneurs must have
the ability to manage time well and to take care of personal business efficiently. Because first impressions
are so important, entrepreneurs must also pay attention to such things as personal appearance and
telephone skills. For example, think of the difference in the impression made by someone who answers
the phone by saying,
“Yeah?” versus saying, “Computer Support Services, this is Alex. How may I help you?” Additionally,
entrepreneurs benefit a great deal by being aware of their own strengths and weaknesses.
Team Building Skills: Because entrepreneurs usually assemble a team of skilled people who help them
achieve business success, they must be able to effectively develop and manage the team.
Leadership Skills: One of the most important leadership skills an entrepreneur must have is the ability to
develop a vision for the company and to inspire the company employees to pursue that vision as a team.
The expression “people would rather be led than managed” applies especially well to an entrepreneurial
venture.
Few entrepreneurs possess every skill needed to ensure business success. For example, they often look to
outside experts for help in areas such as strategic planning, accounting and finances, contracts and legal
issues, and specialized marketing. M

TYPICAL ENTREPRENEURIAL BACKGROUNDS

● Parents were entrepreneurs or self employed
● Families encouraged responsibility, initiative and independence
● Have tried more than one business venture
● Have relevant personal or career experience
● Became entrepreneurs between 22 and 45 years old
● Have strong interests in creative production and enterprise control
● Seek independence and sense of mast

COMMON MYTHS ABOUT ENTREPRENEURS

● Entrepreneurs are born, not made
● Entrepreneurs are gamblers
● Money is the key to entrepreneurial success (rather they value achievement over money)
● You have to be young to be an entrepreneur
● You must have a degree in business to be an entrepreneur

ROLE MODELS AND SUPPORT SYSTEMS

One of the most important factors influencing entrepreneurs in their career path is their choice of a role
model. Role models can be parents, brothers or sisters, other relatives, or other entrepreneurs.

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Successful entrepreneurs are viewed frequently as catalysts by potential entrepreneurs. As one
entrepreneur succinctly stated, “After evaluating Ted and his success as an entrepreneur I knew I was
much smarter and could do a better job. So I started my own business”.
Role models can also serve in a supportive capacity as mentors during and after the launch of a new
venture. An entrepreneur needs a strong support and advisory system in every phase of the new venture.
This support system is perhaps most crucial during the start-up phase, as it provides information, advice,
and guidance on such matters as organizational structure, obtaining needed financial resources,
marketing and market segments.

CHAPTER THREE: SMALL BUSINESS AND CORPORATE

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Learning objectives
● To define and explain about small business
● To introduce what business environments is
● To discuss the role of small scale industries in socio-economic development
● To identify Government assistance to small business enterprises
● To discuss about the advantages and disadvantages of going into small business
● To identify the small business failure factors
● To explain about corporate entrepreneurship

WHAT IS SMALL BUSINESS?

Small business is a small scale independent firm usually managed, funded and operated by its owners,
and whose staff size, financial resources and assets are comparatively limited in scale. Small businesses
are not dominant in their field of operation, and meet certain standards of size (set by the state
administration) in terms of employees or annual receipts.

What is a small business environment?

Small business environment is the surrounding factors that either help or hinder the development of
businesses. The five elements in the business environment include:
a. The economic and legal environment- freedom of ownership, contract laws, elimination of
corruption, tradable currency, minimum taxes and regulation
b. The technological environment - information technology, databases, bar codes, the internet
c. The competitive environment - customer service, stakeholder recognition, employee service,
concern for the environment
d. The social environment - diversity, demographic changes family changes
e. The global business environment - global competition, free trade, the quality imperative.

Nature of small business

Small businesses can be classified as follows:
1. Shoestring budget: a sole proprietor or a small group of people operating small businesses. These
businesses often run on shoestring budget meaning that small businesses function on a very tight
budget.
2. Labor intensive: small businesses are mostly labor intensive. Various types of small businesses
largely rely on labor for their functioning. The primary nature of small businesses is more
involvement of physical work rather than intellectual work. Lack of machinery also makes the
employees manage their operation manually.
3. Community based: small businesses are started with the motive of satisfying the needs and
demands of a local area or community. These businesses demographically target few areas of
concentration and are hence community based.
4. Indigenous technology: due to small businesses being community focused and labor oriented, they
often thrive upon native methods of operation; using technology might give uniqueness to the
products but hinders the development of the business.

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Role of small scale industries in socioeconomic development
● Provides employment for the locals
● Utilization of local resources
● Equitable distribution of national income
● Balanced regional development
● Improve economic condition
● Produces varieties of products
● Low cost of production, as they use local resources

Government assistance to small business enterprises

● Supply of power at a low cost
● Exemption from tax payments(tax holidays)
● Availability of land at concessional rate
● Protective measures: the government gives priority in allocation of resources (raw materials,
machines, etc.)
● Marketing assistance ( the government provides information about the market chain or
guarantee for sale of goods)
● Provides financial assistance/subsidiary

ADVANTAGES AND DISADVANTAGES OF GOING INTO SMALL BUSINESS:

Advantages
● Independence: small business owners are their own bosses. They make the decisions- whom to
do business with, what hours to work, whether to take vacations or not
● Financial gain: when working for oneself, there is a greater possibility of achieving significant
financial rewards than working for others.
● Control: it enables one to be involved in the total operation of the business, from concept to
design to creation, from sales to business operations to customer response.
● Prestige: offers the status of being the person in charge. In addition to being the boss, small
business owners take the prestige and pride of ownership. Who did this? – I did.
● Equity: it gives an individual the opportunity to build equity, which can be kept, sold, or passed
on to the next generation. They establish a company, run it for a while, and sell to someone else.
If they are not interested in selling the business, the goal may be to build a company that can be
passed down to their children.
● Opportunity: small business owners create an opportunity for a person to make contribution.
Most small business owners help the local economy.

Disadvantages
● Time commitment: at the early stage of the business, the owner will shoulder all the duties and
responsibilities of the business. They report working more than eighty hours a week handling

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 everything from purchasing to banking to advertising. This time commitment can place a strain on
family and friends and add to the stress of launching a new business venture.
● Risk: if an individual leaves a secure job to set up a business, and the business fails, this financial
setback can be hard to overcome. Beyond financial risk, small business owners need to consider
the risk from product liability, employee disagreements, and regulatory requirements.
● Uncertainty: even though the business may be successful at the start, external factors such as
downturns in the economy, new competitors entering the market place, or shifts in consumer
demand may stall the businesses growth.
● Financial commitment: for many people starting small business, their initial source of funding is
personal savings, investments, or retirement funds. Committing these types of funds to a business
venture makes them unavailable for personal or family needs. In most cases where a small
business receives startup funding through a loan, the owner must secure the loan by pledging
personal assets, such as a home. Risking the equity in one’s home is a financial commitment not
all business owners are willing to make.

SMALL BUSINESS FAILURE FACTORS

● Lack of adequate capital/ funding/ as a start up
● inadequate planning,
● Higher than expected expenses
● Low sales
● An owner unprepared to manage a growing business
● Operations requiring more time than the owner is willing to commit
● Poor location for the business
● Failure to manage credit offered to customers
● Not keeping adequate records

Advantages of small businesses over large businesses

● Flexibility: flexible organization will be able to deal with uncertainties in economic and
technological environments as well as government regulations compared to those of rigid
organizations. Small businesses could easily become adaptable compared to those of small
businesses.
● generally lean staffing (efficient and with no wastage)
● the ability to develop close relation with customers

CORPORATE ENTREPRENEURSHIP
Corporate entrepreneurship is the process whereby an individual or a group, in association with an
existing organization, creates a new organization or initiates renewal or innovation within that
organization. Within the realm of existing organizations, entrepreneurship encompasses three
dimensions that are not necessarily interrelated: corporate venturing, strategic renewal, and innovation.
There are several motives for developing corporate entrepreneurship in an organization:

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To grow and diversify the business- to grow and counter the treat induced by start-ups in the market place, existing
organizations must develop new products and enter new market segments.

To satisfy and retain bright and motivated staff - in the war for talent, it is essential that organizations retain their
best and brightest staff by giving them enough room to generate new ideas and allowing them to pursue promising
new opportunities.

To exploit underused resources in new ways- this includes both technological and human resources. Typically a
business has two choices where existing resources are underused: (1) outsource the process or (2) Generate
additional contributions from external clients. However, if the business wants to retain direct and in-house control
of the technology or personnel, it can form an internal venture to offer the service to external clients.

To get rid of non-core activities-new ventures can provide a mechanism for releasing peripheral business activities
while retaining some management control and financial interest.

