INTRODUCTION TO ENTREPRENEURSHIP

Introduction
Small scale enterprises play a major role in the development of a country’ economy. Small
enterprises create many jobs, provide a variety of goods and services, contribute a lot of
revenue and promote the use of locally available resources.

This sub-module unit introduces the concept of entrepreneurship and its importance in the
promotion of the national development of a country.

Specific Objectives
By the end of the sub-module unit, the trainee should be able to:
 Define various terms used in entrepreneurship.
 Explain the differences between self and salaried employment
 Explain the contribution of employment towards national development

Content

Terms used in entrepreneurship

i) Entrepreneurship
It is the process of scanning the environment in order to identify a business opportunity,
gathering resources with the aim of establishing a profit making enterprise, under conditions
of risk. According to (Hisrich, 2008). It is the process of creating something new with value
by devoting the necessary time and effort, assuming the personal or company, financial,
psychic, and social risks, and receiving the resulting rewards of monetary and personal
satisfaction and independence.

ii) Entrepreneur
This is a person who is able to identify a business opportunity within an environment, gather
the necessary resources and take reasonable risk to start a successful business enterprise.
An entrepreneur is also defined as an individual who establishes and manages a business for
the principal purpose of growth and development. The entrepreneur is characterized
principally by innovative behavior and will employ strategic management practices in a
business

iii) Enterprise
It is a business organisation that provides goods and services. It is a business concern whose
purpose is profit and has growth potential.

iv) Business
It refers to any activity under taken by an individual or organisation for the purpose of
production and/or provision of goods and services to make profit.
v) Creativity
Creativity is the ability to bring something new into existence, often through imaginative
skills. It can also be defined as originality or progressiveness.
vi) Innovation
It is the process of doing things in a new way. Having a new use for old things is also
innovation.
To some people innovation refers to “an end product, idea, practice or product perceived as
new by the individual” (Rogers and Shoemaker, 1971)

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Difference between self employment and salaried employment

Self employment

Self employment is a situation in which a person starts and operates a business enterprise.
Since entrepreneurial skills drive people into self employment, entrepreneurship training is
therefore expected to prepare trainees for starting and operating their enterprises effectively.

Self employment does not only improve the standard of living of an entrepreneur, but also
enables him/her to become an active contributor to the social and economic activities a
nation.

Self employment is a situation in which individuals create and run/operate their own income
generating activities.

Advantages of entrepreneurs in self employment

There are several benefits an entrepreneur may derive from self employment. These include
the following:
i) Personal satisfaction
Personal satisfaction is the feeling of accomplishment that one derives from self employment
ii) Independence:
This means freedom from the control of others. One is able to use one’s knowledge, skills
and abilities. There are no external pressures, interference and orders, which one must follow.
Self employed people have more freedom of action compared to employed people.
iii) Income
This is the amount of money left after all expenses have been paid. By being self employed,
one is able to generate an income for oneself.
iv) Job security
This is the assurance of continued employment and income. It does not have the mechanism
of separation such as lying off, firing or retiring.
v) Status:
This is a person’s social rank or position in society. One earns recognition from members of
the society.

Disadvantages
i) Possible loss of invested capital.
Invested capital refers to the entrepreneurs’ money used in starting and operating the
enterprise. If a business succeeds the profits are high, if it fails, the invested capital is lost.
ii) Uncertain income
Earnings from the business are unpredictable therefore there is no guaranteed amount of
income from the business.
iii) Long working hours
Entrepreneurs shoulder all the responsibilities of the business thus spending most of their
time attending to the business requirements.
iv) Competition
Entrepreneurs commonly operate small scale businesses that are unable to compete
favourably with large enterprises.
v) Lack of skilled personnel
Small businesses are unable to employ and retain qualified personnel due to their limited
income.

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Salaried employment

Salaried employment is a process in which an individual is hired for a period of time, which
may range from a few months to a few years, and is paid a given amount of money as salary
or wages for the work done.

The merits and demerits of salaried employment are varied and largely depend on a person’s
qualification, experience and specialisation area. The merits and demerits are also determined
by the magnitude of growth, investment ability, and profit and government support of a given
organisation.

Defined working hours, guaranteed income, delegation of duties and specialisation are some
of the main advantages of being in salaried employment. However, salaried employment is
affected largely by organisational elements such as change of management, especially where
new management introduces new policies, rules, conditions of employment and other
statutory requirements to the organisation. Job security is not guaranteed and personal
satisfaction and motivation is not wholly experienced.

Importance of entrepreneurship in national development

Entrepreneurship contributes greatly to the economy of the country by providing an impetus
for economic growth. The following are some of the key contributions of entrepreneurship to
national development.

i) Creation of employment: An entrepreneur does not only create employment for

himself but also for others. Most jobs in many economies come from the
entrepreneurial activities.
ii) Utilisation of resources; These include proper and adequate utilisation of local labour
iii) Improvement of standard of living. Entrepreneurship raises the standards of living of
the people of a nation by providing goods and services. Similarly, it helps in provision
of the basic needs of society in areas which large firms cannot reach.
iv) Generation of government revenue – This is revenue for the government in form of
licence fees, taxes and through promotion of national productivity by contributing to
the gross domestic product (GDP). They do this by selling products and services thus
reducing the expenditure for imports.
v) Innovation of technological development – This is done through utilisation of
technology which is locally available.
vi) Conservation of foreign exchange: The use of foreign exchange can be minimised by
offering goods produced locally in place of imported goods.

Suggested learning activities

i) Present various ways in which entrepreneurship contributes towards national

development

ii) Demonstrate various ways in which the employer and the employee benefit from
entrepreneurship development.

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iii) Identify different entrepreneurial activities within your locality and explain their benefits
to the community

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EVOLUTION OF ENTREPRENEURSHIP
Theory
Specific Objectives
By the end of this sub-module unit, the trainee should be able to

a) Describe the history of entrepreneurship

b) Describe the myths associated with entrepreneurship
c) Explain the theories of entrepreneurship
d) Explain the importance of these theories
e) Explain business, environmental, political and social factors affecting entrepreneurial
development

CONTENT

History of entrepreneurship globally and in Kenya

Entrepreneur is a French word meaning “between – taker” or “go-between”, or “under taker”.
The evolution of entrepreneurship is discussed in several stages:
Earliest period
Earliest definition was by Marco polo, he attempted to establish trade routes to the Far East.
As a go- between, Marco polo would sign a contract with a money person to sell his goods.
While the capitalist was a passive risk bearer, the merchant adventurer took the active role in
trading, bearing all the physical and emotional risks. The profit would be divided between the
two of them with the capitalist taking 75% while the merchant – adventurer settled for the
remaining 25%
Middle ages
As time went by the term entrepreneur changed to describe both an actor and a person who
managed large production projects. This individual did not take any risks but merely
managed the project using the resources provided, usually by the government of the country.
A typical entrepreneur in the middle ages was the person in charge of great architectural
works.
17th century
The person associated with this period is Richard Cantillion an economist. He development
the early theories of entrepreneurship and is regarded as the one who developed the term risk
taker.
The emergent connection of risk with entrepreneurship developed in this century with an
entrepreneur being a person who entered into a contractual arrangement with the government
to perform a service or to supply stipulated products. Since the contract price was fixed, any
resulting profits or losses were the entrepreneurs.
18th century
This is the period in which an entrepreneur was distinguished from the capital provider. One
reason for this differentiation was the industrialisation occurring throughout the world. Most
inventions developed during this time were reactions to the changing world.
19th and 20th century
In this era entrepreneurs were viewed as managers and mainly from an economic perspective.
An entrepreneur was seen as one who organises and operates an enterprise for personal gain.
He contributes his own initiative, skills, and ingenuity in planning, organising and
administering the enterprise. He also assumes the chance of loss and gain consequent to
unforeseen and uncontrollable circumstances.

In the 20th century, the understanding of entrepreneurship owes much to the work of the
economist Joseph Schumpeter .Schumpeter defines an entrepreneur as a person who is
willing and able to convert a new idea or invention into a successful innovation.
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Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to
replace in whole or in part inferior innovations across markets and industries, simultaneously
creating new products including new business models.

In this era entrepreneurs were viewed as managers and mainly from an economic perspective.
An entrepreneur was seen as one who organises and operates an enterprise for personal gain.

For Schumpeter, entrepreneurship resulted not only to new industries but also to new
combinations of currently existing inputs. Schumpeter's initial example of this was the
combination of a steam engine and then current wagon making technologies to produce the
horseless carriage. In this case, the car innovation was transformational, but did not require
the development of a new technology. Different scholars have described entrepreneurs as,
among other things, baring risk. For Schumpeter, the entrepreneur did not bare risk: the
capitalist did.
To him an entrepreneur is more of an innovator.

The ability to innovate can be observed throughout history from Egyptians who designed and
built great pyramids out of stone blocks, to laser surgery then wireless communication.
Although the tools have changed with advances in technology, the ability to innovate has
been present in every civilisation.

Myths associated with entrepreneurship in Kenya

The following are some of the myths associated with entrepreneurship:

i) Entrepreneurs take wild risks at the start of their business. Even though risk is an
integral part of business, the start of business is not considered the highest risk. An
entrepreneur is more likely to face bigger risks at the latter stage of the business.
ii) Entrepreneurs introduce break-through inventions in their start-up business. It
would be easy to assume that entrepreneurs introduce new inventions, usually
technological inventions. This is not true. Innovation may be important, but what makes
entrepreneurship successful is the ability to execute an ordinary idea exceptionally.
iii) Most successful entrepreneurs have years of experience in their chosen line of
business. Bill Gates was still a student when he started Microsoft with Paul Allen. This
story of several inexperienced entrepreneurs starting out a new business venture is
replicated over and over again in the lives of millions of other successful entrepreneurs.
iv) One needs a lot of money to start a business. This is not so. Money is not always an
important prerequisite to be able to start a business. What sets the successful entrepreneur
apart from the not-so-successful is the ability to make do with what little he or she has.
For instance, they look for other sources of money such as borrowing to grow their
business.
v) Start-ups use equity, not debt money. Entrepreneurs who put up equity coming from
their own pocket only comprise less than 50% of the total start-ups. The majority of the
companies are financed by debt.

