DEVELOPING THE ENTREPRENEURIAL MINDSET

INTRODUCTION AND MEANING OF ENTREPRENEURSHIP

The word “entrepreneur” is derived from the French root “entreprendre”
meaning “to undertake” an expedition. Some of the widely accepted definitions
includes;

a. According to Fry (1993), entrepreneurship is the act of starting or growing

a business through innovative, risk – assuming management.
b. Hisrick and Peters (1995) also defined entrepreneurship as “the process of
creating something different with value by devoting the necessary time and effort
assuming the accompanying financial, psychic and social risks and receiving the
resulting rewards of monetary and personal satisfaction and independence.
c. Vesper (1987) also has a rather simple definition. He defines
entrepreneurship as a process of new venture creation. His definition seems quite
restrictive since it does not talk about the growth, survival or failure of the
business

d. An innovative process where an individual (a prospective entrepreneur)

identifies and seizes opportunity (be it an idea or business); organizes existing
resources to convert those into workable/marketable products or services; by adding
value through time, efforts, money, or skills, for the benefit of society (Buame, 2004)

Therefore, entrepreneurship is the process of creating something new out of existing

resources. That something new can be, a new product, a new method of doing things,
a new source of raw material or a new market.

Reasons for Increased Interest in Entrepreneurship

An ever increasing number of individuals are accepting the challenge of
entrepreneurship and new and growing ventures make up an increasing
percentage of business in these comtempory world.

a. The growing recognition that large organizations do not fulfil basic needs for
autonomy and security.
b. The shift in women’s roles in economic life along with a parallel shift in the belief
that women can be entrepreneurs to the point that the current growth rate of
new ventures created by women is considerably higher than the rate of new
ventures created by men especially in the United States.
c. A growing appreciation that the risks of venture failure have been
grossly overstated and that entrepreneurship is not just the province of a
few superstars or celebrity entrepreneurs.
d. An understanding that owning one’s own business still represents one
of the few pathways for w h i c h the middle and lower classes build
wealth.
e. A computer and information revolution that is representing new venture
opportunities often lower entry costs and other start-up barriers
in many industries.
f. The development of programmes to study, teach, promote, and
accelerate entrepreneurship in many nations around the world.
phenomenon. Not just a national one.

Entrepreneurship as a generic activity

Irrespective of the programmes, science, arts, business, education one pursues or
activity engaged in you can be entrepreneurial.

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 Expectation from the course
2. Why recent interest in entrepreneurship?
2THEORIES OF ENTREPRENEURSHIP
Include the economic, sociological and psychological theories, entrepreneurship
innovation theory, theory of achievement motivation, motivation theory by McClelland
(acquired need theory), Kakinada experiment and motivating factors of entrepreneur
(internal and external).
The Economic Theory
According to this theory, entrepreneurship and economic growth take place
when the economic conditions are favourable. It states that economic incentives are the
main motivators for entrepreneurial activities. Economic incentives include taxation
policy, industrial policy, source of finance and raw material, infrastructure availability,
investment and marketing opportunities, access to information about market conditions,
technology etc.
Sociological theory
The sociological theory of entrepreneurship looks at the social
dimension of entrepreneurship and how the social settings influence the setting up and
operation of a venture According to this theory, entrepreneurship is likely to get a
boost in a social culture, society’s value, religious beliefs, customs; taboos influence the
behaviour of individuals in a society. Here, the entrepreneur is a role performer according
to the role expectations by the society
Psychological theory
This theory of entrepreneurship assesses how an entrepreneur can assert his/her own
control with a sense of independence. Under this theory, psychologists have set out to
identify a single or collection of traits capable of successfully predicting entrepreneurial
behaviour and pattern of activities. The psychological characteristics include needs for
high achievement, a vision or foresight and ability to face opposition.
Entrepreneurship innovative theory
This theory was proposed by Schumpeter (1934) who believes that
entrepreneurship helps the process of development in an economy. He noted that an
entrepreneur is one who is innovative, creative and has a foresight. Cultivation of
innovative culture will mean the creation of innovative climates in business
establishments – public or private to make them responsive and productive in the face
of social, technological, economic and demographic shifts (Buame, 2001). According to
Schumpeter (1934) innovation occurs when the entrepreneur introduces a new product,
introduces a new production method, opens up a new market, finds out a new
source of raw material and introduces new organization in an industry. The theory
emphasises on innovation, ignoring the risk and organizing abilities of an
entrepreneur.
Schumpeter’s entrepreneur is a large scale business who is rarely found in
developing countries, where entrepreneurs are small scale business men who need to
initiate rather than innovate.

Theory of High Achievement / Theory of Achievement Motivation

This theory of entrepreneurship identifies people with high need for achievement and
how it affects the creation of a new venture. McClelland (1987) identifies two
characteristics of entrepreneurship: doing things in a new and better way and
decision making under uncertainty. He stressed that people with high achievement
orientation were more likely to become entrepreneurs. Such people are not
influenced by external incentives. They also consider profit to be a measure of success
and competency.
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 Motivation theory by McClelland (acquired needs theory)
According to McClelland (1987), a person has 3 types of needs at any given time,
These are; need for achievement need for power and need for affiliation. The need for
achievement is the highest for entrepreneurs.
The Kakinada’s Experiment
Self Assessment Questions
1. Discuss the theories underpinning the practice of entrepreneurship.
2. In each of the factors, identify the entrepreneurship quality that is observed.
3. Which of the theories is the best predictor of entrepreneurial traits?

CHARACTERISTICS OF ENTREPRENEURS
Introduction
Entrepreneurial mind-set is about seeking and taking advantage of opportunities
responsible – creating value, sharing wealth and value; seeking for positive outcomes,
quality oriented and being self-confident.

The entrepreneurial mindset is marked by imagination, initiative, and a readiness to

undertake new projects. It is perseverance and determination, risk-taking and daring,
integrity and honesty. Entrepreneurs change the world in concrete ways in rough their
inventions, their businesses, their social and economic impacts.

Having Vision and Purpose

The idea of dream in entrepreneurial orientation is the first step towards success in
operating a venture. To develop the entrepreneurial mindset, you would have to make time
to think and reflect. You have to keep ideas book to write down ideas that occur to you at
a point in time. Furthermore, you have to develop the habit and strength to say yes when
others say no and always try to go the extra mile.

One strategy of cultivating the entrepreneurial mind set is to develop a perpetual

learning habit to enable you acquire more knowledge through learning. You would have to
develop the habit of setting goals and objectives and see that they are achieved.
Seeking opportunities
Entrepreneurs are opportunity driven. Opportunity comes from changes in the
environment, and one central characteristic of entrepreneurs is that they excel at
seeing patterns of change.

It is the entrepreneur's drive to acquire resources in order to exploit opportunities. There is

high correlation between entrepreneurship and economic growth. Looking for chances to
change the present situation; pursue only the best opportunities and do not chase after
every option Cope with risks - Think positively and deeply; analyse causes and effects;
supports good course.

Be open to ideas
Give yourself the chance of being creative; see that all problems have in them opportunities
that can be pursued; Expect and tolerate failure: we don’t fail because we start, we fail
because we quit; develop yourself; Learn from situations.

Outcome of developing an entrepreneurial mindset

The following are some of the outcomes of individuals who develop an entrepreneurial
mindset:
a. They create and innovate new things.
b. Start a new venture from the scratch or nurture an existing one.

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 c. Buy existing venture
d. Form partnership
e. Bring change into existing organization

This session looked at the processes of developing entrepreneurial mindset, ways of

developing such mindset and the outcome of developing such mindset.

Assess yourself by answering the following questions

1. What does it mean to develop entrepreneurial mindset?
2. Explain the processes of developing entrepreneurial mindset.
3. Discuss the outcome of having entrepreneurial mindset.

ROLE OF ENTREPRENEURS
Role of Entrepreneurs in the Ghanaian Economy
Entrepreneurs have and continue to play a major role in the development of
the country.
1. First, entrepreneurship is the basis for the establishment of innovative and
successful businesses. Entrepreneurs are innovators and creative people who
develop, start and manage new businesses. Entrepreneurship is the cradle for new
product and processes.
2. Second, they are the basis for new venture creation. One of the outcomes of
having an entrepreneurial mindset is new venture creation. As entrepreneurs set up
new ventures, it comes with its advantages such as job creation, increasing
productivity and so forth.
3. Third, they are the cradle for Creation of jobs. Through their actions, jobs
are created. By setting up new ventures, entrepreneurs provide employment to the
populace.

4. With the conscientious application of discipline, entrepreneurs exploit

resources already at hand, or which can somehow be found to create successful
ventures. They make strategic investment in science, technology, and industry
that bring about economic development. In many cases, the resources they may use
are not state-of-the-art, but instead, through flexibility, they use ones that will
perform satisfactorily.
5. Through their investments, they bring consistent growth in
technology, manufacturing, and service sectors of the economy.

6. In addition, they aid in raising productivity through new product innovation:

by creating new ventures, innovating new products or improving the existing ways
of doing things

7. Entrepreneurs help to increase efficiency and productivity. They are the brain
behind the commercialization of new inventions. Entrepreneurs help to
commercialize new inventions.

They are often responsible for harnessing resources that previously lie idle.
8. Entrepreneurs identify opportunities and exploit them to the benefit of the
economy. By so doing they put to use certain resource would lie idle or are regarded
useless. They are also 9 responsible for redistribution of wealth – the poor get richer.
They give back to the community by way of charity and employing people within
their communities. For instance, social entrepreneurs recognizes a problem and use
their entrepreneurial skills to solve such a problem and by so doing they help the
community.

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9. Entrepreneurs are found to rejuvenate decaying economies. In course of the
creation of goods and services to satisfy consumer and markets, entrepreneurs add
value through a transformation process, since they understand market needs and
satisfy them. This is where the investor needs a partner, a commercial brain (in
the person of the entrepreneur) to successfully market value-added products and
services.
10. Entrepreneurs are solvers of societal problems. They convert all problems into
business opportunities and organize resources to start the innovative process of
designing a new product or service for an identified need. They are able to see or craft
opportunities that others miss, synthesize the available information, and clarify
paths which escape others. They create equilibrium in society by finding a clear and
positive position in an environment of chaos and turbulence.
11. Entrepreneurs break through barriers and employ unorthodox means. They
escape the bureaucratic morass of formalized organizational life, and create
conditions that allow quick decision-making and pro-active response to the
changing business environment. They prefer to operate flat organizational
structures, and with their characteristic flexibility to get along with people, they achieve
quick results.
12. Finally, entrepreneurs identify opportunities but not problems. They
transform simple, ill-defined idea into something which works – thus transform
what is possible into reality.
They have their own ways of dealing with opportunities, setbacks, and
uncertainties to “creatively create” new products, new services, new
organizations, and new ways of satisfying customers, or doing business.

Self-Assessment
1. Explain the role of entrepreneurs in the development of an economy.
2. Which of these roles are more important?
TYPES OF ENTREPRENEURSHIP
Introduction
The practice of entrepreneurship by people have resulted in different forms of
entrepreneurship. Those of significant interest are Intrapreneurship and
Extrapreneurship. A popular term recently coined by a business writer Gifford Pinchot is
intrapreneurship; ie entrepreneurship within an organization.
Intrapreneurship, O rganizational entrepreneurship and corporate entrepreneurship
are similar terms and often used interchangeably developed by creating an
entrepreneurial culture within an existing organization.

Extrapreneurship is associated with starting up a business from an existing (parent)

company in the form of an independent spin-off (or sell-off, in the case of a complete
sale), possibly supported and prepared by a strategic investor and/or incubator.
These activities could be considered complementary to entrepreneurship and
intrapreneurship. Extrapreneurship is much more a question of market
opportunities waiting to be exploited creatively by (latently) entrepreneurial people, or
dynamic entrepreneurs, who are looking restlessly for interesting ideas and
inventions which they can market at a profit, or investors waiting for the creative
genius to show up.

There are many types of entrepreneurs who are usually distinguished by their various
characteristics. These are discussed below:
.
Opportunist Entrepreneurs:
Opportunist entrepreneurs have the following characteristics:

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 i. Have no grand vision
ii. Are interested in what can be exploited in their environment. These
people who usually observe their environment with the aim of identifying
opportunities in order to provide solutions.
iii. Are resourceful- opportunist entrepreneurs have the ability to
overcome problems or to make do with what is available to create a
solution.
iv. Are quick thinkers when it comes to manipulating resources and
opportunities
v. Characterized by a level of restlessness – these type of
entrepreneurs are not usually comfortable staying with one
business to the end, rather, they move from one business to
another.
vi. Tend to lose interest in business once established- once
opportunist entrepreneur have succeeded in establishing
a business their attention is drawn to identifying other
opportunities and making them into businesses.
vii. Have an appetite for challenges- opportunist entrepreneurs are
people who take delight in confronting challenges with the
objective of turning such challenges into opportunities. Instead
seeing problems in challenges they choose to see opportunities in
them.
Craft Entrepreneurs
Craft entrepreneurs have the following characteristics:
i. Have vocational qualifications required for the exercise of
their profession- just as the name implies the craft entrepreneurs are
usually craftsmen who have professional and vocational qualification and
expertise in a particular field
ii. Manage the enterprise- unlike opportunist entrepreneurs, craft
entrepreneurs stay with the business and manage the business. They take
special interest in the business and put in much more personal effort to see
the business survive.
iii. Train apprentices- these entrepreneurs in turn train others to learn
from their skill and set up their own businesses after the end of their training.
iv. Direct skilled worker
v. Participate directly in daily work so that final product reflects their
competence- as already explained above the craft entrepreneurs put
in much personal effort so that the outcome reflects their skill and
competence in the business.

Nascent Entrepreneurs
A nascent entrepreneur is defined as a person, who expects to be the owner or part
owner of the new firm. Referring to definition it can be deduced that nascent
entrepreneurs possess the following qualities:
i. They actively engage in creating a new venture either alone or with
someone
ii. They expect to be the owner or part owner of this start-up

Novice Entrepreneurs
These are entrepreneurs with the following characteristics
i. Own equity stake in an independent business
ii. The business could be new, purchased or inherited
iii. Have no prior minority or majority business ownership experience

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 Serial Entrepreneurs
The serial entrepreneur knows that failure is the base-line beat of
entrepreneurship. They believe that the secret of success is to fail.

i. May consider entrepreneurship as a profession

ii. A serial entrepreneur's expertise may be in creating new ventures
iii. Ventures can experience high rates of failure
Portfolio Entrepreneurs
The portfolio entrepreneur is more sophisticated and has multiple lines of
revenue at different stages of maturity, and spread attention across them.
The danger of course is that you spread yourself too thin and nothing gets
the attention it deserves. They are characterised by the following:
i. Own more than one business simultaneously
ii. May have minority or majority ownership stakes in two or more
independent businesses
iii. The businesses could be new, purchased and /or inherited

Educational
Entrepreneurs are those who create an environment for active support of
knowledge exploitation. They ensure stimulation of entrepreneurial
behaviour among all the members of and institutional structures in the
academic community. They may sometimes emanate from a family line of
academics e.g. of such entrepreneurs in Ghana include the Aggreys,
Euphrams Amus, Gbehos. They often carry out academic research and
develop theories, laws and Models.

Political
Entrepreneurs are people who assume the risk in undertaking new political
project, group, or political party. They include a political actor (not necessarily
a politician) who seeks to further their own political career and popularity
by pursuing the creation of policy that pleases the populace. E.g.
include Nkrumah, Danquah, Gbedemah, Papa Kwesi Nduom, Madam Akua
Donkor

Innovative
Entrepreneurs create and commercialize new goods, services and business
practices. Innovative entrepreneurship may cover what's been tried and has
failed in the past. Typical innovative entrepreneurs in Ghana include the fitters,
carpenters, tailors, artisans use their ingenuity to mend and repair vehicles etc.
Corporate Entrepreneurs
They (intrapreneur or organisational champions) are individuals inside existing
organizations that build new businesses, products and services and processes
that create value and generate new revenue growth. T h e y pursue
opportunities and often bring about very important changes that lead to
corporate growth. Corporate entrepreneurs seek new ways of doing things in an
organisation in order to create value out of already existing procedures.
Examples of such individuals include Stephen Addae of Gimpa, Frimpong
Boateng of Korle-bu, Andam of KNUST.

Social Entrepreneurs are people who recognize a social problem and uses
entrepreneurial principles to organize, create and manage a venture to achieve
social and environmental change (or economic change). They pursue opportunities

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without regard to resources they currently control, but they do not have profit as
their primary aim. They emphasize social responsibility of their venture before the
need to maximise profit.

Trading Entrepreneurs develop new methods of carrying out their

trading activities, or build on the traditional ways of trading to arrive at
effective methods. They always seek new ways of selling their products.
They are often successful in merchandise trade. E.g. are the Kwahus,
Indians and Lebanese in Ghana

Theological Entrepreneurs identify opportunity under the religious system,

utilises religious beliefs and ideas to create value that benefits society through
the provision of social amenities such as provision of missionary hospitals,
missionary schools, improving agricultural yield, and other ways for locals to
make a living. Examples of such individuals are the Mensa Otabils, Akwasi Sarpongs,
Duncan Williams etc.

Strategic Entrepreneurs identify the best opportunities in the

environment and assume the risks of using them to their advantage. They identify,
evaluate and exploit new business opportunity in a highly competitive
business environment and always embrace and are willing to learn, and absorb
new information that is not familiar to them. Example Prince Amoabeng of Unique
Trust, Ken Ofori Atta of Data Bank etc.

Industrial Entrepreneur identifies advances in technology and an increased

demand for manufactured goods. They usually emphasize on producing more
goods at a faster rate at less production cost. They also focus on benefits derived
from deep, on-going links with customers and mass production by semiskilled
workers, aided by machines.
Supernormal Entrepreneurs are individuals who seek as much to
destroying the old orders of doing things and creating something new.
They are willing to take on exceedingly high risk with the intent of
reaping a higher profit. They are those who run their own business and
earn supernormal returns. They earn an economic profit which may
include an element in recognition of risk that the investor takes.

FAMILY BUSINESS ENTREPRENEURS

A vast majority of new and small ventures are considered family
businesses. About 80 per cent of all small businesses could be considered
family businesses. The category of family business entrepreneurs is thus a
large one. The significance of the family business entrepreneurs is that they
face a set of constraints that the non-family venture does not.
i. Family business reflects the overlap between the demands of the
family and the demands of the venture.
ii. The success or failure of the family business directly affects the
livelihood of the family.
iii. Spouses and children of the entrepreneur become entwined in the
problems of the venture.
iv. If the business is launched by more than one person and each have
family responsibilities, then the business/family relationship
become even more complicated.

It should be noted however, that there are no personal

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d i ff e r e n c e s between family business entrepreneurs and non-
family entrepreneurs rather than family involvement.

The problems and stresses faced by the family business entrepreneur create
concerns for both the individual’s role as an entrepreneur w h i c h conflicts
o ft e n with the role as a parent or as a spouse or other family member.
Decisions made by family business entrepreneurs must consider the
inter-relationship between the family system and the business system. This
is especially true when the venture involves both spouses as discussed below:

Co-Entrepreneurs
The term co-entrepreneur refers to ventures run by a husband/wife team. It
is also known as coupleneurship business with both spouses involved. It has
existed for years. Jointly owned ventures, however, have increased 63 percent
between 1980 and 1986 in the United States. In addition to the increasing
rate, the role that each spouse plays has also changed. In earlier years, the
husband ran the venture and the wife played a lesser role of being either
the company’s book keeper or perhaps being on the sales floor of a
retail firm. Increasingly, however, there are examples of ventures that
are truly jointly run by both spouses as partners. In a co-entrepreneur
situation, both spouses have typically had previous managerial or
professional experience before joining forces to launch the venture. The
spouses may work together on all tasks or more likely, they will each have
particular skills to offer the partnership.

Certain conditions exist for being successful co-entrepreneurs:

First, just as in any partnership, there should be a clear sense of direction
for the venture with a well-written Business Plan and partnership
agreement.
Second, the two spouses should have a clear understanding of the role
each will play. They should decide which types of decisions would
require a joint decision compared to those that will be made by one or the
other. They should establish if and when each has veto power over the
other’s ideas. They should also agree about the time each will spend with
the venture.

The third caveat is that the spouses should agree that they would not take
work home with them. In this way, the family and business concerns will
not overlap to the detriment of either. This will also allow them to spend
personal time with each other as husband and wife rather than as partners.
This agreement also formally allows time for children and other activities
rather than having to squeeze in time between business and discussions.

