1.

INTRODUCTION TO ENTREPRENEURSHIP
(a) Definitions, Role and importance
The term entrepreneurship is derived from a German word untre-nehmen. This term was used in
15th and 16th century by military to signify those people who volunteered to be on the front line
and ready to take risks when people were going to war. Since then several theories and various
schools of thought have been advanced of what entrepreneurship entails and who can be an
entrepreneur.

Various scholars who defined entrepreneurship

Richard Cantillon (1680-1734)

He was the 1st economist to apply the term enter- nehmen to business. He was a French man
therefore translated this German word into French entreprendre (entreprene). He cited that an
entrepreneur is any individual who operated under conditions where expenditures are known and
certain but incomes are unknown and uncertain. In his book that was published after his death in
1755, entitled-Essai sur la nature du commerce en general (principles of commerce in general).
He explained that entrepreneurs engage in exchanges of commodities for profit. They exercise
business judgments in the face of uncertainty. The uncertainty of income arises because the
future market demands cannot perfectly be predicted.

Cantilon defined entrepreneur as a person who undertakes risks. This definition is seen as narrow
and may only apply to those days when Cantilon existed. These days most companies and
individuals carry out market researches to determine possible outcomes before they venture or
invest.

Therefore Cantilon‘s definition that entrepreneurs are risk takers because they operate under
conditions where expenditures are known and certain but incomes are unknown and uncertain
may not apply. Most individuals try their products before they are launched into the market.

Other scholars argue that risk taking alone may not make somebody be called an entrepreneur.
Successful entrepreneurs need other qualities apart from risk taking such as creativity/ innovation
and management function.

Jean Batiste say 1763 (1807- 1832)

He was the first professor of economics in Europe and operated his own business. He
popularized Cantilon views that an entrepreneur is a risk taker, but went further to state that an
entrepreneur is a person who shifts resources from a low productivity area to a high yielding area
with a view of generating greater profits.

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Say, assumed that the resources can easily be shifted i.e. Dentist- matatu business in actual sense
this may be difficult.

Say identified characteristics an entrepreneur;

i. He should have the ability to estimate with tolerance and accuracy the importance of the
specific product that he wants to sell and its probable amount of demand.
ii. He should have a sense of judgment, perseverance and knowledge of the world.
iii. He should have the ability to employ and direct resources in a profitable manner.
iv. He should have the ability to identify his customers.
v. He regarded an entrepreneur as a unique person able to combine and co-ordinate the three
factors of production, labour, capital and land.

David Ricardo (1772- 1823)

He viewed entrepreneur as a person who invests his capital according to demand of his
commodity. If demand falls he ceases to inject further capital into the business. An entrepreneur
is conscious to forces of demand. He said demand is created by customers, because where there
are no customers commodities will not be purchased. He defined an entrepreneur as one who
takes risks and as one who is creative and innovative.

Ricardo is one of the proponents of creativity and innovation function of an entrepreneur. They
argue that entrepreneurship entails doing things that are not generally done in the ordinary course
of business routine. They view an entrepreneur as an ideas man, who can inspire and doesn‘t
accept boundaries of structured situation.

Ket de Vries in psychodynamic theory.

He stated that most entrepreneurs are deviants. They come from unstable backgrounds where
they suffer a lot during childhood. They come from backgrounds/families where there was no
enough food, lacked clothes. Parents quarreling, cruel parents etc. such a child undergoes
through stress from the family. The child grows as an individual who doesn‘t trust the parents
and everybody. Such a child looses confidence in him and develops the belief that people hate
him. When he/ she gets employed, they never get along well with their bosses.

Finally they move from one organization to the other and end up setting up their business where
they are not controlled. This theory is criticized because there are children who hail from such
backgrounds and they don‘t become entrepreneurs.

Alfred Marshall (1842 – 1924)

He identified that entrepreneurs are;

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Those who come up with new and improved methods of doing things and are unable to avoid
risks andthose who follow beaten tracks and carry out routine ways of doing things. To him these
are not entrepreneurs but managers.

To Marshall an entrepreneur;

i. Should develop through knowledge of business

ii. Should have the power of focusing and ability to see ahead
iii. Ability to see ahead and visualize a business opportunity
iv. Requires a high sense of judgment

Joseph Aloice Schumpeter 1934

He stressed that an entrepreneur should be innovative and creative. He viewed an entrepreneur as

one who contributes to development in the following areas.

i. They introduce new goods/ products which the consumers are not familiar with.
ii. Introduce a new method of production
iii. Open up new market which has not been previously exploited.
iv. They discover new sources of supply of raw materials
v. They also carry out reorganization of an organization.

To Schumpter, an entrepreneur is not a person who engages routine ways of doing business but a
person who comes up with new ideas. He states that the act of being entrepreneurial is not a
continuous event but a discreet event.

He said everyone is an entrepreneur when he actually carries out new combinations of factors of
production but losses that character as soon as he has built up his business and settle down to
running it as other people run their business.

ENTREPRENEURSHIP

 Entrepreneurship is a process through which individuals identify opportunities, allocate

resources, and create value. This creation of value is often through the identification of
unmet needs or through the identification of opportunities for change.

 Entrepreneurship is the spirit of recognizing opportunities and taking risks by investing

resources in order to produce gainful results through creativity, innovation and increased
efficiency.

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  It is a process of identifying, evaluating and seizing an opportunity and bringing together
the resources necessary for success.

Concept of entrepreneurship has been enlarged to include

 Creativity
 Innovation
 Business planning
 Growth management
 Entrepreneurs traits

Entrepreneurship may be defined as

is the act of being an entrepreneur, being one who undertakes innovations, finance and business
acumen in an effort to transform innovations into economic goods

 An entrepreneur is the person who undertakes risks in conditions of uncertainty to

implement actions to maximize the opportunity. He is one who undertakes to start and
conduct business.

 An entrepreneur is a person who perceives the market opportunity and then has the
motivation, drive and ability to mobilize resources to meet it.
 An entrepreneur can be regarded as a person who has the initiative skill and motivation to
set up a business or enterprise of his own and who always looks for high achievements.

He is the catalyst for social change and works for the common good. They look for
opportunities, identify them and seizes them mainly for economic gains. An action
oriented entrepreneur is a highly calculative individual who is always willing to
undertake risks in order to achieve their goals.

(b) Characteristics of entrepreneurs

The General characteristics of entrepreneurs are:

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 Self confident and multi-skilled. The person who can 'make the product, market it and
count the money, but above all they have the confidence that lets them move comfortably
through unchartered waters'.
 Confident in the face of difficulties and discouraging circumstances.
 Innovative skills. Not an 'inventor' in the traditional sense but one who is able to carve
out a new niche in the market place, often invisible to others.
 Results-orientated. To make be successful requires the drive that only comes from
setting goals and targets and getting pleasure from achieving them.
 A risk-taker. To succeed means taking measured risks. Often the successful entrepreneur
exhibits an incremental approach to risk taking, at each stage exposing him/her to only a
limited, measured amount of personal risk and moving from one stage to another as each
decision is proved.
 Total commitment. Hard work, energy and single-mindedness are essential elements in
the entrepreneurial profile.
 Perseverance in the business world, problems and complications are a part of every day
life. Especially in the early days of a company, entrepreneurs can be said to be climbing a
wall of opposition as they struggle to manage the many goals, tasks and constantly
evolving problems of the new organization. Furthermore, many entrepreneurs fail many
times when trying to start a small business and the ones who succeed are the ones who
can persevere through failure and try again.
 Courage, It is typical for many people to discourage you in the early days of your new
project. This can be even more painful when your first few projects either fail or achieve
very little success. Disparaging remarks can be hurtful to the morale of a new
entrepreneur trying to get his or her new project off the ground. It is then that you must
possess the courage to tune out those who do not share your vision, ignoring the nay-
Sayers and pressing forward on nothing more than the strength of your own
determination.
 Social Skills Whether you need help with design, programming, finance, or investment,
if you plan on going into business, you must possess the ability to approach other people
and convince them of the worth of your idea. More than just a friendly attitude, you must
somehow find a way to bend their vision to match your own so that they come to see the
brilliance of you work in the same way you do. This is by no means an easy skill to
master, but it is one that will help you greatly as you struggle to put your new company
together.
 Negotiation Skills There is a saying among business savvy people that ―everything is
negotiable.‖ While this might not be exactly true, it does illustrate that most people in
business will try to negotiate with you as you strive to put deals together. Unless you
possess solid negotiation skills, you might end up getting the short end of the stick. For
example, if you hope to put together a deal where a skilled programmer works on your
project without pay in exchange for equity, you might only want to give up 5%, but he
may be thinking more along the lines of 15%. Unless you possess a strong will and an
ability to negotiate in a time of need, you‘ll end up giving away more of the company
than you had hoped.
 Internal Motivation A key difference between running a business and working a job is
that no one will be pressuring you to complete your tasks when you run your own
business. Instead, you must be completely self-motivated to do everything it takes to get

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 the work done. In the beginning, you may be working a day job or attending college
classes at the same time. This means that after taking care of the work owe to those
obligations, you must still find enough energy and determination to sit down and put in
long hours for your business.
 Opportunism No doubt seeing the opportunity in the feature, Dorsey and his team made
it the central feature of Twitter. This little social web application has skyrocketed in
popularity, being regularly used by web surfers, celebrities, and even companies for
marketing purposes. Twitter was recently valued at $1 billion after raising close to $100
million in venture funding. The lesson to be learned is clear: if you give the public what it
wants, you stand a great shot at success.
 Risk Tolerance: It‘s absolutely risky to run a business of your own and while you can
get some insurance, it‘s not like most investment options. Even worse, if something does
go wrong, it‘s the entrepreneur‘s responsibility — no matter the actual cause. In order to
deal with all of that without developing an ulcer, you have to have a good tolerance for
risk. You don‘t need to channel your inner frat boy and take on absolutely stupid risks,
but you need to know just how much you can afford to risk — and get a good idea of how
likely you are to lose it. If the numbers make you uncomfortable, the risk is too great. An
entrepreneur has to be willing to accept pretty big risks, with some level of comfort.
 A Need to Control and Direct. They prefer environments where they have maximum
authority and responsibility and do not work well in traditionally structured
organizations. This is not about power, though. Entrepreneurs have a need to create and
achieve by having control over events.
 Self-confidence. Findings showed that as long as entrepreneurs were in control, they
were relentless in pursuit of their goals. If they lost control, they quickly lost interest in
the undertaking.
 Emotional Stability. They have the stability to handle stress from business and from
personal areas in their lives. Setbacks are seen as challenges and do not discourage them.

ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

As an entrepreneur, I shall contribute to development by:

a. Creating employment, by starting small scale and Jua kali enterprises
Growing unemployment particularly educated unemployment is the problem of the
nation. The available employment opportunities can cater only 5 to 10 % of the
unemployed. Entrepreneurs generate employment both directly and indirectly. Directly,
self employment as an entrepreneur and indirectly by starting many industrial units they
offer jobs to millions. Thus entrepreneurship is the best way to fight the evil of
unemployment.

b. Utilizing local resources, such as the use of coffee husks to charcoal, conversion of waste
products into useful products, the use of sisal fiber to make ciondo
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c. Decentralizing economic activities, by locating businesses in various areas, including
rural areas.
The growth of Industry and business leads to a lot of Public benefits like transport
facilities, health, education, entertainment etc. When the industries are concentrated in
selected cities, development gets limited to these cities.
A rapid development.
When the new entrepreneurs grow at a faster rate, in view of increasing competition in
and around cities, they are forced to set up their enterprises in the smaller towns away
from big cities. This helps in the development of backward regions.
d. Promoting technology, by developing energy-saving jikos by Jua kali, wheel chairs,
charcoal, refrigerators, e.t.c
e. Generating income, by giving wages to employees, savings in banks and investing profits
f. Creating innovation:

An entrepreneur is a person who always looks for changes. Apart from combining the
factors of production, he also introduces new ideas and new combination of factors. He
always try to introduce newer and newer technique of production of goods and services.
An entrepreneur brings economic development through innovation.
g. Better standards of living:

Entrepreneurism plays a vital role in achieving a higher rate of economic growth.

Entrepreneurs are able to produce goods at lower cost and supply quality goods at lower
price to the community according to their requirements. When the price of the
commodities decreases the consumers get the power to buy more goods for their
satisfaction. In this way they can increase the standard of living of the people.
h. Dispersal of economic power:

Industrial development normally may lead to concentration of economic powers in a few

hands. This concentration of power in a few hands has its own evils in the form of
monopolies. Developing a large number of entrepreneurs helps in dispersing the
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 economic power amongst the population. Thus it helps in weakening the harmful effects
of monopoly.
i. National Income:

National Income consists of the goods and services produced in the country and
imported. The goods and services produced are for consumption within the country as
well as to meet the demand of exports. The domestic demand increases with increase in
population and increase in standard of living. The export demand also increases to meet
the needs of growing imports due to various reasons. An increasing number of
entrepreneurs are required to meet this increasing demand for goods and services. Thus
entrepreneurship increases the national income.

(c) Benefits of self employment

j. BENEFITS OF SELF EMPLOYMENT
1. Autonomy. I no longer work for a boss or for a company and am pretty much in
charge of my own destiny. I like the independence and it suits my personality.
2. I work my own hours. Unlike the comments I've read elsewhere that talk about how
being self employed always means working long hours, I work online and have found
that I don't even consider what I do to be "work" anymore. I like what I do so I don't
watch the clock nor do I count the hours. But I have plenty of spare time and I'm
happy with what I do.
3. I feel good about doing work that benefits me, not someone else. I'm my own boss
so the entire advantage of my work stays with me. I really feel that the earning
potential is greater because I'm in charge of my own destiny. I find this to be a big
benefit of self employment.
4. It suits my entrepreneurial nature. I realized several years ago that the idea of
becoming self employed was something I was interested in.
5. You are your own boss
6. You work hard and enjoy the fruits of the hard work
7. You'll never work harder for someone else as you will for yourself
8. Gratification of accomplishing success and watching the biz grow
9. Leading others

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10. Forming strong relationships with customers/clients
11. A successful business can provide significant financial reward.
12. You learn and acquire significant skills of marketing, accounting, negotiating and
selling which are sought after skills in the workforce.
13. Entrepreneurs don‘t have to directly answer to a boss or supervisor.
14. The self-employed essentially have an unlimited earning potential rather than a set
salary, all dependent on the work they put in.
15. Entrepreneurs can decide on their own benefits, depending on what they‘re willing to
pay.
16. Entrepreneurs have the ability to directly determine the value of their work or
products, by setting their own fees, rates, and prices.
17. The self-employed can generally choose what types of projects they want to work on,
as opposed to having to complete any project dictated by a superior, which can lead to
better job satisfaction.

(d) Drawbacks of owning a small business

Drawbacks/ Disadvantages of owning small business
1) Risk of failure
2) No one to save you or bail you out from your own bad choices
3) Long, long hours
4) No vacations for years, no weekends either
5) No group health insurance
6) No pension
7) Risk of being sued
8) Significant reward, but significant risk
9) Most businesses fail in their first years
 Sole proprietors have unlimited liability and are legally responsible for all debts
against the business. Their business and personal assets are at risk.

 May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.

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 May have a hard time attracting high-caliber employees, or those that are motivated
by the opportunity to own a part of the business.
 Some employee benefits such as owner's medical insurance premiums are not
directly deductible from business income (only partially deductible as an adjustment
to income).

(e) Factors driving entrepreneurship

(f) Causes of small business failure

CAUSES OF SMALL BUSINESS FAILURE
 Choosing a business that isn't very profitable. Even though you generate lots of
activity, the profits never materialize to the extent necessary to sustain an on-going
company.
 Inadequate cash reserves. The company doesn't have a high enough budget. This is
where most companies fail at since they don't have enough money to pay everything.
The business owner needs to have more money before starting the company or get a
business loan. If you don't have enough cash to carry you through the first six months
or so before the business starts making profits, your prospects for Success are not
good. Consider both business and personal living expenses when determining how
much cash you will need.
 Failure to clearly define and understand your market, your customers, and your
customers' buying habits. Who are your customers? You should be able to clearly
identify them in one or two sentences. How are you going to reach them? Is your
product or service seasonal? What will you do in the off-season? How loyal are your
potential customers to their current supplier? Do customers keep coming back or do
they just purchase from you one time? Does it take a long time to close a sale or are
your customers more driven by impulse buying?
 Failure to price your product or service correctly. You must clearly define your
pricing strategy. You can be the cheapest or you can be the best, but if you try to do
both, you'll fail.
 Failure to adequately anticipate cash flow. When you are just starting out, suppliers
require quick payment for inventory (sometimes even COD). If you sell your
products on credit, the time between making the sale and getting paid can be months.
This two-way tug at your cash can pull you down if you fail to plan for it.
 Failure to anticipate or react to competition, technology, or other changes in the
marketplace. It is dangerous to assume that what you have done in the past will
always work. Challenge the factors that led to your Success. Do you still do things the
same way despite new market demands and changing times? What is your
competition doing differently? What new technology is available? Be open to new
ideas. Experiment. Those who fail to do this end up becoming pawns to those who do.
 Overgeneralization. Trying to do everything for everyone is a sure road to ruin.
Spreading yourself too thin diminishes quality. The market pays excellent rewards for
excellent results, average rewards for average results, and below average rewards for
below average results.
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 Overdependence on a single customer. At first, it looks great. But then you realize
you are at their mercy. Whenever you have one customer so big that losing them
would mean closing up shop, watch out. Having a large base of small customers is
much preferred.
 Uncontrolled growth. Slow and steady wins every time. Dependable, predictable
growth is vastly superior to spurts and jumps in volume. It's hard to believe that too
much business can destroy you. Going after all the business you can get drains your
cash and actually reduces overall profitability. You may incur significant up-front
costs to finance large inventories to meet new customer demand. Don't leverage
yourself so far that if the economy stumbles, you'll be unable to pay back your loans.
When you go after it all, you usually become less selective about customers and
products, both of which drain profits from your company.
 Believing you can do everything yourself. One of the biggest challenges for
entrepreneurs is to let go. Let go of the attitude that you must have hands-on control
of all aspects of your business. Let go of the belief that only you can make decisions.
Concentrate on the most important problems or issues facing your company. Let
others help you out. Give your people responsibility and authority.
 Putting up with inadequate management. The company doesn't hire enough staff.
You need to hire more staff when you have too much work too handle. You don't
want to get behind on the work otherwise your customers won't be happy. A common
problem faced by Successful companies is growing beyond management resources or
skills. As the company grows, you may surpass certain individuals' ability to manage
and plan. If a change becomes necessary, don't lower your standards just to fill vacant
positions or to accommodate someone within your organization. Decide on the skills
necessary for the position and insist the individual has them.
 So, the founder's attitude, ability to be objective, willingness to bring in needed
help, and share power are all crucial to success. "Most startups make the mistake
of falling in love with their product or service," says Shukla. "Ultimately, it is this
lack of self-criticism that causes many companies, startups and their more mature
counterparts, to fail. Startups suffer this fate more often because there are more
dreamers than doers."
 Some companies don't have enough advertisements through out the year. You need
have to do more advertising in order for people to know about your company.
Advertisements are the most important to spend on since it will help your business
become even more successful.

Some companies fail since they don't generate enough sales. You need to do more
advertising so more people know about your company or lower the prices. You need
to do a few specials in order to get more sales. The company can't survive during the
slow season so they often fail. The company needs to figure out a way to generate
enough sales or save up enough money to survive during the slow season of the

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 company.

The company doesn't have enough money to keep a professional image. Most
companies lose sales when they don't look professional or even stay professional.
They need to have the best of everything in order to succeed.

(g) Trends/issues in entrepreneurship

2. HISTORICAL DEVELOPMENT OF ENTREPRENEURSHIP

(a) Development of entrepreneurship
DEVELOPMENT OF ENTREPRENEURSHIP IN KENYA

In Kenya during the 1950s and 1960s it was believed that with the right mix of economic

policies and resources, poor traditional economies could be transformed into dynamic modern

economies. In the process, the tradition sector comprising petty traders, small producers would

be absorbed into the modern capitalist or formal economy.