Theories of entrepreneurship

These refer to the various approaches, which have been advanced to give an explanation as to
why entrepreneurs behave the way they do. They are also known as the perspectives of
entrepreneurship.

The theories try to explain whether entrepreneurs are born or made. The born entrepreneurs
inherit the entrepreneurial behaviour from their parents and grandparents while made
entrepreneurs acquire entrepreneurial behaviour from the behaviour in which they live in.
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The following are some of the entrepreneurial theories:

Economic theory
The theory holds that entrepreneurial behaviour is determined by economic factors. Thus
entrepreneurs are greatly influenced by economic activities. From an economic point of view
an entrepreneur is a person who brings together the factors of production into a combination
to make their value greater than before.

According to Schumpeter, entrepreneurs are innovators who bring together the various
resources to produce a new product/service through new ways/methods of production, finding
new markets, finding new sources of materials to create a new business.

The economic theory provides basic data in the economic environment – activities for
business start-ups. Thus entrepreneurial activities take place where conditions are
supportive/conducive to investment. This theory revolves around an entrepreneur being an
innovator, combining the various resources/ factors of production to create new
products/wealth.

Psychological theory
The theory holds that entrepreneurs possess unique needs, values and attributes, which drive
them into entrepreneurial behaviour. It holds that people have personal traits and attributes,
mental desires to be independent.
The main proponent of this theory is McClelland who attributed entrepreneurial behaviour to
the high need for achievement. Entrepreneurs are characterised by high need for achievement,
which tends to give them high desire to take personal responsibility in risks. They have little
interest in routine activities, which are not challenging. According to this theory,
entrepreneurial behaviour is environmentally determined and is inherent during childhood,
where parents have certain high standards achievement.

Sociological theory
The sociological theory maintains that environmental factors such as values and beliefs
influence entrepreneurial behaviour. (Max Weber, 1904). According too this theory, beliefs
and societal aspects such as social status and recognition influence entrepreneurial behaviour.

Importance of Entrepreneurship theories

i) Entrepreneurship theories bring greater understanding of entrepreneurship behaviour
exhibited by different entrepreneurs.
ii) They enable one to understand the need for entrepreneurship and why some people are
more entrepreneurial than others.
iii) The theories bring out various approaches and perceptions held by entrepreneurs.
iv) Show that the desire for entrepreneurship is innate as well as environmentally determined.
v) Helps us to understand the role played by role models through networks that provide
support.

Activities

1. Discuss business environmental factors affecting entrepreneurship development.

2. Group discussions on historical evolution of entrepreneurship in Kenya
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THE ENTREPRENEUR

Introduction
Entrepreneurs are people who are able to identify opportunities where others are unable to.
Entrepreneurs possess unique characteristics that make them stand out as different from other
business people.
The sub-module unit focuses on the characteristics of entrepreneurs necessary for business
success, and their role in the development of an enterprise.

TYPES OF ENTREPRENEURS

1. Self-Employed-Individual who performs all work and keep all the profit. This includes
everything from family run shops, agents repair persons etc. It can be full-time because
no one else is involved.
2. Opportunistic Entrepreneurs-Those who start a business and expand as fast as
possible in order to be able to hire other employees. Most of the time, these additional
employees have needed expertise that the owner does not have.
3. Inventors- Those with particular inventive abilities who design a better product and
then create companies to develop, produce, and sell the item. High technology companies
of this type are new trend.
4. Pattern Multipliers- Those who develop an idea someone else has already created and
then creates their own business based on following another model. Franchise operation or
chain stores are a form of this approach.
5. Economy of scale Exploiters- Those who benefit from a large volume of sales by
offering discount prices and operating with very low overhead.
6. Acquirers- Those who take over a business started by another and use their own ideas
to make it successful. This often happens when there is a financial problem in the current
operation. Fresh management ideas may save the business.
7. Buy-Sell Artist- Those who buy a company for the purpose to improve it before selling
it for a profit.
8. Speculators- Those who purchase a commodity and resell it for a profit. Real estate,
art, antiques and crops are typical speculator items.
9. Internal Entrepreneurs (Intrapreneurs) - Those who create new ideas and make
them into successful project within an existing business. Although they have neither the
profit nor the personal financial risk of their own business, they need to use the same
methods of operation as an entrepreneur.

CHARACTERISTICS/TRAITS OF AN ENTREPRENEUR
1. To be a successful entrepreneur, there are certain characteristics one should have.
These characteristics could either be personal attributes i.e. inborn natural qualities, or
are acquired. The personal attributes are referred to as traits while the acquired ones
are referred to as competencies. The five traits particularly (known as the “Big Five”
personality dimensions) have received particular attention: need achievement; need
for autonomy; locus of control; risk-taking; and self-efficacy. Other necessary traits
would include:

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 2. Self confidence: - self confidence is important for an entrepreneur because it helps
him/her project a positive image about himself/herself and the business, and this helps
gain the confidence of others.

3. Persistence and determination: - this helps an entrepreneur not to easily get

discouraged or give up. They therefore consider problem as challenges.

4. Highly optimistic: - The successful entrepreneur knows that nothing comes easy and
we have to labour for what we reap. In this way, they can also encourage their
workers to work hard.

5. Innovative and creativity: - it is important for entrepreneur to adopt new ways and
introduce ideas in order to improve their business.

6. Flexibility: - an entrepreneur should be open to change. They should adapt easily to

changing situations and circumstances.

7. Goal oriented: The entrepreneur has a strong desire to achieve his/her goals of the
business the business. He/she channels his/her energies to achieve these goals he/she
has set himself/herself i.e. high profits or market leadership.

8. Independence: one of the common characteristics of the successful entrepreneurs has

been that they do not like to be guided by others and follow their routine. They resist
being pigeon holder. They like to be independent in matters of their business.

9. Foresight: the entrepreneurs have a good foresight to know future business

environment. In other words, they well visualize the likely changes to take place in
market- consumer attitude, technological developments, etc. and take timely action
accordingly.

10. Good communication: as a leader an entrepreneur should communicate effectively

with all concerned such as financiers, employees, customers, suppliers and all who are
concerned with the new enterprise.

11. Good human relation: Tactful and warm human relation is an important factor,
which brings success to an entrepreneur. He will be able to be emotionally stable and
keep himself as a model to others. He will also be able to motivate the employees to
put their best performance at all levels in the organization.

12. Locus of Control: The desire for independence is closely related to this next
personality attribute – namely the belief that we can influence the environment in
which we find ourselves. Success of small business is linked to the internal locus of
control beliefs of the owner-managers.

13. Self-efficacy describes an individual’s belief in their ability to undertake and

accomplish some particular task or activity. Self-belief would appear to characterize
the entrepreneur at all stages of the entrepreneurship process.

ROLES OF AN ENTREPRENEUR IN AN ENTERPRISE

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An entrepreneur does perform all the roles necessary right from the genesis of an idea up to
the establishment of an enterprise. Their roles include the following:

1) Innovation:
As an innovator the entrepreneur institutes new combination of factors of production.
Innovation can take place in five forms according to Joseph A Schumpeter.

 The introduction of a new product in the market

 The institution of new production technology, which is not yet tested by experience in
the branch of a manufactured concerned.
 The opening of a new market into which the product has not previously entered.
 The discovery of the new source of supply of raw materials.
 The carrying out of the new form of organization of any industry by creating of
monopoly position or the breaking up of it.

2) The role of the organizer:

The entrepreneur organizes because he determines how resources used in the enterprise are to
be combined and utilized in order to maximize their output.

3) The role of a risk taker:

An entrepreneur plays the role of a risk taker since he or she is one who will be responsible
for the fortunes and misfortunes of the business in terms of profit and losses.
4) The role of the director
He does this by contributing ideas to advance the business objectives

5) The role of the financier

He or she is the one who contributes the capital or finance necessary to undertake the
business

6) The role of the controller or leader:

Since he or she makes the final decisions and controls all aspects of the business, he is the
business controller.

7) The role of the coordinator:

He is responsible for seeing that all aspects of the business run smoothly.

8) The role of recruitment of staff

CREATIVITY AND INNOVATION

Introduction
Since customers’ tastes and needs are continually changing, the entrepreneurs must think of
new ideas and better methods of running their businesses in order to satisfy the customer.

This sub-module unit will discuss the importance of creativity and innovation, the barriers to
creativity and innovation including managing barriers to creativity and innovation.

Specific objectives
By the end of the sub-module unit, the trainee should be able to:
a) Define the terms creativity, innovation, discovery and invention.
b) Explain the process of creativity and innovation
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c) Explain the importance of creativity and innovation.
d) Explain barriers to creativity and innovation
d) Explain ways of managing barriers to creativity.