Small Business
A small business is the designation for firms of a certain size which falls
below certain criteria (that varies from country to country) in terms of
annual turnover, number of employees, total value of assets, etc. In
Ghana, small-scale enterprise as a firm with not more than 9 workers, and
has plant and machinery (excluding land, buildings and vehicles) not
exceeding 10 million Ghanaian cedis.

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Characteristics of Small business operations in Ghana
In Ghana, small scale businesses are usually characterized by the
following features.

a. Small businesses in Ghana mainly trading / buying and selling.

b. Also, they are not usually organised and this impedes their growth as well
as access to funding.
c. Small businesses in Ghana are mostly unregistered.
d. They have high fold up rate.
e. They are mainly life style ventures.

MINI CASE ON QUALITIES OF ENTREPRENEURS

TITLE: Start Now or Later
Many students do not wait until they complete school before they try to get their
feet wet in small-business management. Quite a few go beyond the planning stage
and actually run their businesses while still in school. For example, high school
senior Jason Bernard runs his drawing firm, called architectural rendering, from
his bedroom. Other young people look around, see thousands of students
and try to develop small businesses that would appeal to students. For
example some students assemble and sell “home emergency kits” for students
returning in the fall. The kits contain items like pens, chocolate chip cookies,
aspirin and other college “necessities “. The kits were sold to the parents
and distributed to students the first week of class as a start-the-year-right gift from
home.
Some students produce and sell calendars with pictures of beautiful women
or male “hunks” on campus. Others sell desk mats with advertising
messages on the sides. Some students become salespeople for beer companies,
cosmetic companies and other traditional firms. They, too, feel as if they are in
their own business on campus, because they have exclusive sales rights but don’t
have to assume as many risks. One student earns more than his professors by
selling ice cream from a truck. Others try to learn the retail business by delivering
pizza or other fast foods. Some students have started moving services, moving
students’ goods from home to school and back.

Dick Gilbertson considered a number of options when he was a student at Indiana

University. He felt students might enjoy having food other than pizza and subs
delivered to the dorms. His research showed that students preferred McDonald’s
hamburgers and taco bell burritos. Students said they were willing to pay $ 1.00
for some delivery of a big Mac, fries and a coke rather than ride the mile or so now
serves 13, 000 students. Guess who his partner is? A professor of entrepreneurship
at the university.

Jimmy Enriquez was busy getting a degree in accounting at the University

of Texas when he started two companies. One is a construction-site
cleaning business run by his sister. It has 15 employees, grosses about $ 4,000 a
week, and has expanded to Dallas and Houston. The other business is a vending
company that leases football games. Football was dead when Jimmy and his
brother rocky set out. But they started a prosperous business. Jimmy advice to
potential entrepreneurs: if you wait until you’re out of school and working for
somebody else, you’re going to get used to that big car- and you’re not going to
want to gamble with that stuff.

It’s better to start a company when you’re a student, while you’re still used to
driving a Junker and living like a dog. “Jimmy started a university of Texas
entrepreneur club that now has 260 members. It is one of more than 350

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entrepreneurship clubs on college campuses across the United States. The
association of collegiate entrepreneurs published a list of the top 100 businesses
started by people under 30. All are worth over $ 1million.
College campuses aren’t the only places to find guidance in
entrepreneurship. The national foundation for teaching entrepreneurship to
handicapped and disadvantaged youth in Newark, New Jersey, trains former drug
dealers, street toughs and special education students to sell goods and services.
Their businesses range from sneakers and lingerie sales to manicures and car
repair. Maybe you should consider getting started now, too.

From such a humble beginning did Jay Goltz developed and grew his business.
Starting with $ 5,000 he saved from summer jobs and a determination to
succeed, Jay Goltz built his business the hard way-from the ground up. Goltz was
pursuing an accounting degree when he started artists’ frame service in 1978.
Artists’ frame service is now a $ 9 million business employing 120 people at its
main location a 35, 000-square-foot showroom and production facility in
Chicago. The custom picture-framing facility is 30 times the size of the industry
average, making it the world’s largest.

People are willing to take the risks of starting a business for many
reasons, including profit, independence, challenge and opportunity. Goltz
recognized the opportunities in picture framing since most frame shops at
that time did not focus on new concepts , but rather are great executions of
old businesses. He uses Nike as an example. People have been making gym
shoes for 75 years; Nike just executed it better. Picture framing was not a
new concept, but Goltz started artists’ frame service with the theory that
pleasing customers, low prices through aggressive purchasing and
increased volume framing materials. He decided to give his customers a one-
week turnaround, whereas other shops took six to eight weeks.

Goltz actively shares his business acumen with other entrepreneurs

through his boss school seminars. Since he was out on his own from the
beginning of his career, Goltz can explain the emotional and intellectual
transition from a seat-of-the-paints start-up to the building of a well-run
organization.

Goltz believes that customer service and execution require fundamental

understanding of business principles such as leveraging your assets and
having the appropriate skills in marketing, management and finance.
These skills can be acquired through classes and experience. It is much
more difficult to develop the personality traits needed to be a successful
entrepreneur: tolerance of uncertainty, self-destruction, self-nurturance,
high energy and action orientation. Success has not gone unnoticed for Jay
Goltz. He has received numerous awards: the minority advocate of the year
Award in 1989; named one of the top 100 young entrepreneurs in the United
States by the association of collegiate entrepreneurs (ACE) in 1988; finalist in
the Arthur Anderson entrepreneur awards in 1989 and Arthur Anderson’s
entrepreneur hall of fame in 1992. Goltz attributes his success to taking
care of customers: “Services is the cheapest commodity you can provide,
yet it’s the surest way to success. Take care of customers and the rest will
take care of itself.”

Questions
1. What are the merits and latent problems of starting a business

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 while in school
2. What kind of entrepreneurs are Jay, Jimmy and Dick and why?
3. Identify in each case (for Jay, Jimmy and Dick) the opportunity
that was identified.
4. Using the three main theories discussed in class explain why the people
in the case became entrepreneurs.
5. What qualities must student entrepreneurs have to be successful in
both their education and business?
6. Why do you think entrepreneurs like Goltz succeed when so many
others fail?
7. How can a person develop the traits necessary to be a successful
entrepreneur?
8. How important is a business plan in getting started in a business
such as artists frame service? Explain.
9. What do you say is Goltz’s
a. Mission
b. Strategy
c. Core competence
10. Do you think it is good for artists’ frame services to be compared
with Nike?
11. Using inventive, creative and innovative as basis, describe the
people in the case.

CREATIVITY, INNOVATION AND INVENTION

Introduction
Creativity is at the heart of entrepreneurship, enabling entirely new ways
of thinking and working. Entrepreneurs identify opportunities, large or small, that
no one else has noticed. Good entrepreneurs also have the ability to apply
that creativity by effectively marshalling resources to a single end.

They have drive; a fervent belief in their ability to change the way things are
done, and the force of will and the passion to achieve success. In addition, they
have a focus on creating value by doing better, faster, cheaper. Furthermore,
they take risks by breaking rules, cutting across accepted boundaries, and going
against the status quo.

Entrepreneurship drives innovation, competitiveness, job creation and

economic growth. It allows new/innovative ideas to turn into successful ventures
in high-tech sectors and/or can unlock the personal potential of disadvantaged
people to create jobs for themselves and find a better place in society.

Entrepreneurs have the passion for what they do. They possess the creativity and
ability to innovate. This is often found in their sense of independence and self-
reliance, coupled with the high level of self-confidence and willingness and
capability (though not necessarily capacity or preference) for taking risks.

According to Zimmerer & Scarborough (2005), Creativity is the ability to

develop new ideas and to discover new ways of looking at problems &
opportunities”

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Matherly Goldsmith (1988) defines creativity as the generation of ideas that
result in improved efficiency or effectiveness of a system.

Creativity simply put, is the development of ideas about products, practices,

services, or procedures that are novel and potentially useful to the organization.

Characteristics of Creative People

In order for a person to be identified as creative, there are certain features that he or
she must possess. The characteristics of creative people are discussed below:
a. Persistence- persistence is very crucial in order to sail through difficult and trying
times and situations, and this is a quality that creative people usually possess.
b. Self-confidence- creative people have a lot of confidence and belief in their own
capabilities and strengths. This quality enables them to trust themselves and take
bold steps in taking certain risks.
c. Independence- creative people do not rely so much on other people. They try as
much as possible to find solutions to their problems.
d. An attraction to complexity- creative people are usually attracted to
complex situations because of their zeal to find solutions to problems.
e. Tolerance of ambiguity- unlike uncreative people, creative people have
the ability to tolerate ambiguous and unclear situations.
f. Intuitiveness-
g. Have broad interests- they have a wide range of interests and do not limit
themselves a lot.
h. They are energetic- they are very zealous and enthusiastic in pursuing
their goals.
i. Drive to achieve- creative people derive satisfaction from achieving their
goals. They, therefore, have a high urge and are intrinsically motivated to
achieve their set objectives.
j. Love their work- creative people attach a lot of passion to whatever they
set their minds at.
k. Take risks- creative people are not afraid to take risks as uncreative people
do. They are ready to take reasonable and calculated risks in order to
achieve their goals.

The Intersection Where Creativity Occurs

Creativity occurs at three intersecting forces as discussed below.

Individual
A person with his or her intelligence, experience & dispositions initiate
the creative process & outcome.

Domain of knowledge
Extent of advancement in the domain of knowledge within which the
individual has chosen to work (e.g. humanities, science, business, etc.) also
influences the outcome of the creative effort to put up by a person.

Social context within which the merit of the creative work is judged
The judgement may serve as a motivation or constraint to one’s creative
ability.

Types of Creative Behaviour

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Three types of creative behaviour have been identified:

Creation; the act of pure invention that is making something out of nothing.

Synthesis; creative act of joining two previously unrelated things, e.g. bringing
the telephone and the computer.

Modification; this occurs when a thing or process is improved or gains new

application, e.g. a change in design, etc.

CREATIVE PROCESS
STEP 1: Idea Germination
This stage is the seeding stage of a new idea. It is the stage where the recognition of a new
idea takes place.

STEP 2: Preparation
This stage involves the conscious search for knowledge to rationalise the identified idea. It is
about gathering as much information as possible to understand the nature of the idea.

STEP 3: Incubation
Is the subconscious assimilation of the information gathered at the preparation
stage (including outcome of on-going information search) to arrive at a creative
outcome? The outcome may be a creation, synthesis or modification. Incubation,
therefore, involves active judgment, fantasizing, try-and-error & flexibility to arrive at a
satisfying outcome.

STEP 4: Illumination
Is the recognition or realisation of an idea as being technically feasible? This is attained
through conscious analysis of empirical & factual data gathered through research. E.g. a
good may be designed & tested in the lab.

STEP 5: Verification
Verification is the application or test to prove that the idea has value. It is a form
of validation or confirmation of the idea is good or feasible. It involves a synthesis
of research data – primary & secondary data – to establish the viability of the idea.
CREATIVE ENHANCERS AND DISTRACTERS
How to Enhance Creativity
The constant change in the environment of business requires organisations to be creative to help
keep pace with the persistent change. In addition, creative skill is what the entrepreneur requires
to develop new venture, product or process. The following are creative enhancers,
especially for existing organisations:
a. Elevating creativity importance throughout the organizations: the management of
organizations should project the importance of creativity throughout the organization and
encourage organizational members to be creative.
b. Offering tangible rewards to those generating ideas: organizations should offer handsome
rewards to members who bring forth innovative ideas as this will boost their morale to be
creative. Monetary rewards, praise, recognition and celebration can be powerful incentives.
c. Protecting people who make honest mistakes and are willing to learn from them: in trying to
be creative people can make mistakes. Therefore, organizations should put in place
measures to protect those who in trying to be creative to make genuine mistakes and are
willing to learn lessons from those mistakes.
d. Investing in resources that help employees to sharpen their creative skills: in order to boost
the creativity of employees, organizations should be ready to invest in resources and
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training programs that will achieve such purpose. One must give employees the tools &
resources they need to be creative. One of the most valuable resources is time.
e. Listening attentively in order to acknowledge and provide early support to ideas:
management should learn to listen attentively to ideas and suggestions of employees in order
to identify and support their creative ideas.

Barriers to Creativity
What do you think are some of the things that serve as barriers to creativity?
a. Not attempting to hire creative people: organizations that do not make efforts to hire
creative people to serve as barriers to creativity in organizations.
b. Being pessimistic, judgmental and critical: Without optimism and confidence in
yourself, you cannot be creative. People who are pessimistic do not have confidence in their
attempts and fear to fail hence they do not dare to think of new ways of doing things.
c. Punishing mistakes or failed ideas: In organizations where people are punished when
they make mistakes in their attempts to be creative, employees will not be motivated to
think of creative ways of doing things. Rather, they will stick to the old ways of doing
things in order to avoid any punishment.
d. Maintaining a stiff organizational culture with no room for different behaviors: A stiff
organizational structure inhibits flexibility, without which it will be virtually impossible to be
creative.
e. Being inattentive, acting distant and remaining silent when employees want to discuss
new ideas: when the management act in this way it discourages employees from coming up
with new ideas.

Innovation and Entrepreneurial Process

ELEMENTS IN THE INNOVATION PROCESS

Innovation Defined
The question now is “what is innovation?”

Innovation is the implementation of new ideas at the individual, group or

organizational level. Simply put, innovation is the process of doing new things. It
is therefore, the transformation of creative ideas into useful applications, but
creativity is a prerequisite to innovation.

It is important to recognize that innovation implies action, not just conceiving

new ideas.
When people have passed through the illumination and verification stages of
creativity, they may have become inventors, but they are not yet innovators.

The difference between invention and innovation is:

Invention is the creation of new products, processes, and technologies not

previously known to exist.

Innovation is the transformation of creative ideas into useful applications by

combining resources in new or unusual ways to provide value to society for or
improved products, technology, or services.

Innovation Process
The innovation process consists of four highly interrelated sequential stages of
activities as follows:

i. Analytical Planning
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 This stage involves identification of product design (including service
delivery strategy), production requirements, market strategy and financial
requirements for the transformation of the outcome of the creative process into a
good, service, product or process technology.

ii. Organising Resources

The second-stage deals primarily with activities to obtain the needed capital,
materials, technology, premises & human resources identified under analytical planning
in order to transform the idea into a reality.

iii. Implementation
At the implementation stage, the focus is on how to accomplish activities. For
instance, Setting up of a new business venture or creation of a new department
to take responsibility for the production of the new good or offer of the new
service or delegating these activities to an existing department represent the
implementation stage.
It also deals with developing product design (including service delivery strategy)
and producing the intended product in commercial quantities.

iv. Commercial Application

The final stage involves providing value to customers in the form of sale of
goods, technology or offer of service; Implementing a marketing strategy;
Rewarding employees; Making returns on investment for investors as well as satisfying
founders in terms of fulfilment of promises made during the initial stages of the
entrepreneurial process.

From the perspective of the entrepreneur, innovation involves the whole process
from opportunity identification, ideation or invention to development,
prototyping, production marketing and sales, while entrepreneurship only needs
to involve commercialization (Schumpeter).

Today it is said to involve the capacity to quickly adapt by adopting new

innovations (products, processes, strategies, organization, etc.). Furthermore,
traditionally, the focus has been on new products or processes, but recently new
business models have come into focus, i.e. the way a firm delivers value and
secures profits.

Schumpeter argued that innovation comes about through new combinations made
by an entrepreneur, resulting in
a. a new product,
b. a new process.
c. opening of new market.
d. new way of organizing the business
e. new sources of supply

Drivers of Innovations
The following are the drivers of innovations today:
a. Financial pressures to reduce costs, increase efficiency, do more with less.
b. Increased competition.
c. Shorter product life cycles.
d. Value migration.
e. Stricter regulation.

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 f. Industry and community needs for sustainable development.
g. Increased demand for accountability.
h. Demographic, social and market changes.
i. Rising customer expectations regarding service and quality.
j. Changing economy.
k. Greater availability of potentially useful technologies coupled with a need to
exceed the competition in these technologies.

In a nut shell we have discussed what is meant by innovation and also that the
innovation process include analytical planning; organising resources
implementation and commercial application. Lastly we also learnt some of the
factors that trigger innovation.

There are various types of innovations, including:

a. Disruptive innovation – takes a cheaper, low-end disruptive or a new-
market disruptive innovation to the market
b. Application innovation – takes existing technologies into new markets
to serve new purposes
c. Product innovation – takes established offers in established markets to
the next level (a type of sustaining innovation)
d. Process innovation – makes processes for established offers in
established markets more efficient or effective (also a type of
sustaining innovation)
e. Experiential innovation – makes cosmetic/surface modifications of
established products or processes that improve customers’ experience
f. Marketing innovation – improves customer touching processes, e.g.
by marketing communications or consumer transactions
g. Business Model innovation – reframes an established value
proposition to the customer or a company’s established role in the
value chain or both
h. Structural innovations – capitalizes on disruption to restructure
industry relationships.
METHODS FOR GENERATING BUSINESS IDEAS AND HOW TO PROTECT THEM
Welcome to session five of unit two. Business ideas do not come
accidentally; they are generated by conscious efforts. This session aims to discuss
the methods that are used to generate business ideas and also to brief us on
how to protect our business ideas. I hope you will enjoy this session.

Methods of generating business ideas

There are various methods for generating business ideas, including the
following:
a. Brainstorming
Brainstorming is a creativity technique used by groups to generate a large
number of ideas for solving a problem.
Some basic rules of brainstorming include the following:
• All members must contribute.
• There must be no form of criticism.
• All ideas are captured.
• There should be a facilitator who writes ideas in brief.
• No repetition of ideas
• No idea is discarded – all ideas are written down.

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b. Focus groups
It involves an open and in-depth discussion of ideas led by a facilitator. The
group could have between 8 and 14 participants.

c. Surveys
d. Mind mapping
It is a diagram that is developed to show how ideas, words, tasks,
activities and objects are linked. Hence, it is used in generating ideas,
analysing problems, classifying objects, or stimulating thinking about
something.

e. Customer advisory boards

Protecting your business idea
a. Patent
An exclusive right (grant) given to the inventor of a product to make, use,
or sell the invention for a specified number of years, usually 20 years.
b. Trademark
A trademark is a distinctive word, phrase, symbol, design, name, logo,
slogan, or trade dress that a company uses to identify the origin of a
product or to distinguish it from other goods on the market.
c. Copyright
A copyright is an exclusive right that protects the creators of original
works of authorship such as literary, dramatic, musical, and artistic works
(Zimmerer & Scarborough, 2005). A copyright lasts for the life of the
creator plus 50 years after their death. A copyright lasts 75 to 100 years if
the holder is a business

3. Some of the ways by which a business idea can be protected

include:
Patent
Trade mark
Copyright
THE ENTREPRENEURIAL PROCESS
The process of starting a new venture is embodied in the entrepreneurial process,
which involves more than just problem solving in a typical management position. An
entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces
that resist the creation of something new. The process has four distinct phases, including
identification and evaluation of the opportunity; development of the business plan;
determination of the required resources; and management of the resulting enterprise.
Although these phases proceed progressively, no one stage is dealt with in isolation or is
totally completed before work on other phases occurs. For example, to successfully
identify and evaluate an opportunity (phase 1), an entrepreneur must have in mind the
type of business desired (phase 4).

Elements in the Entrepreneurial process

The entrepreneurial process consists of certain key elements. These elements
include identifying and evaluating the opportunity, developing a business plan,
determining the resources required and managing the resulting enterprise. These
variables are discussed below.

Identify and Evaluate the Opportunity

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The first step in the Entrepreneurial process is opportunity identification and evaluation.
Most good business opportunities do not suddenly appear, but rather result from an
entrepreneur’s alertness to possibilities, or in some case, the establishment of
mechanisms that identify potential opportunities. Although most entrepreneurs do not
have formal mechanisms or identifying business opportunities, some sources are often
fruitful: consumers and business associates, members of the distribution system, and
technical people. Often, consumers are the best source of ideas for a new venture. Due
to their close contact with the end user, channel members in the distribution system also
see product needs. Many other entrepreneurs have identified business opportunities
through a discussion with a retailer, wholesaler, or manufacturer’s representative.

Whether the opportunity is identified by using input from consumers, business

associates, channel members, or technical people, each opportunity must be carefully
screened and evaluated. This evaluation of the opportunity is perhaps the most critical
element of the entrepreneurial process, as it allows the entrepreneur to assess whether the
specific product or service has the returns needed compared to the resources required.