By the mid 1960s, there rising unemployment in Kenya which made the international Labour

Organization, (ILO) to mounted a series of large multi-disciplinary employment missions to

various developing countries. The first of these was to Kenya in 1972. The Kenya employment

mission, through its fieldwork and in its official report, recognized that the traditional sector had

not just persisted but expanded to include profitable and efficient enterprises as well as

marginal activities. The ILO referred to the informal sector as the non–structured sector that has

emerged in the urban centers as a result of the incapacity of the Modern sector to absorb new

entrants. The urban informal sector, often called the urban subsistence sector/unorganized

sector, was conceptually defined to include all the economies activities which are not officially

regulated and which operate outside the incentive system offered by the state and its institutions.

In contrast, enterprises which enjoy official recognized, protection and support of the

government are defined as formal sector enterprises. At empirical level, the informal sector often
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is defined to comprise these economic enterprises which employ less than certain number of

persons (e.g. 5 or 10 people) depending on the country. They are categorized as those enterprises

that; operate in open spaces, housed in a temporary or semi structures, does not operate from

spaces assigned by government or municipality authorities, operate from backyard and not

registered (bid).

Many observers subscribe to the notion that the informal sector was marginal or peripheral and

not linked to the formal sector while others believed that the informal sector would disappear

once these countries achieved sufficient levels of economic growth or modern industrial

development, others observes argued that industrial development might take a different pattern in

developing countries including the expansion of informal economic activities than it had in

developed countries.

While many factors help explain the persistent and expansion of the informal economy,

urbanization and globalization are of particular concern. Rapid urbanization for instance, has

greatly contributed to growth of urban informal sector. Sub–Saharan Africa has the greatest

urban growth rate of 4.58% per year and which has not been accompanied by economic growth,

industrialization or even development per se (UNCHS, 2004). This phenomenon combined with

inequitable distribution of resources has led to rising urban poverty, which is becoming a severe,

pervasive and acknowledged feature of urban life. More than half of the population in Sub-

Saharan Africa lives in absolute poverty and this has further contributed to the continued growth

of unemployment in both urban and rural areas. Opportunities for decent employment and

income are extremely scarce for the vast majority who opt to eke a living in the urban informal

economy.

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Trends in globalization and economic liberalization throughout Africa have further led to a

collective growth in the informal sector. Globalization has transformed labour and the concept of

regular and full time wage labour to give way to informal employment of casual labour, part time

labour, homework and other forms of labour including street trading, all outside of the protection

of labour laws. Widespread unemployment in the formal economy has been a significant by-

product of policies and reforms advocated by Multi-lateral financial institutions in the region. As

reflect in the domestic policies, reforms have included downsizing of the public sector, reduced

trade protections and removal of subsidies (Stren, 2004).

The structural Adjustriants Programme (SAPs) led to massive retrenchments in the formal

economy in the process changing the role of the informal economy, which now act as the most

convenient a venue of the absorption of retrenched workers, creating alternative employment for

unemployment youths.

The trade liberalization policy has led to the collapse of many local industries that could not

compete with cheap imports from abroad. This also led to many people being thrown out of

employment in the formal economy into the informal economy (Fontana et all 1998).

The HIV/AIDs pandemic has also contributed its sizeable share to the growth of the informal

economy. Sub- Saharan Africa is home to more than 60% of all the people living with HIV. The

HIV prevalence is higher in urban areas than rural areas. Many families have been orphaned or

lost the breadwinners (UNAIDS, 2004).

These trends point towards an increasing ―informalization‘ of the urban economy as the formal

sector fails to provide adequate employment opportunities for the number of young people and

adults seeking work. Since 1990s formal labor markets in Africa have been absorbing less than

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25% of the newcomers into the labor force, while the informal economy has absorbed more than

half of the active population in many parts of developing world and comprise over 90% of the

workforce (ILO, 2002). The proportion of workers absorbed by the informal economy in Kenya

it is 72% (Carr and Chen, 2002). As a result the share of urban labor force in informal sector

especially in street vending is growing.

These results indicate continuous expansion in the informal sector despite failure of governments

to recognize them and include them in urban plans. There need to explore further the factors that

affect planning and integration of street vending.

The acquisition of relevant vocational, technical and business skills is generally regarded in
Kenya as one of the critical factors necessary for growth and development of micro and small
enterprises. For this reason, the policy of providing technical and vocational training at primary
and secondary levels has been in place since 1986 when MSE emerged as one of the key
strategies in Economic Management for Renewed Growth. Since then and especially subsequent
to the publication of Sessional Paper No. 2 of 1992, the Ministry of Research, Technical Training
and technology (MRTTT) has provided the lead in promoting an enterprise culture in the
country.

Sessional Paper No. 2 of 1992 contains a number of policies and strategies designed to remove
the limitations faced by micro and small entrepreneurs, such as the low level of business skills,
inadequate advice and counseling, and inappropriate marketing and product design. To achieve
the policy objectives set forth in the Sessional Paper, the Government required the MRTTT, in
collaboration with other relevant organizations, to undertake the following activities: introduce
entrepreneurship education in degree and diploma programmes; conduct in-depth market surveys
periodically to identify emerging skills and abilities needed in business; train MSE operators and
their workers in technical, managerial and entrepreneurship skills and offer extension
services/technical assistance in areas such as accounting, cash-flow management and product
development.

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The other measures to be implemented included: establishing rural business centres in the small
enterprise sector for information dissemination, research and programme promotion; developing
curriculum for apprenticeship courses so that an organized approach to training can be adopted;
and providing incentives for graduates to continue attending short courses pertaining to self-
employment, entrepreneurship development and skills enhancement.

Of the six policy actions recommended in the Sessional Paper No. 2 of 1992, only the last four
were partially implemented. Even these were not properly interpreted and targeted to increase the
number of indigenous entrepreneurs or improve the productivity of existing enterprises.

THE SMALL SCALE AND JUA KALI ENTERPRISE SECTOR IN THE KENYAN
ECONOMY
The sector includes all enterprises employing between 1 – 50 workers. In the sixth Natinal
Development plan, new employment creation over the five year period 1989- 1993 is targeted at
1.9 million jobs, of these approximately 31% or 587,000 jobs were expected to be created in the
small scale and jua kali enterprise sector.to achieve this requires strong support from the
government through economic, financial and regulatory policies which reward enterprises.

Major benefits of the small scale enterprises

i. Significant contribution to the economy in terms of output of goods and services.
ii. Creation of jobs at relatively low capital cost especially in the last growing service sector.
iii. Development of a pool of skilled and semi skilled workers who are the base for future
industrial expansion.
iv. Strengthening forward and backwards linkages among socially, economically and
geographical diverse sectors of the economy.
v. Contributing to increased participation of indigenous Kenyans in the economic activities
of the country.
vi. Offering excellent opportunities for entrepreneurial and management talent to mature,
whose critical shortage often is a great handicap to economic development.
vii. Support industrialization policies that promote rural – urban balance.
viii. Increasing savings and investments by local Kenyans and encouraging use of local
resources thus leading to more effective use of capital.
ix. Adapting quickly to market changes.

Improving the enabling environment

The government is already encouraging rapid development of small enterprise sector by
providing a number of investment incentives. Such incentives include;
i. Investment allowances for establishing new factories outside Nairobi and Mombasa.
16
 ii. Exception from import duties on capital machinery for small enterprises located in rural
areas, where the cost of machinery does not exceed Kshs. 20 million.
iii. Establishment in December, 1989 of a Rural Enterprise Fund which has already been
allocated to the districts to finance jua kali entrepreneurs.
iv. Providing finance through the jua kali fund in the Ministry of Technical Training and
Applied Technology for the construction of Nyayo Sheds to accommodate jua kali
artisan workshops located in rural centers.
To enable the government continue to expand its program of infrastructure development
particularly through the District Development Committee (DDC), the following specific
measures will be adopted;
i. To conduct needs assessment at district level in close consultation with DDCs and small
business associations on the actual and prioritized requirements of infrastructure, this
will enhance development and growth of small enterprise.
ii. Local groups of artisans be encouraged to form associations to make easier the
administration of assistance programs.
iii. Industrial land will be made available to small enterprises within the designated industrial
sites to construct and install their own facilities.
In gauging appropriate technology to small businesses, the government took the following
measures;
i. Kenya Industrial Research and Development Institute (KIRDI) was oriented to assume
the responsibility for modifying and adapting foreign technologies.
ii. A machine tool industry was to be established in the private sector as a further step
towards the development of production related technologies.
iii. Government was to use the public procurement procedure and regulations to support
small scale and jua kali enterprises find market for their products in the private sector.
iv. KIRDI, in collaboration with universities and appropriate ministries will identify
technology research needs on the small enterprise sector, conduct the necessary
research, adopt and develop appropriate technology and widely disseminate the
results to the small enterprise sector.
Linkages between large and small enterprises and exploitation of export market opportunities.
i. Based on he published District Profiles and other already existing information sources,
market related information will be more widely disseminated by District Industrial
Development Officers in a manner which will ensure that all target groups are
reached.
ii. Development of appropriate inter-industrial linkages was to be encouraged through tax
incentives and other measures as a means of stimulating demands for and supply of
SSE products and services and generating alternative to imports.
iii. Studies on the implementation modalities of sub-contracting between large and small
enterprises were to be undertaken by the Ministry of Industry.
Other supportive measures are;

17
 i. Comprehensive review of all pertinent Acts and in depth analysis of the extent to which
such Acts have adversely impacted on the small scale enterprises either directly or
indirectly.
ii. Review of licensing arrangements and building codes for small enterprises with a view to
relaxing any of them that hinder SSE business.
iii. Restructuring those clauses of the Employment Act which restrict access to employment
by women in certain industries other than for medical and environmental reasons.

Credit for the small scale and jua kali enterprise sector
Problems of lending to small enterprises occur at three levels;
 Inadequacy of loan able funds
 Stringent collateral requirements and
 Negative attitude of lending institutions towards SSE borrowers.
Increased flow of loan funds to SSE and jua kali sector especially commercial banks shall be
achieved only if banks perceive lending to the sector as a financially attractive part of their
lending portfolio. It will be necessary to allow banks to charge competitive interest rates on SSE
loans, with adequate margin to cover the relatively high cost of administering such loans.