Content

Meaning of creativity and innovation

i) Creativity
Creativity is the ability to bring something new into existence.
ii) Innovation
It is the ability to do existing things in a new way. Having a new use for old things is also
innovation.
iii) Discovery
It is making known that which has been in existence but whose uses have not been perceived
iv) Invention
It means bringing something new into existence

Process of creativity and innovation

Creativity as a process has several stages. These are:
i) Preparation. Getting the mind ready for creative thinking using methods such as
- realizing that every situation is an opportunity to learn
- reading on a variety of topics/subjects
- creating a file of interesting articles
- developing the ability to listen to and learn from others
- attending professional/ trade association meetings, both to brainstorm with
others having a similar interest and to learn how others have solved a
particular problem.
ii) Investigation. Studying the problem and understanding its components
iii) Transformation. Identifying the similarities and differences in the
information collected.
iv) Incubation. The subconscious needs time to reflect on the information collected.
Incubation can be enhanced by
- doing something totally unrelated to the problem/opportunity under
investigation
- taking time to reflect (freeing the mind from self imposed restrictions)
- playing and relaxing
- thinking about the issue before going to sleep so that the subconscious can
work on it during sleep
- working on the problem or opportunity in a different environment.
v) Illumination. This occurs when all the previous stages start getting clear.
vi) Verification. Involves testing if the idea will work, is practical to implement and is a
better solution to a particular problem or opportunity. Experiments, test marketing and
piloting are some of the methods that can be used.
(vii) Implementation. Transforming the idea into reality by bringing it to the market. This
is what distinguishes the entrepreneur from the inventor.

Importance of creativity and innovation

i) It leads to increased productivity
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ii) It helps in profit maximization
iii) It motivates employees to become more creative
iv) It leads to diversification of products and services
v) A variety of goods and services is introduced

Barriers to creativity and innovation

Creativity and innovation will be limited by:
i) Cost of research and development is high
ii) Inability to protect invention through patents
iii) Searching for the one right answer
iv) Blindly following ‘the rules’
v) Being over specialized
vi) Fearing to look foolish
vii) Fearing mistakes and failure
viii) Believing that you are not creative
ix) Viewing play as frivolous
x) Focusing on being logical

Managing barriers to creativity and innovation

Barriers to creativity and innovation can be overcome by:
i) Budgeting for research and development
ii) Strengthening public institutions that process the patenting process
iii) Rewarding creativity
iv) Promoting creativity training
v) Avoiding mental blocks
vi) Being systematic
vii) Being a problem solver
viii) Approaching issues from different angles
ix) Avoiding routine practices
x) Concentrating on the end results rather than the means
xi) Avoiding looking for consensus

Activity
Carry out a class exercise aimed at bringing out creativity in the learners e.g. joining 9 dots
with straight lines, discussing the various uses that an identified item can be put into.

Self-assessment questions
i) Distinguish between creativity and innovation.
ii) Explain the importance of creativity and innovation to an entrepreneur.

ENTERPRENEURIAL OPPORTUNITY
Entrepreneurial opportunities are gaps in “need” and the likelihood that if a product were to
be developed to fill that need; it would also be “wanted” (there would be effective consumer
demand)

IDENTIFICATION OF BUSINESS OPPORTUNITIES

A business opportunity is a gap or a need that an entrepreneur feels that if he were to develop
a certain product then it would fill that gap.

An entrepreneur is not an entrepreneur unless she or he demonstrates that she/he recognizes

the need of potential customers rather than being simply infatuated with an innovative idea.

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An entrepreneur must establish the consumer needs and the possibility that his products will
be in demand.

The search for a suitable product should be suiting to the entrepreneur, market and viability
of the project. Success of a product is very important for sustenance growth of an enterprise.
An entrepreneur should start thinking on several product ideas to begin with. Peter Drucker
has identified three possible types of business opportunities.
These are:
a. Additive opportunities: Here better and intense utilization of existing
resources is called for from the decision maker. This also means changes in
production and marketing strategies.

b. Complementary opportunities: This is bringing new ideas in existing

products or business so as to bring in value addition or changes desired in the
market

c. Breakthrough opportunities: This is where fundamental ideas of new

products, new areas and new technologies are started. Breakthrough changes
structure, strategies and business character.
A search for a suitable business opportunity is the first step an entrepreneur takes.

FIVE Ws OF THE MARKET

The five Ws are a framework around which entrepreneurs can gather data about a potential
market to better understand and predict buyer behavior. There are five questions (who, what,
when, where, and why) with factors and elements particular to each.

Question Factor Elements

1. Who are my customers
2. What do they require?
3. When do they buy?
Demographics  Population: numbers, growth,
decline, movements (in and
out), age (average and trends),
and marital status (numbers,
trends)
 Education: number of schools
(all levels), education levels
(average and trends), how
much expended (taxes, trends)
 Family structure: numbers,
composition, trends, marriage
and separations
 Economic: individual income
levels, occupations, assets
ownership (land, homes,
autos, capital)
 Housing: age, starts (trends),
ownership patterns, rental
units numbers, trends
Product or service  Market surveys (formal)
Unobtrusive measures (informal
observation)
Timing  Business cycle
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4. Where do they buy?
5. Why do they buy?
 Product cycles
 Customer cycles
Location  Your market
 Your labour force
 Transportation
 Raw materials
 Suitable site (personal factors)
 Community interest (business
and economic development
environment)
Effective demand  Purchasing power of
population
 Purchasing habits and trends

GENERATING BUSINESS IDEAS

Before starting a business, it is important that an entrepreneur comes up with a good idea if
he or she is to be successful, and be ahead of the competition.

REASONS FOR GENERATING BUSINESS IDEAS

There are many reasons whey it is necessary to generate a good business idea before starting
a business. Some of these reasons are:

1. To come up with the right product or service that closely meet the needs of your
customers (market)
2. To conduct your business in the best way possible by using the right technology.
3. One will be in a much better position to stay ahead of the competitors.
4. To be able to come up with many different products or services to meet different
customer needs such that if one fails, the enterprise does not lose everything. This is
called spreading of risks.
5. To be able to diversify your business as the need arises especially if what the business
is already dealing in becomes unattractive to customers.

SOURCES OF BUSINESS IDEAS

Newspapers and magazines: the commercial advertisement pages may contain

advertisement for sale of some business and other business opportunities

The radio, television and the Internet: Radio and television talk –shows about business
matters can give useful information e.g. enterprise Kenya on KTN. One can also get ideas on
the changing trends.

Trade shows and exhibitions: Here one can discover new products and services and also
meet with dealers from other places or countries who can give valuable information for
business creation.

Research findings: One can carry out research so as to discover the needs that are not being
satisfied fully by the existing goods and services. Such research can be conducted simply by
talking to people, by observing the behaviors of customers in a particular area or by talking to
existing businesspersons.

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Individual personal skills and knowledge: The background of the entrepreneur plays a
major role in determining the type of business to go into.

Complaints from customers about different products or services: Such complaints are a
sign of dissatisfaction and frustration. By listening to such complaints one could easily set up
a rival business.

Brainstorming exercises: In such exercises, people come with their own different ideas. The
ideas no matter how far fetched they may appear to be should be recorded down. People then
try to improve on them progressively and logically so that the very best is maintained. One
can carry out such brainstorming exercises with either family members or with colleagues
with similar interests.

METHODS IN GENERATING BUSINESS IDEAS

Focus group.
In this method, a group of individuals discuss and provide information in a structure format to
arrive at new business ideas. A leader or a moderator sits with group of people and
discussions are held in a free and frank manner regarding new ideas for industries or services.
In this case, the leader does not ask questions or solicit answers. He acts as a moderator or
creative thinking of focus groups. The group generally consists of 10-14 participants and all
members take part in the discussion.

The new ideas are direct towards market needs of today and needs of tomorrow. The group
consisting of end users generally gives ideas for new products. The group also gives ideas on
how the product should be marketed and how it should be packaged and advertised. The data
received form various groups may be analyzed on realistic basis or quantitatively short list
the new ideas.

This method is generally used for choosing apparel design, jewellery design, cosmetic, health
care products and the like.

Brainstorming
This is a group method of obtaining new ideas and a business solution. This method is
extensively used for generating ideas for new product packaging and distribution. The groups
are organized for sitting together and participating in the discussions. The methods of
conducting a brainstorming session are:
1. The group should be informed of the areas of discussion
2. The group should consist of people drawn form different streams of knowledge
3. The brainstorming session should be held in a good place with ambience so that the
group comes up with the ideas.
4. The member should have no inhibition about their status in the organization the
department where they serve.
5. Day dreaming or wide ideas to be encouraged.
6. There should not be any negative criticism against any particular individual or groups
or departments.
7. Others can improve the ideas of one but no repletion in ideas. Each individual may e
given a chance to three ideas and these ideas recorded on a flip chart or black board.
Based on the above broad ideas a general format can be evolved where the brainstorming
session could bring greater numbers of ideas and hence chances of emergence of more useful
ideas.

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Reverse Brainstorming
A group method for obtaining new ideas focusing on the negative

Checklist
The new ideas for the business are developed on discussion on list of related issues.
Entrepreneur and a list of questions, suggested, list a specific area of discussion and
statements are developed for in-depth discussions and arrive at a business idea. The type of
questions for a particular product may include:
a. Who uses the product? How is it used?
b. Why at the entire item is used?
c. What are the new ways of usage of a product?
d. Can the product be modified for better value to the customer
e. What are the substitutes available in the mart?
f. How they are competitive? Can we combine the features to develop a new
product?
g. Can copied and improved products add value?
h. Can we change shape, colour and packaging of the product? Can we make it
larger, smaller or increase frequency?
i. Can we bring substitute products?
j. What products are being used in other countries and why?
k. What are the new emerging products in the particular product range?