Developing a Business Plan

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

Determine the Resources Required

The resources needed for addressing the opportunity must also be determined. This
process starts with an appraisal of the entrepreneur’s present resources. Any resources that
are critical need to be differentiated from those that are just helpful. The downside risks
associated with insufficient or inappropriate resources should also be assessed.

An entrepreneur should strive to maintain as large an ownership position as possible,

particularly in the start-up stage. As the business develops, more funds will probably be
needed to finance the growth of the venture, requiring more ownership to be relinquished.

Manage the Enterprise

After resources are acquired, the entrepreneur must use them to implement the business
plan. The operational problems of the growing enterprise must also be examined. This
involves implementing a management style and structure, as well as determining the key
variables for success. A control system must be established, so that any problem areas
can be quickly identified and resolved. Some entrepreneurs have difficulty managing
and growing the venture they created.

Variables in the new venture creation

The variables together constitute the creation of a new venture. The variables are
the entrepreneur, the organisation, the environment, the organisation and the process.

a. The Entrepreneur
The opportunity and the entrepreneur must be intertwined in a way that optimizes
the probability for success. People often become entrepreneurs when they see an
opportunity.
They are compelled to start a venture to find out whether they can convert that
opportunity into an on-going business.

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b. Environment
The birth, growth, contraction and death process of enterprises has become an
important research field in the so-called firm demographics. An entrepreneur is an
opportunity seeker but in so doing he/she needs to have an open eye on a rapidly changing
external environment. As a consequence, firm demography is a multidimensional
research field in which psychology, sociology, marketing, political science, economics,
finance and management come together.

c. Organisation
Most studies of new venture creation have neglected to comment on or even
communicate certain characteristics of organizations (Gartner, 1985). Behind this, there
seems to be the following assumptions: 1) All entrepreneurs are virtually alike and 2) If so,
and if they all go through the same process to create their ventures the organizations they
create must not be of any interest in them.

d. Process
The literature on entrepreneurship has begun to look beyond to what the entrepreneur
does. Specifically, what is done at start-up or even prior to start-up has been
increasingly considered important to the paths taken by new firms and their eventual
success. This line of thinking suggested that in order to understand venture success it may
be important to know some preliminaries as how thorough was the initial planning,
why the business started, whether or not it was a single effort, and what was the financial
structure of the business.

INCUBATORS AND THEIR CLASSIFICATION

To promote entrepreneurship and stimulate the development of new ventures, it is
important that these ventures can obtain the support they require. Several
entrepreneurial service providers exist, including business angels, venture capitalists, and
institutional investors, but also consultants, law firms, and real estate agents. The
business incubator competes with these, but is different from other forms of business
support in that it provides a complete, tailored, ‘hands-on’ business support environment.
This is the business incubation process, which is the product of an incubator.

Business incubators provide their incubatees with a supportive environment to help

establish and develop their projects. In its generic sense, the term ‘incubator’ may often
be used to describe a wide range of organisations that in one way or another help
the starting entrepreneur in a supportive environment.

Business Incubation and Incubator

Business incubation is a business support process that accelerates the successful
development of start-up and fledgling companies by providing entrepreneurs with an
array of targeted resources and services. These services are usually developed or
orchestrated by incubator management and offered both in the business incubator and
through its network of contacts.
A business incubator’s main goal is to produce successful firms that will leave the program
financially viable and freestanding. These incubator graduates have the potential to
create jobs, revitalize neighbourhoods, commercialize new technologies, and strengthen
local and national economies (NBIA, 2007).

Business Incubation is a unique and highly flexible combination of business development

processes, infrastructure and people, designed to nurture and grow new and small
businesses by supporting them through the early stages of development and change (UKBI,
2007).

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A business incubator is an organisation that accelerates and systematises the process
of creating successful enterprises by providing them with a comprehensive and integrated
range of support, including: Incubator space, business support services, and
clustering and networking opportunities. By providing their clients with services on a 'one-
stop-shop’ basis and enabling overheads to be reduced by sharing costs, business
incubators significantly improve the survival and growth prospects of new start-ups. A
successful business incubator will generate a steady flow of new businesses with above
average job and wealth creation potential.

Characteristics of Incubators
Even though incubators, and the definitions of what constitutes an incubator, have
changed over time, there seem to be certain defining characteristics of incubation. In
literature, it has been revealed that incubators usually offer all or most of five services, listed
below.
a. Access to physical resources: Office space, furniture, telecommunication networks,
security, and other physical infrastructure and real estate requirements.
b. Office support: Secretarial and reception services, mail handling, fax and copying
services, network support, book keeping and administration.
c. Access to financial resources: Venture capital, usually a combination of private funds
and investments by business angels, venture capitalists or local institutions
and companies.
d. Entrepreneurial start-up support: Accounting, legal advice for incorporation
and taxation issues, formulating ownership and employee option plan structures.
e. Access to networks: Incubators identify and leverage key individuals for start-up
success. This network takes years to create, but its importance is
often underestimated. It has been stated that this factor is the differentiating
factor for incubators to succeed.

The actual mix made of these five characteristics, depends on the focus of
the incubator as well as on the needs of the entrepreneur..

Classification of Incubators
In literature, classification has been based on several distinguishing features, including
location (rural, urban), objectives (empowerment, for-profit), configuration
(residential, virtual), business model (property, venture capital), lead sponsors
(university, corporate, public), type of inhabitants (mixed, industrial, technology, the
Internet),), and indeed, combinations of these. Incubation structures are culturally
dependent and in different countries, different types of incubation have become
important.
The classification most often used is based on the source of sponsoring and the objectives of
the incubator. In that way, a division is achieved in four classes, namely: the not for
profit, public incubators either linked to a university or other knowledge organisation, or
independent; the company linked incubators; and the independent, for profit (commercial
incubators). Another classification can be the existence of physical space, resulting in a fifth
class: the virtual or new-economy incubator.

However, it can be argued that classification should not (solely) be based on the source
of finance or the objectives of the incubator. Classification may also be based on the type
of enterprises incubated in the incubator, since each type of enterprise requires a different
set of incubation tools and support, while the ‘core’ services offered may be very similar.

DEVELOPING THE BUSINES PLAN

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Information plays a pivotal role in the development of every business. Information is
needed from the development of the business plan of the business through to its
establishment till the time it collapses. It aids in decision making of the business and it also
aids the business to be aware of the environment in which it operates. The session looks at
developing the business and the source of information for the business.

THE BUSINESS PLAN LAYOUT

A business plan is a prediction of the future based on current abstractions, assumptions
and estimates. This is unavoidable. In fact, if you could see into the future, there would
be no need for a business plan. When a business plan is implemented, the plan comes in
contact with reality. This could be a nasty shock for many business entrepreneurs causing a
good deal of doubt about their business plan. However, reality is the feedback necessary to
reinforce or adjust the business plan to achieve project completion. If a plan is not working,
change items in the plan. The plan itself will show what impacts a change will have on
other areas of a business. A business plan is never cast in stone. Use it as a management
tool.

Meaning of Business plan

A business plan is a formal statement of a set of business goals, the reasons they are
believed to be attainable, and the plan for reaching those goals. It may also contain
background information about the organization or team attempting to reach those goals.

Format of a Business plan

When it comes to a business plan format, there are ten basic elements that must be
covered when writing a business plan. The standard content of a business plan includes:

a. executive summary
b. general company description
c. the opportunity
d. industry and market
e. your strategy
f. the team
g. a marketing plan
h. operational plan
i. financial plan
j. an appendix

While there are no hard and fast rules for the format of a business plan, this breakdown
is generally accepted as standard. While some people think you do not need a business
plan to start your own business, research has shown that having a business plan greatly
contributes to the success of your venture. A business plan will not automatically make you a
success, but it will help you avoid some common causes of business failure including under-
capitalisation or the lack of an adequate market.

1. Table of Contents (1 page)

Your contents page should be the very last thing you write to ensure that all the page
numbers are correct. Make sure that you number your pages correctly so that a person can
quickly and easily find the sections they are interested in.

2. Executive Summary (2 pages)

The executive summary is an abridged version of the whole business plan. Many business
plan readers will read the executive summary and then decide whether to proceed further

22
or discard the plan. The executive summary should be written last, once all the other
sections are complete. It should not exceed two pages and should eloquently summarise
the most important aspects of the plan. Key elements to include in the executive
summary include business concept, financial features, current business position.

3. General Company Description (1 – 2 pages)

The general company description section usually follows the executive summary in the
started business plan format. It is used to give a high level overview of the company and
the business that it engages in. This introductory section of the plan section should
include the name of the company, mission statement of the business, company goals and
objectives, the main features of the industry in which you will operate and the most
important company strengths and core competencies.

4. The Opportunity, Industry & Market Description (2 – 3 pages)

This section of the standard business plan format requires that you communicate some of
the insight that you got into the industry, the market and the opportunity from the
systematic research you conducted before writing the business plan. Your research will
determine your market strategies. The market analysis you do should force you to become
familiar with all aspects of the market, so that the target market can be defined and
your business can be positioned to garner its share of sales. It also helps you establish
pricing, distribution and promotional strategies and gives you an indication of the growth
potential within the industry.

5. Strategy (1-2 pages)

The strategy will describe to readers how the business will compete in the chosen
markets.
Your positioning strategy will be affected by a number of variables related to the
motivations and requirements of your target market as well as what your primary
competitors are doing.
Before you position your product or service, you will need to know how your competitors
are positioning themselves, the specific attributes your product has that your competitor’s
do not and the needs your product fills for your customers.

6. Business Model Explanation (1 page)

A business model is the profit-making engine of the business. It is central to a business’s
success. The business model you choose will be a strong determining point of the
future success of your business. Your business model must include information on
what your company offers in terms of products or services; what makes your offering
unique; who you sell them to; and how you make your money.

7. Team: Management & Organisation (2 pages)

In this section of the business plan format you should provide a description of the
people behind the business. It should include a list the founders including their
qualifications and experience, a description of who will manage the business on a
day-to-day basis, an organisational chart if you have more than 10 employees, showing the
management hierarchy and responsibility for key functions (including position descriptions
for key employees).

8. Marketing Plan (2 – 3 pages)

The marketing plan defines all of the components of the marketing strategy. The
marketing plan should draw on market research. It should disclose the important
marketing decisions about the product (or service) and why it is valuable to customers, the
focused and detailed description of the target market, the positioning of the product or

23
service – how it should be perceived by customers, etc.

9. Operational Plan (2 pages)

Explain the daily operation of the business, its location, equipment, people, processes,
and surrounding environment. The operational plan in a standard business plan format
describes how the business functions on a continuing basis, as well as the capital
and expense requirements related to the operations of the business.

10. Financial Plan (3 – 5 pages)

The financial plan is a reasonable estimate of your company’s financial future. Include a few
paragraphs on the main features in the financial plan and back this up with
financial projections. Do not include too much financial detail in the body of the business
plan. If you have detailed projections and supporting calculations, place them in the
appendix.

11. Appendix
The appendix includes additional documents that the reader of the business plan may want
to refer to. Documents that could be included in the appendix are brochures and
advertising materials, industry studies, blueprints and plans, market research studies, etc.

Summary
In this session we looked at the explanation of a business plan. We also looked at the
format for writing a business plan and the items to include in writing the business
plan. These include the table of content, the executive summary, the general description of
the company, the strategy, the business model, the team, the marketing plan, the
operation plan, the financial plan and the appendix. We also learned that there are no
hard and fast rules on the format of writing a business plan. The business plan should
be written according to the objective of the business.

PROBLEMS ASSOCIATED WITH BUSINESS PLAN

A good business plan is critical to success in starting a new business. It should include
adequate funding, market information, competitive knowledge, a workable time line
and anticipation of contingencies. Businesses fail if the business plan is not well thought
out. In this session, we would be looking at why business plans fail and the business plan
trade-off.

Why Business Plan Fails

Developing the business plan is only a step in business planning. Once the plan is written, it
would now have to be implemented. However, several business plan have failed. Mills
(2014), outline some of the reasons why business plan fails. The reasons include:

Inadequate Resources
The business plan will fail if you do not have enough money. At start, there must be
sufficient funds to operate the business until the venture begins to make profit. In
addition, unavailability of skill prescribed in the can render the plan useless.

Incomplete Plan
The plan is a recipe for disaster, if vital information is over looked or ignore during the
preparation. Care must be taken to think through every factor that can affect the future of
the venture business.

Overestimation
Entrepreneurs are ambitious and risk takers. It is easy to think big. However,

24
overestimating how far the funds will go or how quickly the venture can show a profit is
another trap to be avoided. So if the plan is over ambitious, then it is not likely to work.

Overextending and Overspending

Plans that compels the venture to grow too fast is another business mistake. Steady
measure growth can prevent this kind of failure. Avoid spending too much in the early part
of the life of the venture. Do not overspend especially in fixed assets.

Insufficient Market Knowledge

The plan should reveal the market and its features. If the entrepreneurs do not know
the market, the plan cannot work. Misunderstanding or underestimating competition can
lead to failure.

Location
The plan should reveal locational advantages and demerits. The plan must consider
location carefully. More small businesses fail because of poor location than for any other
reason.

No Knowledge of the Plan

Most often, the plan is prepared by the entrepreneurs, which often makes it difficult
to implement by others in the venture. So of the people may not have any knowledge
about the plan and so becomes difficult for them to implement.

Too Technical To Understand

The business plan should not be written in technical language. The plans have failed because
implementers have found it difficult and often abstract in nature. Among the features, the
plan should be simple to follow and implement. This is most common where the
entrepreneur is not involved in the preparation of the plan.

Delays in Preparation
The preparation of the plan may often delay unduly to make it useless by the time the
entrepreneur might want to use it.

Business Plan trade-off

The preparation and implementation of a business plan helps to deal with most of
the challenges of starting and managing small businesses. However, there is other
school of thought that believes that the drawing up of a business plan should not be an
impediment to entrepreneurship. In their book, Bridge and Hegarty (2013), outlines ten
principles for every new venture explorer. The principles are discussed by Zwilling (2013) are
as follows:
A new venture is a means, not an end.
A new venture is pursued to provide a better life for others, satisfy one’s passion or enjoy
the benefits of a technology invented. This means that it could be a social enterprise, or a
hobby, in which case a business plan may not be beneficial.

Overcommitting of Resources.
The entrepreneur should be careful not to commit more than he can afford to lose
at start. New ventures are usually exploratory and risky by nature, so do not let any
business plan process convince you to commit more than you can risk as a person,
should your exploration fail. Start with an effectual approach, which evaluates risk tolerance,
and suggests a more affordable means to an end.

Experience and Expertise

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Pick a domain where you have some experience and expertise. It is advisable not to
start something for which you have to build or acquire knowledge, skills and connections
from scratch. A business plan cannot be an antidote to the challenge one encounters as a
result of undertaking a venture in which you are just picking ideas at random or copying
others, just because the story sounds attractive.

Validation and Reality Checks

The entrepreneur would have to carry out reality checks and make appropriate plans. Before
a business plan has any validity, some work is required to validate that the technology
works, a real market exists and one’s assumptions for cost and price are reasonable. It is
imperative not to be driven by just the emotional enthusiasm of friends or even third-party
research.

The Real Test

The only reliable test is a real one. Market research techniques for trying to predict
the market’s response to a new venture can be costly and often unreliable. It is like
what explorers do. They go and look, instead of trying to predict from a distance what
they will find.
Get started and build momentum
Too much hesitation will kill any new venture, as markets move quickly and difficulties
mount. Getting started helps generate momentum and creates a sense of
accomplishment, which can carry the start up through many obstacles. Early perseverance
pays off.
Accept uncertainty as the norm
For a new or even existing venture, one can never remove all uncertainties. The
entrepreneur must accept them, and plan activities in an incremental fashion. Too often, a
business plan is seen as a mechanism for eliminating uncertainty, lulling the founder
into complacency. Eliminate major uncertainties before the plan and update any plan as you
learn.

Look for new opportunities

Many useful opportunities are either created by what one do early, or are only revealed
once the venture is started. It is therefore, imperative that the entrepreneur, keep his/her
eyes open and respond to new customers, markets and partnerships. Proactiveness is
the tool to eliminating opportunities that are not favourable.

Build and use social capital

Social capital is people and connections. No entrepreneur can survive as an island. Social
capital is as important as financial capital for all ventures. As with all capital, you can use
only as much as you have acquired to-date. If you have no social capital, no business plan
will likely get you the financial capital you need.

Acquire the relevant skills

Three basic skill sets are required for successful delivery of almost every venture. These are
financial management, production capabilities and marketing and sales. If you do not
have the relevant skills and knowledge, take time to build them or find someone to
partner with, before you attempt any business plan.

PLANNING THE BUSINESS

LEGAL FORMS OF BUSINESS ORGANISATIONS
Before a business starts trading, a decision will have to be made about what legal form it will
take, as this affects taxation and the accounting records that need to be kept. There

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are various types of business organisations and each of them is subject to different
kinds of control. This session attempts to explain the various types of business
organisations and its associated advantages and disadvantages.

Sole proprietorship
A sole proprietorship is a business owned and managed by a single individual. It is the most
common and simplest type of business entity. A sole proprietorship can have multiple
people operating the business, but it must have one sole owner.
It can also be defined as a business structure in which an individual and his/her business
are considered as a single entity for tax and liability purposes. A sole proprietorship is a
business which is not registered with the state as a limited liability company or corporation.
The owner does not pay income tax separately for the business, but he/she reports
business income or losses on his/her individual income tax return. The owner is
inseparable from the sole proprietorship and is responsible for every aspect of his or her
business and is therefore liable for any and all debts incurred by the organization. This
ownership style gives full control to a single person, allowing him to set the vision for the
company and enjoy the significant tax benefits associated with a sole-proprietorship.
Unfortunately, the potential for severe liability and the inability to find willing investors
makes a single owner style of business less popular and it can keep the business from
growing.
Advantages
Full Control
By its definition, a sole-proprietorship is owned by a single individual who is responsible for
the long-term decisions and goals of the company. This gives the business two
unique advantages. First, a sole-proprietorship has a singular vision for the future of a
company. This cuts down on the confusion and disagreement that can occur when there are
multiple owners. In addition, having a single owner ensures that business decisions
are addressed and answered quickly, rather than waiting for a unified decision by a board
or group of owners.
Taxes
A sole-proprietorship has significant tax advantages over a multi-owner business model. As
an example, in many states a sole-proprietor can claim her business taxes as part of
her individual taxes each year, ensuring that the company is only taxed once. Multi-
owner business models are taxed on income coming into a business and again as income
are paid to employees throughout the company. The result is a significant decrease in
the overall tax burden that a sole-proprietor suffers each year.
Disadvantage
Liability
Under a sole-proprietorship, the owner of a business is personally responsible for all
debts and financial liability that the company takes on. This includes being personally
responsible in the event of a lawsuit or legal penalties. These legal liabilities constitute a
significant risk to a sole-proprietor and the potential for substantial debt in the event of an
unfavorable legal decision. In addition, a sole-proprietor can be held personally
responsible for these debts, placing his personal financial situation in jeopardy.

Investment
Investors are unlikely to look at sole-proprietorships as a form of investment. The inability to
have a say in the regular functions of a single owner business is a strong deterrent to
an investor. Additionally, if the owner decides to close the doors and stop doing business,
the company is dissolved. Investors have no protection against an owner who chooses to
walk away from a company and no legal recourse to keep the business going.
Further, this potential plays a negative role in a company's speculative performance.
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Partnership
A partnership is an unincorporated business operated by two or more individuals with
the motive of making profit. Once two or more individuals agree to go into
business, a partnership is automatically formed. A partnership is the easiest and least
expensive way to form a business with more than one owner. It is a type of
unincorporated business organization in which multiple individuals, called general partners,
manage the business and are equally liable for its debts; other individuals called limited
partners may invest but not be directly involved in management and are liable only to the
extent of their investments and its debts and liabilities.

The partnership itself does not pay income taxes, but each partner has to report their
share of business profits or losses on their individual tax return. The Incorporated Private
Partnership Act, 1962, (Act 152) governs partnership in Ghana.
Types of partnership
General Partnership
A general partnership is a partnership with only general partners. Each general partner
takes part in the management of the business, and also takes responsibility for the
liabilities of the business. If one partner is sued, all partners are held liable. General
partnerships are the least desirable for this reason.
Limited Partnership
A limited partnership includes both general partners and limited partners. A limited
partner does not participate in the day-to-day management of the partnership and his/her
liability is limited. In many cases, the limited partners are merely investors who do
not want to participate in the partnership other than to provide an investment and to
receive a share of the profits.
Limited Liability Partnership
A limited liability partnership (LLP) is different from a limited partnership or a general
partnership, but is closer to a limited liability company (LLC). In the LLP, all partners have
limited liability. An LLP combines characteristics of partnerships and corporations. As in a
corporation, all partners in an LLP have limited liability, from errors, omissions, negligence,
incompetence, or malpractice committed by other partners or by employees. Of course,
any partners involved in wrongful or negligent acts are still personally liable, but other
partners are protected from liability for those acts. In recent years, the limited liability
company has supplanted the general partnership and the limited partnership, because
of the limits of liability. But there are still cases in professional practices in which some
partners want to be limited in scope of duties and they just want to invest, having the
liability protection.