Addressing credit problems

1. The government was to acquire supplementary soft foreign loans for on-lending to public
and private financial institutions for lending to the SSEs and jua kali sector.
2. Banks and development finance institutions provide certain services to their SSE clients
before and after extending credit. These services include preparation of feasibility
studies, project appraisal, project implementation, project supervision, training,
rehabilitation and other management services. The government had to insist they charge
reasonable fee for this service.
3. The government was to work out appropriate arrangements to allow development
financial institutions that were not allowed to take deposits, to receive saving deposits
from domestic market. This forms the primary source of funds for lending to the SSE and
jua kali sector. Development Finance Institutions are such as KIE, ICDC, JLBS and
SEFCO.
4. The government was to reduce the level of borrowing from local financial institutions
which affect loan able funds available for use by the private sector. The government was
to continue reducing the internal financing of budget deficits in order to release more
resources to the private sector.
5. All lending institutions require collateral for securing their loans. The SSE and Jua Kali
borrowers are often unable to provide the required collaterals which are rigidly stipulated
in Central Bank guidelines. To tackle this problem, the Central Bank in collaboration
with commercial banks and financial institutions were to review the lending regulations

18
 and procedures with a view to making the collateral requirements more flexible and
responsible to credit needs of the SSE and Jua Kali sector
6. The banking system tends to be conservative, especially in their dealing with SSE
borrowers whom they consider as risky with high credit delivery costs. To overcome this
negative attitude of bank officers towards SSE borrowers, the college of banking and
finance in consultation with the Central Bank will develop appropriate curricula for
providing courses to reorientation workshop for bank officials.

Enterprise culture
This is an environment that prepares the community as a whole to take advantage of the available
business opportunities in the society and provides supportive measures for entrepreneurs at all
levels of development to realize their potential regardless of sex.
Role models of successful entrepreneurs in society can influence potential entrepreneurs to go
into self employment and at the same time inspire those already in business to do even better.
Factors that have been identified as inhibiting the development of the small enterprise and Jua
Kali sector are;
i. Lack of coherent policy guidelines and unfavorable regulatory environment.
ii. Inadequate physical infrastructure.
iii. Limited market for the sector‘s products and services.
iv. A weak institutional infrastructure.
v. Poor information gathering and dissemination including lack of adequate extension
services.
vi. Lack of policy on gender specific issues.
vii. Poor access to capital.
viii. Lack of an enterprise culture.
ix. Lack of managerial skills.

(b) Schools of thought

SCHOOLS OF THOUGHT ABOUT ENTREPRENEURSHIP CONCEPT

There is no agreed definition of who an entrepreneur is and what it entails. The research done by
scholars, on who an entrepreneur is, seems to fall within six schools of thought. Each school of
thought has its own set of underlying set of beliefs. Each of these schools can be categorized
according to its interest in studying personal characteristics, opportunities, management and the
need for adapting an existing venture.

Assembling personal characteristics

1. The ―Great person‖ school of entrepreneurship

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 2. The psychological characteristics school of entrepreneurship.

Recognizing opportunities

3. The classical school of entrepreneurship.

Acting and managing

4. The management school of entrepreneurship

5. The leadership school of entrepreneurship

Reassessing and adapting

6. The intrapreneurship school of entrepreneurship

The “Great person” school of entrepreneurship

The biographies frequently identify the intuitive ability of the great people to recognize an
opportunity and make the appropriate decision. They imply that without this inborn faculty of
intuition, the individual would be like the rest of us mortal who lack the instinct to recognize
opportunities.

Entrepreneurs respond more to heir instinct, feeling and intuition. The successful entrepreneur is
described as having strong drives for independence and success, with high levels of vigor,
persistence and high esteem.

This school of thought pays attention to such traits as energy, perseverance, vision, single
mindedness and motivational ability. Other traits frequently mentioned to be associated with
entrepreneurs are physical attractiveness, popularity, intelligence, tactful, diplomacy and
decisiveness.

Psychological characteristics school of entrepreneurship

This school of thought focuses on personality factors. They believe that entrepreneurs have
unique values and attitudes towards work and life. These along with certain dominant needs,
propel the individual to behave in certain ways. Three personality characteristics that have
received considerable attention in research which an entrepreneur should possess are;

1. The personal values such as honesty, duty responsibility and ethical behavior.
2. Risk taking propensity
3. The need for achievement

Personal values system

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An entrepreneur should be honest, upright, have a sense of responsibility and duty to other
people, be ethical, incorruptible and dependable. This school generally believes that
entrepreneurs cannot be developed or trained in classroom situation. Much of the entrepreneur‘s
ability relates to a personality or style of behavior which develops over time, primarily through
relationship with parents and teachers early in life.

The values entrepreneurs have are learned and internalized, and reflect the process of
socialization into a culture. Personal values are basic to the way an individual behaves and will
be expressed regardless of the situation.

Risk taking propensity

John Stuart Hill, introduced the term entrepreneurship to the field of economics. He suggested
that risk bearing is the key factor in distinguishing entrepreneurs from managers.

Entrepreneurs prefer to take moderate risks in situations where they have some degree of control.
They do not prefer situations which involve either extremes of risk or uncertainty.

Need for achievement

Industriousness and the need for achievement are specific values broadly held by many
individuals in certain cultures.

Theories of capitalism

They state that some cultures achieve more than others because of the values of their people. The
development of capitalism and entrepreneurial drive are largely due to the cultural values of their
entrepreneurial drive are largely due to the cultural values which are dominant in certain
countries.

According to Mc Clellend 1961, protestant values encourage the need for achievement or her
accomplishments. The need for achievement drives individuals to start business.

Having a need for achievement and finding oneself blocked and frustrated by the bureaucracy of
large organizations provides the conditions, according to this school of thought that propel the
individual into entrepreneurship venture.

Psychological school of entrepreneurship believes that certain individual values and needs are
necessary preconditions for entrepreneurship. Since these values are learned early in life and well
established prior to adulthood, entrepreneurial characteristics are hard to inculcate in schools.

The characteristics which have received a great deal of attention include, need for achievement,
risk taking and tolerance of ambiguity.

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The classical school of entrepreneurship

Innovation, creativity or discovery is the key factors underlying the classical body of thought and
research. Entrepreneurship in this view refers to the process of creating an opportunity style of
management that sparks innovation. The classical school distinguishes entrepreneurial activities
from management activities by insisting that one is no longer an entrepreneur once the
innovative/ creative activity is completed.

The management school of entrepreneurship

This school of thought suggests that an entrepreneur is a person who organizes or manages a
business undertaking, assuming the risk for the sake of profit.

John Stuart Hills, in describing the entrepreneurship noted that in addition to risk taking, the
functions of of an entrepreneurship include supervision, control and providing direction to a
firm. They believe that entrepreneurship deals with functions which relate to start-up,
strategizing, developing the business plan, managing development and growth of a business.

This school of thought believes that entrepreneurs can be developed or trained in the classroom
because it involves the technical aspects of management. They define entrepreneurship as a
series of learned activities which focus on the central functions of managing a firm. The
management school is directed at improving a person‘s management capability through
developing his/ her ability sine the management school of entrepreneurship believes it can be
taught, a central aim is to identify the specific function involved and provide training to existing
and hopeful entrepreneurs.

The leadership school of entrepreneurship

An entrepreneur is often a leader who relies on people to accomplish purposes and objectives.
The leadership school suggests that an entrepreneur need to be skilled in appealing to others to
join their cause.

A successful entrepreneur must be people‘s manager or an effective leader or mentor who plays
a major role in motivating, directing and leading people. Thus an entrepreneur must be a leader
who is able to define a vision of what is possible and attract people to rally around that vision
and transform it into a reality. The leader school of thought believes that leaders must be
effective in developing and mentoring people.

The entrepreneurship school of entrepreneurship

The entrepreneurship school evolved in response to the lack of innovativeness and

competitiveness within organization. Entrepreneurs are able to act as entrepreneurs and

22
implement their ideas without themselves becoming owners. Alertness to opportunity is one
dimension of entrepreneurial activity.

Entrepreneurship involves the development of independent units designed to create market and
expand innovative services, technologies etc. The entrepreneurship school generally assumed
that innovation can be achieved in existing organizations by encouraging people to work as
entrepreneurs in semi autonomous units.

Sociology of an entrepreneurship

Sociologists are interested in study the relationship between groups in the society. From the
sociology perspective, entrepreneurship is perceived to be associated with the minority groups.
Sociologists believe that a minority group of people in a society feel disadvantaged because of
their numbers. They feel being discriminated against by the larger group. Anything that is
obtained by numbers, the minority group may not get. They may be denied the jobs. Because of
inability to get the jobs they may opt to join business. Jews during Hitler time were discriminated
against and killed. This made many of them to join business.

Studies in sociology indicate that when a minority group is marginalized from the mainstream
society they tend to venture into business. The social perception of entrepreneurship also states
religion play a major role in promoting the art of entrepreneurship. They state that religion
encourage being critical, innovativeness and creativity.

Marx Weber 1930, wrote in his book known as the protestant ethics and spirit of capitalism. He
explained that children from protestant tend to be more entrepreneurial than others from the
Catholic. He offered the model of the outside group as the source of small enterprise
development.

Klandapt 1987 supported Weber‘s views, based on the study he carried out in Western Germany.
He found out that a protestant upbringing was more likely to lead to self employment than a
catholic.

Social marginality theory by Jones T. and McEvoy, 1986

The theory states that the interaction between the migrant group and the society may lead the
minority to venture into business. The theory is divided into two;

i. Exclusiveness
ii. Exclusion

Exclusiveness

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When a group leaves their motherland to a new area, they will find people already living in that
area. The original inhabitants become the hosts and they are joined by the newcomers (migrant).
After sometime, the host society excludes the migrants from full participation in the mainstream
activities of the host society, leading to competition between the two groups.

For instance, Asians came to Kenya to build the railway and later decided to stay. They have
been excluded from in decision making in this country, particularly in parliament. Because in
most cases Kenyans would prefer to vote their people to parliament, they feel excluded in
participating in such mainstream activities. Asians feel displaced in alien society, which leads
them to forge close bonds with those with similar background and cultures.

The result of this is a heightening of cultural awareness and identity. This brings ethnic solidarity
which provides a vital business resource. This leads to the mobilization of group assets in favor
of its members entrepreneurship, which gives the minority group firms a competitive advantage
over the host enterprise e.g. Asian businesses are doing very well.