Problem Inventory Analysis

It is a method of obtaining new ideas and solutions for business by focusing on the problems.
In this case the individuals are used similarly to focus for generating new business ideas. The
group discusses a category of products. The group is given the problem(s) that are commonly
felt by consumers, dealers, transporters and the general public. This discussion will be
focused and related to a particular product and problem suggested by many on the particular
product. The method may not give an entirely new idea about the product but it may add
value of the existing product. Small enterprises mostly use this method.

Synectic
Synectics is a creative method of generating new business ideas through one of the four
analogy mechanisms namely direct, personal, and symbolic and fantasy. A group, related to a
product, work in two steps:
Step 1- Familiarize both the product and thus removing the unknown elements of vagueness
about the products.

Step 2- Use the analogies by personal, direct, symbolic or fantasy which crates new solutions
for new products.

An entrepreneur may use one or two of the above discussed methods for generating new
business ideas. Ideas generating stage is the first step in any entrepreneurial activity. Its many
new product ideas as possible are developed in the idea generation stage. Impractical ideas
are dropped.

Gordon Method
Method for developing new ideas when the individuals are unaware of the problem.

Free Association
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Developing a new idea through a chain of word association.

Forced Relationship
Developing a new idea by looking at product combinations. It is a technique that asks
questions about objects or ideas in an effort to develop a new idea. The new combination and
eventual concept is developed through a five-step process.

1. Isolate the elements of the problem

2. Find the relationships between these elements.
3. Record the relationship in an orderly form.
4. Analyze the resulting relationships to find ideas or patterns.
5. Develop new ideas from these patterns.

Collective Notebook Method

Developing a new idea by group members regularly recording ideas.

Attribute Listing
Developing a new idea by looking at the positives and the negatives.

Big-Dream Approach
Developing a new idea by thinking without constraints.

Parameter Analysis
Developing a new idea by focusing on the parameter identification and creative synthesis.

1. Need analysis
2. Parameter identification
1. Creative synthesis
2. Realization – invention which meets the needs

5.5 EVALUATION OF BUSINESS OPPORTUNITIES

It is necessary that all business opportunities are thoroughly assessed and evaluated so as
to minimize the risk of business failure. In evaluating the business ideas, we need to
consider certain conditions that a business opportunity should meet for it to have greater
chances of succeeding.

CONDITIONS NECESSARY FOR A BUSINESS OPPORTUNITY

Some of the conditions that a business opportunity should meet are:

1. That the opportunity when exploited will meet specific unsatisfied needs of people who
have the money with which t buy the goods and services, and are also willing to actually buy
the goods and services. In other words, there must be real demand for the good or service that
arises from the opportunity.

2. The product or service provided should be able to be of the same quality or actually exceed
the quality and standards provided by the competitors.

3. The business should actually meet the goals and expectations of the entrepreneur.

4. The business should be profitable over a long period of time

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5. Once an entrepreneur has identified a business opportunity, he/she needs to evaluate the
chances of its successes. In evaluating the business opportunity, the entrepreneur needs to
consider the following:

a) Market availability: The entrepreneur needs to ask himself whether a ready and substantial
market with able clients who are willing to buy exist.
b) Timing of the opportunity: the entrepreneur should ask himself whether he/she will be able
to enter the market while the opportunity still exists.
c) Survival of the business: the entrepreneur should ask himself whether he wants to enter
into that particular business and his capabilities of survival and preserving the business.
d) Network: an entrepreneur should ask himself whether he has the necessary background
and contacts what will enable him survive the market.
e) Staffing: An entrepreneur should consider who else he requires to involve in the business
and in what capacity in order for the business to success.
f) Competitors: The entrepreneur should ask who his competitors will be and whether he will
be able to provide better value at more competitive process than them.
g) The external and internal environment:

The internal influences

Owner – manager motives
Personal attributes
Technical skills
Management competencies especially in;
a) Marketing
b) Finance
c) Management of people
Entrepreneurial management behaviours, including:
a) Opportunity discovery and exploitation
b) Resource acquisition and coordination
c) Entrepreneurial networking
d) Entrepreneurial decision-making

External influences
Macro environment
a) Political
b) Economic
c) Social
d) Technological

Micro environment
a) Local economy
b) Market sector
c) Competitors
d) Customers

WHEN TO SET UP
Storey has identified several factors influencing on the timing of new business birth:

Levels of unemployment is an important factor which pulls people into self-employment

Government policies
Profitability. When income in self-employment is higher, more people will be attracted
by this option.
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 Interest rates. When real interest rates are high, new owner manager find it more
difficult to obtain finance and are less willing to borrow.
Personal savings and assets
Consumer expenditure
Structural change
Potential negative factors. Unemployment, and government initiatives to reduce
unemployment through self-employment, may encourage many people into new venture,
but this is no guarantee of a friendly business environment. The opposite is likely to be
true as high unemployment is likely to depress levels of demands, and therefore potential
customers’ expenditure with new business.
Potential positive factors.

WHERE TO SET UP
Storey cites eight possible factors that may lead to higher rates of new firm formation within
a given geographical area:
a) Population growth
b) Unemployment
c) Wealth – a high income area with more disposable income to spend, especially on
services.
d) Workforce qualification
e) Business size – large numbers of small firms already existing in an area may indicate
low entry barriers into predominant business types of the area. A local business
culture may also encourage more of the workforce into their own new venture by
example and familiarity.
f) Housing
g) Local government
h) Government policy – some small business incentives and development schemes are
targeted regionally.
i)
EVALUATING THE IDEA
a) How much capital is required to plan and implement the business ideas?
b) Are other resources need to implement the idea readily available besides the capital.
c) What are the returns on the unit sum of the capital invested?
d) How long will it take to recover the basic costs associated with the business?
e) What other benefits direct or indirect should the owner expect from the business?
f) Is there a ready market for the product or service?
g) What level of technology is needed in order to serve? Is it available? At what cost?

EVALUATING THE ENVIRONMENT

What are the general obstacles associated with entry in the particular type of business?

How much competition is expected and how much strategy is to be used in coping with it?

What are the regulations to be complied with in establishing and operation the particular type
of business?

a) How large is the current potential market?

b) What faction of the market do you expect to secure
In the short run?
In the long run?

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 c) What are the laws and regulations governing the establishment and operation of the
particular type of business?
d) What are the taxes that are applicable to the particular type of business?
e) What kind of technology the competitors are using? Can you match their level of
technology and product quality?
f) Who are your customers?
g) Where are they?
h) How are you going to reach them?
i) Do you know their values and expectations with respect to the product?
j) How stable is the market in terms of numbers and the changes in values or
expectations of the target clients.
k) What is the survival rate in the particular line of business? Do you know the reasons
whey people fail?
l) Which other individuals or institutions do you expect to cooperate with in order to
achieve business success? Are you ready to work with them?
m) If you expect to borrow part of your capital, do you know the prevailing lending terms
and conditions? Are you able to meet them?

EVALUATING THE PERSON

a) What are your goals for embarking on the particular business?
b) How do you define success in any type of business? Is your definition compatible with
your goals?
c) Do you have enduring goals for embarking on a business idea?
d) Have you got relevant training or experience for the business you expect to start?
e) Do you enjoy working long hours?
f) Do you enjoy working with other people?
g) Are you able to sacrifice short tem interest for long-term goals?
h) Is the business you propose to start compatible with your interests and lifestyles?
i) What other people do you intend to involve in the running and success of your business?
Have you consulted them concerning the particular roles you expect to give them?
j) Do you have adequate capital to finance the business? If not how, do you expect t make up
for the balance?

FACTORS TO CONSIDER WHEN STARTING A BUSINESS

1. Capital: Entrepreneur has to invest in certain amounts of personal money for the start of
their business. He should know the sources of his capital.
2. Business opportunity: An entrepreneur should not start a business similar to existing ones
without determining whether the market can accommodate all of them.
3. Entrepreneurial skills and knowledge: An entrepreneur should know his competencies,
attitudes and skills that will benefit his business. Managerial skills are important since they
will enable him to:
a) Implement the business policies
b) Identify and deal with problems that can interfere with his business
c) Conduct business appraisal and compile the necessary report
d) Ensure and control quality in performance for productivity in business.

4. The competitors: A person wishing to start a small business should know his/her
competitors and the quality of products, so that he can make his products even better.
5. Economic environment: When the economy is declining progressively then the demand for
goods and services also tends to decline. The entrepreneur needs to study the economic
environment before venturing into business.
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6. Legal requirements: an entrepreneur should know the legal requirements of starting his
enterprise. The legal requirement may prohibit or restrict the consumption of a certain
commodity. The entrepreneur has therefore to choose wisely the business to engage in.
7. Political environment: The political environment scene changes. An entrepreneur should
consider whether the business will be able to operate within the changing political
environment e.g. increased corruption and official harassment may force his business
enterprise to close own once established.
8. Machinery and equipment: This will be determined with the nature of the business activity.
If the entrepreneur engage in a production business the knowledge on how to use the
equipment is necessary.
9. Business premises: the location of the business is a key factor to consider. The following
are the factors one should bear in mid when selecting a business site.
(a) Transport facilities
(b) Availability of energy or power
(c) Nearness to raw materials
(d) Expansion of ability in future
(e) Availability of auxiliary services i.e. banking

ENTREPRENEURIAL MOTIVATION

Definition
A motive or a drive is a need that is sufficiently pressing to direct the person to seek
satisfaction of the need while a need becomes a motive when it is aroused to a sufficient level
of intensity. For a person to venture into entrepreneurship there must be the necessary
motivations, the drives that will enable him/ her to persist in their entrepreneurial practices.