The Partnership Agreement

A written partnership agreement is an internal document that specifies information such
as the nature of the business; capital contributed by each partner, and their rights
and responsibilities. A partnership does not have a separate legal existence like an
incorporated firm, and the partners are jointly and severally liable for the debts of the
firm. Even on withdrawing from the partnership they remain liable for already incurred
debts, and for future debts unless a proper notice of retirement is published. A valid
partnership, however, can exist without a written agreement in which case the
provisions of the statutes governing partnerships would apply.

Advantages
1. Easy to form

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One of the advantages of a partnership is the simplicity of forming and operating
the business. A partnership business automatically begins when two or more people
decide to start a business. There is no need to file formation documents with the city or
state where the partnership business operates. With no formation documents to file, it
costs very little to establish a partnership business. Furthermore, partnerships are not
required to pay annual fees or franchise taxes to the state where the company operates.
2. The business is not taxed
A benefit of a partnership is that it is treated as a "pass-through" entity. The partners
are allowed to "pass," or file their share of company profits and losses directly on their
personal income tax return. Partnerships are not required to file taxes as a business
entity with the Internal Revenue Service. Partners can use losses from the business to
offset income gained from other sources.
Disadvantages
1. Unlimited Liability
A major disadvantage of operating a partnership business is that the partners have unlimited
liability for business debts and obligations. This means that a partner could lose her home,
car and other personal assets if the company's assets cannot cover business-related debts
and liabilities. Business creditors may come after a partner's personal assets as compensation
for debts and other obligations. In addition, a partner is liable for another partner's decisions
and business obligations
2. Limited lifespan
A downside of operating a partnership is the longevity of the business. Partnerships have a
limited lifespan. A partnership automatically ends when a partner dies, retires or decides to
sell his ownership interest in the business. Ownership cannot be passed to another person
without the approval of the business' partners.
Companies
A Company is a legal entity, owned by its shareholders, whose assets and liabilities are
separate from its shareholders. That is, the company exists in law separately from its
owners. The company may form contracts, sue and be sued in its own name. The
shareholders are not liable for the company’s debt except for the value of their
shareholdings (in the case of limited companies). In Ghana, one person can form a
company. However, in most countries, there must be at least two shareholders. A company
is different from other forms of business organisations. All companies must be registered
with the Registrar of Companies to whom financial report must be sent each year. The
accounts submitted are available for inspection by any member of the public. In Ghana,
companies are governed by the Companies Act, 1963, (Act 179). A company may fall in
any one of these types; company limited by shares, company limited by guarantee and
unlimited company.
1. Company Limited by Shares
A company limited by shares is one in which the liability of its members is limited only to the
amount of shares respectively held by them in the event of the company winding up.
A company limited by shares, may be further divided into public companies and
private companies. Who may become a member of a private limited company is restricted by
law and by the company's rules. In contrast anyone may buy shares in a public limited
company.
Limited companies can be found in most countries, although the detailed rules
governing them vary widely. It is also common for a distinction to be made between
the publicly tradable company of plc type and the "private" types of company. A private
company limited by shares has shareholders with limited liability and its shares may not
be offered to the general public. Shareholders of private companies limited by shares are
often bound to offer the shares to their fellow shareholders prior to selling them to a third
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party. A public limited company (PLC) is also referred to as a publicly held company. A
company that is publicly held means that the company offers its stock to be purchased by
the general public through a stock exchange. A PLC is typically owned by several investors
while a private company is normally held by very few shareholders.
2. Company Limited by Guarantee (CLG)
Any company is treated as an entity separate from the members that make up the
company. As a legal entity the company has rights and obligations like a natural person. A
company may sue and be sued in its own name, enter into contracts in its own right and
own property in its own name. A “company limited by guarantee” is formed on the
principle of having the liability of its members limited by the Memorandum of Association
to the amount that the members undertake to contribute to the assets of the company in
the event of its winding up.

Therefore, upon liquidation of a CLG, a member’s maximum liability to creditors of the CLG
is that amount which he has agreed to guarantee. This amount will be stated in the CLG’s
Memorandum of Association. This guaranteed amount is usually nominal. A CLG cannot
have shares or share capital. A member of a CLG is not required to pay any capital while the
company is a going concern. A CLG is a public company. This is because only a company
having share capital can be formed as a private company. The Memorandum & Articles
(M&A) constitutes a contract between the company and each member and between
the members themselves as well. Although the form of the M&A of a CLG is not prescribed
in the Companies Act, unlike for a private limited company, it usually does not aim to
make a profit.

The objects of a CLG as set out in the Memorandum are usually charitable in nature or for
the fulfilment of some social need. The Companies Act requires the Memorandum to state
that:
a) the liability of the members is limited; and
b) that each member undertakes to contribute a maximum specified amount to the
assets of the company, in the event of its being wound up while he is a member or
within one year after he ceased to be a member, for payment of the debts and
liabilities of the company.
It also requires the Articles to state the number of members to be registered with the
CLG proposed. A CLG is primarily used for non-profit groups that require corporate
status.
Therefore, a CLG is typically used for trade associations, charitable bodies, professional and
learned societies, religious bodies, incorporated clubs or other charitable, educational or
other non-profit making ventures which want the advantages of limited liability. CLGs are
rarely used for commercial undertakings or trading companies.
In practice, the Memorandum usually provides that all the income of the CLG shall be
applied solely towards the promotion of the objects of the CLG, and that no portion shall
be paid or transferred directly or indirectly by way of dividends or bonus or by way of profit
to its members. In addition, the memorandum may also provide that on the winding
up or dissolution of the CLG, any property left after satisfaction of all debts will not be
distributed to the members of the CLG, but to some institutions having similar objects as the
CLG or to a registered charity. However, the Companies Act provides that any provision in
the M&A or any resolution purporting to give any person a right to participate in the
divisible profits of the company, otherwise than as a member, shall be void.
3. Unlimited Company
An unlimited company or private unlimited company is a hybrid company (corporation)
incorporated either with or without a share capital (and similar to its limited
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company counterpart) but where the legal liability of the members or shareholders is not
limited - that is, its members or shareholders have a joint, several and non-limited
obligation to meet any insufficiency in the assets of the company to enable settlement of
any outstanding financial liability in the event of the company's formal liquidation. The
joint, several and non-limited liability of the members or shareholders of the company to
meet any insufficiency in the assets of the company (to settle its outstanding liabilities if
any exist) only applies upon the formal liquidation of the company. Therefore, prior to
any such formal liquidation of the company, any creditors or security holders of the
company may only have recourse to the assets of the company and not to those of its
members or shareholders. Until such event occurs (formal liquidation) - an unlimited
company is similar with its counterpart the limited company where its members or
shareholders have no direct liability to the creditors or security holders of the company
during its normal course of business or existence.

ALTERNATIVES FOR STARTING FROM THE SCRATCH

An investor who wants to operate a business must not necessarily start it from the
scratch. There are various alternatives that are available in operating a business. An
investor may decide to acquire a franchise, a license, or to buy an existing business.
Each of these alternatives has its own advantages and disadvantages. Some of these
alternatives can be a bit confusing. However, it will be clear as you read through this session.
Licensing
Licensing is the practice of leasing a legally protected property (such as a trademarked
or copyrighted name, logo, likeness, character, phrase or design) to another party in
conjunction with a product, service or promotion. It is based on a contractual
agreement between the owner of the property (or its agent) known as the licensor;
and a licensee – normally a manufacturer or retailer. It grants the licensee permission
to use the property subject to specific terms and conditions, which may include the
purpose of use, a defined territory and a defined time period. In exchange for this usage, the
licensor receives financial remuneration – normally in the form of a guaranteed fee
and/or royalty on a percentage of sales. Most agreements are set out in a licensing
agreement. We have licensing agreement frameworks for sale however we do recommend
using a lawyer to execute all legal documents. However being able to present your lawyers
with a basic framework of a licensing agreement with your key commercial terms could
possibly help to reduce consultation time at the initial stages of the legal process.

The Benefit of licensing to the Licensors

The key benefit for a licensor is the ability to exploit and enhance its brand or
property.
Licensing can do this by:
a) increasing its brand presence at retail or distribution outlet
b) creating further brand awareness to support its core products or services
c) supporting and enhancing its core values by associations with the licensed
products/service or category (e.g. association with a healthy food or with a
cutting edge mode of fashion)
d) entering new markets (consumer or geographical) which were unfeasible with its
own resources or capabilities
e) generating new revenue streams, often with little involvement or additional
financial or other resource implications.

The Benefit of Licensing to the Licensees

The key benefit for a licensee (especially manufacturer or retailer) is the ability to
significantly increase consumer interest in and sales of its products or services. Licensing can
do this by:

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 a) transferring the values and consumer favour towards the property to the
licensed product or service
b) providing added value and differentiation from competitive offerings
c) providing additional marketing support or momentum from the core
property’s activity provided by the licensor
d) appealing to new target markets who have not historically been interested in
a licensee’s product or service
e) giving credibility for moving into new market sectors through product extension
f) gaining additional retail space and favour.

Franchising
Franchising is an arrangement where one party (the franchiser) grants another party
(the franchisee) the right to use its trademark or trade name as well as certain business
systems and processes to produce and market a good or service according to certain
specifications. The franchisee usually pays a one-time franchise fee plus a percentage of
sales revenue as royalty.

Advantages of the Franchising Model

The advantages of franchising includes the following:
a) Franchisees require less initial capital than independently starting a company and can
use proven successful strategies and trademarks.
b) Franchisees are provided with significant amounts of training, not common to most
entrepreneurs.
c) The franchisor benefits because it can expand rapidly without having to increase its labour
force and operating costs, using much less capital.
d) Franchised stores have a higher margin for the parent company than company-owned
stores because of minimal operating expenses in maintaining franchised stores.

Drawbacks of the Franchising Model

The drawbacks in franchising includes the following:
a) Franchising stores reduces the amount of control that the parent company has over
its products and services, which may lead store quality to vary greatly from store to store.
b) Franchisees must pay a percentage of their revenues to the parent company, reducing
their overall earnings.
Buying an existing company
For some entrepreneurs, buying an existing business represents less of a risk than starting a
new business from scratch. While the opportunity may be less risky in some aspects, you must
perform due diligence to ensure that you are fully aware of the terms of the purchase. If you have
decided to buy an existing business, you will want to be sure you are making the right choice
in your new venture. Only you can determine the right business for your needs; however, the
following topics can help guide you make the best decision. There are many favorable aspects
to buying an existing business such as drastic reduction in start-up costs. You may be able to
jump start your cash flow immediately because of existing inventory and receivables. However,
there are also some downsides to buying an existing business. Purchasing cost may be much higher
than the cost of starting a new business because of the initial business concept, customer base,
brand and other fundamental work that has already been done. Also, be aware of hidden problems
associated with the business like debts the business is owed that you may not be able to collect.

REGISTERING A BUSINESS IN GHANA

The process
In establishing a business in Ghana, there are certain processes that businesses go through
in order to get registered. The processes have been discussed below for the different
types of business organisations.

Incorporation of Limited Liability Companies

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The process involved in registering a limited liability company is as follows:
a) Acquire a Tax Identification Number.
b) Check for availability of company name and submit company documents to obtain
an incorporation certificate.
c) Obtain from the Registrar-General’s Department the certificate to commence
business
d) Deposit paid-in capital in an account
e) Apply for business licenses at the Metropolitan Authority
f) Inspection of work premises by the Metropolitan
g) Apply for social security

Incorporation of Partnerships
The process involved in registering a partnership are as follows:
a) Present duly completed form together with a stamped partnership agreement at
the Registry.
b) Pay prescribed fee of GH 75.00 cedi.
c) Registrar examines document and issues certificate of registration.

Incorporation of External Company

The process involved in registering an external company are as follows:
a) Applicant may purchase and complete Forms 20 and 21 from the Ghana Publishing
Company Limited.
b) Submit duly completed forms at the in-house bank together with the
following:
Either
i) A certified true copy of the Memorandum and the Articles of the Association
of the Company registered outside Ghana in English;
ii) A certified true copy of the Certificate of Incorporation.
iii) Power of Attorney to the Local Manager
Or
i) All the constitution of the External Company;
ii) All these duly endorsed by the Ghana Mission in the Country if any or the
nearest country where there is Ghana Mission.
c) Pay prescribed fee of US$1000 or cedi equivalent.
d) The Registrar examines registers and notifies the local manager in writing
e) Filling of annual returns each year at US$500 or Cedi equivalent.

Documents required
In registering a business, there are certain important documents that are needed. They
are Articles of Association and Memorandum of Association. These documents are
discussed below:

SUPPORT INSTITUTIONS FOR START-UPS

National Board for Small Scale Industries (NBSSI)

The National Board for Small Scale Industries (NBSSI) is the apex governmental body for
the promotion and development of the Micro and Small Enterprises (MSE) sector in Ghana.
It was established by an Act of the Parliament of the Third Republic of Ghana (Act 434 of
1981) and operationalised in 1985 because government views the sector as having
the potential to contribute substantially to reducing the high unemployment and to the
growth of the economy of Ghana. MSEs account for a significant share of economic activity
in Ghana and can play an important role in achieving the development goals for production.
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The long-term goal is for MSEs to maximize their contribution to the country’s economic
and social development with respect to production, income distribution and employment
and the closer integration of women and people in rural areas with the
national economy.

Venture Capital Trust Fund

The Venture Capital Trust Fund (VCTF, Trust Fund) was established by ACT 680, 2004 by
the Government of Ghana to provide financial resources to Small and Medium Scale
Enterprises (SMEs). In accordance with the VCTF ACT 680, 2004 the VCTF is to: “Provide
financial resources for the development and promotion of venture capital financing for SMEs
in Ghana by providing credit and equity financing to eligible Venture Capital Finance
Companies (VCFCs) to support SMEs; and the provision of monies to support other activities
and programs for the promotion of venture capital financing, as the Board may determine
in consultation with the Minister."

Council for Technical and Vocational Education and Training (COTVET)

The COTVET Act (Act 718) was passed by Parliament in July 2006 establishing the Council
for Technical and Vocational Education and Training (COTVET). The Act mandates the
Council to formulate policies for skills development across the broad spectrum of pre-
tertiary and tertiary education, formal, informal and non-formal, ensure quality in the
delivery of access to technical and vocational education and training and facilitate
research and development in technical and vocational education and training. The
overall goals of the Council are to ensure that the unemployed particularly the youth
are given competitive, employable and entrepreneurial skills nationally and globally within
the formal and informal sectors; and to ensure that graduates coming out of our formal,
informal and non-formal TVET institutions are endowed with employable and
entrepreneurial skills.

Association of Ghana Industries (AGI)

The Association of Ghana Industries (AGI) is a voluntary business association of over 1200
members, made up of small, medium and large scale manufacturing and services industries
in agro-processing (food and beverages), agri-business, pharmaceuticals, electronics
and electrical, telecommunications, information technology, utilities, service industries,
transport, construction, textiles, garments, leather, banking and advertising.

As the leading voice of manufacturing industries in the country, AGI is dedicated to:
a) Advocating policies that advance the growth and development of industries;
b) Facilitating international trade through exhibition of member products in
countries across the sub-region;

c) Strengthening national industry associations through the sharing of

knowledge, experience and critical information;
d) Providing members with a vast network of contacts, especially in the West African
sub-region;
e) Hosting the industry and technology exhibition to promote members’ goods.
Private Enterprise Federation (PEF)
PEF operates in four main areas, namely
1. Policy Research / Advocacy Role - PEF’s advocacy role is aimed at influencing
government policies and regulations and involves the performance of the following activities:
a) Undertaking policy based research for making effective representation to
government on behalf of member associations on issues of concern to the private sector,
34
such as land reform the impact of the legal and regulatory framework, competitiveness,
the tax regime, multilateral and bilateral trade agreements;
b) Monitoring best management practices and identifying strategic factor accounting
for enhanced enterprise competitiveness, and disseminating such best practice findings
among member enterprises.
c) Making proposals to government to mainstream such best practices in industry.

2. Contract Management Services - PEF also act as contract management services

providers:
a) Provides consultancy services to clients in the area of socio-economic research and
analysis, business advisory services, project development and management and
related services;
b) Provides fee-based project and technical assistance contract management service on
behalf of international development clients, using expertise available within PEF, its
member organizations and outside consultants.

3. Institutional Capacity Development and Training: - PEF focuses on programmes to:

a) Strengthen its members and other private sector advocacy bodies by designing and
carrying out training to enhance their performance;
b) Develop model training and technical support programs based on best management
practices for adoption by PEF members and non-members especially SMEs
transitioning from the informal sector to the formal sector economy.

4. Promotion of Technology Based Enterprises

a) Identifies and initiates contracts with technology based enterprises for
example, agribusiness, biotechnology, etc, and helps promote these for effective
performance;
b) In collaboration with member associations PEF collects, analyses and disseminates
relevant information on opportunities and resources.
Microfinance and Small Loans Centre (MASLOC)
Microfinance and Small Loans Centre (MASLOC) is a microfinance apex body responsible
for implementing the Government of Ghana’s microfinance programmes targeted at
reducing poverty, creating jobs and wealth. Over the years MASLOC has modestly
established itself not only as a microfinance institution that disburses micro and small
loans to the identified poor in the various sectors of the Ghanaian economy, but also
provides business advisory services, training and capacity building for small and medium
scale enterprises (SMEs) as well as collaborating institutions, to provide them with the
required skills and knowledge in managing their businesses efficiently and effectively.
MASLOC was established in 2006 by the Government of Ghana.

Microfinance Institutions (MFIs)

GHAMFIN is an informal network of institutions and individuals that operate within Ghana's
Microfinance Industry. This network evolved from the concern of some Ghanaian
Microfinance Institutions (MFIs) for the development of best practices in delivery of
microfinance services. Their concern and initiatives was promoted by a World Bank
sponsored action research project, which sought to identify for wider application,
innovative techniques of financial services delivery that had been successful in
improving access of micro entrepreneurs to financial services. This action research project,
which started with the profiling of three (3) Ghanaian MFIs, grew into an informal
network of organizations interested in providing effective financial services to the poor.
Today, the informal group has been formalized and registered as a company limited by
guarantee, the Ghana Micro Finance Institutions Network (GHAMFIN). GHAMFIN was
legally registered in August 1998. Its membership consists of 80 regulated and non-

35
regulated microfinance institutions that together are serving over 60,000 clients. Its
members include institutions of different sizes and legal structures such as commercial
banks, savings and loan institutions, NGOs, cooperative, rural banks and traditional
'Susu' savings clubs. The network has an executive committee of 11 members, of whom
presently two are women. It has a permanent secretariat with six paid employees, including
a full-time executive director.

Rural and Community Banks

There are over hundred and thirty-five rural banks in the ten regions of Ghana.
The importance of Rural/Community Banks as providers of financial services to ensure
growth in a predominantly agro-based economy cannot therefore be over-emphasised.
The banks undertake a mix of micro finance and commercial banking activities structured
to satisfy the need of the rural areas. They provide banking services by way of funds
mobilization and credit to cottage industry operators, farmers, fishermen and regular
salaried employees. They also grant credits to customers for the payment of school fees,
acquisition/rehabilitation of houses and to meet medical expenses. Some of the banks have
subsidiary companies engaged in consumer credit and other developmental activities.
Rural/Community Banks devote part of their profits to meet social developmental activities
such as donations to support education, health, traditional administration and the needy in
their respective communities. Some of the banks have specific gender programmes focusing
on women-in-development and credit-with-education activities for rural women.
Rural/Community Banks are, therefore, the main vehicle for financial intermediation,
capital formation and retention of rural dwellers in the rural areas.