Exclusion

As the minority group perceives the mainstream society to be alien, the host society also
perceives the minority group as alien too, therefore excludes them from the mainstream
activities. This exclusion leads the minority group to seek economic alternatives out with the
mainstream.

Psychological perspective of an entrepreneur

Psychologists view entrepreneur traits in terms of personal characteristics of an individual in

relation to other groups in the society. For example, need for achievement, self confident and
locus of control, risk taking propensity, creativity and innovativeness.

Need for achievement theory by David McClelland 1961.

This theory portrays an entrepreneur as someone who wants to do things in his own way and has
difficulty in doing things for others. McClelland pointed out those high achievers have the
following attributes;

a) They are people who have moderate risk taking as a function of skill and do not believe
in outcome as a function of chance. Entrepreneurs are success oriented and try to avoid
high risk ventures.
b) They are people who take personal responsibility for decision they make, set goals for
themselves and reaching these goals through their personal efforts.
c) They are characterized by knowledge of results of decision/ tasks accomplished.

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Hornday and Abouch in 1971 supported McClelland‘s theory. They went further to add that an
entrepreneur is independent in his or her way of thinking, very aggressive and innovative in
behavior than non-entrepreneurs.

Opponents of McClelland‘s theory argue that achieving motivation alone doesn‘t seem to be an
effective differentiating variable between entrepreneurs and non-entrepreneurs. They state that
even managers in some organizations are high achievers but they are not entrepreneurs.

Risk taking propensity is defined as perceived probability of receiving rewards (non-financial

and financial) as opposed to perceived probability of incurring a failure.

Ket de Vries, 1977, is one of the psychologists who contributed on the forces which influence the
entrepreneurial personality. She stated that a child who comes from poor family/ weak
background tend to lose self esteem and feel insecure. They tend to over react to situations that
confront them and mistrust everybody they come across. They easily experience shape
prominent of behavior of entrepreneurs such as;

a) Persistent feeling of dissatisfaction, most entrepreneurs are never satisfied with what they
have.
b) They are people who are constantly being haunted by feeling of rejection.
c) Loss of self esteem.

These life experiences make an entrepreneur to be under constant stress and feel guilt that people
are talking about them negatively. They develop distrust and suspicion of anyone in the position
of authority, which force them to look for non-structured situations where they can assert their
authority and independence. The only way open to such a person is to go out into business where
he can start his business and be independent and the boss.

The opponents of ket de Vires argue that;

 The model may only be applicable to those entrepreneurs with particular backgrounds
and life experiences and may not apply to all entrepreneurs.
 The belief that an entrepreneur is someone who is unable to fit comfortably in
conventional organizational life, may not be true for all, because there are people who
cannot fit in organizations and they don‘t become successful entrepreneurs.
 Ket de Vires tended to take extreme cases of a given population for study and not the
majority.

Locus of control

This is the extent to which entrepreneurs believe that they can control their own destiny. There
are two types;

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 i. Internal locus of control
ii. External locus of control

Going into business requires that one should have the ability to sustain the drive and energy, to
come up with a new enterprise and to manage it for growth.

Internal locus of control

These are people who believe in themselves and believe that what they think and decide is what
works. They decide on their own without consultation. People who have internal locus of control
show the following characteristics;

i. They are ready to do something and once decided nothing will stop them from doing it
even if doing that looks risky.
ii. They get pleasure in doing a job well.
iii. They have the ability to ask for what they want rather than to wait for someone to notice
them and give them what they want.
iv. They have the ability to find out by themselves whether something can be done and are
not discouraged by others.

External locus of control

People who have this type of control cannot decide and do things for themselves. They have the
following characteristics;

i. They are convinced that the way things are cannot be changed.
ii. They believe that good outcomes are influenced by luck and bad outcomes are influenced
by bad omen.
iii. They rely too much on others to make decisions for them.
iv. They are less confident in themselves as individuals
v. They show a feeling that as individuals they should be liked by everyone.

(c) Entrepreneurship as a discipline

Entrepreneurship as a discipline

An academic discipline is a branch of knowledge which is taught and researched at colleges and
universities. Academic discipline is also called field of study. Academic discipline usually has
several sub- disciplines or branches. Other academic disciplines are education, sociology,
psychology etc. entrepreneurship is a discipline since it is a body of knowledge which is taught
and researched at colleges and universities.

26
Comparison with other academic disciplines

Entrepreneurship borrows heavily from other disciplines such as psychology, sociology,

anthropology and economics. These disciplines contribute to the building theories of business
organization and management. Entrepreneurship also borrows from such disciplines of business
administration that include organization behavior, marketing, finance and strategic management.

Entrepreneurship and organization behavior

Organization behavior is the study of human behavior in organizations. To understand the

behavior of employees, the managers must have command of knowledge from sociology,
anthropology and psychology to be able to influence and to predict the behavior of people in
organization. Entrepreneurs used to motivate and ensure their employees hence need to borrow
from psychology disciplines.

Marketing and entrepreneurship

 Both the disciplines are tuned towards markets and customers.

 Marketing research methodologies are helpful in entrepreneurship in evaluating and
identifying opportunities.
 Marketing can offer insights into innovation
 Marketing behavior and entrepreneurial behavior are similar.

Sociologists are interested in the relationship between groups in the society. Psychology looks at
relationship between individuals in the society. Anthropologists are interested in human beings
and their relations with their environment.

Why study entrepreneurship

One of the greatest opportunities for personal wealth and career fulfillment comes from starting a
business, growing a family- owned business or participating in an entrepreneurial venture in a
mature corporation (entrepreneurship).

Small enterprises have become a significant source of economic growth in employment. Most of
the employment in our country since 1975 comes from new ventures and small business. It is
designed to help students create their business.

3. IDENTIFICATION & RECOGNITION OF BUSINESS OPPORTUNITY

(a) Identification of business opportunities
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IDENTIFYING A BUSINESS OPPORTUNITY
A business activity is an attractive project idea which an entrepreneur accepts for investment on
the basis of what is known about the possible success for the project.

Sources of business ideas

1. Your vocational training and experience. You can use your skills and experience to
satisfy a need in the community. After studying building technology one may notice the
need for concrete building blocks in the community. One can then find out how big the
market is, how many one can sell in a month, how much it would cost to start the
business and run it for one or two months. Or after doing bakery, one could make cakes,
biscuits etc. and supply them to private homes, offices and educational institutions in
one‘s community.

2. Your hobby often suggests a useful business. An example of a lady with interest in design
of clothing who sets up a clothing manufacturing unit for children‘s clothes. A lady who
wears jewels as a hobby starts a jewels business and may even consider exporting to
external markets or you may learn and master a foreign language such as German and
find that there is sufficient demand to enable you to start a training school in languages.

3. Your personal contacts can be very valuable. Often people you talk to tell what people
are lacking or may give you business ideas from their own observations. Talk to people
like bankers, business people, sales persons, farmers, shopkeepers etc. Observing what
goes on around you, the problems people face, their aspirations, their needs, and thinking
about ways of doing better can offer a large number of ideas. Try to develop sensitivity
for people‘s discomforts, needs etc. many businesses are started to supply comforts and
satisfy needs.

4. Attending the district and national shows and any other exhibitions and fairs will expose
you to innovated products and services that you could easily turn into business ideas.

5. Brainstorming; this is a technique that you can use by yourself or in a group to generate a
large number of ideas. In brainstorming you try and think up a large number of ideas very
quickly without judging the quality of any idea. You need to write every idea down and
avoid criticizing or laughing at anyone‘s ideas. Encourage wild ideas and free wheel.
After compiling a large number of ideas you may now sit down and examine them and
try to select good ideas from this large pile, and possibly find one that you can begin to
develop into a business.

6. Reading the newspapers and magazines can help you obtain business ideas. Look for;

28
  Articles describing people‘s needs and problems, can you solve these needs and
problems?
 Advertisements trying to sell services to business e.g. accounting assistance.
 Tender notices; these can tell you the sort of products in demand byvarious
institutions.
Other sources of Business Opportunity

Environment
Identification of business opportunities require intensive effort and specialized skills. You will
assess the basic features of an area and its resources. Consider the population of the area,
occupational patterns and the social and economic backgrounds.
The economy of the society
The economic base of the community has a bearing on the business performance in that area.
The average income and employment or unemployment trends determines the demand for goods
and services within the community.

Infrastructure
Availability of roads, power, water and telephone services are very important in some types of
business. For example a perishable food business might be affected during rainy seasons if it is
located in poorly communicated rural town.

Current business scene

Survey the present pattern of business activities carried in the area with a reference to inter
regional flow of commodities, local consumption and need for industrial goods and services.
You may also assess the emerging trends and patterns of business activities in terms of new
demand for consumption of goods and services in the area.

Resources
If you find the following resources and wastes e.g. minerals, agricultural, marine and other
natural products/ resources, this may signify the presence of a business opportunity.

Linkages
The presence of a manufacturing concern may indicate possibility of a business opportunity, in
supply of ingredients or distributing the products from those concerns.

Export oriented/ import substitution products

In a given area there is a possibility of some items either being imported from other countries or
of items that would possibly be exported to other countries. Such items offer excellent
opportunities to promote enterprises based in exports and imports. Between the two, import
substitution items make more attractive enterprises.
29
Personal abilities
One needs personal traits that will enable him to start, continue and succeed in business. He must
be;
 Willing to work hard and pursue his goals persistently.
 He must be innovative, creative and optimistic.
 Having entrepreneurial traits.
 Motivated and determined to succeed in business.

(b) Assessment of business opportunities (Feasibility analysis)

ASSESSING A BUSINESS OPPORTUNITY
Real business opportunity has two ingredients which will assist you to see them at first sight;
a) A good market scope- that a gap existing between the present supply and current demand.
b) An attractive return on investment.

Characteristics of a good business opportunity

1. Demand
This means that there is a good market scope for the product or service. In other words,
the available products or services are not enough to reach everybody who requires them.
So if you go into such business, you have the people who will want to pay for your
products or service offered to them.

2. Return on investment
An entrepreneur will always want to generate more money from the business than
what he/ she originally put in. Entrepreneur will have to know what is expected as a
return on your investment. If the return on your investment in business is likely to be
high, then such a business opportunity can be pursued further.