The Need for Corporate Entrepreneurship

The necessity for corporate entrepreneurship can be put as follows. Businesses need corporate
entrepreneurship to grow; integrate and develop an entrepreneurial spirit; create and sustain
competitive advantage and to be adaptable, flexible, fast, aggressive and innovative.
The benefits of instilling corporate entrepreneurship in a business can also be summed up as follows:
• Businesses that instill corporate entrepreneurship can gain and sustain competitive advantage at
all levels of the business;
• rejuvenate and revitalize the existing business;
• develop new products, services and processes;
• pursue entrepreneurial opportunities;
• create new businesses within existing businesses;
• foster strategic renewal of existing operations;
• improve growth and profitability;
• sustain corporate competitiveness;
• increase financial performance; and
• create new value.

CHAPTER FOUR: CREATIVITY AND THE BUSINESS IDEA

Learning objectives

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 1. To identify various sources ideas for new ventures
2. To discuss methods available for generating new venture ideas
3. To discuss creativity and the techniques for creative problem solving
4. To discuss the aspects of the product planning and development process
5. To discuss aspects of e-commerce and starting an e-commerce business
6. To discuss Business acquisition and franchising

Sources of new ideas

The starting point for any successful new venture is the basic product or service to be offered. This idea
can be generated internally or externally through various techniques.
Some of the more frequently used sources of ideas for new entrepreneurs include consumers, existing
companies, distribution channels, the federal government, and research and development.

a. Consumers: Potential entrepreneurs should pay close attention to the final focal point of the idea
for a new product or service — the potential consumer. This attention can take the form of
informally monitoring potential ideas and needs or formally arranging for consumers to have an
opportunity to express their opinions. Care needs to be taken to ensure that the idea or need
represents a large enough market to support a new venture.
b. Existing companies: Potential entrepreneurs and intrapreneurs should also establish a formal
method for monitoring and evaluating competitive products and services on the market frequently,
this analysis uncovers ways to improve on these offerings that may result in a new product that has
more market appeal.
c. Distribution channels: Members of the distribution channels are also excellent sources for new
ideas because of their familiarity with the needs of the market. Not only do channel members
frequently have suggestions for completely new products, but they can also help in marketing the
entrepreneur’s newly developed products. (Example —hosiery)
d. Federal government: The federal government can be a source of new product ideas in two ways.
First, the files of the patent office contain numerous new product possibilities. Although the patents
themselves may not be feasible new product introductions, they can frequently suggest other more
marketable product ideas. Government agencies and publications are helpful in monitoring patent
applications. Second, new product ideas can come in response to government regulations. For
example, in the USA, the Occupational Safety and Health Act (OSHA, aimed at eliminating unsafe
working conditions in industry, mandated that first-aid kits made available in business
establishments employing more than three people. In response to OSHA newly formed ventures
marketed a wide variety of first aid kits.
e. Research and development: The largest source of new ideas is the entrepreneur’s own “research
and development,” efforts that may be a formal endeavor connected with one’s current
employment or an informal lab in the basement or garage.

Methods of generating ideas

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Even with a wide range of sources available, coming up with an idea or serve as the basis for a new
venture can still be a difficult problem. The entrepreneur can use several methods (techniques) to help
generate and test new ideas, including focus groups, brainstorming, and problem inventory analysis.

a. Focus groups—a better understanding of the consumer’s true opinions can be gained from
using a focus group. A moderator leads a group of people through an open, in depth discussion
rather than simply asking questions to solicit participant response. For a new product area, the
moderator focuses the discussion of the group in either a directive or a nondirective manner. A
group of 8 to 14 participants is stimulated by comments from other group members in creatively
conceptualizing and developing a new product idea to fulfill a market need. (Example- a shoe
company interested in women’s slipper market received its new product concept for a “warm and
comfortable slipper that fits like an old shoe” from a focus group of 12 women from various
socioeconomic backgrounds.)
b. Brainstorming—the brainstorming method for generating new product ideas is based on the
fact that people can be stimulated to greater creativity by meeting with others and participating
in organized group experiences. Although most of the ideas generated from the group have no
basis for further development, often a good idea emerges. This has a greater frequency of
occurrence when the brainstorming effort focuses on a specific product or market area. When
using this method, the following four rules should be followed:
1.No criticism is allowed by anyone in the group — no negative comments
2. Freewheeling is encouraged — the wilder the idea the better
3.Quantity of ideas is desired — the greater the number of ideas, the greater the likelihood of the
emergence of useful ideas.
4.Combinations and improvements of ideas are encouraged; ideas of others can be used to
produce still another new idea.
The brainstorming session should be fun, with no one dominating or inhibiting the discussion.
c.Problem inventory analysis— this method uses individuals in a matter that is analogous to
focus groups to generate new product ideas. However, instead of generating new ideas
themselves, consumers are provided with a list of problems in a general product category. They
are then asked to identify and discuss products in this category that have the particular problem.
This method is often effective since it is easier to relate known products to suggested problems
and arrive at a new product idea than to generate an entirely new product idea by itself. Problem
inventory analysis can also be used to test a new product idea.
A good example of this analysis can be illustrated in the food industry. One of the most difficult
problems here is in developing an exhaustive list of problems, such as weight, taste, appearance, and
cost. Once a complete list of problems is developed, individuals can usually associate products with
the problem.
The entrepreneur is not limited by only the three methods presented above. There are other creative
problem solving methods and techniques that are also available.

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Creative problem solving
Creativity is an important attribute of a successful entrepreneur. Unfortunately creativity tends to decline
with age, education, and lack of use. Creativity can be unlocked and creative ideas and innovations be
generated by using problem solving techniques. Some of the creative problem solving techniques
includes:
i. Brainstorming —is an unstructured process for generating all possible ideas about a problem
within a limited time frame through the spontaneous contribution of participants. A good
brainstorming session starts with a problem statement that is neither too broad (which would
diversify ideas too greatly so that nothing specific would emerge) nor too narrow (which would
tend to confine responses).
ii. Reverse brainstorming—is similar to brainstorming, except that criticism is allowed. In fact, the
technique is based on finding fault by asking the question, “In how many ways can this idea fail?”
since the focus is on the negative, care must be taken to maintain the groups morale.
iii. Checklist method—a new idea is developed through a list of related issues or suggestions. One
general checklist is as follows:
● Put to other uses- new ways to use it
● Adapt- what else is like this; what other ideas does this suggest
● Modify- new twist; change meaning, color, motion, odor, form, shape...
● Magnify- what to add? Extra value, plus ingredient? Duplicate?
● Substitute: who else? What else instead? Other material? Other place?
● Rearrange- interchange components? Other layout? Change schedule?...
● Reverse- Turn it backward? Reverse roles? Turn it upside down?...
● Combine- combine ideas? Combine units? Combine purposes?
iv. Big dream approach—requires that the entrepreneur dream about problem and its solution, in
other words, thinking big. Every possibility should be recorded and investigated without regard to
all the negative, involved or the resources required.

Product planning and development process

Once ideas emerge from idea sources or creative problem solving, they need further development and
refinement into the final product or service to be offered. This refining process –the product planning and
development process – is divided into five major stages: idea stage, concept stage, product development
stage, test marketing stage, and commercialization; it results in the start of the product life cycle.

Establishing evaluation criteria

At each stage of product planning and development process, criteria for evaluation need to be
established.
These criteria should be broad, yet quantitative enough to screen the product carefully in the particular
stage of development. Criteria should be developed to evaluate the new product in terms of market
opportunity, competition the marketing system, financial factors and production factors. A market
opportunity and adequate market demand must exist. Current competing producers, prices, and policies
should be evaluated in their impact on market share.

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The new product should be compatible with existing management capabilities. The product should be
able to be supported by and contribute to the company's financial structure. The compatibility of new
product's production requirements with existing plant, machinery, and personnel should be determined.
Entrepreneurs should formally evaluate an idea throughout its evolution.

a. Idea stage: promising new product ideas should be identified and impractical ones eliminated in
the idea stage, allowing maximum use of the company’s resources. One evaluation method
successfully used in this stage is the systematic market evaluation checklist ( type of need, timing of
need, competing ways to satisfy need, perceived benefits/risks, price versus performance features, market
size and potential, availability to customer funds ). Consumers are presented with clusters of new
product values to determine which, if any, new product alternatives should be pursued and which
should be discarded.
Determining the need and value of the product to the company is also important. If there is no
need for the suggested product, its development should not be continued. Similarly the new
product idea should not be developed if it does not have any benefit or value to the firm.
b. Concept stage: in the concept stage, the refined product idea is tested to determine consumer
acceptance without necessarily incurring the costs of manufacturing the physical product. One
method of measuring consumer acceptance is the conversational interview in which selected
respondents are exposed to statements that reflect the physical characteristics and attributes of
the product idea. Where competing products exist, these statements can also compare the
primary features of existing products. Favorable as well as unfavorable product features can be
discovered by analyzing consumers’ responses, with favorable features then being incorporated
into the product.
c. Product development stage: in the product development stage, consumer reaction to the
physical product is determined. One tool frequently used in the stage is the consumer panel, in
which a group of potential consumers are given product samples. Participants keep a record of
their use of the product and comment on its virtues and deficiencies. The panel of consumers can
be offered competitive products, one product which is in the market whereas the other one is new
or two new products.
d. Test marketing stage: although the results of the product development stage provide the basis
of the final marketing plan, a market test can be done to increase the certainty of successful
commercialization. This last step in the evaluation process, the test marketing stage, provides
actual sales results, which indicate the acceptance level of consumers. Positive test results indicate
the degree of probability of a successful product launch and company formation.