Business Development Producers

Business Development Producers are regulated, closed-end investment firms that make
loans to, and/or invest in small, developing, or financially troubled companies. They have
stepped into a role that commercial banks vacated during the financial crisis, lending to
companies that may not otherwise get financing. BDC is a company that is created to help
grow small companies in the initial stages of their development. BDCs are very similar to
venture capital funds. Many BDCs are set up much like closed-end investment funds and are
actually public companies that are listed on the stock exchange. To qualify as a BDC,
companies must be registered in compliance with the Companies Act. A major difference
between a BDC and a venture capital fund is that BDCs allow smaller, non-accredited
investors to invest in startup companies. Some of the reasons why BDCs have become
popular are that they provide permanent capital to their management, allow
investments by the general public and use mezzanine financing opportunities.

Business Incubators
Business incubators are programs designed to support the successful development
of entrepreneurial companies through an array of business support resources and
services, developed and orchestrated by incubator management and offered both in the
incubator and through its network of contacts. Incubators vary in the way they deliver their
services, in their organizational structure, and in the types of clients they serve. Successful
completion of a business incubation program increases the likelihood that a start-up
company will stay in business for the long term. Incubators differ from research and
technology parks in their dedication to startup and early-stage companies. Research and
technology parks, on the other hand, tend to be large-scale projects that house
everything from corporate, government or university labs to very small companies. Most
research and technology parks do not offer business assistance services, which are the
hallmark of a business incubation program.
However, many research and technology parks house incubation programs.

BASICS IN CONTRACT AND BUSINESS LAWS

36
Meaning of Contract
A contract is a legally-enforceable promise or set of promises made by one party to
another. A contract is a legally binding agreement concerning a bargain which is
essentially commercial in its nature and involves the sale or hire of commodities such as
goods, services or land. A contract is a legally binding agreement between two or
more persons for a particular purpose. The most common types of contracts are the
contract of sale, whereby a person acquires the ownership of property in return for
payment of a certain price; lease and hire of services, whereby a person offers his services
to another in return for remuneration; and lease and hire of things, whereby a person
is temporarily granted the enjoyment of property (e.g., an apartment), in return for a
price (rent); and mandate whereby a person gives another the power to represent her.

Essential Elements of A Valid Contract

All agreements are not contracts. Only that agreement which is enforceable at law is
a contract. An agreement which is not enforceable by law cannot be contracted. Thus, the
term agreement is wider in scope than a contract. All Contracts are agreements, but all
agreements are not contracts. An agreement, to be enforceable by law, must possess
the essential elements of a valid contract. All agreements are contract if they are made by
the free consent of the parties, competent to contract, for a lawful consideration and with
a lawful object and are not expressly declared to be void.

The following are the essential elements of a valid contract:

1. Offer
The first element in a valid contract is an offer. An offer needs to be in a contract because it is
the basis for the contract. In a contract, it is very important that a party would make an
offer. To make an offer, there should be at least two parties or even more so that it would
be legally capable of entering into a contract. If the offer is accepted, then it would
constitute a legally valid contract. When an offer is being made, the other party or person
would know what is being offered and what the person or party who made the offer expects
to have in return.

2. Acceptance - After making an offer in the contract, there should be acceptance. For a
contract to be made there should be acceptance from the other party or person. When
the other party is clear with the offer, he/she would make an acceptance once he/she is
clear with the rules and regulations being offered in the contract. There will be no contract
if the parties are still negotiating or discussing and have not accepted the offer. The
person or party can accept the offer being made in writing or orally, which is made verbally
or being spoken out. For example, a tourist writes to hotel K requesting information about
the cost and availability of accommodation for the week commencing on the 15th April
2011.

The staff at hotel K answers the inquiry and states that the accommodation available for
that week would cost GHS 600 and if the tourist responds with the deposit of GHS 600
within a week, then the room will be allocated to him. If the tourist accepts the offer, then
a contract has been made between the tourist and hotel K .

3. Consideration - Consideration is also a very important element in the contract.

Consideration is what the other person would be giving in return. It would be considered
as an exchange which would be made between the promisee and promissor. There should
be a consideration in a contract so that it would be legally valid. For example, a customer in
a fast-food restaurant like McDonald's orders a set lunch which costs GHS 50. By ordering
the set lunch, the customer is agreeing to pay GHS 50 as consideration.

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4. Intention to Create Legal Relations - An agreement is not a contract in the strict sense
unless it is the common intention of the parties that it should be legally enforceable. If there
is no intention to create legal relations in a contract, the contract cannot be subject to a
lawsuit. For example, if a parent makes a promise to his child whom he will buy her a
mobile phone if she passes her exams, and the parties do not intend it to be legally
binding, then such a promise cannot be enforced by law.

5. Certainty - The terms and regulations being made in a contract should be stated clearly
and understood by the parties to the contract. If the agreement is not certain, it would be
no longer valid.

6. Capacity - Capacity to a contract means that the parties to the contract must have the
legal capacity to do so. In Ghana, twenty one (17) year old is stated as the age of a major.
Minors, who are people below this age have no capacity to enter contracts. Therefore,
insane people or people with unsound minds also cannot enter any valid contracts.
All the elements mentioned above must be present in order to make a valid contract. If
any one of them is absent, the agreement does not become a contract.
Types of Contracts
There are several classifications of contracts, including the following:

1. Contracts under Seal: Traditionally, a contract is an enforceable legal document only if it

was stamped with a seal. The seal represented that the parties intended the agreement to
entail legal consequences. No legal benefit or detriment to any party was required, as the
seal was a symbol of the solemn acceptance of the legal effect and consequences of the
agreement.
2. Express Contracts: In an express contract, the parties state the terms, either orally or in
writing, at the time of its formation. There is a definite written or oral offer that is
accepted by the offeree (i.e., the person to whom the offer is made) in a manner
that explicitly demonstrates consent to its terms.
3. Implied Contracts: Although contracts that are implied in fact, and contracts implied in
law are both called implied contracts, a true implied contract consists of obligations
arising from an agreement and intent to promise, which have not been expressed in
words. It is misleading to label as an implied contract one that is implied in law
because a contract implied in law lacks the requisites of a true contract. The term
quasi-contract is a more accurate designation of contracts implied in law. Implied
contracts are as binding as express contracts. An implied contract depends on substance
for its existence; therefore, for an implied contract to arise, there must be some act or
conduct of a party, in order for them to be bound.

4. Executed and Executory Contracts: An executed contract is one in which nothing

remains to be done by either party. The phrase is, to a certain extent, a misnomer because
the completion of performances by the parties signifies that a contract no longer
exists. An executory contract is one in which some future act or obligation remains to be
performed according to its terms.

5. Bilateral and Unilateral Contracts: The exchange of mutual, reciprocal promises

between entities that entails the performance of an act, or forbearance from the
performance of an act, with respect to each party, is a Bilateral Contract. A bilateral
contract is sometimes called a two-sided contract because of the two promises that
constitute it. The promise that one-party makes constitutes sufficient consideration for
the promise made by the other. A unilateral contract involves a promise that is made by
only one party. The offeror (i.e., a person who makes a proposal) promises to do a
certain thing if the offeree performs a requested act that he or she knows is the
basis of a legally enforceable contract. The performance constitutes an acceptance of

38
the offer, and the contract then becomes executed.

Acceptance of the offer may be revoked. However, until the performance has
been completed. This is a one-sided type of contract because only the offeror, who
makes the promise, will be legally bound. The offeree may act as requested, or may refrain
from acting, but may not be sued for failing to perform, or even for abandoning
performance once it has begun, because he or she did not make any promises.

6. Unconscionable Contracts: it is contract is one that is unjust or unduly one-sided in favor

of the party superior bargaining power. The adjective unconscionable implies an affront
to fairness and decency. An unconscionable contract is one that no mentally competent
person would accept and that no fair and honest person would enter into.

7. Adhesion Contracts: Adhesion contracts are those that are drafted by the party who
has the greater bargaining advantage, providing the weaker party with only the
opportunity to adhere to (i.e., to accept) the contract or to reject it. (These types of
contract are often described by the saying "Take it or leave it.") They are frequently
employed because most businesses could not transact business if it were necessary to
negotiate all the terms of every contract.

8. Aleatory Contracts: this is a mutual agreement the effects of which are triggered by the
occurrence of an uncertain event. In this type of contract, one or both parties assume the
risk. A fire insurance policy is a form of aleatory contract, as an insured will not
receive the proceeds of the policy unless a fire occurs, an event that is uncertain to occur.

9. Void and Voidable Contracts: A void contract imposes no legal rights or obligations
upon the parties and is not enforceable by a court. It is, in effect, no contract at all.
A voidable contract is a legally enforceable agreement, but it may be treated as never
having been binding on a party who was suffering from some legal disability or who was a
victim of fraud at the time of its execution. The contract is not void unless or until the party
chooses to treat it as such by opposing its enforcement. A voidable contract may be
ratified either expressly or impliedly by the party who has the right to avoid it.

Employment Contract
An employment contract is a written legal document that lays out binding terms
and conditions of employment between an employee and an employer. An employment
contract generally covers an overview of job responsibilities, reporting relationships, salary,
benefits, paid holidays, paid vacation, details of employment termination including cause,
severance package, and notice, etc. An employment contract is written most frequently
for high-level jobs and for senior employees who have a lot to lose if an employment
relationship does not work out as planned. An employment contract is also negotiated
for union represented employees.

SSNIT contribution
The National Pensions Act (2008) is divided into four parts; Part One is on the establishment
of a contributory three-tier pension scheme and National Pensions Regulatory Authority,
Part Two deals with the basic national social security scheme. Part Three provides
for occupational pension schemes, provident fund and personal pension schemes
and management of the schemes, and Part four is on general provisions.

Part One - Establishment of Contributory Three–tier Pension Scheme and National

Pensions
Regulatory Authority.
This Part establishes a contributory three-tier pension scheme as follows:

39
a) First-tier basic national social security scheme, which incorporates an improved system of
SSNIT benefits and shall be mandatory for all employees in both the private and public
sectors;
b) second tier occupational (or work-based) pension scheme, mandatory for all
employees but privately managed, and designed primarily to give contributors higher
lump sum benefits than presently available under the SSNIT or Cap 30 pension
schemes; and
c)Third tier voluntary provident fund and personal pension schemes, supported by tax
benefit incentives for workers in the formal sector who want to make voluntary
contributions to enhance their pension benefits and also for workers in the informal sector.

Part Two - Basic National Social Security Scheme - This Part deals with the basic national
social security scheme which is the first tier of the three-tier pension scheme. It is a
revision of the existing Social Security Act, 1991 with an improved system of benefits.
The basic national social security scheme will concentrate on the payment of monthly and
other related benefits. It is mandatory for all workers in the formal sector and optional for
self-employed.

Part Three - Occupational Pension Schemes, Provident Fund and Personal Pension Schemes
and Management of the Schemes. Part Three of the Act deals with occupational
pension schemes, provident funds and personal pension schemes as well as the
management of the schemes. It provides for the second and third tier of the three-tier
pension scheme and may be classified as the privately-managed schemes portion. The
occupational pension scheme which is the second tier is work-based and mandatory. The
employee is paid a lump sum money on termination of service, death or retirement. The
privately managed schemes (2nd and 3rd tiers) allow the use of future lump sum pension
benefits to secure mortgages. This means that workers can obtain their own houses
before retirement by using their pension benefits as collateral.

Dismissal - Section 12 of the Labour Act 651 of 2003 requires a written contract of
employment for work done for a period of six months or for a number of working days
equivalent to six months or more within a year. The contract shall express in clear terms
the rights and duties of the parties. Particulars are listed in Schedule 1 to the Act, namely
names of parties, date of first appointment, job title, pay (including overtime rates), hours
of work, holidays, sickness and work-related injury entitlements, social security or
pension scheme, termination notice and disciplinary rules/grievances. The contract must
be signed by both parties and dated. Special provisions to relate to temporary and casual
workers (Part X of the Labour Act).

A contract of employment for a casual worker needs not to be in writing; however,

casuals have rights to minimum remuneration for each day worked, overtime and
medical facilities. Temporary workers are entitled to the Act’s minima in respect of minimum
wage, hours of work, rest periods, paid public holidays, night work and sick leave,
irrespective of whatever terms agreed by the parties. Subject to more favourable
provisions for workers, negotiated in collective agreement (s.19), grounds for termination
(s.15) include:
a) by mutual consent of the parties;
b) by the worker on grounds of ill-treatment or sexual harassment;
c) by the employer if the worker dies before the end of the employment period;
d) by the employer if the worker is medically certified to be unfit for the job;
e) by the employer if the worker is unable to do the job because of misconduct; and
f) by redundancy (s. 65).

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Notice must be in writing. Notice for termination follows a scale: when contracts are for
more than 3 years, one month’s notice; when the contract is for less than 3 years, two
weeks’ notice or two weeks’ pay in lieu of notice; or when contracts are on a week to week
basis, 7 day’s notice. However, where the parties have signed an “at will” clause in the
contract, that contract may be ended at the close of any day at will. Notwithstanding the
notice provision, either party can buy out by paying a sum equal to the amount of
remuneration which would have accrued to the worker during the period of notice. Where
an employee who is warned in writing commits a similar offence within six months the
employer can terminate without notice. Section 57(8) forbids an employer from dismissing
a woman because of her absence from work on maternity leave. Section 50 protects the
employment of a person who suffers a disability if the residual capacity for work is such
that the worker can be found employment in the same or some other corresponding job in
the same undertaking, but if no such job can be found, the employer may terminate the
employment by notice.

Discrimination
The Constitution of Ghana and the labour laws prohibit discrimination on the basis of race,
sex, ethnic origin, creed, colour, religion, social, or economic status. Part VI of the Labour
Act ensures protection of working women and Part V protects workers with disabilities.
Section 68 specifies that every worker shall receive equal pay for equal work without
distinction of any kind. Section 46 offers special incentives for the employment of persons
with disabilities, and section 53 places special emphasis in training and retraining to
enable the worker to cope with any aspect of the job.
Employee Safety
It is the duty of your employer to ensure that everybody employed by him or her
works under satisfactory, safe and healthy conditions.

Obligations of the Employer:

An employer shall:
a) Provide and maintain at the workplace systems of work that are safe and without
risk to health;
b) Ensure the safety and absence of risks to health in connection with the
use, handling, storage and transport of articles and substances;
c) Provide the necessary information, instructions, training and supervision having
regard to the age, literacy level and other circumstances of the worker to ensure
the health and safety of those other workers engaged in the particular work;
d) Take steps to prevent contamination of the workplace by, and protect the
workers from, toxic gases, noxious substances, vapours, dust, fumes, mists
and other substances or materials likely to cause risk to safety or health;
e) Supply and maintain at no cost to the worker adequate safety appliances, suitable
fire-fighting equipment, personal protective equipment, and instruct the workers in
the use of the appliances or equipment;
f) Provide separate, sufficient and suitable toilet and washing facilities and
adequate facilities for storage;
g) Provide an adequate supply of clean drinking water at the workplace; and
h) Prevent accidents and injury to health arising out of or connected with work
by minimizing the causes of hazards inherent in the working environment.

Obligation of the Employee

An employee shall use the safety appliances, fire-fighting equipment and personal
protective equipment provided by the employer in compliance with the employers’
instruction.

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Sale of goods law and product liability, consumer protection
A contract of sale of goods is a contract whereby the seller transfers, or agrees to transfer,
the property in goods to the buyer for a money consideration, called the "price". A
contract of sale may be absolute or conditional. Where, under a contract of sale, the
property in the goods is transferred from the seller to the buyer, the contract is called a
"sale", but where the transfer of the property in the goods is to take place at a future
time, or subject to some condition thereafter to be fulfilled, the contract is called an
"agreement to sell".
An agreement to sell becomes a sale when the time elapses, or the conditions are fulfilled
subject to which the property in the goods is to be transferred.

The Price
a) The price in a contract of sale may be fixed by the contract, may be left to be fixed in
manner thereby agreed or may be determined by the course of dealing between
the parties.
b) Where the price is not determined in accordance with the foregoing provisions
the buyer must pay a reasonable price and what is a reasonable price is a question
of fact dependent on the circumstances of each particular case.
c) Where there is an agreement to sell goods on the terms that the price is to be fixed
by the valuation of a third party, and such third party cannot or does not make
such valuation, the agreement is avoided, provided that, if the goods or any part
thereof have been delivered to and appropriated by the buyer, the buyer
must pay a reasonable price therefor.
d) Where such third party is prevented from making the valuation by the fault of
the seller or buyer, the party not in fault may maintain an action for damages
against the party in fault.

Rights of an unpaid seller

Notwithstanding that the property in the goods may have passed to the buyer, the
unpaid seller of goods, as such, has, by implication of law,
a) a lien on the goods or right to retain them for the price while he is in possession
of them;
b) in case of the insolvency of the buyer, a right of stopping the goods in transit after
he has parted with the possession of them;
c) a right of resale
d) where the property in goods has not passed to the buyer, the unpaid seller has,
in addition to his other remedies, a right of withholding delivery similar to
and coextensive with his rights of lien and stoppage in transit where the
property has passed to the buyer.

Free Competition
A free market is a market economy in which the forces of supply and demand are
not controlled by a government or other authority. A free market contrasts with a
controlled market or regulated market, in which government intervenes in supply and
demand through non-market methods such as laws controlling who is allowed to enter the
market, mandating what type of product or service is supplied, or directly setting prices.
Although free markets are commonly associated with capitalism in contemporary usage
and popular culture, free markets have been also advocated by market socialists,
cooperative members and advocates of profit sharing.

Copyright
Copyright is a legal concept, enacted by most governments, that grants the creator of
an original work exclusive rights to its use and distribution, usually for a limited time, with
the intention of enabling the creator of intellectual wealth (e.g. the photographer of a
42
photograph or the author of a book) to receive compensation for their work and be able
to financially support themselves.

Copyright is a form of intellectual property (as patents, trademarks and trade secrets
are), applicable to any expressible form of an idea or information that is substantive and
discrete. It is often shared, then percentage holders are commonly called rights
holders: legally, contractually and in associated "rights" business functions. Generally, rights
holders have "the right to copy," but also the right to be credited for the work, to determine
who may adapt the work to other forms, who may perform the work, who may financially
benefit from it, and other related rights.

BUSINESS ETHICS
Business Ethics
Business Ethics involves a code of conduct based on the moral values and behavioural
standards business people rely on to guide them as they take decisions and solve problems.
Business ethics originate from the commitment to do what is right. It is the behavior that
a business adheres to in its daily dealings with the world. The ethics of a particular
business can be diverse. They apply not only to how the business interacts with the world at
large, but also to their one-on-one dealings with a single customer.

Corporate social responsibility

Corporate Social Responsibility (CSR) is the responsibility of an organization for the impacts
of its decisions and activities on society, the environment and its own prosperity, known
as the “triple bottom line” of people, planet, and profit. A firm's implementation of CSR
goes beyond compliance and engages in actions that appear to further some social good,
beyond the interests of the firm and that which is required by law. CSR is a process with
the aim to embrace responsibility for the company's actions and encourage a positive
impact through its activities on the environment, consumers, employees, communities,
stakeholders and all other members of the public sphere who may also be considered as
stakeholders.

Arguments for CSR

a) Problem Creators
For corporations, many believe that they are the cause of many of the world's
problems. Because corporations use more energy and produce more solid waste
disposal than individuals, they have a responsibility to correct these problems.
Corporations should find environmentally friendly ways to create their products.

b) Planet Home
It is argued that it is in an individual's best interest to be socially responsible. An individual's
actions determine what kind of world he lives in tomorrow. If everyone continued to pile
up non-biodegradable waste in the landfills, eventually there will be nowhere to
dispose of wastes. If all the world's resources were consumed as if there will be no
tomorrow, then eventually all the natural resources will be used up. The argument is that if
everyone does his part, it will lessen the global impact.

(c) Available Resources

Corporations are perceived to have the resources to make a difference. In both manpower
and financial capital, they can use these funds to confront social issues. Corporations
have scientists and educated thinkers at their disposal who are adept at putting their
minds to solving problems, which could be used for solving social issues. They also have the
financial capital to rebuild infrastructures.

43
(d) Public Image
For a business, consumers are the most important aspect of the business. Creating a
positive public image in the eyes of the consumer happens through social responsibility.
Corporations that are perceived to care about the communities, they do business in
because of their involvement in environmental initiatives, cleaning up bad
neighborhoods and providing health care for those in need, help make consumers feel
good about spending their money on their products or services. Public image also
impacts the type of talent attracted for employment with a corporation.

(e) Government Regulation

If consumers complain enough about the damage, a corporation is having on society,
the government will enact regulations that impact the corporation's wallet. If the
government gets involved, then there is always someone looking over the corporation's
shoulder as it conducts business. The restrictions of government intervention impact profits.
It is better for a business to control this on its own without having a third party control
how it operates. Regulations impact decision-making, which could lead to the corporation to
not being able to meet market demand.