3. Availability of raw materials

Raw materials are a crucial element in production of any item for sale. You therefore
assess and find out if there are raw materials required. If the raw materials are available
in plenty then there is a viable business opportunity e.g. in an area of good supply of
timber, business opportunity exist for saw milling, furniture etc.

1. Availability of skills required

Some businesses require certain specialized skills to start and run e.g. a medical clinic, an
accountancy or law firm. If you have the skills then a business opportunity exists that can
be exploited.

5.2 EVALUATING A BUSINESS ACTIVITY

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It helps to understand the expectations of the target group and the background of the location.
The task of evaluating a business opportunity is divided into two stages;
 Pre-feasibility study
 Feasibility study

Pre- feasibility study

The objectives of this study are;
a) To determine whether the investment opportunity is profitable enough to make a firm
decision.
b) The project is viable from the marketing, manufacturing and other points of view.
c) Any aspect of the project is critical or crucial enough to call for in depth analysis.

Feasibility study
Having established the viability of a business opportunity, it is necessary for you to acquire
comprehensive technical, economic and commercial data for the final investment decision. In
most cases, you have to explore the suitability of the opportunity to your own specific skills and
expectations e.g. an engineering workshop project identified as a business opportunity, calls for
details of specific market survey at the pre- feasibility study stage. At the feasibility stage, your
technical skills and technical capabilities of an entrepreneur have to be assessed before a final
decision about the investment is taken.

5.3 SELECTING THE BEST BUSINESS OPPORTUNITY

a. The project selection process begins when you start weighing the advantages and
disadvantages of an opportunity with other opportunities available. In this exercise it is
the favorable response at the very first stage which leads you to further assess a given
business opportunity.
b. The process of business opportunity selection however is a continuous one, requiring
exploration from all angles like marketing, finance and infrastructural facilities until the
first decision is reached at.
c. In order to facilitate and accelerate this process of decision making, it is necessary that
you are provided with sources of information and right contact points at the right time.
Meeting with successful entrepreneurs, technical advisors or reference to authoritative
data will help you take the final decision. The other critical aspects of opportunity
selection include;
 Family members support
 Encouragement by friends or relatives
 Faith in the entrepreneur‘s own judgment.

(c)Competition analysis

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 A company can succeed only by designing offers/ products that satisfy target consumer needs
better than competitors. This calls for competitor analysis. The process consists of the following
steps;
 Identifying key competitors
 Assessing their objectives
 Assessing their strengths and weaknesses
 Assessing their strategies
 Assessing their reaction patterns
 Selecting which competitors to attack or avoid.
1. Identifying competitors
A company can define its competitors as other companies offering a similar product/service to the
same customer group at similar prices. There are two ways of identifying competitors;
(a) Industry basis
Many companies identify their competitors from the industry point of view. An industry is a group
of firms which offer a product or class of products that are close substitutes for each other, e.g. the
banking industry, pharmaceutical industry etc.
(b) Market basis
In this case competitors are companies that are trying to satisfy the same customer need or serve
the same customer group. The market definition of competition opens the company’s focus to a
broader set of actual and potential competitors e.g. from an industry point of view coca cola might
see its competitors as Pepsi and other soft drink manufacturers. But from a market perspective the
customer actually wants to quench his thirst. This need can be satisfied by fruit juice, bottled water,
beer etc.
2. Determining competitors’ objectives
Companies differ on the weights they put on short term and long term profitability and other
objectives.
Some competitors might be oriented toward satisfying profits (breaking even) than maximizing the
profits.
The company should be able to know the relative importance that a competitor places on current
profitability, market share, share growth, cash flow, technological leadership etc. E.g. a company
pursuing low cost leadership will react more strongly to a competitor’s cost-reducing manoeuvres
than to the same competitor’s advertising increase.
3. Identifying competitors’ strategies
In most industries, competitors can be sorted out into groups pursuing different strategies. A
strategic group is a group of firms in an industry pursuing similar strategy. The company needs to
examine each competitor on the following;
 Product quality
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 Features and product mix
 Customer service
 Pricing policy
 Distribution coverage
 Promotion strategy
 R & D effectiveness
4. Assessing competitors’ strengths/weaknesses
The company needs to identify competitors’ resources and capabilities. Knowledge of such
resources can be obtained through conducting primary research with customers, suppliers and
dealers. The company can carry out a customer analysis process as follows;
 Assess the company’s and competitor’s performance on different customer values against their
ranked importance.
 Examine how customers in a specific segment rank the company’s performance against a specific
major competitor on important attributes.
 Monitor changes in customer value over time.
5. Estimating competitor’s reaction patterns
Each competitor reacts differently. Some react to certain types of attacks but not to others i.e. they
may respond strongly to price decreases but may not respond at all to advertising increases. This
depends on their profit and marketing objectives.
6. Selecting competitors to attack or avoid
A company may benefit from some competitors. This may be in the following ways;
 Competitors may help increase total demand
 They share the costs of product and market development
 They help to legitimize a new product/ technology
 They may serve less attractive segments which may accuse the company of ignoring the segments
Therefore some companies compete “constructively” while others may compete “destructively”.
Companies will often attack competitors who are destructive, small, or weak.

4. BUSINESS PLANNING
(a) Role and importance of business planning in small business

Business proposal/ plan

A business plan is the written document that details the proposed venture. It describes every
aspect of the venture.

 Description
 Marketing
 Research and development
 Manufacturing/ production

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  Management
 Critical tasks
 Financing

A description of all these facets of the proposed venture is necessary to demonstrate a clear
picture of what that venture is, where it is projected to go and how the entrepreneur proposes it
will get there. The business plan is the entrepreneur‘s roadmap for a successful enterprise.

In some professional areas the business plan is referred to as a venture plan, a loan proposal or an
investment prospectus. The business plan allows the entrepreneur entrance into the investment
process. The business plan describes to investors and financial sources all the events that may
affect the proposed venture.

Benefits of a business plan

 The entire business planning process forces the entrepreneur to analyze all aspects of the
venture and to prepare an effective strategy to deal with the uncertainties that arise.
 A business plan may help an entrepreneur to avoid a project doomed to failure.
 The competitive, economic and financial analysis included in the business plan, subject
the entrepreneur to close scrutiny of his or her assumptions about the venture‘s success.
 Since all aspects of the business venture must be addressed in the plan, the entrepreneur
develops and examines operating strategies and expected results for outside evaluators.
 The business plan quantifies objectives, providing measurable benchmarks for comparing
forecasts with actual results.
 The completed business plan provides the entrepreneur with a communication tool for
outside financial sources as well as an operational tool for guiding the venture towards
success.
 Through prospective financial statements, the business plan provides donors with the
ability to service debts or provide an adequate return on equity.
 By providing a comprehensive overview of the entire operation, the business plan gives
financial sources a clear, concise document that contains the necessary information for
thorough business and financial evaluation.
 The plan identifies critical risks and crucial events with a discussion of contingency plans
that provide opportunity for the venture‘s success.
 For a financial source with no prior knowledge of the entrepreneur or the venture, the
business plan provides a useful guide for assessing the individual entrepreneur‘s planning
and managerial ability.

(b) Elements of a business plan

Complete outline of a business plan

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  Executive summary
 Business description
 General description of the business
 Industry background
 Goals and potential of the business
 Uniqueness of the product
 Marketing
a) Research and analysis
i) Target market(customers) identified
ii) Market size and trends
iii) Competition
iv) Estimated market share
b) Marketing plan
i) Market strategy- sales and distribution
ii) Pricing
iii) Advertising and promotions
 Operations
a) Identify location
i) Advantages
ii) Zoning
iii) Taxes
b) Proximity to supplies
c) Access to transportation
 Management
a) Management team- key personnel
b) Legal structure- stock agreements, employment agreements, ownership
c) Board of directors, advisors, consultants.
 Financial
a) Financial forecast
i) Profit and loss
ii) Cash flows
iii) Break-even analysis
iv) Cost controls
v) Budgeting plans
 Critical risks
a) Potential problems
b) Obstacles and risks
c) Alternative courses of action

Elements of a business plan

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 2. Executive summary
 No more than three pages
 Many people who read business plans such as bankers, investors etc. like to see a
summary of the plan that feature its most important parts.
 The statements selected for a summary segment should briefly touch on the venture itself,
the market opportunities, the financial needs and projections and any special research or
technology associated with the venture.
 The part should be written after the entire report has been completed.
3. Business description
First, the name of the business should be identified, with any special significance related
(for example, family name, technical name etc.)
Secondly, the industry background should be presented in terms of current status and
future trends.
It is important to note any special industry developments that may affect the plan. If the
company has an existing business or franchise, this is the appropriate place to discuss it.
All key terms should be defined and made comprehensible the potential advantages the
new venture possesses over the competitors should be discussed at length. This
discussion may include patents, copyrights, trademarks and special technological or
market advantages.
4. Marketing segment
In this segment, the entrepreneur must convince investors that a market exists, that sales
projections can be achieved and that the competition can be beaten.
The projected sales levels based on the market research and analysis, directly influence
the size of the manufacturing operation, the marketing plan and the amount of debt and
equity capital required.
Use and disclose market studies.

The following aspects of the market should be addressed:-

Market niche and market share
Market niche: The homogenous group with a common characteristic consisting of all the people
who have a need for the newly proposed product or service. In describing this niche, address the
basis of customer purchase decisions, price, quality, personal contacts and service.
Next, detail a list of potential customers who have expressed interest should be included. If it is
an existing business, the current principal customers should be identified and the sales trends
should be discussed.
The overall potential of the market should be described through sales projection made for at least
three years.
The major factors affecting market growth e.g. industry trend, socio-economic trends,
government policy and population shifts should be discussed.

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A review of previous market trends should be included and any differences between past and
projected annual growth rates should be explained.
The sources of data and methods used to make projections should be indicated.
On the basis of the product or service advantages, the market size and trends, the customers and
sales trends in prior years, the writer should estimate market share and sales in units for each of
the next three years.

Competitive analysis
The entrepreneur should make an attempt to assess the strengths and weaknesses of the
competing products or services. This discussion should compare competing products or service
on the basis of price, performance, service, warranties and other pertinent features.
It should include a short discussion of the current advantages and disadvantages of competing
products and services and why they are not meeting customer needs.
Any knowledge of competitor‘s actions that could lead to new or improved products and an
advantageous position should be presented.
Finally a review of competing companies should be included. Each competitor‘s share of the
market, sales and distribution and production capabilities should be discussed. Attention should
be focused on profitability and the profit trend of each competitor, who is the pricing leader?
Who is the quality leader? Who is gaining? Has any company entered or dropped out of the
market in the recent years?