E-COMMERCE AND BUSINESS START-UP AND GROWTH

The Internet
The Internet started in the 1970s with a U.S. Defense Department program named ARPA. In the early
1990s the concept of World Wide Web pages was developed. The Internet is a channel for the creation of
profitable companies. Electronic business (e-business) is any process that a business organization
conducts over a computer-mediated network.

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Electronic commerce (e-commerce) is any transaction completed over a computer-mediated network
that involves the transfer of ownership or rights to use goods or services. Factors that facilitate the
growth of e- commerce are:
● The widespread use of personal computers.
● The adoption of intranets in companies.
● The acceptance of the Internet as a business communications platform.
Starting an E-Commerce Company
The Internet is especially important for small and medium-sized companies as it lets them minimize
marketing costs while reaching broader markets. An entrepreneur starting an Internet commerce venture
needs to address many of the same strategic and tactical questions as other companies plus some specific
online issues. One decision is whether to run the Internet operations within the company or outsource
these operations. If handled in-house, expensive equipment and software have to be maintained. There
are numerous possibilities for outsourcing the Internet business. The two major components of Internet
commerce are front-end and back-end operations.
● Front-end operations are encompassed in the website's functionality, such as search capabilities,
shopping cart, and secure payment.
● Back-end operations involve integrating customer orders with distribution channels and
manufacturing capabilities.

Website
A website is an online connection between the company and its customers and can be developed in-
house or outsourced. There are several important features of every website.
● Each website should have search capabilities.
● Other functions include shopping cart, secure server connection, credit card payment, and
customer feedback features.
● Orders and other sensitive customer information should be transferred only through secure
servers.
● An Internet company should also obtain a merchant account, which will allow the acceptance of
major credit cards.
A successful website has three characteristics: speed, speed, and speed. Short download time should be
the primary concern of website developers. A website should be easy to use, customized for specific
market target groups, and compatible with different browsers. If the company is targeting international
markets, then translation and cultural adaptation need to be considered. Probably the most difficult
aspect of setting up an online business is advertising and promoting the web pages. A company can
advertise its website through search engines, banner ads, e-mail, and classifieds. Banner ads can be
targeted to the exact audience of the firm. The entrepreneur should collect e-mail addresses from
customers for targeted e-mail campaigns.
The Internet offers many low-cost or free services for small businesses, including Internet access,
unlimited e-mail accounts, online calendar, instant messaging, and online conference rooms.

Tracking Customer Information

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 Electronic databases support personal marketing targeted at individual clients. The online company
can capture customers' information in many ways. The U.S. government has generally maintained a policy
of noninvolvement with Internet regulation, but the Federal Trade Commission has also pressed for new
laws to protect minors.

Relationships and Endorsements by Other Companies

The company needs to establish strong connections with other companies in the supply chain to
create an end-to-end value stream. The entrepreneur should protect its innovations and its relationship
with other companies. Another type of relationship is endorsements by prominent Internet companies
and associations. Participation in merchant networks can bring needed credibility.
Doing E-Commerce as an Entrepreneurial Company
The decision to go online should be made on a case-by-case basis. The products should be able to be
delivered economically and conveniently. The product has to be interesting for a large number of people.
Online operations have to bring significant cost reductions compared with brick-and-mortar operations.
The company must have the ability to economically draw customers to its website. Conflict between
traditional and online marketing channels can lead to a hostile, competing position of once partnering
companies.
Business acquisition and franchising
Acquisition: One way an entrepreneur can expand his business is by acquiring an existing business. An
acquisition is the purchase of an entire company, or part of a company. It is a merger in which a company
buys another company and the purchaser has the right of direct control over the resulting operation.

Advantages of an acquisition
1. Established business: acquiring an existing business has significant advantage as it has an
established image and track record. If the firm has been profitable, the entrepreneur would need
only to continue its current strategy to be successful with the existing customer base.
2. Location: when acquiring existing businesses, finding new customers would not be a problem since
they are already familiar with the location.
3. Established marketing structure: when acquiring a business, its existing channel and sales
structure is important. Known suppliers, wholesalers, retailers and manufacturers’ representatives
are important assets to an entrepreneur. With this structure already in place, the entrepreneur can
concentrate on improving or expanding the acquired business.
4. Cost: the actual cost of acquiring a business can be lower than other methods of expansion.
5. Existing employees: they know how to run the business and can help ensure that the business
will continue in its successful mode. They already have established relationships with customers,
suppliers, and channel members and can reassure these groups when a new owner takes over the
business.
6. More opportunity to be creative: since the entrepreneur does not have to be concerned with
finding suppliers, channel members, hiring new employees, or creating customer awareness, more
time can be spent assessing opportunities to expand or strengthen the existing business.

Disadvantages of an acquisition

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 1. Marginal success record: most ventures that are for sale have an erratic, marginally successful, or
even unprofitable track record. It is important to review the records and meet with important
constituents to assess the marginal record in terms of future potential. For example, if the store
layout is poor, this factor can be rectified; but if the location is poor, the entrepreneur might do
better using some other expansion method.
2. Overconfidence in ability: sometimes an entrepreneur may assume that he or she can succeed
where others have failed. This is why a self-evaluation is so important before entering into any
purchase agreement. Even though the entrepreneur brings new ideas and management qualities,
the venture may never be successful for reasons that are not possible to correct.
3. Key employee loss: often, when a business changes hands, key employees also leave. In the
acquisition negotiations, it is helpful for the entrepreneur to speak to all employees individually to
get some assurance of their intensions as well as to inform them of how important they will be to
the future of the business. Incentives can sometimes be used to ensure that key employees will
remain with the business.
4. Over valuated: it is possible that the actual purchase price is inflated due to the established
image, customer base, channel members, or suppliers. It is important to look at the investment
required in purchasing a business and at the potential profit and establish a reasonable payback to
justify the investment.

Franchising
Franchise: an agreement whereby one firm (franchisee) agrees to meet the operating requirements of a successful
business (franchiser) in return for the right to carry the name and products of the franchisor.
Franchising: allowing another party to use a product or service under the owner’s name
Franchisor: person offering the franchise
Franchisee: person obtaining the franchise
Franchising represents an opportunity for an entrepreneur to expand the business. In the context of
franchising, the entrepreneur will be trained and supported in the marketing by the franchisor and will be
using a name that has an established image. Franchising is also an alternative means by which an
entrepreneur may expand his or her business by having others pay for the use of the name, process,
product, service and so on (Ex. Merry Maids)

Advantages of franchising- to the franchisee

One of the most important advantages of buying a franchise is that the entrepreneur does not have to
incur all the risks associated with creating a new business. Typically, the areas that entrepreneurs have
problems with in starting a new venture are product acceptance, management expertise, meeting capital
requirements, knowledge of the market, and operating and structural controls. In franchising, the risks
associated with each are minimized through the franchise relationship as:

Product acceptance: the franchisee usually enters into a business that has an accepted name, product,
or service. The franchisee does not have to spend resources trying to establish the credibility of the
business. That creditability already exists based on the years the franchise has created.

Management expertise: another important advantage to the franchisee is the managerial assistance
provided by the franchisor. Each new franchisee is often required to take a training program on all

27
aspects of operating the franchise. The training could include classes in accounting, personnel
management, marketing and production. (MacDonald’s for example requires all of its franchisees to
spend time at its school)

Capital requirements: starting a new venture can be costly in terms of both time and money. The
franchise offers an opportunity to start a new venture with up-front support that could save the
entrepreneur significant time and possibly capital. Some franchisors conduct location and market
research of the area that might include an assessment of traffic, demographics, business conditions, and
competition. In some cases, the franchisor will also finance the initial investment to start the franchise
operation. The initial capital required to purchase a franchise generally reflects a fee for the franchise,
construction costs, and the purchase of equipment.