Arguments against CSR

a) Role of Profit
One of the biggest features addressed by CSR is its intent to cause companies to
recognize responsibilities to stakeholders outside of shareholders. This includes
customers, communities, employees and suppliers. While proponents of CSR point out
the long-term benefits of taking care of these core relationships, shareholders are often
deterred at the notion that companies will invest in anything that does not create
immediately obvious financial gain. With CSR, detecting measurable bottom line benefits is
a challenge as social and environmental programs are hard to account for with regard to
financial gain.

(b) Competitive Disadvantage

One of the most common arguments companies make when indicating reluctance to
CSR policies is the disadvantage it causes against companies that do not. In other
words, if company A does its part to invest resources to take care of its
communities and the environment and company B does not, company B retains its
resources, including money, for other business pursuits. Thus, without strict adherence
industry wide, some companies argue that they cannot fall behind by putting money into
CSR programs. .

c) Loss of Focus
A main driver at the onset of CSR was increased interest in making the customer a primary
focus of business operations. This coincides with continued realization that
customer retention and loyalty are keys to long-term business success. Detractors of CSR
as a major component of corporate governance argue that guidelines have expanded
beyond this basic initial emphasis.

Many companies that abide by CSR guidelines do so more from fear of public backlash
than because they believe it is good for long-term business performance. d) Lasting Impact
How long CSR will remain a prominent business concern is a common question asked by
those who argue against CSR as a major concern with corporate governance. CSR has existed
for more than 50 years. However, its prominence as a major business consideration
has certainly increased in the 21st century due to heightened awareness of ethical
issues in business and environmental preservation standards. Detractors argue that CSR
emphasis is a short-term trend in response to prominent scandals and current interest
44
in green-friendly practices.

6.3 Ethical Principles

Ethical theories and principles are the foundations of ethical analysis because they are
the viewpoints from which guidance can be obtained along the pathway to a decision.
Each theory emphasizes different points such as predicting the outcome and following one's
duties to others in order to reach an ethically correct decision. However, in order for an
ethical theory to be useful, the theory must be directed towards a common set of
goals. Ethical principles are the common goals that each theory tries to achieve in order
to be successful. These goals include beneficence, least harm, respect for autonomy and
justice.

1. Beneficence
The principle of beneficence guides the ethical theory to do what is good. This priority to "do
good" makes an ethical perspective and possible solution to an ethical dilemma
acceptable. This principle is also related to the principle of utility, which states that we
should attempt to generate the largest ratio of good over evil possible in the world. This
principle stipulates that ethical theories should strive to achieve the greatest amount of
good because people benefit from the most good. This principle is mainly associated with
the utilitarian ethical theory. An example of "doing good" is found in the practice of
medicine in which the health of an individual is bettered by treatment from a physician.

2. Least Harm
This is similar to beneficence, but deals with situations in which neither choice is beneficial.
In this case, a person should choose to do the least harm possible and to do harm to the
fewest people. For instance, in the Hippocratic oath, a physician is first charged
with the responsibility to "do no harm" to the patient since the physician's primary duty is
to provide helpful treatment to the patient rather than to inflict more suffering upon the
patient. One could also reasonably argue that people have a greater responsibility to "do
no harm" than to take steps to benefit others. For example, a person has a larger
responsibility to simply walk past a person rather than to punch a person as they walk past
with no justified reason.

3. Respect for Autonomy

This principle states that an ethical theory should allow people to reign over themselves
and to be able to make decisions that apply to their lives. This means that people should
have control over their lives as much as possible because they are the only people who
completely understand their chosen type of lifestyle. Each man deserves respect because
only he has had those exact life experiences and understands his emotions, motivations
and body in such an intimate manner. In essence, this ethical principle is an extension of
the ethical principle of beneficence because a person who is independent usually prefers to
have control over his life experiences in order to obtain the lifestyle that he enjoys.

There are, however, two ways of looking at the respect for autonomy. In the
paternalistic viewpoint, an authority prioritizes a dependent person's best interests over
the dependent person's wishes. For example, a patient with terminal cancer may prefer to
live the rest of her life without the medication that makes her constantly ill.

The physician, on the other hand, may convince the patient and her family members to
make the patient continue taking her medication because the medication will prolong her
life. In this situation, the physician uses his or her authority to manipulate the patient to
choose the treatment that will benefit him or her best medically. As noted in this
example, one drawback of this principle is that the paternalistic figure may not have the
same ideals as the dependent person and will deny the patient's autonomy and ability to

45
choose her treatment. This, in turn, leads to a decreased amount of beneficence.

6.4 Ethical Lapses

An ethical lapse is a mistake or error in judgement that produces a harmful outcome. A
lapse in ethics does not show a complete lack of integrity, just an oversight or an ethical
blind spot. Routinely producing harmful results is not considered a "lapse", that is just
considered unethical. Ethical lapses can be large or small scale, kept private or publicized
and be illegal or within the realm of the law, but immoral. In academia, the causes of
these lapses (in a regularly ethical person) are sometimes called fallacies. The following
are the reasons why ethical lapses occur:

1. Lapse from Subjectivity

This type of ethics lapse occurs when an unethical action is allowed due to the idea
that morality cannot be defined. It is true that the exact definition of what constitutes as
"ethical" differs from person to person, but that fact should not be used to justify an
unethical action. There are thousands of actions that most people would consider
wrong, regardless of their personal moral codes. Deception, theft and murder are
considered wrong by the majority of cultures throughout the world. Generally, minimizing
harm is the moral rule of thumb to follow when the situation seems ethically ambiguous.

2. Lapse from Attempted Tolerance

This lapse has a similar basis as the subjectivity fallacy, but it happens for a different reason.
Tolerance lapses happen when a moral agent acts unethically (or allows unethical action)
in an attempt to keep from offending anyone. This lapse is driven by the thought that ethics
is a personal choice and one person's ethics should not override another's.

3. Authority Fallacy
This lapse happens when someone acts unethically because their action has not been
deemed unethical by a noted authority. An action may not be listed as unethical in a
traditional source, such as a corporate code of conduct or religious dogma, but it can still
be a lapse in ethics. As with any ethical dilemma, the consequences of the action should
be considered along with an official or authoritative advice.

4. Status Quo Fallacy

This type of lapse in judgment happens because the unethical act is done by everyone,
has always been done or is part of some tradition. It is possible for a great number of people
to be mistaken about the ethical validity of an action. For example, slavery, a morally
repressible action, was once widely considered acceptable.

5. Lapse of Conscience
This lapse happens when someone decides to go against what they know to be ethical.
A normally ethical person acts unethically simply because they want to act unethically.
This could be a sudden drive for gain at another's expense or a case of carelessness.

6.5 Unethical practices

Unethical practice is any action that is aimed at taking advantage of another without
their knowledge or consent. Most define this as manipulating someone without their
permission. Unethical actions are not necessarily illegal. The following are some actions
that constitute unethical practices:
1. Theft
Theft at work comes in a variety of forms, and often times employees do not view it as
unethical behavior, believing no one gets hurt by the action. Employees take home
office supplies, use business computers for personal tasks, pad expense accounts and

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abuse sick time or allotted personal days.

2. Vendor Relationships
Businesses that buy from and sell products to other businesses are sometimes subject
to unethical behavior. The practice of accepting gifts from a vendor in exchange for
increased purchasing is not only unethical, it may have legal repercussions. The same can
be said for offering a customer kickback to increase his purchasing habits. Ethics policies
often contain guidelines for giving or accepting gifts with vendors or other business
associates, such as a cap on the value of the gift. Other businesses strictly forbid giving
gifts or any other item with monetary value. This is a safeguard to prevent any perception
of unethical behavior.

3. Bending the Rules

Bending the rules in a business situation is often the result of a psychological stimulus. If an
employee is asked to perform an unethical task by a supervisor or manager, he may do
it because his allegiance to authority is greater than his need to abide by the rules. Turning
the other way to avoid trouble for another employee is still unethical, even though the
motivation may be empathetic. For example, knowing that a coworker is having issues
outside work justifies watching him leave early each day without reporting it.

4. Environmental pollution
Unethical behavior by companies, such as releasing pollutants into the air, can affect
cities, towns, waterways and masses of people. Though accidents can occur, the release of
harmful toxins into the environment due to lax safety standards, improper maintenance of
equipment or other preventable reasons is unethical. If a business willingly continues
production of a product knowing inherent environmental risks exist, it can certainly
be categorized as unethical behavior

5. Wages and Working Conditions

Other unethical practices include not paying workers a fair wage, employing children
under the legal working age and unsafe or unsanitary working conditions. Any practices that
are not in compliance with fair labour standards and federal working guidelines fall
into this category.

Price for acting ethically

The following are the benefits of acting ethically in society:

a. Potential Avoidance of Fines

b. Better Access to Capital
c. Improved Brand Reputation
d. Improved Employee Commitment
e. Improved Customer Loyalty
f. Decreased Vulnerability
MANAGEMENT, LEADERSHIP AND STRATEGY
This session aims to define and explain what management is all about. If you belong to any
group at all, then you are already a part of an organisation. How are organisations able
to achieve what they exist for? Organisations are to be managed so as to be able to achieve
their purpose. All you need now is to carefully study this session and you will come to
realize that management is a subject that aims at improving the activities of organisations.

Definition of Management
Management in business and organizations means to coordinate the efforts of people
to accomplish goals and objectives using available resources efficiently and
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effectively.
Management comprises planning, organizing, staffing, leading or directing, and controlling
an organization or initiative to accomplish a goal. F.W. Taylor defines management as the
“Art of knowing what you want to do and then seeing that it is done the best and
cheapest way”. Henry Fayol also posits that “To Manage is to forecast, to plan, to
organise, to command, to co-ordinate and to control”. “Management is work and as such
it has its own skills, its own tools and its own techniques” (Peter F. Drucker). A fairly
complex definition that seeks to draw attention to important aspects of managing is that:
“Management is the process of planning, organizing, leading, and controlling efforts of
organisational resources to achieve stated organisational goals” (Mescon et al, 1985).

Leadership
Leadership is a vital role in any organisation. It involves defining the direction of a team and
communicating it to people, motivating, inspiring and empowering them to contribute
to achieving organisational success. Leadership requires being strategically focused
and applying behavioural techniques to build commitment and attain the best work from
your people. The ingredients of effective leadership are complex and are widely agreed to
depend on the specific leadership situation, considering the difficulty of tasks, the degree of
a leader's authority and the maturity and capabilities of subordinates. Leadership skills
often take time to learn, because they are multi-faceted, behavioural and context
dependent. Becoming an effective leader is a challenge to many new managers, but offers
the rewards of successfully orientating people’s work to be most effective and achieving
excellence in team performance.

An understanding of the principles of strategic thinking, direction setting, communication

and motivation provides a springboard for developing skills and an effective management
style to suit your personality and leadership situations.

Qualities of a Good Manager

There are several qualities of a good manager. The entrepreneur must possess some or all
of these qualities. Some of these qualities are:

a) Creativity
Creativity is what separates competence from excellence. Creativity is the spark that
propels projects forward and that captures peoples' attention. Creativity is the ingredient
that pulls the different pieces together into a cohesive whole, adding enthusiasm and appeal
in the process.

b) Structure
The context and structure we work within always have a set of parameters, limitations
and guidelines. A stellar manager knows how to work within the structure and not let the
structure impinge upon the process or the project. Know the structure intimately, so as to
guide others to effectively work within the given parameters.

c) Intuition
Intuition is the capacity of knowing without the use of rational processes; it is the
cornerstone of emotional intelligence. People with keen insight are often able to sense
what others are feeling and thinking; consequently, they are able to respond perfectly to
another through their ‘deeper understanding’. The stronger one's intuition, the stronger
manager one will be.

d) Knowledge
A thorough knowledge base is essential. The knowledge base must be so ingrained

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and integrated into their being that they become ‘transparent’, focusing on the employee
and what she/he needs to learn, versus focusing on the knowledge base. The excellent
manager lives from a knowledge base, without having to draw attention to it.
e) Commitment
A manager is committed to the success of the project and of all team members. She/he
holds the vision for the collective team and moves the team closer to the end result.
It is the manager's commitment that pulls the team forward during trying times.
Developing strategy
Every organisation must have a strategy that guides its operations. Developing an
effective strategy gives an organisation a competitive edge over its rivals. We will look
at how a business can develop a strategy to gain a competitive advantage in its
environment.
In developing a successful strategy, the organisation must consider the following:
a) Mission Statement
A corporate mission statement defines what the venture does, who it serves, and how it
serves (creates value for) its clients. It is designed to provide clarity of focus and direction
for those in the venture and answers the questions of who we serve and how. It also
creates clarity of value for those outside the venture and answers the question of whether
this venture can be of value to me and/or my venture.
In developing a mission statement, follow these two simple steps. Step one is to
develop answers to the three components of the mission statement:
1. What do we do? What are our products and services?
2. Who do we serve? Who finds these products and services of value?
3. What value do we provide? What business problem, human need, or desire
do our products and services fulfill?
In step 2, you draft a mission statement (one or two sentences) that captures the
above components in a compelling manner.
b) Vision Statement
A corporate vision statement sets a dynamic and compelling view of the venture at
some point in the future. It is an emotional driver to some “big idea” or challenge that
drives those in the venture towards it. It is not intended for those outside the venture. It is
not a goal, as they should be specific, measurable, attainable, realistic and time bound, but
rather it can be a wild, crazy, and even unattainable idea, as long as it provides a deeply
emotional drive to accomplish something great that those in the venture can get behind and
drive toward. Example: We are the number one provider in outdoor equipment in the world

c) Values
Corporate Values are a venture’s ethical and moral compass and decision making
foundation. They are the ideals and ethics that management holds dear. They drive
decision making in that they are constantly referred to in the decision making process.
That is, when in a tough spot, the answer needs, first and foremost, to be consistent with
the venture values. They are generally for both internal and external consumption. They
tell those in the venture how things are done and those outside the venture why they
want to be associated with this venture.

d) Objectives
Once a venture has developed its mission statement, its next step is to develop the
specific objectives that are focused on achieving that mission. Objectives are the specific
measurable results of the initiative. A venture's objectives offer specifics of how much of
what will be accomplished by when. For example, one of several objectives for a
community initiative to promote care and caring for older adults might be: "By 2015 (by
when), to increase by 20% (how much) those elders reporting that they are in daily
contact with someone who cares about them (of what).

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e) Strategy
A strategy is an overall approach and plan. So, strategic planning is the overall planning that
facilitates the good management of a process. Strategic planning takes you outside the day
to-day activities of your venture or project. It provides you with the big picture of what you
are doing and where you are going. Strategic planning gives you clarity about what you
actually want to achieve and how to go about achieving it, rather than a plan of action for
day to-day operations. The word "strategy" comes from the Greek word for "generalship".
Like a good general, strategies give overall direction for an initiative. A strategy is a way
of describing how you are going to get things done. It is less specific than an action plan
(which tells the who-what-when); instead, it tries to broadly answer the question, "How do
we get there from here?" (Do we want to take the train? Fly? Walk?).

Venture Life Cycle and management of growth

A venture life cycle describes how businesses go through a series of phases as they grow
and develop. Certain models have been developed to describe this cycle. We will
look at Greiner’s growth model and Churchill and Lewis growth model.

Greiner’s Growth Model

Greiner (1972, 1998) describes how companies go through a series of phases as they
grow and develop.

Figure 1: Greiner (1988) growth model

a) Creativity
When companies form and enter the Creative Phase, they are typically driven by the
creative force of the founder and the new products and services that create value for
customers. Innovation is natural and people do whatever is needed to make things work.

In addition, the issues raised above, the stage may have its own issues including
leadership crisis. Initially, the founder (or the startup team) is able to cope with the
demands of leadership, but as the venture grows, they are pulled more and more in
different directions until they are unable to fulfill their duties. The increasing complexities
of the firm may lead to challenges to the leader's ability, who may originally be the
inventor and developer of the venture products and who may find management and
leadership a difficult challenge.

b) Direction
The response to the leadership crisis is to get more professional in management, for
example by hiring managers who have got more experience and education in the subject,

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typically at a larger firm. Professional managers know more about planning and tactics and
help out with strategic thinking and operation plans. Rather than rushing around doing
what seems to be needed at the time, a longer-term view starts to emerge, giving
direction and focus to proceedings. This stage also includes separation of activities
such as budgeting and marketing, although these are probably not yet done by a separate
department.

Other issues that may occur at this stage include autonomy crisis. As professional
managers start to direct the proceedings they typically have a greater interest in their
own areas of interest than those of others or the overall firm. They seek personal success
and will fight to achieve this. When they own all the resources they need, this is fine, but
as the firm grows they fall into conflict with one another, arguing over resources and
rewards. The question hence arises of how to give managers and individuals the freedom to
choose and succeed in a way that also helps the whole venture.

c) Delegation
The response to the autonomy crisis is to divide and conquer with greater structure
and deeper hierarchy, where individual departments and operational units have
individual managers and are delegated greater autonomy. This is the time when
middle managers appear, running multiple operational units where they manage
managers rather than give direct orders to the front line.

The stage comes with control crisis. There are problems in delegation and in particular as it
gets more complex in a growing firm, for example where the communicated requirements
are not always understood, and where managers make autonomous decisions that,
while they may make sense at their level are suboptimal for the overall organization.
Not knowing enough about what is really going on at the bottom of the organization,
middle and senior managers at the end of this stage start to lose control over everyday
operations.

d) Coordination
The response to the loss of control is to put additional effort into reporting up
and communicating in all directions. Isolated business teams and product organizations are
joined up in business units and other collective organizations. Finance is still managed
centrally and becomes more sophisticated, looking at such as business unit return on
investment. Reporting becomes more sophisticated with increasing demands on business
units for information about all aspects of the business.
Key issue to deal with red tape crisis. This coordination does not come at a price and the
increasing reporting and control adds layers of bureaucracy at all levels. Layers in the
venture face off against one another and perhaps play cat and mouse games of reports that
look good and audits that seek hidden problems.

e) Collaboration
The growing antagonism of cold coordination is addressed by attention to human
connection and more collaborative, supportive approaches. Bureaucracy is simplified and
trust is rebuilt with a greater focus on common organizational goals. Structures may be
implemented to connect people in multiple dimensions, such as the use of matrix
management. Reward systems may also be realigned to promote team and organizational
success rather than just individual performance.
There may be growth crisis at this stage. While a collaborative organization is better in many
ways than previous forms, there are now problems in how to grow further
without overloading current systems and processes.
6) Alliances
The final stage is to address the crisis of internal growth by looking externally. One approach
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is to pursue growth through mergers and acquisitions. Another way is to create a
virtual super-organization by forming partnerships and alliances where the business value
created can benefit everyone. A typical way this happens is where each partner contributes
particular skills and competences to a total customer solution. No doubt there are crises
beyond this phase, but Greiner's model does not discuss them. Typical problems include a
repetition of earlier phases, but on a grander scale. For example, where communication
between partners is weak leading to more formal coordination. Mergers and Acquisitions
are also subject to failure, often because of cultural and personal differences.

Churchill and Lewis Growth Model

Figure 2: Churchill and Lewis (1983) growth model

According to the Churchill and Lewis (1983) growth model a business goes through five
stages of growth/development. These five stages involve conception/existence,
survival, success, take-off, and maturity. This growth model focuses on how the
entrepreneur's role evolves with growth and what skills are required at each of the five
stages

a) Conception/Existence
At conception the business owner is in actual sense the business and he/she is responsible
for ensuring that everything happens. This stage is defined by the sole intention of survival
and features minimal levels of formal planning and defining of systems. It is at this stage
that many businesses fall and are thus unable to reach stage.

b) Survival
Here the business has grown into a workable entity but the lead agenda is still survival. The
Churchill and Lewis growth model provides that the business will have a simple
organizational structure under the leadership of the owner who is still the face of the
business. The few persons employed, including perhaps a sales manager or foreman,
don't have the power to make decisions and will do according to what the owner sees fit.
The level of formal planning is still limited. Many businesses will remain at this stage and
another good number will also see profitability and progress to stage three.

c) Success
At this stage the business is large enough and the owner will need to hire some managers
to take over some of his/her responsibilities. The owner will work through this
management team and will develop strategies intended to have him/her maintain control
over operations. This sort of control will however not be possible in the event of
further growth and subsequent hiring of more managers. This model posits that the
owner and the business will begin to acquire separate identities and will no longer be

52
synonymous with each other. At this stage, the owner will now be forced to tackle the twin
agendas of ensuring profitability and finding worthy managers who can help take the
business to the next level.

d) Take-off
The model at this stage, posits that many owners end up being unsuccessful in their quest
to manage the business. A pivotal stage, failure at take-off normally occurs due to
attempts at growing the business too rapidly or the inability to have effective delegation.
Some owners who realize the magnitude of the challenge in time will resort to selling
off the business. Alternatively, investors and creditors with a stake in the business will
move to replace the owner. The business may move forward if appropriate actions are
taken in time but failure to do so may see a relapse to stage. .

e) Maturity
Here the owner and the business are completely distinct. The business has a
decentralized structure and appropriate structures in place. There are enough
resources to sustain profitability and the main agenda is to ensure that a twin-
pronged combination of an entrepreneurial spirit and response flexibility is embraced
for the achievement of more growth. According to the model, failing to do this will
result in ossification which features the unhealthy traits of risk avoidance and absence of
innovation.