Entrepreneurial motivation factors

Although the motivations for venturing out alone vary greatly, the following are some of the
reasons cited for becoming an entrepreneur:

Internal motivations and drives include:

a) Employment creation need: This arises in a situation where one fails to get any form
of salaried employment creating a need for being gainfully employed. This acts as
motivation for a person to become an entrepreneur, to start and run his own business.
b) Self-reliance/ need for independence: A self employed person has greater flexibility
in utilisation of their time and have greater independence. This could act as a strong
motivation to make one desire to become an entrepreneur. A corollary to this need for
independence could be the need for power i.e. to exercise power over other, or to be a
boss rather than to be bossed.
c) Competition. “Anything you can do, I can do better”: This may be in response to
the achievements of peers, friends, or family members who have already made it as an
entrepreneurial business person.
d) Need for recognition: Human beings strive to get recognition about their
achievements in life, by their peers, family and society. This need for recognition
could be a motivation for one to go into self employment. Similarly, members of a
certain family may have been in the past entrepreneurial pillars in the community
therefore acting as a motivation for other generations of the family.
e) Need for adventure: In salaried employment, a person’s duties are well specified and
the boundaries well defined. Work may become routine posing no challenges and
involving very few responsibilities. This may create a feeling that one needs

22
 challenging activities, activities that carry responsibilities with them. This sort of
scenario acts as a strong motivation for people to go into business on their own.

External motivations and drives

These refer to motivations that are provided by others, especially the legal authorities and the
society in general. They provide a conducive climate for you to realise your internal
motivations through entrepreneurship. They include:
a) Infrastructure: To operate efficiently any business requires the provision of certain
basic facilities. Such facilities include: power for production processes, water for
basic hygiene purposes, business premises and appropriate land depending on the
nature of the business, services of banks and post-offices among others.
The availability of these facilities plays a major role in encouraging entrepreneurs to
start businesses. The chances of success of a new business venture depend to a large
extent, on the availability and quality of such facilities.
However, the provision of such facilities, to a very large extent, is the responsibility
of the established authorities’ e.g. local authorities.
b) Credit facilities:
All businesses require start-up capital and operating capital. Usually personal finances
are not adequate to take care of all the requirements of starting the business. Thus
entrepreneurs require financing from external sources such as government agencies,
banks and non-bank financial institutions. Although these sources are there,
sometimes it is quite difficult to get the financing you need from them. The
requirement that are put by the financial institutions are at times too strict.
Some of the factors considered include:
 The amount that is required
 The period of the loan
 The viability of the proposed business
 The collateral(security) that is required
 The repayment term (debt-servicing)

Suggested learning activities

1. Class discussion on motivational factors that have contributed to successful.
2. Discuss motivational factors that may lead them to venture into business.

ENTREPRENEURIAL COMPETENCIES
Theory

Introduction

Specific Objectives
By the end of this sub-module unit, the trainee should be able to:
a) Define entrepreneurial competence in a business
b) Explain key entrepreneurial competencies in business

CONTENT
Definition of entrepreneurial competence in business.

Entrepreneurial competencies refer to skills and abilities that an entrepreneur should have and
exhibit for entrepreneurial success.

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Key entrepreneurial competencies in business
The following are some of the key competencies required for entrepreneurial success

i) Initiative – refers to acting out of choice rather than compulsion ; taking the lead rather
than waiting for others to start

ii) Persistence – an entrepreneur should have a “never say die” attitude, not give up easily,
and strive to seek information continuously until success is achieved.

iii) Integrity - the entrepreneur should have a clear sense of values and beliefs that underpin
the creative and business decisions that they make to influence the actions they take,
particularly when in difficult or challenging circumstances

iv) Risk taking - an entrepreneur should understand that risk taking means trying something
new, and possibly better, in the sense of stretching beyond what has been done in the
past; and that the constant challenge is to learn how to assess choices responsibly,
weighing the possible outcomes against his/her values and responsibilities

v) Networking – entrepreneurs should understand that networking is a key business

activity which can provide access to information, expertise, collaboration and sales; and
that careful planning and preparation helps achieve desired results

vi) Decisiveness - the entrepreneur should have skills to resolve issues as they arise and
should respond in a flexible manner to deal with changing priorities

vii) Concern for high quality of work – attention to details and observance of established
standards and norms.

viii) Concern for employee welfare – Believing in employee well being as the key to

competitiveness and success in initiating programmes of employee welfare

Ways of matching entrepreneurial competencies with business opportunities

This involves identifying individual competencies the analysing the competencies with the
business

Identifying and assessing the viability of business ideas and translating them into
business opportunities.
Ideas and opportunities need to be screened and assessed for viability once they have been
identified or generated. This is not an easy task though important because it makes the
difference between success and failure.
The exercise certainly helps in minimising the risks and thus the odds of failure.
Identifying and assessing business opportunities involves determining risks and rewards/
returns reflecting the following factors.

i) Personal goals and competencies of an entrepreneur.

It is important for an entrepreneur to possess competencies, knowledge, skills and
abilities before starting a business where these competencies are lacking, it’s vital to
develop or bring in others/managers that compliment what is already available.
ii) Length of the ‘window of opportunity’.
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 Opportunities do not exist forever. The entrepreneur has to assess how long this
window will be opened in order to make an investment decision.
iii) Industry/market.
Is there a need for the product/service? It is also important to know the size of the
market.
iv) Management skills.
Those businesses that require high level of capital injection, require proper
management skills.
v) Competition
Check out whether the business has a competitive edge over other competitors e.g.
potential constraints and if the industry faces existing entry barriers.
vi) Resources
Availability and access of these resources determines whether certain opportunities
can be pursued.
vii) Environment
This refers to political, economic, geographical, legal, regulatory and also
physical environment within which a business operates.

Suggested learning activity

1. Discuss competences observed during the field visit

LEGAL ASPECTS of RUNNING A BUSINESS - in brief

1. Health and safety
You are responsible for the effect your business may have on the health and safety of your
employees and members of the public.
2. Fire precautions
You may need a fire certificate, particularly if you're running a guest house, hotel or
residential nursing home. For general advice on fire precautions, talk to your local fire
service.
3. The Environment
There are environmental regulations that may apply if your business:
* uses refrigeration or air-conditioning equipment, fire equipment or solvents for cleaning
* produces, imports, exports, stores, transports, treats, disposes of or recovers waste
* produces, imports or exports packaging
* produces packaging waste
4. Employees rights
You must protect the legal rights of your employees. If you take over an existing business,
you must usually keep the existing terms and conditions of employment.
5. Buildings
You must take action if:
25
* A new building or change of use is involved
* Plant or machinery is installed within an industrial site, but outside a building
* Existing premises require structural alterations
Contact your Local Authority for further information, these may be found in the Business
Services section under Legal & Premises
6. Intellectual property
Intellectual property' describes things such as business names, patents and inventions. You
should protect your own company name and logo, along with any inventions, product designs
or copyrights. You should also respect other people's intellectual property rights. For
example, you can't use the same name for your business as someone else doing similar work
in your town.
7. Fair trading
The Office of Fair Trading (OFT) is responsible for protecting consumers by promoting
effective competition, removing trading malpractice and publishing appropriate guidance.
The OFT also issues consumer credit licenses.
8. Keeping information about people
If your business involves keeping information about people, you will have to be careful about
the sort of information you keep and how it is used in relation to the Data Protection Act.
You may have to register if you keep such information on computer. The Data Protection Act
grew out of public concern about personal privacy in the face of rapidly developing computer
technology. The act covers personal data about living, identifiable people that can be
automatically processed. To keep such information on your computer legally, you may have
to register. For a range of useful free information booklets or to register, contact them direct.
9. Providing services to disabled people
Under the Disability Discrimination Act , you must do everything you can to make sure that
disabled people can benefit from the services you provide.
10. Licenses
A license is required for many businesses, not just the obvious ones like casinos or public
houses. For example, you need a license to run a hotel, a guesthouse, a mobile shop or to be a
hairdresser. You should always check whether your business requires a license to trade.
11. Insurance
It's good practice to have insurance to cover the loss or theft of your business property, as
well as other types of possible losses. It's also compulsory to have public liability insurance,
which will often come as part of your contents insurance policy.

CHOOSING A LOCATION FOR YOUR BUSINESS

1. Availability of raw materials
If you intend running a manufacturing or production business, then the nearness or
availability of raw materials is a factor you must not joke with when choosing your business

26
location. If your business is not sited close to these raw materials, then sourcing and
transportation will reduce your profit margin.
2. Nearness to market
The next important factor to consider is the nearness of your business to its customers. Are
your customers resellers or end users? Answering this question will help you determine the
best area to locate your business. Remember that for your business to succeed, you must
make it easy for customers to find your product.
3. Availability of basic infrastructure
Availability of basic infrastructure can affect your choice of small business location.
Amenities and infrastructure such as water supply, power supply, good road network and
security are things to consider when locating your business.
4. Economic policy
The economic policy or system of a particular region may also affect your decision and
choice of location. Some economy favor capitalists and others are driven by socialism; where
the government controls all businesses. Other sub-factors to consider are government’s
policy, fiscal and monetary policy, exchange rates, taxes, levies and duties.
5. Demographics
Demographics as a factor can have a big influence on your choice of business location. The
type of product or service your business offers and the status of the customers will play a
vital in your choice of small business location. I will share an example:
Suppose you are into the business of selling stationeries. That means your demographics
should be made up of students, so your best bet of location should be within school vicinity.
6. Psychographics
The mindset of your customers or the aura of a particular region is also a factor to consider
when choosing a location for your small business. For example; if you site your business in a
region where tribalism thrives, then you are doomed if you are not a member of the tribe.
Another example is this; if you are in the pornographic industry, you will be making a
grievous mistake to site your business within a region where the inhabitants are highly
religious.
7. Industrial Clusters / areas
Some entrepreneurs may decide to site their business in industrial areas or clusters due to the
infrastructure and amenities already on ground. Industrial areas are areas mapped out
specifically for commercial purposes especially manufacturing firms.
These areas are sometimes given special attention such as good road network, constant power
supply, etc. In some certain regions, heavy duty manufacturers are forced by the government
to site their companies in these industrial areas.
8. Export processing zones
Locating your business in an export processing zone may be a smart choice for you especially
if are an exporter. Locating your business in such regions means a reduction in transportation
cost, faster inspection and clearance of your products by custom officials and so on

27
9. Free trade zones
International free trade zones and trade fair centers are also good places to site your business
because it is accessible and normally receives wide publicity.
10. Distributive channel
If your business doesn’t deal directly with end users or final consumers, then it’s wise to put
your distributive channel into consideration when choosing a location for your small
business. The more you make it easier for your distributors to access your products, the better
for your business.
SOURCES OF BUSINESS FINANCE
Business finance refers to the funds necessary to start, run and expand a business.