Knowledge of the market: any established franchise business offers the entrepreneur years of
experience in the business and knowledge of the market. This knowledge is usually reflected in a plan
offered to the franchisee that details the profile of the target consumer and the strategies that should be
implemented once the operation has begun. Given their experience, franchisors can provide advice and
assistance in accommodating information about differences in markets, competition, tastes, and media
effectiveness.

Operating and structural controls: two problems that many entrepreneurs have in starting a new
venture are maintaining quality control of products and services and establishing effective managerial
controls. The franchisor, particularly in the food business, will identify purveyors and suppliers that meet
the quality standards established.
Administrative controls usually involve financial decisions relating to costs, inventory, and cash flow, and
personnel issues such as criteria for hiring/firing, scheduling, and training to ensure consistent service to
the customer. These controls will usually be outlined in a manual supplied to the franchisee upon
completion of the franchise deal. Since there are so many franchise options for an entrepreneur, the
franchisor will need to offer all of the above services in order to succeed in the sale of franchises.

Advantages of franchising – to the franchisor

The advantages a franchisor gains through franchising are related to expansion risk, capital requirements,
and cost advantages that result from extensive buying power.
● Expansion risk: the most obvious advantage of franchising for an entrepreneur is that it allows
the venture to expand quickly using little capital. The value of the franchise depends on the to-date
track record of the franchisor and on the services offered to the entrepreneur or franchisee. Low
franchise fee can enhance expansion opportunities, as more people can afford it.
● Cost advantages: many franchise businesses produce parts, accessories, packaging, and raw
materials in large quantities, then in turn sell these to the franchisees. The franchisee is usually
required to purchase these items as part of the franchise agreement, and they usually benefit from
lower prices.
One of the biggest cost advantages of franchising a business is the ability to commit larger sums of
money to advertising. By setting an advertising pool (1 to 2 percent from sales of the franchisee),
the franchisor will be able to conduct advertising in major media across a wide geographic area.

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Disadvantages of franchising
Franchising is not always the best option for an entrepreneur. Anyone investing in a franchise should
investigate the opportunity thoroughly. Problems between the franchisor and the franchisee are common
and have recently begun to receive more attention from the government.
The disadvantages to the franchisee usually center on the inability of the franchisor to provide services,
advertising, and location. When promises made in the franchise agreement are not kept, the franchisee
may be left without any support in important areas.
The franchisee may also face the problem of a franchisor failing or being bought out by another company.
The failure of the franchisor causes customers being apprehensive in doing business with the franchisee,
as they think he/she will go out of business.
The franchisor also incurs certain risks and disadvantages in choosing this expansion alternative. In some
cases, the franchisor may find it very difficult to find quality franchisees. Poor management, in spite of all
the training and controls, can still cause individual franchise failures and, therefore, can reflect negatively
on the entire franchise system. As the number of franchises increases, the ability to maintain tight
controls becomes more difficult.

Types of franchises
There are three types of franchises
1. Dealership: a form of franchise commonly found in the automobile industry. Manufacturers use
franchises to distribute their product lines. These dealerships act as the retail stores for the
manufacturer. Dealers (franchisee) benefit from the advertising and management support provided
by the franchisor.
2.The most common type of franchise is the type that offers a name, image, and method of doing
business, such as McDonald’s, KFC, Dunkin Donuts.
3.A third type of franchise offers services. These include personnel agencies, income tax preparation
companies, and real estate agencies. These franchises have established names and reputations and
methods of doing business.

Joint ventures
A joint venture (JV) is a separate entity that involves a partnership between two or more active
participants, who join to undertake a project. Sometimes called strategic alliances, joint ventures involve
a wide variety of partners that include universities, not profit organizations, businesses, and the public
sector.
Types of joint ventures:
A joint venture between two or more private-sector companies:
Industry- university agreements:
International joint ventures:

Why are joint ventures created?

1. Networking and expanding customer basis: joint ventures are ideal for businesses looking to
expand their reach to a different customer base or market than the one that they are currently

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 serving (ex. You are serving men customers, but when looking for women customers, you put your
name next to businesses serving women)
2. Research and development: pooling teams and resources together can give each partner a
different perspective and save the trouble or cost of finding all of the resources they need.
3. Higher purchasing power– buying items in bulk lowers the cost of each individual item. So why
not make one giant order with a partner who needs the same item?

CHAPTER FIVE: DEVELOPING AND USING BUSINESS PLAN

Planning as part of the Business Operation

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Planning is a process that never ends. In the early stages, the entrepreneur should prepare a preliminary
plan. The plan will be finalized as the enterprise develops. Many different types of plans may be part of
any business operation-financial, marketing, production, and sales plans. Plans may be short term or long
term, or they may be strategic or operational. All of these plans have one purpose: to provide guidance
and structure to management in a rapidly changing market environment.

What is a business plan (BP)?

The business plan is a written document prepared by the entrepreneur that describes all the external and
internal elements involved in starting a new venture. It is often an integration of functional plans such as
marketing, finance, manufacturing, and human resources. The business plan –or, as it is sometimes
referred to, the game plan or road map – answers the questions, Where am I now? Where am I going?
How will I get there? BP is a document that convincingly demonstrates that your business can sell enough
of its product or service to make a satisfactory profit and be attractive to potential backers. Potential
investors, suppliers, and even customers will request or require a business plan.

Who should write the business plan?

The business plan should be prepared by the entrepreneur; however, he or she may consult with many
other sources in its preparation. Lawyers, accountants, marketing consultants, and engineers are useful in
the preparation of the plan.

Scope and value of the business plan – who reads the plan?
The business plan may be read by employees, investors, bankers, venture capitalists, suppliers,
customers, advisors, and consultants. Since the business plan is read by different groups of people for
different reasons and purposes, the entrepreneur must be prepared to address all their issues and
concerns.
There are probably three perspectives that should be considered when preparing the business plan. First
is the perspective of the entrepreneur, who understands better than anyone else the creativity and
technology involved in the new venture. The entrepreneur must be able to clearly articulate what the
venture is all about. Second is the marketing perspective. Too often, an entrepreneur will consider only
the product or technology and not whether someone would buy it. Entrepreneurs must try to view their
business through the eyes of their customer. Third, the entrepreneur should try to view his or her
business through the eyes of the investor. Sound financial projections are required; if the entrepreneur
does not have the skills to prepare this information, then outside sources can be of assistance.
The depth and detail in the business plan depend on the size and scope of the proposed new venture. An
entrepreneur planning to market a new portable computer will need a comprehensive business plan,
largely because of the nature of the product and market. An entrepreneur who plans to open a retail
video store will not need the comprehensive coverage required by a new computer manufacturer. A new
e-commerce business however may require a very different focus, particularly on how to market the
website that will offer the goods and services. Thus, differences in the scope of the business plan may
depend on whether the new venture is a service, involves manufacturing, or is a consumer good or
industrial product. The size of the market, competition, and potential growth may also affect the scope of
the business plan.
How do potential lenders and investors evaluate the plan?

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Because the business plan should address the needs of all the potential evaluators, software packages
and Internet samples should be used only to assist in preparation. As the entrepreneur becomes aware of
who will read the plan, changes will be necessary. Suppliers may want to see a business plan before
signing a contract to supply products or services. Customers may also want to review the plan before
buying the product. The business plan should consider the needs of these constituencies. Potential
suppliers of capital will vary in their needs and requirements in the business plan. Lenders are primarily
interested in the ability of the new venture to pay back the debt and focus on the four C's of credit:
1. The entrepreneur's credit history or character.
2. Their ability to meet debt and interest payments (cash flow.)
3. The collateral or tangible assets being secured.
4. Equity contribution or the amount of personal equity that has been invested by the entrepreneur.
Investors provide large sums of capital for ownership (equity) and expect to cash out within 5 to 7 years.
They will often place more emphasis on the entrepreneur's character than lenders. The venture capitalist
will play an important role in management of the business and wants the entrepreneurs to be pliable and
willing to accept this involvement. These investors will also demand high rates of return and will thus
focus on the market and financial projections. If the entrepreneur does not consider the needs of these
sources, the plan may be an internalized document without consideration of the feasibility of meeting
market goals. Most external advisors and potential investors are bound by a professional code of ethics
regarding disclosure.