Market strategy
The general marketing philosophy and approach of the company should be outlined in the market
strategy. These should be developed from the market research and evaluation data. It includes;
 The kinds of customer groups to be targeted by the initial intensive selling effort.
 The customer groups to be targeted for later selling efforts.
 Methods of identifying and contacting potential customers in these groups.
 Features of the product or service (quality, price, delivery, warranty etc.) to be
emphasized to generate sales.
 Any innovative or unusual marketing concept that will enhance customer acceptance.

Pricing policy
The price must be ―right‖ in order to penetrate the market, maintain a market position and
produce profits. In this discussion a number of pricing strategies should be examined and then
one should be convincingly presented.
The pricing policy should be compared with the policies of the major competitors.
The gross profit margin between manufacturing and final sales costs should be discussed and
consideration should be given as to whether this margin is large enough to allow for distribution,
sales and service expenses.

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Attention should be given to justifying any price increase over competitive items on the basis of
newness, quality, warranty or service.

Advertising plan
For manufactured products, the preparation of product sheet and promotional literature;
 The plans for trade show participation, trade magazine advertisements and direct
mailings.
 The use of advertising agencies should be presented.
For products and services in general;
 A discussion of the advertising and promotional campaign contemplated to introduce the
product and the kind of sales aid to be provided to dealers should be included.
 The schedule, cost of promotion and advertising should be presented, and if advertising
will be a significant part of the expense, an exhibit showing how and when these costs
will be incurred should be included.

Research, design and development segment

The extent of any research, design and development in regard to cost, time and special testing
should be covered in this section. Investors need to know the status of the project in terms of lab
test and scheduling delays.

Operations segment
This segment should begin by describing the location of the new venture. The chosen sight
should be appropriate in terms of labour availability, wage rate, proximity to suppliers and
customers and community support.
In addition, local taxes should be sorted out, and the support of area banks for new ventures
should be touched on. Specific needs should be discussed in terms of the facilities to handle the
new venture i.e. plant, warehouse storage, offices etc. and the equipment that needs to be
acquired such as machinery, computers, vehicles etc.
Other factors that might be considered are suppliers (members and proximity) and the
transportation costs involved in shipping materials. Also, the labour supply, wage rates and
needed skills positions should be presented. The cost data associated with any of the operation
factors should be presented.

Management segment
This segment identifies the personnel, their position and responsibilities and the career
experience that qualify them for those particular roles. Complete resumes should be provided for
each of the management teams. This is the section where the entrepreneur‘s role in the venture
should be clearly outlined.

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The structure of payment and ownership should be described clearly in this section. The
discussion should be sufficient so that the investors can understand each of the following critical
factors presented such as:-
 Organization structure
 Management team and critical personnel
 Experience and technical capabilities of the personnel
 Ownership structure and compensation agreement
 Board of directors and outside consultants and advisors

Financial segment
The financial segment of a business plan must demonstrate the potential viability of the
undertaking. In this part of the plan, three basic financial statements must be presented.
 The pro forma balance sheet
 The income statement
 The cash flow statement
The pro forma balance sheet
Pro forma means projected, as opposed to actual. The pro forma balance sheet projects what the
financial condition of the venture will be at a particular point in time. Pro forma balance sheets
should be prepared at start up and at the end of each of the first three years.
The balance sheet details the assets required to support the projected level of operations and
shows how these assets are to be financed (liabilities and equity). Investors will want to look at
the projected balance sheet to determine if debt/ equity ratios, working capital, current ratios,
inventory turnover etc. are within the acceptable limits required to justify the future financing
projected for the future.
The income statement
The statement illustrates the projected operating results based on profits and loss. The sales
forecasts which was developed in the marketing segment is essential to this document. Once the
sales forecast (earning projection) is in place, production costs must be budgeted based on the
level of activity needed to support the projected earnings.
The materials, labor, service and manufacturing overhead (fixed and variable) must be
considered, in addition to such expensed as distribution, storage, advertising, discounts and
administrative and general expenses- salaries, legal and accounting, rent, utilities and telephone.
The cash flow statement
Given a level of projected sales and capital expenditure over a specific period, the cash flows
forecast will highlight the need for and the timing additional financing and will indicate peak
requirement for working capital. Management must decide how this additional financing is to be
repaid. The total amount of needed financing may be supplied from several sources;
 Part by equity financing
 Part by loans and
 The balance by short-term lines of credit from banks.
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This information becomes part of the final cash flow forecasts. A detailed cash flow, if
understood properly, can direct the entrepreneur‘s attention to operating problems before serious
crisis arise.

Critical risks segment

In this segment potential risks such as the following should be identified;
 Effect of unfavorable trends in the industry, design or manufacturing costs that have gone
over estimates
 Difficulties encountered when purchasing material and unplanned for new competition
 Anticipated competition cut prices, industry slumps, the market projections are wrong,
the sales projections are not achieved.
Suggestions for alternative courses of action should be included. Certainly, delays, inaccurate
projections and industry slumps all can happen. People reading this business plan will want to
know the entrepreneur recognizes these risks and has prepared for such critical events.

What financiers look for in a business plan?

What is the Purpose of Business Plan?

Financiers such as banks, venture capitalists and other lenders would want to know above stated
issues as well as how much money is needed by the business, what it is needed for, when and for
how long it‘s required. Thus, a business plan is essentially a permit to sources of finance and
therefore it should be written in detailed and with due diligence.
In addition, it is prudent to have a business plan as it will give the business owners and readers
an insight into the business planning process. Business plan aid the entrepreneur to reach its
destination as to what needs to be achieved as it gives the busi-ness man the route to follow in
the business pathway.

Sample of What Lenders Want to Hear and See in Your Business Plan

This article aims to provide you the reader with what financiers may look for in your business
plans such as:

a) Proof of market opportunities and needs that you have identified. The business proposer must
show that they have identified the gap in the market and most importantly the needs of the
potential customers.

b) Lenders or financiers like to know that the new product or service that is being proposed will
sell. You can show this on trial basis or by demonstra-tion.

c) The lenders will need to know if your proposal is through copyright or exclusivity or patent
that you hold.

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d) You will also need to show that you have taken the needs of the financier into consideration.
Lenders need security in that lenders want assur-ance that their money is safe.

e) Realistic Forecasts. Financiers do not want gran-diose delusional claims. They want a realistic
and believable predictions rooted in the real world.

f) Be realistic with your cash flow forecast and allow head room for the inevitable late payments!

g) Examine your competition in detail. There are very few markets where there is no
competition and your financier will want to know how you plan to combat their strategy with
your own.

h) Always have supporting evidence to back up your business plan. If you leave the door open to
questions you cannot answer, you will lose credibility.

i) Financiers are far more likely to accept business plans when the previous year‘s targets have
been met. If targets have been missed, be sure to provide an explanation. Remember to use your
business plan to illustrate how you intend to overcome the issues that have caused problems in
meeting targets.

j). Send the final version to your financier as soon as possible for them to review. Ask them to
review it in line with the facilities they already provide. If additional facilities are required,
ensure you know how much extra funding will be required.

k). Finally, don‘t underestimate the power of those assets that don‘t appear on a balance sheet
such as brand loyalty, customer relationships, reputation and management skills. A financier will
look at the measurable qualities of your business but be sure they also get a ‗feel‘ for the
business as a whole which might just shift the favour in your balance.

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 5. FORMS OF OWNERSHIP AND ENTRY PATHWAYS
(a) Factors to consider in ownership
(b) Various types of ownership
(c) Entry pathway for full time entrepreneurship
(d) Entry pathway for part- time entrepreneurship

Choosing a form of business is crucial to a successful organization. The choice of a business

entity will depend on a case-by-case basis with what the owners of the business entity want to
accomplish. The main types of business entities are sole proprietorships, partnerships and
corporations. Each entity must sit down and carefully consider all the advantages and
disadvantages of each type of entity before choosing what the business organization should be.

Formal Requirements

Generally, states require corporations to file documents, such as the corporation's articles of
incorporation and by-laws with the state. Sole proprietorships and partnerships usually do not
need to file any documents with the state, outside of tax documents.

Raising Capital

Corporations appear to have the easiest time raising capital, because they can sell equity
ownership interest in the corporation. A sole proprietorship cannot sell any equity ownership and
must rely solely on profit, and partnerships must admit new partners in order to introduce new
capital.

Taxation

The Internal Revenue Service taxes sole proprietorships on an individual tax level. All profits
and losses from the sole proprietorship belong on the owner's tax return. Partnerships must file a
form "Schedule K-1," with all partner profits included. Schedule K-1 passes the partner's share of
partnership profits and losses to the partner so the partnership profits and losses are taxed on the
partner's level. Corporations are taxed on the corporate level, and individuals are taxed on an
individual level when distributions are passed to the shareholders of the company.

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Liability

Generally, a sole proprietor is liable for all debts and torts of a sole proprietorship business
organization. In a partnership, partners are usually liable under agency law, and are liable for
debts up to their particular capital contributions. Corporate shareholders are rarely liable for any
actions of the corporation.

Entity

Corporations are considered a separate legal entity from their owners. A sole proprietorship is not
legally separated from its owner. A partnership sometimes is treated as separate from its owners,
depending on the situation. For example, a partnership can buy property as if it were one owner.

FORMS OF BUSINESS ORGANIZATION

There are three primarily legal forms of business organizations;

 Sole proprietorship
 Partnership
 Corporation
Because each form has specific advantages and disadvantages, it is impossible to recommend
one over the other. The entrepreneur‘s specific situation concern and desire will dictate this
choice.

Sole proprietorship
It is a business that is owned and operated by one person. The enterprise has no existence apart
from its owner. This individual has a right to all profits and bears all liability for the debts and
obligations of the business. The individual has unlimited liability, which means his or her
business and personal assets stand behind the operation. If the enterprise cannot meet its
financial obligations, the owner can be forced to sell the family car, hose and whatever assets
that would satisfy the creditors.
To establish a sole proprietorship, a person merely needs to obtain whatever local and state
licenses are necessary to begin operations. Because of its ease of formation, the sole
proprietorship is the most widely used legal form of organization.