When looking for business finance it is important to realize that some sources of finance may
be appropriate while others may not. There are various sources of business funds available to
the entrepreneur some of which are:
i) Personal finance- personal savings are a major source of capital during the start-up
stage. The personal savings may be obtained from former employment, money saved in
savings/ fixed deposit accounts, sale of personal assets such as land.

Advantages of this source are:

- It is the least expensive since no interest is paid.
- It does not involve legal process of acquiring
- It allows for flexibility on the use of funds
Disadvantages:
- It may be inadequate for business needs.
- May be used without proper planning.
- May take too long to raise adequate capital.

i) Family and friends contributions – The family may provide funds and/or free
without necessarily taking up a share of the business. Sometimes, it is possible to ask for
financial assistance from friends. If they do not require to be paid back, then this would
be a form of equity capital

Advantages:
- Funds can be made available to the entrepreneur without conditions.
- The funds may carry little or no risk to the business
- Re-payment period may not be fixed.
- Family and friends may contribute to the management of the business.

Disadvantages:
- They might interfere in the business management.
- They might claim part of the profits.
- It may result in differences which may lead to serious consequences.
Venture capital

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Venture capital is a type of private funding mainly provided for start-ups with a high
potential for profitability and growth. Venture capital typically comes from institutional
investors and high-net worth individuals.

The following are some of the advantages and disadvantages of venture capital:
Advantages:
i) Entrepreneurs can enjoy value addition activities that come with the capital e.g.
mentoring, business alliances, management assistance.
ii) Entrepreneurs planning to source venture capital must embrace creativity and
innovation.

Disadvantage:
i) Venture capital ties the borrower to the lenders condition thus limiting the
entrepreneur from making certain personal decision.

iv) Government Grants

These are grants that the government has put in place from time to time for onward
borrowing by entrepreneurs through intermediaries such as financial institutions. In the past
these have included the youth enterprise fund, the disability fund, women enterprise fund,
fresh graduate funds and so on.

Advantages of government grants:

i) Lending conditions are more friendly compared to commercial lenders.
ii) Minimal interest rates are charged.
iii) Business Development Services( e.g. training, mentoring, incubation) are
provided to borrowers
Disadvantages:
i) There is high competition for the funds.
ii) Bureaucratic processing procedures leading to red tapes.
iii) Political patronage may interfere with the lending process.
iv) The amounts of credit available are limited.

v) Banks and non- bank financial institutions

A bank is a financial institution that accepts deposits, gives loans and other financial services.
Non- bank financial institutions provide banking services without meeting the legal
requirements of a bank. These institutions provide both short term and long term credit at
their prescribed conditions.
Advantages of such institutions are:
i) Entrepreneurs can borrow large amounts of money to start or even expand a
business.
ii) An entrepreneur can get different types of loans from these institutions
iii) The entrepreneur may receive non-financial services e.g. networking, marketing
information, business best practices, training etc.
Disadvantages:
i) The entrepreneur must have collateral to borrow any funds.
ii) High interest rates are charged.
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iii) There are some hidden loan charges.

Borrowed funds (loans)

The government, micro finance institutions and commercial banks offer funds to small and
medium businesses. Some loans require security (collateral) while others do not. Interest rates
on loans vary from one lender to another. Such funds are available from the following
institutions;

Micro-finance Institutions/ lending Non-governmental Organizations (NGO’s)

Such institutions include: Kenya women Finance Trust, Faulu Kenya, K-Rep, World Vision,
Plan International and Strengthening Informal Sector Training (SITE).
Advantages of these institutions are:

- Available at grass root level.

- Provide training in managerial skills.

- They lend to groups and individuals.

- Flexible lending rates

- Collateral may not involve physical property.

- May offer marketing assistance

Disadvantages:
- May not operate in all regions of the country

- May limit the entrepreneur to operate as a group.

- Some of the institutions may target specific groups e.g. women/men/orphans/the

challenged.

- There is a limit to the funds they lend.

- Regulations of getting funds are rigid.

Other sources of business finance:

There are other borrowing opportunities open to small businesses such as:
Merry-go-rounds: These are informal groups the entrepreneur may belong to.
Advantages of such groups are:
- No securities are necessary.

- It is simple to obtain a loan.

Commercial banks:
Advantages of commercial bank loans are as follows:
- Can lend out large amounts of money.

- Repayment periods can be re-negotiated.

30
- They also offer non-financial advice on business operations.

Disadvantages:
- The collateral required is higher in value than the borrowed amount.

- High interest rates are charged.

- The amount to be borrowed is restricted to the ability to repay.

- Some costs on the borrowed loan may be hidden.

- Some loan conditions are ambiguous.

BUSINESS PLAN

Meaning of a business plan

A business plan is defined as a generally written document giving in detail all relevant
internal and external elements that affect business and strategies for starting new ventures. A
business plan is an important document, which deals with all aspects proposed new business.
Planning is an ongoing process in any industry or business or business enterprise. It is more
important for a new business. The business plan integrates the functional plans of different
segments of the organization, such as finance marketing, production and human resources.
The business plan is also referred to as “the road map or game plan of the organization”. In
preparing a business plan an entrepreneur takes help of experts in different fields such as
finance, legal, marketing, technical consultants, etc for necessary inputs.

The entrepreneur prepares a business plan and is a written document showing where the firm
is, where it is going and how it proposes to get there. The plan also shows if the proposed
business is worthwhile. The business plan should be made known and available in all
concerned.

USE OF BUSINESS PLAN

The business plan serves two main purposes;

1. As a useful aid to management it:

 Shows the future objectives of the business.
 Gives a framework for decision-making.
 Provides a yardstick against which actual future performance of the business
can be measured.
 Communicate to outsiders about the goals, objectives and activities of a
business

2. The plan also helps explain the business to outsider; especially banks and other
lending organizations when a business needs to raise funds.

BENEFITS
1. It forces would be entrepreneur to establish written goals and objectives for their
proposed businesses
2. It enables potential entrepreneur to assess the viability of their business opportunity
on paper

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 3. It assist in identifying the potential customers, marketing opportunities, pricing
strategy, promotional activities, distribution strategy and the competitive conditions
needed for business success
4. It identifies the number of employees needed, the skills they should possess, the task
they will perform and the methods of remuneration to be adopted
5. It establishes the financial needs of a business and suggests the possible sources of
financing
6. It helps to identify critical factors for successful entry and growth of a business in a
given market place
7. It exposes entrepreneurs to be the whole planning, budgeting, forecasting and
reporting techniques process necessary for starting or expanding a business

There is no single correct format from business plans for all business. The plans vary
depending on the nature and purpose of each business.

COMPONENTS OF A BUSINESS PLAN

A business plan include details under the following main sections
1. Executive summary
2. Business description
3. Marketing plan.
4. Management plan
5. Production/production plan
6. Financial plan
7. Expected performance
8. Action plan
9. Appendices

PURPOSE
This is a short 2-3-paragraph section explaining why the plan is being written. For a plan to
be used in application for funds, it should clearly be stated:
a. The type of funds being sought
b. Whether loan or grant
c. The reason for the funds
For loans fund it should be indicated:
a. Amount required
b. How the funds are to be used
c. For how long the loan is required
d. Proposed repayment pattern
e. Security available
This section helps to understand the rest of the business plan
The Five Minute reading
These are three viewpoints that have been presented in an order of decreasing significance to
point out the emphasis needed in well conceived business plan.
 The entrepreneur in-depth knowledge of the technology or creativity involved. Is the
venture market driven- is it aiming for and existence of a substantial market.
 The market place- establishing an actual market (determining who will buy the
product or use the service) and documenting anticipated percentage of this market
 The marketing emphasis on financial forecast.

The following six steps represent the typical business plan reading process many venture
capitalists use (less than one minute is devoted to each step):

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Step 1: Determine the characteristics of the venture and its industry.
Step 2: Determine the financial structure of the plan (amount of debt or equity
Investment required).
Step 3: Read the latest balance sheet (to determine liquidity, net worth, and debt/equity).
Step 4: Determine the quality of entrepreneur in the venture (sometimes the most
important step)
Step 5: Establish the unique feature in the venture (find out what is different).
Step 6: Read the entire plan over lightly (this is when the entire package is paged through
for a casual look at graphs, charts, exhibits, and other components).

EXECUTIVE SUMMARY

This is a short section summarizing the key points out the plan. It explains in brief the whole
plan and it should obviously be written after the writing of the whole plan is completed.

BUSINESS DESCRIPTION

For an already existing business, the details would include;

a. Business from and ownership.
b. When started.
c. Past performance, success and failures.
d. Reason for the required Assistance.