Presenting the plan

It is often necessary for an entrepreneur to orally present the business plan to investors. Typically the
entrepreneur provides a short (20-30 minutes) presentation of the business plan. The entrepreneur must
sell their business concept in a short time period. A venture capitalist or angel group may also ask the
entrepreneur to present the plan to their partners before making a final decision.
Information needs
Before committing time and energy to preparing a business plan, the entrepreneur should do a quick
feasibility study of the business concept to see if there are any possible barriers to success. Before
beginning the business plan, the entrepreneur will need information on the market, manufacturing
operations (production) and financial estimations. The internet represents a low cost service that can
provide valuable information on the market, customers and their needs and competitors. This
information should be evaluated based on the goals and objectives of the new venture. The important
thing is that the business plan cannot be taken lightly and that it must reflect reasonable goals. These
goals and objectives also provide a framework for setting up controls for the business plan.
Market information
One of the initial important elements of information needed by the entrepreneur is the market potential
for the product or service. In order to ascertain the size of the market, it is first necessary for the
entrepreneur to define the market. For example, is the product most likely to be purchased by men or
women? People of high income or low income? Rural or urban dwellers? Highly educated or less
educated people? A well-defined target market will make it easier to project market size and subsequent
market goals for the new venture.

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To assess the total market potential, the entrepreneur should consider trade associations, government
reports, the internet, and published studies.
Operations information need
The relevance of a feasibility study of the manufacturing operations depends on the nature of the
business. Most of the information needed can be obtained through direct contact with the appropriate
source. The entrepreneur may need information on the following.
● Location. The company’s location and its accessibility to customers, suppliers, and distributors need
to be determined
● Manufacturing operations. Basic machine and assembly operations need to be identified, as well as
whether any of these operations would be subcontracted and by whom.
● Raw materials. The raw materials needed and suppliers’ names, addresses and costs should be
determined.
● Equipment. The equipment needed should be listed and whether it will be purchased or leased.
● Labor skills. Each unique skill needed, the number of personnel in each skill, pay rate, and an
assessment of where and how these skills will be obtained should be determined.
● Space. The total amount of space needed should be determined, including whether the space will
be owned or leased.
● Overhead. Each item needed to support manufacturing – such as tools, supplies, utilities, and
salaries- should be determined.

Most of the above information should be incorporated directly into the business plan. Each item may
require some research, but each is necessary to those who will assess the business plan and consider
funding the proposal.

Financial information needs

Before preparing the business plan, the entrepreneur must have a complete evaluation of the profitability
of the venture. The assessment will primarily tell potential investors if the business will be profitable, how
much money will be needed to launch the business and meet-short term financial needs, and how this
money will be obtained (e.g., stock, and debt).
There are traditionally three areas of financial information that will be needed to ascertain the feasibility
of the new venture: (1) expected sales and expense figures for at least the first three years, (2) cash flow
figures for the first three years, and (3) current balance sheet figures and pro forma sheets for the first
three years. Determination of the expected sales and expense figures is based on the market information
discussed earlier. Current balance sheet figures provide the financial conditions of the business at any
particular time. They identify the assets of the business, the liabilities (what is owed0 and investment
made by the owner or other partners.

Using the internet as a resource tool

Thanks to technology, entrepreneurs are able to access information efficiently, expediently, and at very
little cost. The Internet can serve as an important source of information in preparing the business plan.

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Information on industry analysis, competitor analysis, and measurement of market potential can be
located. In addition, the Internet also provides opportunities for actually marketing the new venture's
products. A web site, or home page, typically describes a firm's history, existing products, background of
the founders, and other information to create a favorable image. The web site can be a vehicle for
advertising or for direct marketing. Many new ventures use web pages to increase sales contacts and
reach potential customers. An entrepreneur can also access competitors' web sites to gain knowledge of
their strategy in the marketplace. To gather information anonymously the entrepreneur can also
investigate newsgroups. All that is needed to use these sources is a small investment in hardware and
software
Writing the business plan
The business plan should be comprehensive enough to give any potential investor a complete picture and
understanding of the new venture and will help the entrepreneur clarify his or her thinking about the
business.

Introductory page
This is the title or cover page that provides a brief summary of the business plan/’s contents. The
introductory page should contain the following:
● The name and address of the company
● The name of the entrepreneur(s), telephone number, fax number, e-mail address and website
address if available
● A paragraph describing the company and the nature of the business
● The amount of financing needed . The entrepreneur may offer a package, that is, stock, debt, and so
on. However, many venture capitalists prefer to structure this package in their own way.
● A statement of the confidentiality of the report. This is for security purposes and is important for
the entrepreneur.
This title page sets out the basic concept that the entrepreneur is attempting to develop. Investors
consider it important because they can determine the amount of investment needed without having to
read through the entire plan.

Executive summary
This section of the business plan is prepared after the total plan is written. Significant issues that should
be addressed in the executive summary include:
● Brief description of the business concept.
● Any data that support the opportunity for the venture should be briefly stated. For example, trends
and potential growth in the industry should be mentioned.
● State how this opportunity will be pursued. After establishing the reality of the opportunity the
executive summary should then state how this opportunity will be pursued. What is the marketing
strategy that will be implemented, and how does it differ from others in the market?
● Next the executive summary should highlight some of the key financial results that can be achieved
from the implemented marketing strategy. Important experience of the entrepreneur’s, any
important contracts or other legal documents that are in place, and any other information that is
felt can assist in selling the business venture to a potential investor should also be mentioned.

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Environmental and industry analysis
It is important to put the new venture in a proper context by first conducting an environmental analysis
to identify trends and changes occurring on a national and international level that may impact the new
venture. Examples of environmental factors include: economy, culture, technology, legal concerns.
All the above external factors are generally uncontrollable. However, an awareness and assessment of
these factors using some of the sources identified can provide strong support for the opportunity and can
be invaluable in developing the appropriate marketing strategy. Next the entrepreneur should conduct an
industry analysis that focuses on specific industry trends. Some examples of industry factors include:
industry demand; competition

Description of venture
The description of the venture should begin with the mission statement or company mission of the new
venture. This statement basically describes the nature of the business and what the entrepreneur hopes
to accomplish with that business. After the mission statement a number of important factors that provide
a clear description and understanding of the business center should be discussed. Key elements are the
product(s) or service(s), the location and size of the business, the personnel and office equipment that
will be needed, the background of the entrepreneur(s), and the history of the venture.
Location of any business may be vital to the success, particularly if the business is retail or involves a
service. Thus, the emphasis on location in the business plan is a function of the type of business. In
assessing the building or space the business will occupy, the entrepreneur may need to evaluate such
factors as parking, access from roadways to facility, and access to customers, suppliers, distributors,
delivery rates, and town regulations or zoning laws.

Production plan or operational plan

In a manufacturing operation, the entrepreneur should describe the physical plant layout; the machinery
and equipment needed to perform the manufacturing operations; raw materials and suppliers’ names,
addresses, and terms; costs of manufacturing; and any future capital equipment needs.
If the venture is not a manufacturing operation but a retail store, service, or some other type of
nonmanufacturing business, this section, would be titled operational plan and the entrepreneur would
then need to describe the chronological steps in completing a business transaction. For example, a retail
store would need to describe the process of purchasing merchandise, how the merchandise will be stored
and presented for sale, as well as the control system to be used for inventory control. For a service such
as a retail internet business the entrepreneur would need to describe the complete transaction process
from the actual development of the website, how it functions, the procedure for ordering, and final steps
involved in completing a transaction.

Marketing plan
The marketing plan is an important part of the business plan since it describes how the product(s) or
service(s) will be distributed, priced, and promoted. Marketing research evidence to support any of the
critical marketing decision strategies as well as for forecasting sales should be described in this section.

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The entrepreneur should make every effort to prepare as comprehensive and detailed a plan as possible
so that investors can be clear as to what the goals of the venture are and what strategies are to be
implemented to effectively achieve these goals.

Organizational plan
The organizational plan is the part of the business plan that describes the venture’s form of ownership –
that is, proprietorship, partnership, or corporation. It is helpful to provide an organization chart indicating
the line of authority and the responsibilities of the members of the organization.

Assessment of risk
Every new venture will be faced with some potential hazards, given the particular industry and
competitive environment. It is important that the entrepreneur make an assessment of risk in the
following manner. First, the entrepreneur should indicate the potential risks to the new venture. Next
should be a discussion of what might happen if these risks become reality. Finally, the entrepreneur
should discuss the strategy that will be employed to either prevent, minimize, or respond to the risks
should they occur. Major risks for a new venture could result from a competitor’s reaction; weaknesses in
the marketing, production, or management team, and new advances in technology that might render the
new product obsolete. Even if these factors present no risks to the new venture, the business plan should
discuss why that is the case.