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Advantages of sole proprietorship
1. Ease of formation;
Less formality and fewer restrictions are associated with establishing a sole
proprietorship than with any other legal form. The proprietorship needs little or no
government approval, and it is less expensive than a partnership or corporation.
2. Sole ownership of profits;
The sole proprietor is not required to share profits with anyone.
3. Decision making and control vested in one owner;
No co-owners or partners must be consulted in the running of the operation.
4. Flexibility;
Management is able to respond quickly to business needs in the form of day to day
management decisions as governed by various laws and good sense.
5. Relative freedom from government control;
Except for requiring the necessary licenses, very little governmental interference occurs
in the operation.
6. Freedom from corporate business taxes;
The proprietors are taxed as individual tax payers and not as businesses.

Disadvantages
1. Unlimited liability;
The individual proprietor is personally responsible for all business debts. This liability
extends to all the proprietor‘s assets.
2. Lack of continuity;
The enterprise may be crippled or terminated if the owner becomes ill or dies.
3. Less available capital;
Proprietorships have less available capital than other types of business organizations suh
as partnerships and corporations.
4. Relative difficulty obtaining long-term financing;
Because the enterprise rests entirely on one person, it often has difficulty raising long
term capital.
5. Relative limited viewpoints and experience;
The operation depends on one person, and this individual‘s ability, training and expertise
will hint its direction and scope.

Partnership
This is an association of two or more persons acting as co- owners of a business for profit. Each
partner contributes money, property, labour or skills and each share on the profits of the
business.
The partnership Act is usually followed to guide for legal requirements in forming a partnership.
The article of partnership deed clearly outlines the financial and managerial contributions of

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partners. Unless it is agreed in writing, the courts assume equal partnership i.e. equal sharing of
profits, losses, assets, management and other aspects of business. The type of information
contained in the agreement is;
 Name and purpose of the business
 Duration of agreement
 Contribution by partners
 Division of profits and losses
 Drawings or salaries
 Death of a partner
 Business expenses
 Settlement of disputes

Advantages of partnership
1. Ease of formation; legal formalities and expenses are few compared with those for
creating a more complex enterprise, such as a corporation.
2. Direct rewards; partners are motivated to put forth their best efforts by direct sharing of
the profits.
3. Growth and performance is facilitated; in a partnership it is often possible to obtain more
capital and a better range of skills than in a sole proprietorship.
4. Flexibility; a partnership often is able to respond quickly to business needs in the form of
day to day decisions.
5. Possible tax advantages; most partners pay taxes as individuals. Thus escaping the higher
rates assessed against corporations.

Disadvantages of partnership
1. Unlimited liability by at least one partner; although some partners can have limited
liability, at least one must be a general partner who assumes unlimited liability.
2. Lack of continuity; if any partner dies, is judged insane, or simply withdraws fro the
business, the partnership arrangement ceases.
3. Relative difficulty obtaining large sums of capital; most partnerships have some problems
raising a great amount of capital, especially when long- term financing is involved.
4. Bound by the acts of just one partner; a general partner can commit the enterprise to
contracts and obligations that may prove disastrous to enterprise in general and to the
other partners in particular.

Corporations
A corporation is an artificial being, invisible, intangible and existing only in contemplation of the
law. Such a corporation is created by the authority of state laws and is usually formed when a
transfer of money or property by prospective shareholders (owners) takes place in exchange for

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capital stock (ownership certificates) in the corporation. A corporation is a separate legal entity
separate from the individual who owns it.

Formation
The people (promoters) who come up with the idea of forming a company, on formation of the
company they are expected to come up with the following documents;
(a) Memorandum of association; the document defines the relation between the company and
the outsiders. It contains;
 Name clause
 The objective clause
 Liability
 Situation clause
 Capital clause
(b) Articles of Association; a document that governs the internal operations of the company.
It contains rules and regulations affecting the shareholder. It contains;
 Rights of each type of shareholder i.e. voting rights
 Rules governing the election of officials i.e. directors, auditors and chairmen of a
company.

Advantages of corporations
1. Limited liability; the stockholders liability is limited to the individual shares/ investment.
This is the most money a person can lose.
2. Transfer of ownership; ownership can be transferred through the sale of stock to
interested buyers.
3. Unlimited life; the company has a life separate and distinct from that of its owners and
can continue for an indefinite period of time.
4. Relative ease of securing capital in large amounts; capital can be acquired through the
issuance of bonds and shares of stock and through short-term loans made against the
assets of the business.
5. Increased ability and expertise; the corporation is able to draw on the expertise and skills
of a number of individuals, ranging from the major stockholders to the professional
managers who are brought on board.

Disadvantages of corporations
1. High cost of formation; the process of registering a public company is expensive and
lengthy. The costs involve legal costs, registration fees and taxes.
2. Legal restrictions; corporations must comply with many legal requirements making its
operations inflexible and rigid.

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 3. Alienation of owners; owners of corporations do not participate in the management of
their companies. The shareholders do not have direct control over the running of the
business as the management is left in the hands of boards of directors.
4. Lack of secrecy; the requirements by law for public companies to submit annual returns
and accounts to the Registrar of Companies denies the company the benefit of keeping its
affairs secret. Accounts of public companies can also be made available to any person by
the Registrar of Companies on payment of a small fee. In addition, public companies are
required to publish their end of the year accounts and balance sheets.
5. Double taxations; the profit made by a company is taxed and dividends distributed to
shareholders are also taxed. This leads to double taxation.

 LIMITED LIABILITY PARTNERSHIP (LLP)

This allows professionals the tax benefits of a partnership while avoiding personal liability for
the malpractice of other partners. LLPs are very popular among professionals.

( c) Entry paths for full entrepreneurship

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48
When starting your own company there are no preconceived notions about what a
company should be, what your image is, or what can or cannot be done. Often, new
technology must be purchased and thus it is the most up-to-date on the market giving
you a technological advantage over your competitors. Many entrepreneurs start their
own company because of the unmet need mentioned in the opening story. Thus the
products are unique, unlike anything already out there. While some entrepreneurs start
companies to grow and harvest, many choose to keep their company small and under
their own control. They make a career of running their company.

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There are also many problems with starting a new company. While no one has a pre-
conceived notion about your company, the bankers don’t know you either. Thus,
banking and credit is more difficult.

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When you purchase an existing business you are also purchasing the current customers.
Processes and suppliers are already in place. Name recognition has already been
established.

When you purchase an existing business you are also purchasing the current customers.
Processes and suppliers are already in place. Name recognition has already been
established.

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Entrepreneurs are most successful with a business suited to their skills and interests.
Finding one such company, at the time you are looking to buy is not always an easy task.
Additionally, employees may be very resistant to change. They may want to continue in
past patterns and have difficulties adjusting to a new boss when they have been
working their several years. Often they feel they know more about how the business
should run than their new boss does. Existing businesses also come with existing
reputations- some good, some bad. Fighting a bad reputation, such as a restaurant with
poor service, or being known as a company who does not pay it’s bills, is a difficult
hurdle.

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(e) Entry pathway for part- time entrepreneurship

(f) Entry pathway for part- time entrepreneurship

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Of all small businesses PT are about half. Remember, this includes lawn mowing, baby
sitting, and other seasonal activities. These part time companies are more likely to be
more volatile because their owners are not depending solely on them for income. The
full-time job is providing the needed income, or it is part time and just adding a little
extra money when needed. Over 6 million people sell on online sites such as eBay or
Yahoo auctions. This is normally done part time as a hobby or a supplement to their
normal lifestyle.

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Comment

PT entrepreneurship is a great way to gain experience in your industry or in running a

business before you are willing to “give up your day job”. If you lack resources to start a
retail company or full time business it is sometimes appropriate to start on a smaller
scale and work your way up to a full scale company. For example, selling antiques online
in your spare time does not require the capital resources that opening up an antiques
store would. Sometimes you are faced with a narrow window of opportunity. It might be
due to seasonality or pending expiration of an offer. Thus you may have to grasp the
offer and run with it part time because you simply don’t have the time to set up the
framework, make a business plan, etc…

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 Five reasons to take part-time entrepreneurship

And not the full time entrepreneurship experience

Writing an entrepreneurship blog gives me the chance to express my personal beliefs
rather than a “by the book theory”. So, in my opinion, people choose to be (just) a part
time entrepreneur for one of the following:

 Fear
 Lack of investment funds
 Doing it just for fun
 Extra income
 Pride and self accomplishment

Let’s take them one by one. FEAR. Entrepreneurs are usually regarded as people who
have put the fear aside and started taking risks by opening a business. You hear
something like: “he had the courage to take his life in his own hands (fearless) and work
for himself. Now he’s a rich guy”. You usually hear this, because failures are sometimes
taken in obscurity as nobody really wants to let other people know that they have failed.
So you guess that entrepreneurship means fearless. Wrong.
Entrepreneurs are like sales guys, because they actually have to sell their ideas (goods
or services) to have a running business. And just because they are like sales guys, their
biggest fear is to be refused.

That’s why part time entrepreneurship is an opportunity to keep the fear away. Even if
you fail, you only half fail.

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Lack of investment funds. It takes a lot of time from having a business idea to actually
make a profit. It could take a year or more. So if you don’t have enough funds to sustain
the business grow (or your own spending) during the start-up time, part time
entrepreneurship is the path to be taken. You cover the basic spending from your
regular income, and even if you fail, you can recover from your regular job.

Doing it for fun. I always hear: I’ve taken a wrong job. I don’t really want to be a doctor;
I always wanted to be a business man. Everybody has a hobby. If you do it, and you are
doing it well enough, it might be a good opportunity to make it a business. Maybe you
like to repair cars and you have already repaired all that could be repaired, including
your family or friends cars. Ok, then you could have a business to repair strangers cars.

Extra cash. You might need some extra cash. Some people open a business in the
evening for extra cash. That’s a fact.

Pride and self accomplishment. You know you can do more than you’re doing at your
regular job. Your ideas are refused, or you have an impossible boss that don’t want to
let the business grow. Or you want to be more that a regular guy. You want to feel
special and above your regular colleague. So you take the part time entrepreneurship
path.

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