For a new startup business it will include;

a. The mission of the new venture.
b. Your reason for going into Business
c. Why you think you will be successful in this venture.
d. What development work has been completed to date?
e. What are your products or service? Describe them including patent, copyright or
trademark.
f. What is the location of the business and your reason for choosing the location?
g. Are you building new? If it needs renovations state the costs of the renovation.
h. Is the building leased or owned? (State the terms).
i. What office equipment will be needed?
j. Will the equipment be purchased or leased?
k. What experience do you have to help you successfully implement the business plans?

MARKETING PLAN
The marketing plan is based on the market data received in the market research activities. The
marketing plan describes the market conditions and strategies proposed and promotion
policies. It will include;
a. A description of the goods and services being produced or to be produced and their
uses
b. Present market situation for the products
c. Target market and the expected market share
d. Advantages of your product against competing goods or services, proposed rice and
distribution channels
e. Expected future market growth

MANAGEMENT PLAN
It gives details on;
a. The owner/manager and other key people in the business
b. Their qualifications, skills and past experience
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 c. Their role ability to successfully carry out the proposed business or any training
required.
d. Their salaries and benefits

PRODUCTION/OPERATION PLAN
It gives details of the manufacturing process and operations of the proposed venture. it
indicates what items to be sub contracted, the cost and the time frame. it also provides the
production details such as the physical plant layout, the technology, the requirements the
equipments, raw – materials and the cost of manufacturing

In the proposed new venture is not manufacturing type but service oriented, in that case the
operational plans are made. The operational plans describe in details the chronological steps
involves in the business operations.
Questions for production plan include:-
a. While the new venture be responsible for all or part of the manufacturing operation.
b. If some manufacturing is subcontracted, who will be the subcontractor? (give names
and address)
c. On what basis will sub contractors be selected?
d. What will be the layout of the production process?
e. Which raw materials will be needed for production? and which are critical?
f. Who are the suppliers of the new materials and what are the appropriate costs?
g. What are the costs of manufacturing the product?
h. What is the future capital equipment need of the venture? And why?

FINANCIAL PLAN
The financial plan gives the projections of important financial data that determines the ability
of the venture and financial investments required for the venture. The entrepreneurs draw the
social figures from the forecast sales and production. It also indicates the projected balance
sheet giving the financial conditions of the process, giving the details of assets and liabilities
investment by entrepreneurs and financers. What is included here are.

a) Estimated cost of the proposed business

b) Purchase of fixed assets including any building and machinery
c) Working capital including purchase of stocks, raw materials; running costs, wages,
power, transport etc
d) Proposed sources of required funds
e) Amount to be contributed by the owners
f) Required loan/grant.

Suspected performance

This section should show the expected future performance of the business in profits and
increase or decrease in the business assets. This section should be prepared with the help of
an accountant or consultant.

Action plan

This section gives details of the actions to be taken in implementing the business proposal
allowing:
a. What is to be done
b. When
c. By whom
d. How long will it take

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Appendices

This is attachment of the necessary documents in support of information contained in the

business plan. This may include:
a. Projectile income statements, cash flow statement and balance sheets
b. Copies of past performance records
c. Copies of plot maps, title deeds, allocation letters, building plan etc
d. Copies of C.V. certificates etc

PITFALLS IN SELECTING NEW VENTURES

Lack of Objective Evaluation

Engineers and technically trained people are particularly prone to falling in love with an idea
for a product /service. They seem unaware of the need to scrutinize the design or project in
the ordinary way of their professional work.

No Real Insight into the Market

Many entrepreneurs do not realize the importance of developing a marketing approach in
laying the foundation for a new venture. They show a managerial shortsightedness. Also, they
do not understand the life cycle that must be considered when introducing a new product.
Entrepreneurs must not only project the life cycle of a new product, but also recognize that
introducing a new product at the right time is important to its success. Timing is critical.

Inadequate Understanding of Technical Requirements

The development of a new product often involves new techniques. Failure to anticipate the
technical difficulties with developing or producing a product can sink a new venture.

Poor Financial Understanding

A common difficulty with the development of a new product is overly optimistic estimate of
the required funds to carry the project to completion. Sometimes entrepreneurs are ignorant
of the cost or are victims of inadequate research and planning. Quite often they tend to
underestimate development costs by wide margins.

Lack of Venture Uniqueness

Uniqueness is the special characteristics and design concepts that draw the customers to the
venture, which should provide performance or service that is superior to competitive
offerings. The best way to ensure customer awareness of differences between the company’s
product and competitor’s products is through differentiation. Pricing becomes less a problem
when the customer sees the product as superior to its competitors.

Ignorance of Legal Issues

Business is subject to many legal issues. When legal issues are overlooked major problems
can result.

WHY SOME BUSINESS PLANS FAIL

A business plan by an entrepreneur fails if it is not prepared properly and does not analyze or
address the issues involved in the new venture. The common failure factors are:

1. Inadequate planning
a. Lack of economic knowledge about trading area
b. Poor selection of location
c. Failure to foresee major marketing opportunities
d. Failure to plan properly for financial needs

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 e. Failure to anticipate personal requirements
f. Inadequate advertising strategy and planning
g. Inappropriate distribution strategy
h. Poor timing
i. Poor product design

2. Inadequate financing
a. Inadequate funds to purchase equipment needed
b. Inadequate capital reserve to withstand slow business period
c. Insufficient funds to purchase adequate inventory
d. Inadequate funds to obtain the best location

3. Obsolete methods
a. Poor expense controls
b. Poor inventory controls
c. Poor accounts receivable controls (too many outstanding bills)
d. Poor personnel policy
e. Poor cost records and pricing methods
f. Lack of modern equipment

4. Personal factors
a. Poor knowledge of business
b. Unwillingness to accept advice
c. Unwillingness to work long hours
d. Contentment with things as they are
e. Excessive expenditure in goods in good and bad economic periods

5. Managerial factors

 Concept of team approach

a. Hiring and promotion on the basis of nepotism rather than qualification
b. Poor relationship with parent companies and venture capitalist
c. founders who focused on their weakness rather than on their strengths
d. incompetent support professionals (e.g. lawyer who are unable to understand
contracts and court judgment)

 Human resource problems

a. Kickbacks and subsequent firing that resulted in almost total loss of customers
b. Protracted lawsuits
c. Verbal agreement between the entrepreneur and the venture capitalist that were
not honoured
d. Deceit on the part of a venture capitalist in one case and on the entrepreneur in
another

FACTORS TO CONSIDER WHEN STARTING A BUSINESS

1. Capital: Entrepreneur has to invest in certain amounts of personal money for the start of
their business. He should know the sources of his capital.
2. Business opportunity: An entrepreneur should not start a business similar to existing ones
without determining whether the market can accommodate all of them.

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3. Entrepreneurial skills and knowledge: An entrepreneur should know his competencies,
attitudes and skills that will benefit his business. Managerial skills are important since they
will enable him to:
a) Implement the business policies
b) Identify and deal with problems that can interfere with his business
c) Conduct business appraisal and compile the necessary report
d) Ensure and control quality in performance for productivity in business.

4. The competitors: A person wishing to start a small business should know his/her
competitors and the quality of products, so that he can make his products even better.
5. Economic environment: When the economy is declining progressively then the demand for
goods and services also tends to decline. The entrepreneur needs to study the economic
environment before venturing into business.
6. Legal requirements: an entrepreneur should know the legal requirements of starting his
enterprise. The legal requirement may prohibit or restrict the consumption of a certain
commodity. The entrepreneur has therefore to choose wisely the business to engage in.
7. Political environment: The political environment scene changes. An entrepreneur should
consider whether the business will be able to operate within the changing political
environment e.g. increased corruption and official harassment may force his business
enterprise to close own once established.
8. Machinery and equipment: This will be determined with the nature of the business activity.
If the entrepreneur engage in a production business the knowledge on how to use the
equipment is necessary.
9. Business premises: the location of the business is a key factor to consider. The following
are the factors one should bear in mid when selecting a business site.
(a) Transport facilities
(b) Availability of energy or power
(c) Nearness to raw materials
(d) Expansion of ability in future
(e) Availability of auxiliary services i.e. banking

PROCEDURE OF STARTING A SMALL ENTERPRISE

Having an idea, even an innovative one, does not mean a business has been created, nor does
it mean that an entrepreneurial event is about to happen. It is the recognition of potential
customer, their needs and ability to take up the idea and translate it into business. This brief
discussion of a business plan will give the indication of the process or procedure of going into
business although it is by no means exhaustive; it introduces the concept of preparation
process. More importantly it stresses the fact that it is not a simple process of having an
innovative idea. The business process or procedure therefore involves:
a) History and position of the business (what is the business idea). This is an attempt
by the entrepreneur to state the business idea and the context within which it will be
developed. It will involve describing the intended business objective and its
environment.
b) Market research: This is an attempt to find out whether the idea has a potential
clientele. It allows the proposer to modify the business idea according to the potential
market. Many busies people ignore this procedure assuming that having a good
innovative idea is enough for a business success. Many times they find out that the
potential market is not as large as first though, or their interpretation of customer’s
needs is a little faulty.

c) Competitive business strategy: in this stage business plan of action is developed to

reach the larger clients for optimum satisfaction. The entrepreneur therefore has to
understand the nature of the environment he/she is dealing with, including
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 competition in order to device more effective ways of reaching the customer. The
competitive business strategy includes a statement of the business mission and
objectives, a description f the marketing mix to be used; the nature of the market place
(demands, trends and patterns); competition; the political, social economic legal and
technical environments and specific business objectives.

d) The operations plan: Operations refer to all activities required to implement a

strategy. This usually involves the day-to-day process of administration of selling,
contracting, recruitment and monitoring and evaluation of various activities.
e) Forecasting results: Projected results are both a guide and incentive in business
management. It has been said that, if we do not know where we are going, we will
never know how to get there and indeed when to get there. Many small businesses do
not forecast results because of fear of failure, but mostly because they assume that it is
a costly and time wasting exercise. However, the forecasts most commonly required
are sales, revenue forecasts, and also a statement of expected cash flows.
f) Business control: This involves the periodic internal monitoring and evaluation of the
business performance. Based on the objectives and forecast and targets, the strategy is
evaluated according to its ability to deliver results. Again the various components of
the strategy should also be evaluated separately although the overall performance
measures like revenue increase in market share cost saving, customer satisfaction,
customer satisfaction, increase in assets or increase in employment are most useful to
the entrepreneur.