Financial plan
The financial plan determines the potential investment commitment needed for the new venture and
indicates whether the business plan is economically feasible.
Generally three financial areas are discussed in this section of the business plan. First, the entrepreneur
should summarize the forecasted sales and the appropriate expenses for at least the first three years,
with the first year’s projections provided monthly. It includes the forecasted sales, cost of goods sold, and
the general and administrative expenses. Net profit after taxes can then be projected by estimating
income taxes.
The second major area of financial information needed is cash flow figures for three years, with the first
year’s projections provided monthly. Since sales may be irregular, and receipts from customers may also
spread out, thus necessitating the borrowing of short-term capital to meet fixed expenses such as salaries
and utilities. The last financial item needed in this section of the business plan is the projected balance
sheet. This shows the financial condition of the business at a specific time. It summarizes the assets of a
business, its liabilities (what is owed), the investment of the entrepreneur and any partners, and retained
earnings ((or cumulative losses).
Appendix
The appendix of the business plan generally contains any backup material that is not necessary in the text
of the document. Reference to any of the documents in the appendix should be made in the plan itself.
Letters from customers, distributors, or subcontractors are examples of information that should be
included in the appendix. Leases, contracts, or any other types of agreements that have been initiated
may also be included in the appendix. Finally, price lists from suppliers and competitors may be added. s

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Using and implementing the business plan
The business plan is designed to guide the entrepreneur through the first year of operations. It should
contain control points to ascertain progress. Planning should be a part of any business operation. Without
good planning the employees will not understand the company's goals and how they are expected to
perform their jobs. Bankers say that most businesses fail because of the entrepreneur's inability to plan
effectively.
The entrepreneur can enhance efficient implementation of the plan by developing a schedule to measure
programs and to institute contingency plans.

Measuring Plan Progress

Plan projections will typically be made on a 12-month schedule, but the entrepreneur should check key
areas more frequently.
1. Inventory control: By controlling inventory, the firm can ensure maximum service to the customer.
2. Production control: Compare the cost figures against day-to-day operating costs.
3. Quality control: Quality control depends on the type of production system used.
4. Sales control: Information on units, dollars, and specific products sold should be collected.
5. Disbursements: The new venture should control the amount of money paid out

Updating the Plan

Environmental factors and internal factors can change the direction of the plan. It is important to be
sensitive to changes in the company, industry, and market.

Why some business plans fail

A poorly prepared business plan can be blamed on:
● Goals set by the entrepreneurs that are unreasonable.
● Goals those are not measurable.
To be successful
● Goals should be specific.
● They should also be measurable and should be monitored over time.
The entrepreneur who has not made a total commitment to the business will not be able to meet the
venture's demands of the venture. Investors will not be positive about a venture that does not have full-
time commitment. Investors will typically expect the entrepreneur to make significant financial
commitment to the business. Lack of experience will result in failure unless the entrepreneur can gain
knowledge or team up with someone. The entrepreneur should also document customer needs before
preparing the plan

MARKETING PLAN
Purpose and Timing of the Marketing Plan
The marketing plan establishes how the entrepreneur will effectively compete and operate in the
marketplace. Marketing planning should be an annual activity focusing on decisions related to the
marketing mix variables. The marketing plan section should focus on strategies for the first three years of
the venture. For the first year, goals and strategies should be projected monthly. For years two and three,

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market results should be projected based on longer-term goals. Preparing an annual marketing plan
becomes the basis for planning other aspects of the business

Understanding the marketing plan

The marketing plan should answer three basic questions:
Where have we been? -The history of the marketplace, marketing strengths and weaknesses, and market
opportunities.
Where do we want to go (short term)? - Marketing objectives and goals in the next twelve months.
How do we get there? -Specific marketing strategy that will be implemented.
The marketing plan should be a guide for implementing marketing decision-making and not a superficial
document. The mere organization of the thinking process involved in preparing a marketing plan can be
helpful in understanding and recognizing critical issues

Market research for the new venture

Information for developing the marketing plan may require some marketing research. Marketing research
involves the gathering of data in order to determine such information as who will buy the product, what
price should be charged, and what is the most effective promotion strategy. Marketing research may be
conducted by the entrepreneur or by an external supplier or consultant. Market research begins with
definition of objectives. Many entrepreneurs don't know what they want to accomplish from a research
study.

Defining the Purpose or Objectives

One effective way to begin the marketing plan is to make a list of the information that will be needed to
prepare the marketing plan.
Possible objectives:
● Determine what people think of the product or service and if they would buy it.
● Determine how much customers would be willing to pay for the product.
● Determine where the customer would prefer to purchase the product.
● Determine where the customer would expect to hear about such a product or service.

Gathering Data from Secondary Sources

An obvious source is data that already exists, or secondary data, found in trade magazines, libraries,
government agencies, and the Internet. The Internet can provide information on competitors and the
industry, plus can be used for primary research. Commercial data may also be available, but the cost may
be prohibitive. Free secondary information is available through:
● The U.S. Bureau of Census and the Department of Commerce.
● State departments of commerce, chambers of commerce, and local banks.
● Private sources of data, such as Predicasts, the Business Index, and the SBA's Directory of Business
Development Publications, can be found in a good business library
● A local business library can also provide access to reference sources and articles about competitors
and the industry.
● The entrepreneur should exhaust all possible secondary data sources, observation, and networking
before beginning costly primary data research.

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Gathering Information from Primary Sources
Information that is new is primary data. Observation is the simplest approach. Networking is an informal
method to gather primary data from experts in the field, can be a valuable low-cost research method.
A recent study found that the most successful ventures were focused on information about competitors,
the customer, and the industry. Less successful ventures were more focused on gathering information on
general economic and demographic trends. Interviewing or surveying is the most common approach, but
is more expensive. The questionnaire used by the entrepreneur should include questions designed to
fulfill one or more of the objectives. Questions should be designed so they are clear and concise, without
bias, and easy to answer. If the entrepreneur lacks experience, he or she should seek help in developing
the questionnaire through Small Business Development Centers or a local education institution.

Focus groups
● A focus group is a sample of 10 or 12 potential customers who participate in a discussion.
● Groups discuss issues in an informal, open format
● These groups should be led by an experienced monitor.
Experimentation involves control over specific variables in the research process

Analyzing and Interpreting the Results

The entrepreneur can enter the results on a computer or hand-tabulate the results. Summarizing the
answers to questions will give preliminary insights. Data can then be cross-tabulated to provide more
focused results.

Understanding the marketing plan

The marketing plan should answer three basic questions:
Where have we been? -The history of the marketplace, marketing strengths and weaknesses, and market
opportunities.
Where do we want to go (short term)? - Marketing objectives and goals in the next twelve months.
How do we get there? -Specific marketing strategy that will be implemented
The marketing plan should be a guide for implementing marketing decision-making and not a superficial
document. The mere organization of the thinking process involved in preparing a marketing plan can be
helpful in understanding and recognizing critical issues.

Characteristics of a marketing plan

An effective marketing plan should:
1. Provide a strategy to accomplish the company mission.
2. Be based on facts and valid assumptions.
3. Provide for the use of existing resources.
4. Describe an organization to implement the plan.
5. Provide for continuity.
6. Be simple and short
7. Be flexible.
8. Specify performance criteria that can be monitored and controlled

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The marketing system identifies the major interacting components, both internal and external, that
enable the firm to provide products to the marketplace. Environment factors, although largely
uncontrollable, should be studied.
Internal environmental factors are more controllable by the entrepreneur:
Financial resources: The financial plan should outline the financial needs for the venture.
Management team: An effective management team responsibilities assigned is needed for implementing
the marketing plan.
Suppliers: Suppliers used are generally based on a number of factors, such as price, delivery time, and
quality.
Company mission: Every new venture should define the nature of its business and what it hopes to
accomplish.