HUMAN RESOURCE SKILLS

Human resource is a very important aspect of every organisation. Without the
requisite human resource, the effective running of an organisation will not be achieved. We
shall look at how an organisation acquires its human resource and the succession
planning strategies they employ to keep and replace the human resource.

The Human Resource Management Process

According to Noe, Hollenbeck, Gerhart, and Wright (2010), human resource
management is a philosophy, policy, system and practices that can affect
the behavior, attitudes and performance of employees. Activities of HRM include HR
planning, staffing, training and development, performance management, compensation
management, safety and health and employee relations. SME managers has ignored
the function of HRM practices as a main driver of organizational success. HRM
practices can improve the performance of SMEs by contributing to employee and
customer satisfaction, innovation, productivity, and development of good reputation for
the venture (Noe et al., 2010).

The Entrepreneur would have to function as the HR manager (or outsource such
function), focusing on the day-to-day operations of employment and placement;
compensation; training, and labor relations for the venture. He or she would have to
oversee the human resource budget; employee training, hiring and termination policies;
and employee salaries. He or she must possess people skills, which will enable them to get
along with people in the venture. At times, when confronted with difficult situations such as
layoffs or terminations, they have to demonstrate communication skills and tact. They
should have an open-door policy as they are the information hub for the venture. They
must practice discipline and fairness with all employees.

The HRM Process

Human Resource Management is a management function that helps the managers to
recruit, select, train, and develop members for an organization. There are several activities
in HRM including the following. First, is Human Resource Planning (HRP). HRP is

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understood as the process of forecasting an organizations future demand for, and supply
of, the right type of people in the right number. Then there is Job Analysis; the process
of studying and collecting information relating to the operations and responsibilities
of a specific job. The immediate products of this analysis are job descriptions and
job specification.

Recruitment is the process of finding and attracting capable applicants for employment. The
process begins when new recruits are sought and ends when their applications are
submitted.
The result is a pool of applicants from which new employees are selected (See diagram at
the end of session). Other HRM activities are explained below:
Selection is the process of differentiating between applicants in order to identify (and
hire) those with greater likelihood of success in a job.

Placement is understood as the allocation of people to jobs. It is the assignment

or reassignment of an employee to a new or different job.

Training and development is an attempt to improve current or future employee

performance by increasing an employee’s ability to perform through learning, usually by
changing the employee’s attitude or increasing his or her skills and knowledge. The need
for training and development is determined by employee’s performance deficiency,
computed as follows:
Training and development need = standard performance – actual performance.
Remuneration is the compensation an employee receives in return for his or her
contribution to the organization.
Safety and health means freedom from the occurrence or risk of injury or loss. In order to
ensure the continuing good health of their employees, the HRM focuses on the need
for healthy workers and health services.

Welfare is defined as a term which is understood to include such services, facilities, and
amenities as may be established in or in the vicinity of undertakings to enable the
person employed in them to perform their work in healthy, congenial surroundings and to
provide them with amenities conducive to good health and high morale.

Promotions means an improvement in pay, prestige, position and responsibilities of

an employee within his or her organization. Transfer involves a change in the job
(accompanied by a change in the place of the job) of an employee without a change in the
responsibilities or remuneration. Separations: Lay-offs, resignations and dismissals
separate employees from the employers.

Industrial relations is concerned with the systems, rules and procedures used by unions and
employers to determine the reward for effort and other conditions of employment, to
protect the interests of the employed and their employers, and to regulate the ways
in which employers treat their employees.

Trade Unions are voluntary organizations of workers or employers formed to promote and
proo collective action.

Disputes and their settlement – Industrial disputes mean any dispute or difference
between employers and employers, or between employers and workmen, or between
workmen and workmen, which is connected with the employment or non-
employment or terms of employment or with the conditions of labour of any person

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Sources of Recruitment
Every organisation has the option of choosing the candidates for its recruitment
processes from two kinds of sources (internal and external sources). The sources within the
organisation itself (like transfer of employees from one department to other, promotions)
to fill a position are known as the internal sources of recruitment. Recruiting candidates
from all the other sources (like outsourcing agencies etc.) are known as the external
sources of recruitment.
Generally, the human resource management (HRM) function recognises two main sources
of candidates for the job positions: internal and external sources.

Internal Recruitment
Internal recruitment is a recruitment which takes place within the concern or
organization.
Such sources are readily available to an organization. They are primarily three – Transfers,
promotions and re-employment of ex-employees:

a) Transfers: The employees are transferred from one department to another according
to their efficiency and experience.

b) Promotions (internal job postings): The employees are promoted from one department to
another with more benefits and greater responsibility based on efficiency and experience.

c) Re-employment of ex-employees: With this source, ex-employees can be invited and

appointed to fill vacancies in the concern. Retired and retrenched employees may also
be recruited once again in case of shortage of qualified personnel or increase in load of
work. Recruitment of such people save time and costs of the organisations as the people
are already aware of the organisational culture and the policies and procedures.

External Recruitment
External sources of recruitment have to be solicited from outside the organization.
This source may cost the venture a lot of time and money. This source includes
employment at factory gate, advertisements, employment agencies, educational institutes,
labour contractors, recommendations etc.
a) Employment at factory gate: This a source which the applications for vacancies are
presented on bulletin boards outside the factory or at the gate. It is applicable where
factory workers are to be appointed. There are people who keep on soliciting jobs from one
place to another. These applicants are called unsolicited applicants. These types of workers
apply on their own for their job. For this kind of recruitment workers have a tendency to
shift from one factory to another.

b) Advertisement: Job vacancies are advertised in the media. The advantage of

advertisement is that more job applicants can be reached from advertisements. Medium
used is Newspapers and Television.

c) Employment Agencies: There are certain professional organizations that recruitment and
employment people for organisations. These private agencies run by private
individuals supply required manpower to needy organisations.

d) Educational Institutions: There are certain professional Institutions which serve as an

external source for recruiting fresh graduates from these institutes. This kind of recruitment
is done through such educational institutions. They have special recruitment cells which help
in providing jobs to fresh graduates.

e) Recommendations: It is the act of saying that someone or something is good and deserves

55
to be chosen. There are certain people who have experience in a particular area. They
enjoy goodwill and a stand in the company. There are certain vacancies which are
filled by recommendations of such people. The biggest drawback of this source is that the
company has to rely totally on such people which can later on prove to be inefficient.

f) Labour Contractors: These are the specialist people who supply manpower to the factory
or manufacturing plants. Through these contractors, workers are appointed on contract
basis, i.e. for a particular time period. Under conditions when these contractors
leave the organization, such people who are appointed have to also leave the concern.

g) Unsolicited Applicants: Many job seekers visit the office of well-known organisations on
their own. Such callers are considered nuisance to the daily work routine of the
enterprise.
They can help in creating the talent pool or the database of the probable candidates for
the organisation.

Motivation
Motivation refers to internal and external factors that stimulate desire and energy in people
to be continually interested and committed to a job, role or subject, or to make an effort to
attain a goal. Motivation results from the interaction of both conscious and unconscious
factors such as the (a) intensity of desire or need, (b) incentive or reward value of the goal,
and (c) expectations of the individual and of his or her peers. These factors are the
reasons one has for behaving in a certain way. An example is a student that spends extra
time studying for a test because he or she wants a better grade in the class.

Types of Motivation
a) Intrinsic motivation
It refers to motivation that comes from inside an individual rather than from any external
or outside rewards, such as money or grades. The motivation comes from the pleasure one
gets from the task itself or from the sense of satisfaction in completing or even working on a
task. An intrinsically motivated person will work on a math equation, for example,
because it is enjoyable. Or an intrinsically motivated person will work on a solution to a
problem because the challenge of finding a solution is provides a sense of pleasure.

In neither case does the person work on the task because there is some reward involved,
such as a prize, a payment, or in the case of students, a grade. Intrinsic motivation does not
mean, however, that a person will not seek rewards. It just means that such external
rewards are not enough to keep a person motivated. An intrinsically motivated student,
for example, may want to get a good grade on an assignment, but if the assignment
does not interest that student, the possibility of a good grade is not enough to maintain
that student's motivation to put any effort into the project.

b) Extrinsic motivation
It comes from outside an individual. The motivating factors are external, or outside,
rewards such as money or grades. These rewards provide satisfaction that the task may not
provide An extrinsically motivated person will work on a task even when they have little
interest in it because of the anticipated satisfaction they will get from some reward. The
rewards can be something as minor as a smiley face to something major like fame or
fortune. For example, an extrinsically motivated person who dislikes math may work
hard on a math equation because he wants the reward for completing it. In the case of a
student, the reward would be a good grade on an assignment or in the class.

Extrinsic motivation does not mean, however, that a person will not get any pleasure

56
from working on or completing a task. It just means that the pleasure they anticipate
from some external reward will continue to be a motivator even when the task to be done
holds little or no interest. An extrinsically motivated student, for example, may dislike an
assignment, may find it boring, or may have no interest in the subject, but the possibility of
a good grade will be enough to keep the student motivated in order for him or her to put
forth the effort to do well on a task.

Meaning of a Team
A team is generally established to work on a particular project or task. When the task
is complete, the team then generally disbands. There is often an expectation that any
team is effective immediately but this is an unrealistic expectation because before a team
can become highly effective, the members need to grow and mature. Tuckman (1965)
provides the stages in team formation as follows:

a) Forming
In this stage, most team members are positive and polite. Some are anxious, as they have
not fully understood what work the team will do. Others are simply excited about the task
ahead. As leader, you play a dominant role at this stage, because team members'
roles and responsibilities are not clear. This stage can last for some time, as people
start to work together, and as they make an effort to get to know their new colleagues.

b) Storming
At this stage, people start to push against the boundaries established in the forming
stage. This is the stage where many teams fail. It starts where there is a conflict
between team members' natural working styles. People may work in different ways for all
sorts of reasons, but if differing working styles cause unforeseen problems, they may
become frustrated. It happen in other situations. For example, team members may
challenge your authority, or jockey for position as their roles are clarified. Or, if you have
not defined clearly how the team will work, people may feel overwhelmed by their
workload, or they could be uncomfortable with the approach you are using. Some may
question the worth of the team's goal, and they may resist taking on tasks. Team members
who stick with the task at hand may experience stress, particularly as they do not have the
support of established processes, or strong relationships with their colleagues.
c) Norming
This is when people start to resolve their differences, appreciate colleagues' strengths,
and respect your authority as a leader. Now that your team members know one-another
better, they may socialize together, and they are able to ask each other for help and
provide constructive feedback. People develop a stronger commitment to the team goal,
and you start to see good progress towards it. There is often a prolonged overlap
between storming and norming, because, as new tasks come up, the team may lapse back
into behaviour from the storming stage.

d) Performing
The team reaches the performing stage when hard work leads, without friction, to
the achievement of the team's goal. The structures and processes that you have set up
support this well. As leader, you can delegate much of your work, and you can concentrate
on developing team members. It feels easy to be part of the team at this stage, and people
who join or leave would not disrupt performance.

e) Adjourning
Many teams will reach this stage eventually. For example, project teams exist for only a fixed
period, and even permanent teams may be disbanded through organizational
restructuring. Team members who like routine, or who have developed close working
relationships with other team members, may find this stage difficult, particularly if their

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future now looks uncertain.

Handling conflicts
Conflict management is the process of limiting the negative aspects of conflict while
increasing the positive aspects of conflict. The aim of conflict management is to enhance
learning and group outcomes, including effectiveness or performance in
organizational setting (Ra him, 2002, p. 208)

Conflict Management Strategies

Basically, there are three different major strategies of managing conflict within and
across organizational and societal setting. They include: conflict resolution, conflict
prevention and conflict stimulation. These are explained below.

a) Conflict Resolution
Conflict resolution is conceptualized as the methods and processes involved in facilitating the
peace process between conflicting parties. This strategy attempts to resolve conflict
through active communication of conflicting motives or ideologies to the rest of the
groups and engaging the parties in collective negotiation. This strategy also involves the
use of non-violent resistance measures in an attempt to promote effective resolution.

b) Conflict Prevention.
Conflict prevention involves the use of actions to resolve, manage or contain dispute
before they become violent. It consist of two methods. The first is direct prevention,
which is aimed at preventing short-term, often imminent and escalation of a potential
conflict. The second is method is structural prevention. This method does not only aim
at reducing violence but also, addressing its root causes and the environment of the conflict.

c) Conflict Stimulation
This is the process of creating framework to encourage conflict between and among
people especially in the organization in order to cause change. Conflict stimulation
motivates employees to change when necessary. It also keeps the organization or team
from stagnation.

Succession Planning
Succession planning is the identification and development of potential successors for
key positions in an organization, through a systematic evaluation process and training.
Unlike replacement planning (which grades an individual solely on the basis of his or
her past performance) succession planning is largely predictive in judging an individual for a
position he or she might never have been in.

Succession planning may be broadly defined as a process for identifying and developing
potential future leaders or senior managers, as well as individuals to fill other
business-critical positions, either in the short- or the long-term. In addition to training and
development activities, succession planning programmes typically include the provision
of practical, tailored work experience that will be relevant for future senior or key roles. It
is possible for succession planning schemes either to encompass individual senior or key
positions or to take a more generic approach targeting a ‘pool’ of positions for which similar
skills are required.

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A diagram of Hiring Process

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PRINCIPLE OF MARKETING
Meaning of Marketing

“Marketing is the management process responsible for identifying, anticipating, and

satisfying consumers’ requirements profitably (CIM, UK) The key feature of this definition is
that it places the consumer at the centre of the organisation’s activities. The marketing
concept, thus, means focusing on customer needs. In practice, this consumer orientation
should fill every part of a business if it is to succeed.

Ps of small business marketing (emphasis on brands and packaging)

1. Product
In marketing, the term “product” is often used as a catch-all word to identify solutions a
marketer provides to its target market. We will follow this approach and permit the term
“product” to cover offerings that fall into one of the following categories:

a) Goods – Something is considered a good if it is a tangible item. That is, it is something

that is felt, tasted, heard, smelled or seen. For example, bicycles, cell phones, and donuts are
all examples of tangible goods. In some cases there is a fine line between items that affect the
senses and whether these are considered tangible or intangible. We often see this with digital
goods accessed via the Internet, such as listening to music online or visiting an information
website. In these cases there does not appear to be anything that is tangible or real since it is
essentially computer code that is proving the solution. However, for our purposes, we
distinguish these as goods since these products are built (albeit using computer code), are
stored (e.g., on a computer hard drive), and generally offer the same benefits each time (e.g.,
quality of the download song is always the same).

b) Services – Something is considered a service if it is an offering a customer obtains through

the work or labour of someone else. Services can result in the creation of tangible goods (e.g.,
a publisher of business magazines hires a freelance writer to write an article) but the main
solution being purchased is the service. Unlike goods, services are not stored, they are only
available at the time of use (e.g., hair salon) and the consistency of the benefit offered can
vary from one purchaser to another (e.g., not exactly the same hair styling each time).

c) Ideas – Something falls into the category of an idea if the marketer attempts to convince
the customer to alter their behavior or their perception in some way. Marketing ideas is often
a solution put forth by non-profit groups or governments in order to get targeted groups to
avoid or change certain behavior. This is seen with public service announcements directed
toward such activity as youth smoking, automobile safety, and illegal drug use.

Branding
Branding involves decisions that establish an identity for a product with the goal of
distinguishing it from competitors’ offerings. In markets where competition is fierce and
where customers may select from among many competitive products, creating an identity
through branding is essential. It is particularly important in helping position the product (see
discussion of product position) in the minds of the product’s target market. While consumer
products companies have long recognized the value of branding, it has only been within the
last 10-15 years that organizations selling component products in the business-to-business
market have begun to focus on brand building strategies. The most well-known company to
brand components is Intel with its now famous "Intel Inside" slogan. Intel’s success has led
many others b-to-b companies and even non-profits to incorporate branding within their
overall marketing strategy. At a very basic-level, branding is achieved through the use of

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unique brand names and brand marks. The brand name, which may be either the individual
product name or a name applied to a group or family of products, is important for many
reasons, including suggesting what the product is or does (e.g., Mop-and-Glow). The name is
also what we say when we discuss the product (i.e., word-of-mouth marketing).

Packaging - Nearly all tangible products (i.e., goods) are sold to customers within a
container or package that, as we will discuss, serves many purposes, including protecting the
product during shipment. In a few cases, such as with certain produce items, the final
customer may purchase the product without a package, but the produce marketer still
faces packaging decisions when it comes to shipping to the store.

2. Price - In general, price is a component of an exchange or transaction that takes place

between two parties and refers to what must be given up by one party (i.e., buyer) in order to
obtain something offered by another party (i.e., seller). However, this view of price provides
a somewhat limited explanation of what price means to participants in the transaction. Price
is the only element of the 7Ps that generate revenue for the organization.
.
3. Promotion - Promotion is a form of corporate communication that uses various methods to
reach a targeted audience with a certain message in order to achieve specific organizational
objectives. Nearly all organizations, whether for-profit or not-for-profit, in all types of
industries, must engage in some form of promotion. Such efforts may range from
multinational firms spending large sums on securing high-profile celebrities to serve as
corporate spokespersons to the owner of a one-person enterprise passing out business cards
at a local businessperson’s meeting. Like most marketing decisions, an effective
promotional strategy requires the marketer understand how promotion fits with other
pieces of the marketing puzzle (e.g., product, distribution, pricing, target markets).
Consequently, promotion decisions should be made with an appreciation for how it affects
other areas of the company. For instance, running a major advertising campaign for a new
product without first assuring there will be enough inventory to meet potential
demand generated by the advertising would certainly not go over well with the company’s
production department (not to mention other key company executives.

4. Place/Distribution - Distribution decisions focus on establishing a system that, at its basic

level, allows customers to gain access and purchase a marketer’s product. However,
marketers may find that getting to the point at which a customer can acquire a product is
complicated, time consuming, and expensive. The bottom line is a marketer’s distribution
system must be both effective (i.e., delivers a good or service to the right place, in the right
amount, in the right condition) and efficient (i.e., delivers at the right time and for the right
cost). However, as we will see, achieving these goals takes considerable effort. Distribution
decisions are relevant for nearly all types of products. While it is easy to see how distribution
decisions impact physical goods, such as laundry detergent or truck parts, distribution is
equally important for digital goods (e.g., television programming, downloadable music) and
services (e.g., income tax services).

5. People - Anyone who comes into contact with your customers will make an impression,
and that can have a profound effect, positive or negative, on customer satisfaction. The
reputation of your brand rests in your people’s hands. They must, therefore, be appropriately
trained, well motivated and have the right attitude. It is essential to ensure that all employees
who have contact with customers are not only properly trained, but also the right kind of
people for the job. Many customers cannot separate the product or service from the
staff member who provides it. This shows the importance of your people. The level of after
sales support and advice provided by a business is one way of adding value to what you offer,

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and can give you an important edge over your competitors. This will probably become
more important than price for many customers once they start to use you.

6. Process - The process of giving a service and the behaviour of those who deliver are
crucial to customer satisfaction. Issues such as waiting times, the information given to
customers and the helpfulness of staff are all vital to keep customers happy. Customers are
not interested in the detail of how your business runs, what matters to them is that the
system works. Process is one of the 'P's that is frequently overlooked. A customer trying to
reach your company by phone is a vital source of income and returning a value; however, so
often customers have to stay on hold for several minutes listening to a recorded message
before they are able to get through.