MANAGEMENT

CHARACTERISTICS OF MANAGEMENT
1. Management is a purposeful activity
2. It is getting things done in a desired way
3. It concerns with the efforts of people working in the enterprise
4. It relate to decision making
5. It is a process. It consists of various functions like planning, organizing controlling and
leading.
6. It is both a science and an art. it is a science because it has developed certain principles and
laws. It is an art because it is concerned with the application of knowledge of the solutions of
the organizations problems.
7. It is a fast developing profession
8. It deals with direction and control of the business
9. It is a dynamic concept, which adapts itself to changing business conditions.

A manager: A manager is the person who achieves the objectives of the business by
directing the efforts of the workers. The task of the manager is to establish a working
atmosphere, which enables the people working under him or her to perform efficiently and
effectively. To do this, a manager needs the following qualities:
i. Ability to think logically and clearly
ii. Ability to express oneself clearly: This is the art of communication. A manager should
know who to express himself or herself clearly to avoid misunderstandings.
iii. Technical competence: This is the knowledge in area of specialization. These increase
his credibility and acceptability by those under him.
iv. Ability to perceive the broader issues: A manager should be able to see the overall
picture of issues to that he or she can understand them and know the effect of each
one of them on his actions
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 v. Salesmanship: This is the art of making the workers agree with his ideas. It aims at
making the others not only know but also accept and agree with the idea.
vi. Moral integrity: As a manager your actions, conduct and pronouncement should be
beyond reproach. This is in order for the subordinates to have confidence in the
manager.
vii. Emotional stability: A manager should be able to keep his or her personal feelings out
of the business problems, so that he/she can be able to look at issues objectively.
viii. Skill in human relations: This is the ability to understand human nature and behavior.
This enables the manager to develop a good and cordial relationship with the worker
and other people that he may get in touch with.

Similarities & Differences between Managers & Leaders

Managers Leaders

 Spent time mastering basic routine
& deciding how to do things
 Explore new ideas, methods,
Products & services
 Develop creative solutions to
old problems
 Challenge employees to give
their best
 Seek long-term success for their
organizations, employees and
themselves
- Use vision & judgment to create and
do right things.
- Communicates their visions to
their employees
- Use power wisely to make ideas a
reality
-They do not think about failure
- Reward employees

FUNCTIONS OF MANAGEMENT
As you remember we said in the characteristics of management is a process consisting of
various functions such as planning, organization, staffing, directing and controlling. We
would briefly look at these functions.

1. Planning
Planning is the determination of which path among many an organization intends to follow in
order to achieve its goals effectively and efficiently. It is the process of determining what to
do, how to do it, when to do it and who to do it. Every function starts with planning. A plan
therefore is a pre-determined course of action to take. the plans provide a basis of reference
for decision by individuals in an organization.

The planning process

Planning viewed, as a process comprises the following steps:
(i) Setting of goals: here a manager sets the goals of the organization or department.
(ii) Search for opportunities (forecasting – the purpose of this is to discover in the
environment any opportunity for the activities of the organization. in this case the manager is
involved in forecasting probable events in the future so as to come up with appropriate course
of action.
(iii) Making of plans: at this stage, the opportunities that are discovered through the
achievement of goals.
(iv) Target setting: here the specific details for the plans are made. this involves determining
the qualities and time guidelines required.
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(v) Follow up plan: - this involves carrying out continual checks to determine whether the
plan actually results in performance that is consistent with the original previous thinking.

2. Organizing
After having planned for the activities of the enterprise, a manager then decides on how best
the resources available for the achievement of the planned goals and objectives can be
utilized. This is what is called organizing. It involves; dividing works into different
departments, assigning such positions to the manager and delegating the authority to each
manager to accomplish the tasks in a planned manager. The manager also needs to ensure the
recourses are not wasted or underutilized.

PRINCIPLES ORGANISING
In deciding how best to utilize the available resources, there are certain principles, which
could guide the manager;
(i) The span of control: this refers to the number of workers an individual
manager or supervisor can supervise effectively. If the workers are too
few, the time of the supervisor will not be utilized effectively. If they are
too many, he will not be able to supervise all of them effectively.

However there is no fixed rule as to the number of workers. It all depends on the type of work
being performed, the type of training that the workers have. Whether the work is repetitive in
nature and the amount of supervision necessary.

(ii) Unity of command: this is the principle, which maintains that each worker
should be responsible to and receive direction and instruction from one
boss. This helps to reduce confusion and conflict among workers. It also
helps to minimize incidences of lack of action.
(iii) Scalar principle: which maintains that authority in an organization flows in
clearly defined and identifiable line top to bottom? This helps to define
who has authority over whom in an organization.
(iv) Delegation of authority: this is the process through which the manager
assigns art of his duties to subordinates. This helps to define who has
authority over whom in an organization
(v) Delegation authority: this is the process through which their manager
assigns part of his duties to subordinates. This is done by first assigning
responsibility to the subordinates to do something. Second, the manager
must also grant the authority necessary to carry the task. Third, the
manager creates accountability in the part of the subordinate. Delegation
helps in fostering vertical coordination within the organization.
(vi) Specialization: this is the concentration of workers efforts in a particular
job or area of work. The more one concentrates on the performance of a
particular job, the better he/she becomes in performing the job. This is also
referred to as division of labour.

3. Staffing
Staffing involves manpower planning and manpower management. Staffing functions
include; preparing inventory of personnel available, recruiting of personnel, selection of the
personnel, remuneration, training and development of personnel and periodic appraisal of the
personnel working in the enterprise. Every manager of the enterprise performs staffing
function. Of course personnel department facilitates managers in the staffing function by
proving for example appraisal forms.
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4. Directing
The directing the manger is expected to lead guide, motivate and supervise the workers. The
functions like planning, organizing and staffing are merely preparation of doing the work the
directing function actually start the work. It therefore refers to the personal function or aspect
of management, whereby workers are made to understand and contribute effectively to the
achievements of the goals of the en enterprise.

5. Controlling
Controlling as a management function can be defined as the process of checking or following
up performance of activities undertaken in a business organization, to find our whether or not
such performed activities conform to the required standards or certain targets. Monitoring of
a business enterprise is a continuous process. The control of mechanisms established in
business can assist a manager to detect deviation from the set standards or targets. In case the
performance certain business activities or transactions do not meet the required standards or
target, then corrective measures needs to be taken.

Goss has identified four types of management control – fraternalism, paternalism,

benevolent, autocracy, and sweating in small firms.

Fraternalism
This describes a situation where the owner-manager is heavily dependent on the skills of the
employee(s) to get the job done. They in turn are relatively independent of the small firm
because their expertise is in demand elsewhere. Employee and employer work alongside each
other, with decisions made from the position of mutual respect.

Paternalism
Where the alternatives for employees are more limited, and the employer is less dependent on
specific workers, then a paternalist management style may emerge. A clear distinction
between employer and employee exists, but owner-mangers are still sufficiently aware of the
importance of their workforce to encourage common ties and personal relations.

Benevolent autocracy
The owner manager is less dependent on the employee, and able to exercise their influence
from a position of power as an employer. However, employees are not so economically
dependent on the small firm that they become totally subservient (docile). Close links exists
between employer and employee, and friendly relations exist, often on the first name basis,
but rarely extend beyond the workplace (except for annual outing or festivity).

Sweating
There are some circumstances which conspire to give the employer all the power, and the
employee virtually none. Some vulnerable groups (female) may be exploited for some favors
like employment.
Decision making
The work of a manager involves working on decisions and constantly solving problems. The
manager therefore has to confront problems and make effective decisions on what action to
take.
Decision making refers to the process that leads to the selection of an alternative between two
or more competing alternatives.

Steps in decision making

i) Identify And Define The Problem

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A problem is half solved when it is well defined. Accurate dignosis of the problem is
necessary to find the right solution. This step should result in a statement of the desired result.
Cause, magnitude and boundaries within which it can be solved is also identified.
ii) Analyse the Problem
This step involves collection of all facts that are pertinent to the decision. The data collected
must be classified and analysed.
iii) Develop Alternative solutions
Alternatives are possible courses of action. Identify various possible courses of action.
iv) Evaluate The Alternatives
The developed alternatives are then evaluated on the basis of their contribution to the
organizational goals and the limiting factors involved. (Risks, economy, timing, other
resources)
v) Select The Best Alternative
Evaluation of alternatives will reveal the best alternatives. This is where the real choice is
made and a plan of action adopted.
vi) Implement The Decision
Implementation of the decision involves developing detailed plans, communication of
decisions, gaining acceptance of decisions and cooperation of those concerned.
vii) Follow Up
Actual results of the decisions should be compared with the expected results and appropriate
action taken.

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