OUTLINE OF A BUSINESS PLAN

I. Introductory page
A. name and address of business
B. Name(s) and address(s) of principals
C. Nature of business
D. Statement of financing needed
E. Statement of confidentiality of report
II. Executive summary-three to four pages summarizing the complete business plan
III. Industry analysis
A. future outlook and trends
B. analysis of competitors
C. market segmentation
D. industry forecasts
IV. Description of venture
A. product(s)
B. service(s)
C. size of business
D. office equipment and personnel
E. background of entrepreneurs
V. Production plan
A. manufacturing process (amount subcontracted)
B. physical plant
C. machinery and equipment
D. names of suppliers of raw materials
VI. Marketing plan
A. pricing
B. distribution
C. promotion
D. Product forecasts
E. Controls
VII. Organizational plan
A. form of ownership

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 B. identification of partners or principal shareholders
C. authority of principals
D. management team background
E. Roles and responsibilities of members of organization
VIII. Assessment of risk
A. evaluate weakness of business
B. New technologies
C. Contingency plan
IX. Financial plan
A. pro forma income statement
B. cash flow projections
C. pro-forma balance sheet
D. Break-even analysis
E. Sources and applications of funds
X. Appendix(contains backup material)
A. letters
B. market research data
C. leases or contracts
D. price lists from suppliers

CHAPTER SIX: FINANCING A NEW VENTURE

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SOURCE OF CAPITAL
All business ventures require capital. While capital is needed throughout the life of a business, the new
entrepreneur faces significant difficulties in acquiring capital at start-up. Before seeking outside financing
an entrepreneur should first explore all methods of internal financing, such as using profits, selling
unused assets, reducing working capital, obtaining credit from suppliers, and collecting accounts
receivable promptly. After all internal sources have been exhausted; the entrepreneur may find it
necessary to seek additional funds through external financing. External financing can be in the form of
debt or equity. When considering external financing, the entrepreneur needs to consider the length of
time, cost, and amount of control of each alternative financial arrangement.
Commercial bank loans are the most frequently used source of short-term external debt financing. This
source of funding requires collateral, which may be asset-based or may take the form of cash flow
financing. In either case, banks tend to be cautious about lending and carefully weigh the five Cs:
character, capacity, capital, collateral, and condition. Not every entrepreneur will qualify under the
bank’s careful scrutiny. When this occurs an alternative for an entrepreneur is the Small Business
Administration Guaranty Loan. The SBA guarantees a considerable amount of the loan (80%), allowing
banks to lend money to businesses that might otherwise be refused.
A special method of raising capital for high technology firms is a research and development (R&D) limited
partnership. A contract is formed between a sponsoring company and a limited partnership. The
partnership bears the risk of the research, receiving some tax advantages and sharing in future profits,
including a fee to use the research in developing any future products. The entrepreneur has the
advantage of acquiring needed funds for a minimum amount of equity dilution while reducing his or her
own risk in the venture. However, setting up an R&D limited partnership is expensive, and the time factor
(at least six months) may be too long for some ventures. Restrictions placed on the technology as well as
the complexities of exiting the partnership need careful evaluation.
Government grants are another alternative available to small business through the SBIR program (small
business innovation program). Businesses can apply for grants from different agencies. Phase I awards
carry a stipend of up to $50,000 for six months of initial research. The most promising phase I projects
may qualify for phase II support of up to $500,000 for 24 months of research.
Finally, the entrepreneur can seek private funding. Individual investors frequently require an equity
position in the company and some degree of control. A less-expensive and less complicated alternative to
a public offering of stock is found in a private offering. By following the procedures of the regulation and
its specific rules – an entrepreneur can sell private securities. When making a private offering, the
entrepreneur must exercise care in accurately disclosing information and adhering precisely to the
requirements of the SEC. securities violations can lead to the lawsuits against individuals as well as the
corporation.
The entrepreneur needs to consider all possible sources of capital and select the one that will provide the
needed funds with minimal cost and loss of control. Usually different sources of funds are used at various
stages in the growth and development of the venture.

VENTURE CAPITAL
Although venture capital may be used in the first stage, it is primarily used in the second or third stage to
provide working capital for growth or expansion. Venture capital is broadly defined as a professionally

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managed pool of equity capital. Small business investment companies (SBIC) have combined private
capital and government funds to finance the growth and start-up of small businesses. Private venture
capital firms, with limited partners are supplying the funding. Venture-capital divisions operating within
major corporations began appearing. States also sponsor venture – capital funds to foster economic
development.
In order to achieve the venture capitalists primary goal of generating long-term capital appreciation
through investments in business, three criteria are used. The company must have strong management;
the product/marketing opportunity must be unique; and the capital appreciation must be significant,
offering a 40 to 60 percent return on investment. The process of obtaining venture capital includes a
preliminary screening, agreement on principal terms, due diligence, and final approval. Through a
referral, entrepreneurs need to approach a potential venture capitalist with a professional business plan
and a good oral presentation. After a successful initial presentation, the entrepreneur and investor agree
on principal terms before the due diligence process is begun. Due diligence involves a detailed analysis of
the markets, industry, and finances and can take up to three months. The final stage requires
comprehensive documentation of the details of the transaction.
Valuing the company is of concern to the entrepreneur. Eight factors can be used as a basis for valuation.
The nature and history of the business, the economic outlook, book value, future earnings, dividend -
paying capacity, intangible assets, sales of stock, and market price of stocks of similar companies.
Numerous valuation approaches can be used and include an assessment of comparable publicly held
companies, present value of future cash flow, replacement value, book value, earnings approach, factor
approach, and liquidation value.
In the end, the entrepreneur and investor must agree on the terms of the transaction, known as the deal.
When care is taken in structuring the deal, both the entrepreneur and investor will maintain a good
relationship while achieving their goals through the growth and profitability of the business.

CHAPTER SEVEN: MANAGING THE NEW VENTURE

MANAGING EARLY GROWTH OF THE NEW VENTURE

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For those ventures that choose a growth strategy, there are some impending risks or dangers. Too-fast
growth or uncontrolled growth can lead to a situation known as “hitting the wall.” This is when a venture
grows too fast and loses control of cash, inventory, customers and eventually profits. Although the
situation does not always result in bankruptcy or disaster, it is something that the entrepreneur can be
prepared for by establishing good controls and managing growth rather than letting it just run rampant.
One of the important roles of an entrepreneur during a venture’s growth stage is to establish an effective
organization culture. This can be accomplished through good communication, being a good listener,
delegating responsibility, providing employees with consistent and regular feedback, establishing
employee incentives, maintaining a focus on the mission and goals set in the plan, and establishing a “we”
spirit rather than a “me” spirit.
During the growth stage there are certain critical skills and strategies that the entrepreneur will need to
recognize. Management skills and strategies involving such areas as record keeping and financial control,
inventory control, human resources, marketing, strategic management, time management, and
negotiation are critical during the growth stage of a new venture.
Time management is critical, as it can lead to increased job satisfaction, increased productivity, less
anxiety and tension, and better health. An entrepreneur should recognize that he or she is very likely a
time-waster. The entrepreneur can develop time management skills that are necessary to manage his/her
time more effectively (basic principles of time management: the principle of desire; effectiveness;
analysis; teamwork; prioritized planning; reanalysis).
Negotiation is another important skill that the entrepreneur will use in dealing with employees, investors,
advisors and customers. There are two types of negotiation cooperative and competitive. In addition, the
approach to negotiation proposed for an entrepreneur involves eight steps: prepare, discuss, signal,
propose, respond, bargain, close and agree.

ENDING THE VENTURE

Even though the intent of all entrepreneurs is to establish a business for a long time, many problems can
cause these plans to fall. Since about one-half of all new ventures fall in their first four years of business,
it is important for the entrepreneur to understand the options for either ending or salvaging a venture.
For example in the USA, Bankruptcy offers three options for the entrepreneur. Under chapter 11 of the
Bankruptcy act of 1978 (amended in 1984) the venture will be reorganized under a plan approved by the
courts. New versions of this form of bankruptcy now allow the entrepreneur an opportunity to file a
prepackaged bankruptcy plan. This plan avoids large expenses and prepares creditors in advance so that
negotiations can occur before the courts become involved.
Chapter 13 provides for an extended time payment plan to cover outstanding debts. This is not
involuntary and is not an alternative for partnerships or corporations. Both of these alternatives are
designed to help entrepreneurs salvage the business and keep it going. Under chapter 7, the venture will
be liquidated either voluntarily or involuntarily.
Keeping the business going is the primary intent of all entrepreneurs. Avoiding excessive optimism,
preparing good marketing plans, making good cash projections, keeping familiar with the market, and
being sensitive to stress points in the business can help keep the business operating.
Entrepreneurs can also be sensitive to key warnings of potential problems. Lax management of finances,
discounting to generate cash, loss of key personnel, lack of raw materials, nonpayment of payroll taxes,

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demands of suppliers to be paid in cash, and increased customer complaints about service and product
quality are some of the key factors that lead to bankruptcy. If the business does fail, however, the
entrepreneur should always consider starting over. Failure can be a learning process as evidenced by the
many famous inventors who succeeded after many failures.
One of the other venture-ending decisions that an entrepreneur may face is succession of the business. If
the business is family owned, the entrepreneur would likely seek a family member to succeed. Other
options, if no family member is available or interested, include transferring some or all of the business to
an employee or outsider, or hiring an outsider to manage the business. Direct sale, employee stock option
plan, and management buyout are alternatives for the entrepreneur in selling the venture.

CHAPTER EIGHT: PRODUCT PROTECTION

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The problem with intellectual property has become more complicated with the growth of the internet. It
is important for the entrepreneur to seek legal advice in making any intellectual property legal decisions
such as patents, trademarks, copyrights, and trade secrets.

An introduction to patents
A patent is a legal document that gives inventors the exclusive rights to their invention for a number of
years (usually for 20 years). In exchange for disclosure of the invention, the government grants the
inventor exclusivity regarding the invention for a specified amount of time. At the end of this time, the
government publishes the invention and it becomes part of the public domain. There is the assumption
that the disclosure will stimulate ideas and perhaps even the development of an even better product that
could replace the original.

What rights does a patent give?

● A patent gives the right to stop others from using your inventions. Alternatively you can choose to
let others use it under agreed terms.
● A patent also brings the right to take legal action against others who might be infringing and to
claim damages.
● An inventor is not required to get a patent in order to put an invention into practice, but once the
invention is made public, there will be no protection against others using the invention and you
would be unable to obtain a patent.
● The Intellectual Property Office does not ensure that others do not copy a patented invention. It is
up to the owner to take any necessary action to ensure an idea is not infringed.
● Once ‘Granted’ or in the public domain any ideas may not be reregistered.
To be Patentable an invention must
Be New - Never been made public in any way, anywhere in the world, before the date on which the
application for a patent is filed.
Involve an inventive step - If when compared with what is already known, it would not be obvious to
someone with good knowledge and experience of the subject.
Be capable of industrial application - an invention must be capable of being made or used in some kind
of industry. This means that the invention must take the practical form of an apparatus or device, a
product such as some new material or an industrial process or method of operation
An invention is not patentable if it is:
● A discovery,
● A scientific theory or mathematical method,
● An aesthetic creation, literary, dramatic or artistic work,
● A scheme or method for performing a mental act, playing a game or doing business,
● The presentation of information or a computer program,
● If the invention involves more than these abstract aspects so that it has physical features (such as
special apparatus to play a new game) then it may be patentable.
● In addition it is not possible to get a patent for plant variety, a method of treatment of the human
or animal body by surgery or therapy or a method of diagnosis.

CONFIDENTIALITY

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Any invention should be kept confidential until it is filed at The UK Intellectual Property Office. A
confidentiality agreement should be signed before any details or description is disclosed. This does not
apply to patent attorneys or other professional advisors or staff helping a member of the public. This is
automatically a situation of confidence.

TYPES OF PATENTS
Utility patents: a utility patent basically grants the owner protection from anyone else making, using,
and /or selling the identified invention and generally reflects protection of new, useful, and unobvious
processes such as film developing, machines such as photocopiers, compositions of matter such as
chemical compounds or mixtures of ingredients, and articles of manufacture such as the toothpaste
pump. A utility patent has a term of 17 years, beginning on the date the patent and trademark office
issues it.

Design patents: covering new, original, ornamental, and unobvious designs for articles of manufacture, a
design patent reflects the appearance of an object. These patents are granted for a 14 year term and, like
the utility patent, provide the inventor with a negative right excluding others from making, using, or
selling an article having the ornamental appearance given in the drawings included in the patent. The
inventor is subject to pay filing, and issuance fees, even though, they are much lower compared to those
of utility patents.
Plant Patents - This covers the development of a new plant species through genetic engineering. This
may include hybrid species of crops or a new variety of plant that can be reproduced asexually. The term
of protection is 20 years from date of filing.

DISCLOSURES
It is recommended that the entrepreneur first file a disclosure document to establish a date of conception
of the invention. This document can be important when two entrepreneurs are filing for patents on
similar inventions. This filing date is now also relevant when there is a foreign company involved. In that
instance, the entrepreneur who can show that he or she was the first one to conceive of the invention
will be given the rights to the patent.
To file a disclosure document, the entrepreneur must prepare a clear and concise description of the
invention. In addition to the written material, photographs may be included. A cover later, and a
duplicate are included with the description of the invention. Upon receipt of the information, the PTO
(Patent and Trademark Office) will stamp and return the duplicate copy of the letter to the entrepreneur,
thus establishing evidence of conception. There is also a fee for this filing, which can be determined by
contacting the PTO.
The disclosure document is not a patent application. Before actually applying for the patent it is advisable
to retain a patent attorney to conduct a patent search. After the attorney completes the search, a
decision can be made as to the patentability of the invention.

THE PATENT APPLICATION

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The patent application must contain a complete history and description of the invention as well as claims
for its usefulness. The application has the following sections:
Introduction- this section contains the background and advantages of the invention and the nature of
problems that it overcomes. It should clearly state how the invention differs from existing offerings.
Description of invention- next the application should contain a brief description of the drawings that
accompany it. Following this would be a detailed description of the invention, which may include
engineering specifications, materials, components, and so on, that are vital to the actual making of the
invention.
Claims- they serve to specify what the entrepreneur is trying to patent. Essential parts of the invention
should be described in broad terms so as to prevent others from getting around the patent. At the same
time, the claims must not be so general that they hide the invention’s uniqueness and advantages.

TRADEMARKS
Trademark is a legally protected name, symbol, design (or combination of these), or a slogan or sound
that identifies the goods or services of one seller and distinguishes them from those of competitors.
Trademark can be a letter, number, word, phrase, shape, logo, picture, aspect of packaging or a
combination of these. Trademarks give the entrepreneur certain benefits as long as the following four
requirements are met: (1) completion of the written application form, (2) submission of a drawing of the
mark, (3) submission of five specimens showing actual use of the mark, and (4) payment of the required
fee.

COPYRIGHTS
WHAT IS A “COPYRIGHT”?
Copyright - a document that protects a creator`s rights to materials such as books, articles, photos and
cartoons. It is the exclusive right granted by law to a copyright holder to make and distribute copies of, or
otherwise control, their literary, musical, dramatic, pictorial, graphic, sculptural, audiovisual, and
architectural works.
Copyright protect original works of authorship. Copyrights have become especially relevant to computer
software firms and to firms using the internet. With the rapid growth in technology legal protection has
lagged and only more recently has been recognized as an important issue among legislators.

Several categories are excluded from copyright protection; these include: facts, page numbers,
mathematical equations, ideas, procedures, processes, systems, methods of operation, concepts,
principle, or discovery.
Note: Any work that has entered the “public domain” is not capable of protection.
INTERNET PATENT ISSUES
A new era for patents is evolving-internet patenting. Activities on the internet will not be governed by a
single internet-specific legal regime or the legal regime of a single country. Although countries might
agree on an internet specific regime for the technical features of the internet, and might even adopt
some uniform laws, people and nations around the world are different, and they will always have diverse
views on a variety of matters- for example on online gambling.
The patent application must be prosecuted, and- the undeniably useful- invention will be subject to
scrutiny as to its compliance with the requirements of statutory subject matter, novelty, and non-

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obviousness. A patent on the application may not issue at all, or the language of the application may be
amended and the claims narrowed. Whatever the future might bring for the claimed invention, this
patent application serves as a useful prompt for thinking about the components that have been or are
becoming essential to conducting business and other activities on the internet.

REGISTERING SOFTWARE AS INTELLECTUAL PROPERTY

Intellectual property right is the right associated with the idea or creation of the mind which is applied,
owned and exploited by a person. Intellectual property is the ownership of something (such as a
copyright, patent or design) which is intangible.
The intellectual property protection of computer software has been highly debated at the national and
international level. Furthermore, the internet raises complex issues regarding the enforcement of
patents, as patent protection is provided on a country-by-a country basis, and the patent law of each
country only takes effect within its own borders.
Instead of attempting to clarify all questions and uncertainties surrounding software patents it may be
better to provide five tips or suggestions that should be kept in mind when considering patent protection
of software-related inventions.
1. Do you really need a patent for your software-related invention? Why not use a copyright protection.
International copyright protection is automatic-it begins as soon as a work is created. Also, a
copyright owner enjoys a relatively long period of protection, which lasts for the life of the author
plus 50 years after the author’s death.in contrast a patent must be applied in each country where
protection is needed and the term of protection is short, in general 20 years from filing date of the
application.
2. Identify the core part of your innovation, which you want to protect from your competitors. The core
part of the software related innovation may lie in an apparatus, a system, an algorithm, a method, a
network, the processing of data or the software itself.
3. Is the innovation patentable? Not all types of software related innovation can enjoy patent
protection. To be eligible for patent protection, an invention must meet the following criteria.
• The invention must consist of patentable subject matter
• the invention must be capable of industrial application/be useful
• it must be new/novel
• it must involve an inventive step/ be non-obvious/
• the disclosure of the invention in the patent application must meet certain formal and
substantive standards
4. Do you need to protect your innovation abroad? Patentability requirements are not always the same
in each country
5. Consult an intellectual property expert who is familiar with the relevant national law and practice.

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