Many of these customers will give up, go elsewhere and tell their friends not to use your
company – just because of the poor process that is in place. Even if they do get through,
they will go away with a negative impression of the company. The reason for this is that
the systems are not usually designed by marketers; they are designed for the company's
benefit, not the customers. This part of the process is the first experience of a company that
many customers have. There is no value in making the rest of the company run perfectly if
this part is faulty. As a consequence, this 'P' could be a great source of competitive
advantage if used wisely.

7. Physical evidence
A service cannot be experienced before it is delivered. This means that choosing to use a
service can be perceived as a risky business because you are buying something intangible.
This uncertainty can be reduced by helping potential customers to ‘see’ what they are buying.
Case studies and testimonials can provide evidence that an organisation keeps its promises.
Facilities such as a clean, tidy and well-decorated reception area can also help to reassure. If
your premises are not up to scratch, what would the customer think your service is? The
physical evidence demonstrated by an organisation must confirm the assumptions of the
customer, a financial services product will need to be delivered in a formal setting, while a
children’s birthday entertainment company should adopt a more relaxed approach.

Target Marketing
This involves breaking a market into segments and then concentrating your marketing efforts
on one or a few key segments. It can be the key to a small business’s success. The beauty of
target marketing is that it makes the promotion, pricing and distribution of your products
and/or services easier and more cost-effective. It provides a focus to all of your marketing
activities.

A target market is a group of customers towards which a business has decided to aim its
marketing efforts and ultimately its merchandise. A well-defined target market is the first
element to a marketing strategy. The marketing mix variables of product, place (distribution),
promotion and price are the four elements of a marketing mix strategy that determine
the success of a product in the marketplace. Target markets are groups of individuals that
are separated by distinguishable and noticeable aspects.

Target Marketing Process

1. Segmenting
This is a marketing strategy that involves dividing a broad target market into subsets of
consumers who have common needs and priorities and then designing and implementing
strategies to target them. Segmentation means breaking up the total market into
smaller, homogeneous segments.

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Criteria for segmenting
An ideal market segment meets all of the following criteria:
a) It is possible to measure.
b) It must be large enough to earn profit.
c) It must be stable enough that it does not vanish after some time.
d) It is possible to reach potential customers via the organization's promotion
and distribution channel.
e) It is internally homogeneous (potential customers in the same segment prefer the
same product qualities).
f) It is externally heterogeneous, that is, potential customers from different
segments have different quality preferences.
g) It responds consistently to a given market stimulus.
h) It can be reached by market intervention in a cost-effective manner.
i) It is useful in deciding on the marketing mix.

Methods for segmenting consumer markets

a) Geographic segmentation
Marketers can segment according to geographic criteria—nations, states, regions, countries,
cities, neighbourhoods, or postal codes. The geo-cluster approach combines demographic
data with geographic data to create a more accurate or specific profile. With respect to region,
in rainy regions merchants can sell things like raincoats, umbrellas and gumboots. In hot
regions, one can sell summer clothing. A small business commodity store may target only
customers from the local neighborhood, while a larger department store can target its
marketing towards several neighborhoods in a larger city or area, while ignoring customers in
other continents

b) Demographic Segmentation
It refers to study about the different aspects of population. Markets can be divided on
demographic factors like age, gender, education etc. The various demographic factors are:

Age: The primary method of analysing markets by age is to divide the total population into
age groups and analyse the wants and needs of each group.

Gender: Marketers devote much attention to male and female differences in

purchasing.
Today, marketers segment female groups into college girls, working women, housewives,
etc. Again, male groups can be further classified.
Income: Buying patterns depends on income of the consumers. No two individuals or
families spend money in exactly the same way. If a researcher knows a person’s income,
he can predict with some accuracy wants and needs of that person and how those
wants are likely to be satisfied.

Education: Market can be segmented on the basis of education – matriculation or less, under
graduates, graduates, post-graduation, etc. Most studies show that the highly educated
people spend more than the poorly educated in respect of housing, clothing, recreation,
etc.

Family Size: The consumption patterns of certain products definitely vary with the number
of people in the household. Manufacturers of certain products such as ice-cream market
family packs.

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Family Life Cycle: The market can be segmented as bachelors, newly married couples,
married with grown up children, older married couples, etc. For selling tours and
vacations, Life Insurance policies etc., this segmentation is of use.

Race and Religion: Consumption patterns of certain products differ on the basis of religion
and race, such as alcohol and meat products.

c) Psychographic Segmentation
It refers to individual aspects like life style and personality. The bases for such segmentation
are lifestyle and personality. For Life-Style, sellers study the life-styles of the consumers. For
example, a manufacturer of readymade garments may design his clothes differently matching
different life styles of college-students (more fashionable), office-goers (more sober) and so
on. In the case of personality, characteristics such as leadership, independence, masculine,
impulsive, ambitious, etc., do influence buying behaviour.

d) Behavioural Segmentation
In this case, buyers are divided into groups on the basis of their response to the product –
usage rate, user status, loyalty status, buying motives, and so on.

Usage Rate: One possible way to define target market is by product usage. There can be
heavy users, medium users, light users, and nonusers. Targeting on this basis may be
useful to the seller who wants to increase consumption by present users and to convince
and induce nonusers to become users.

User Status: Market can be segmented on the basis of user status such as: non-user, ex-user,
potential user, first-time user, regular-user, and so on.
Readiness Stage: Market can be segmented on the basis of people’s readiness to buy the
product. Some people are well informed and are interested to buy the product. Some other
may be well informed but not interested to buy the product.

Buying Motives: Buyers buy the product with different buying motives such as economy,
convenience, prestige, etc. Accordingly promotional appeals can be directed to the target
audience

e) Segmentation by occasions
Occasion segmentation is dividing the market into groups on the basis of the different
occasions when the buyers plan to buy the product or actually buy the product or use the
product. Some products are perceived to be apt for a particular time or day or event. Thus the
motive behind occasion segmentation is to increase the ‘reason to buy’ so as to improve the
sales of a particular product or service.

f) Segmentation by benefits
Benefit segmentation is essentially dividing the market on basis of the characteristics or
features of the product or the service as perceived by the customers. In this method
the different benefits that the product offers defines the target audience. Example:
Toothpaste is a great product to showcase benefit segmentation. Depending upon the
audience segment the benefit that the toothpaste provides would be highlighted.
2. Targeting
Following the brainstorming of possible segments in step one, the next step is to pick a select
market to target or focus on. Companies often focus on one market segment at a time with
marketing and ad campaigns. Whichever market is the most attractive from a profit
standpoint or long-term potential is usually selected first. Factors including size of the

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market, growth potential and competitive intensity impact the perceived opportunity in
targeting a given market.

3. Positioning
Positioning is how the company wants the targeted market to perceive its brand or product.
Some companies make quality a key positioning message and try to market their product as
top quality for the target market segment. Other qualities commonly used to differentiate
include service, unique features, environmental friendliness, family friendliness, safety,
reliability, durability and low cost. The key is to stand out from competitors with a unique
message that appeals to the interests of the targeted market.

Target marketing strategies

1. Undifferentiated/Mass marketing Strategy
This is a market coverage strategy in which a firm decides to ignore market segment
differences and appeal the whole market with one offer or one strategy. The idea is to
broadcast a message that will reach the largest number of people possible. Traditionally mass
marketing has focused on radio, television and newspapers as the media used to reach this
broad audience. By reaching the largest audience possible exposure to the product is
maximized. In theory this would directly correlate with a larger number of sales or buys into
the product. Mass marketing is the opposite to niche marketing as it focuses on high sales and
low prices. Mass Marketing aims to provide products and services that will appeal to the
whole market. Niche marketing targets a very specific segment of market for example
specialized services or goods with few or no competitors.

2. Differentiated marketing strategy

This involves the preparation and communication of different brand and product messages to
different types of customers. This approach is also known as segmented marketing. It is one
where the company decides to provide separate offerings to each different market
segment that it targets. It is also called multi-segment marketing and as is clearly seen that
it tries to appeal to multiple segments in the market. Each segment is targeted uniquely as the
company provides unique benefits to different segments. It increases the total sales but at
the expense of increase in the cost of investing in the business.

3. Concentrated marketing strategy

It is a strategy whereby a product is developed and marketed for a very well defined and
specific segment of the consumer population. It is particularly effective for small companies
with limited resources because it enables the company to achieve a strong market position in
the specific market segment it serves without mass production, mass distribution, or mass
advertising. .

4. Niche marketing strategy

It is a business strategy that targets small, well-defined segments of the population rather
than the population as a whole. It is an effort to connect with and sell to a particular group of
consumers. There are many different ways to define a niche market, with some examples
revolving around geographic location, age, gender, sexual orientation, religion, or profession.
While the marketer is open to consumers of all types, the main focus of the public relations
and marketing efforts seeks to identify with the niche market and meet needs that
are common to that particular set of customers. It is not unusual for a business to
identify a target market or markets that are likely to exhibit substantial interest in the
goods and services offered for sale. One of the basics of niche marketing is to
investigate what is important to each market of consumers and determine specific ways in
which the goods and services offered will prove interesting to that group of consumers.

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Customer care and relationship management
Customer care or service is the provision of service to customers before, during and after a
purchase. According to Turban et al. (2002), it is a series of activities designed to enhance the
level of customer satisfaction – that is, the feeling that a product or service has met the
customer expectation. The importance of customer service may vary by product or service,
industry and customer. The perception of success of such interactions will be dependent on
employees who can adjust themselves to the personality of the guest. It plays an important
role in an organization's ability to generate income and revenue. From that perspective, it
should be included as part of an overall approach to systematic improvement.

A customer service experience can change the entire perception a customer has of the
organization. Some have argued that the quality and level of customer service has decreased
in recent years, and that this can be attributed to a lack of support or understanding at
the executive and middle management levels of a corporation and/or a customer service
policy. To address this argument, many organizations have employed a variety of
methods to improve their customer satisfaction levels, and other key performance indicators.

Customer relationship management (CRM) is an organized process by which a company

keeps track of contacts and conversations with customers. In larger companies, different
departments deal with the same customer and it is important for them to be able to
reference other information exchanges that occurred with other areas of the company. CRM.
It allows companies to maintain better relationships with their customers, by making the
customers' experience with the organization more efficient and pleasant. CRM systems
often include protocols and scripts for handling common customer complaints and
situations, to aid a company in presenting a consistent level of customer service. The
effectiveness of a CRM process still depends on the employee's understanding and
appropriate use of the system.

MANAGING OPERATIONS
How an organisation manages its operations is a key determinant of its success or failure. In
order to be successful, an organisation will have to plan carefully where it will locate its
business, how its facilities will be arranged and how this arrangement will affect the timely
delivery of its products. Also, the organisation will have to plan how it will manage its
inventory in order not to run of stock, it must also ensure that its products meet the
required standards. Moreover, the organisation must also streamline the processes
involved in purchasing its raw materials.

Factors to consider in locating your business

Selecting the best location for the business is one the most important decisions involved in
starting a business. The location will affect everything from the amount of customer traffic,
the costs involved, the availability of employees, plus many additional factors. Location is
especially important to retail store owners. The location of the business is directly linked to
whether or not the business will be successful. The proper location determines whether or not
the customers will frequent the business or not. The location for non-retail businesses is also
important, although it is linked more towards the costs that will be involved. The
infrastructure available for the transportation of products is also important. If the business is a
service-oriented one, then the location can be a reflection of the overall successfulness of the
business. The location can attribute to the image people have of the business. The following
are several of the major factors to consider when choosing a proper site:

1. The Market
This is one of the most important factors in deciding on a location. The business must be able

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to satisfy all its markets from the location. The location must allow convenient access to all
the customers, both current and prospective, as well as convenient access for the
customers.

A good method to help in this decision is marking the location of the current and prospective
customers on a map. It is also helpful to mark the location of the competitors on the map. By
examining the location of all the customers and competitors, a proper location can be picked
that will help meet the needs of the customers.

2. The Labour Force

The next factor for analysis is the available labour force. Recent years has seen the increased
mobility of people when considering the distance they will commute to work. A good rule of
thumb that many people use is a check to see if the area can provide at least ten available
people for consideration for each one that will be hired. Another factor to look at is the
average wage for the area. This wage rate also needs to be compared to the amount that
the competitors have to pay their employees. Small towns generally have lower wages
and people with a better work ethic. An additional consideration is whether the business
will require skilled or unskilled employees. If the local people are unsuitable, then how
conducive is the area for attracting people.

3. Transportation
The transportation available to the location is another factor to consider when deciding on a
site. The transportation means that will be required for the business or by the customers might
include close proximity to an airport, railroad, or major interstate. The delivery costs to the
customers should also be examined.

4. Raw Materials
It is helpful to establish your business close to the source of your raw material. If all the
suppliers are in one general area, it may save delivery time and money to locate in that area.

5. Site Location
Is there a suitable site available in the location that has been picked? Such determinants may
include the availability of zoning and sufficient amount of land that will allow the possibility of
future expansion. Another detail to think about is whether or not there are adequate water
and sewer systems, as well as electricity.

6. Community interest
Another factor to think about is the communities’ attitude towards new development. Look
for an area that shows interest in your type of business.

Facility layout
Facility layout and design is an important component of a business's overall operations, both
in terms of maximizing the effectiveness of the production process and meeting the needs of
employees. The basic objective of layout is to ensure a smooth flow of work, material, and
information through a system. The basic meaning of facility is the space in which a business's
activities take place. The layout and design of that space impact greatly how the work is
done; the flow of work, materials, and information through the system. The key to good
facility layout and design is the integration of the needs of people (personnel and customers),
materials (raw, finishes, and in process), and machinery in such a way that they create a
single, well-functioning system.

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Factors in Determining Layout and Design
Small business owners need to consider many operational factors when building or
renovating a facility for maximum layout effectiveness. These criteria include the following:

1. Ease of future expansion or change

Facilities should be designed so that they can be easily expanded or adjusted to meet
changing production needs. Although redesigning a facility is a major, expensive undertaking
not to be done lightly, there is always the possibility that a redesign will be necessary.

2. Flow of movement
The facility design should reflect recognition of the importance of smooth process flow. In
the case of factory facilities, the plan will show the raw materials entering your plant at one
end and the finished product emerging at the other. The flow need not be a straight line.

Parallel flows, U-shaped patterns, or even a zigzag that ends up with the finished product
back at the shipping and receiving bays can be functional.

3. Materials handling
Business owners should make certain that the facility layout makes it possible to handle
materials (products, equipment, containers, etc.) in an orderly, efficient and simple manner.

4. Space utilization
This aspect of facility design includes everything from making sure that traffic lanes are wide
enough to making certain that inventory storage warehouses or rooms utilize as much vertical
space as possible.

5. Ease of communication and support

Facilities should be laid out so that communication within various areas of the business and
interactions with vendors and customers can be done in an easy and effective manner.
Similarly, support areas should be stationed in areas that help them to serve operating
areas

Inventory management
Inventory is the stock of any item or resource used in an organization. An inventory system is
the set of policies and controls that monitor levels of inventory and determine what levels
should be maintained, when stock should be replenished, and how large orders should be. By
convention, manufacturing inventory generally refers to items that contribute to or become
part of a firm’s product output. Manufacturing inventory is typically classified into raw
materials, finished products, component parts, supplies, and work-in-process. In distribution,
inventory is classified as in-transit, meaning that it is being moved in the system, and
warehouse, which is inventory in a warehouse or distribution centre. Retail sites carry
inventory for immediate sale to customers. In services, inventory generally refers to the
tangible goods to be sold and the supplies necessary to administer the service.

Purposes of Inventory
All firms keep a supply of inventory for the following reasons:

1. To maintain independence of operations

A supply of materials at a work centre allows that centre flexibility in operations. For
example, because there are costs for making each new production setup, this inventory allows
management to reduce the number of setups.

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2. To meet variation in product demand
If the demand for the product is known precisely, it may be possible (though not necessarily
economical) to produce the product to exactly meet the demand. Usually, however, demand is
not completely known, and a safety or buffer stock must be maintained to absorb variation.

3. To allow flexibility in production scheduling

A stock of inventory relieves the pressure on the production system to get the goods out. This
causes longer lead times, which permit production planning for smoother flow and lower-cost
operation through larger lot-size production. High setup costs, for example, favor producing a
larger number of units once the setup has been made.

4. To provide a safeguard for variation in raw material delivery time

When material is ordered from a vendor, delays can occur for a variety of reasons: a normal
variation in shipping time, a shortage of material at the vendor’s plant causing backlogs, an
unexpected strike at the vendor’s plant or at one of the shipping companies, a lost order, or a
shipment of incorrect or defective material.

5. To take advantage of economic purchase order size

There are costs to place an order: labour, phone calls, typing, postage, and so on. Therefore,
the larger each order is, the fewer the orders that need be written. Also, shipping costs
favour larger orders—the larger the shipment, the lower the per-unit cost.

Inventory Costs
In making any decision that affects inventory size, the following costs must be considered:

1. Holding (or carrying) costs. This broad category includes the costs for storage facilities,
handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes, and the
opportunity cost of capital. Obviously, high holding costs tend to favor low inventory levels
and frequent replenishment.

2. Setup (or production change) costs. To make each different product involves obtaining the
necessary materials, arranging specific equipment setups, filling out the required papers,
appropriately charging time and materials, and moving out the previous stock of material. If
there were no costs or loss of time in changing from one product to another, many small lots
would be produced. This would reduce inventory levels, with a resulting savings in cost. One
challenge today is to try to reduce these setup costs to permit smaller lot sizes. (This is the
goal of a JIT system.)

3. Ordering costs. These costs refer to the managerial and clerical costs to prepare the
purchase or production order. Ordering costs include all the details, such as counting items
and calculating order quantities. The costs associated with maintaining the system needed to
track orders are also included in ordering costs.

4. Shortage costs. When the stock of an item is depleted, an order for that item must either
wait until the stock is replenished or be cancelled. When the demand is not met and the
order is cancelled, this is referred to as a stock out. A backorder is when the order is held and
filled at a later date when the inventory for the item is replenished. There is a trade-off
between carrying stock to satisfy demand and the costs resulting from stock outs and
backorders. This balance is sometimes difficult to obtain because it may not be possible to
estimate lost profits, the effects of lost customers, or lateness penalties. Frequently, the
assumed shortage cost is little more than a guess, although it is usually possible to specify a
range of such costs.

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Stocktaking
Stocktaking is the process of counting by hand the number of each type of product in your
store/dispensary. Stocktaking is conducted for both managerial and financial reasons. The
management functions of stocktaking are to:
a) Verify the accuracy of storekeeping records.
b) Ensure efficient organisation of stocks in storage
c) Ensure that all stocks are useable
The financial function of stocktaking is to determine the value of stocks held in storage to the
organisation to complete picture of its assets. This should be done on a quarterly basis and
obligatory at the end of the year.

Fixation of Stock Level

Material control involves physical control of materials, preservation of stores, minimization
of obsolescence and damages through timely disposal and efficient handling. Effective stock
control system should ensure the minimization of inventory carrying cost and materials
holding cost. Level of stock is the important aspect of inventory control. Stock level may be
overstocking or under stocking. Overstocking requires large capital with high cost of holding.

In the case of under stocking, production and overall performance of the concern as a whole
will affect. Thus, fixation of stock level is essential to maintain sufficient stock for the
smooth flow of production and sales.

Management of quality (emphasis is on SERVQUAL)

Service quality is needed for creating customer satisfaction and service quality is connected
to customer perceptions and customer expectations. Service quality can be described as the
result from customer comparisons between their expectations about the service they will use
and their perceptions about the service company. That means that if the perceptions would
be higher than the expectations the service will be considered excellent, if the expectations
equal the perceptions the service is considered good and if the expectations are not met the
service will be considered bad.

Customer satisfaction can also be described as a judgement that a product or service feature,
or the product or service itself, provides pleasurable consumption. Satisfaction can also be
described as a fulfilment response of service and an attitude change as a result of the
consumption. Satisfied customers are likely to become loyal customers and that means that
they are also likely to spread positive word of mouth. Understanding which factors that
influence customer satisfaction makes it easier to design and deliver service offers that
corresponds to the market demands.

The SERVQUAL method from Zeithaml, Parasuraman and Berry (1985) is a technique that
can be used for performing a gap analysis of an organization's service quality performance
against customer service quality needs. SERVQUAL is an empirically derived method that
may be used by a services organization to improve service quality. The method involves the
development of an understanding of the perceived service needs of target customers.
These measured perceptions of service quality for the organization in question, are then
compared against an organization that is "excellent". The resulting gap analysis may then be
used as a driver for service quality improvement. SERVQUAL takes into account the
perceptions of customers of the relative importance of service attributes. This allows an
organization to prioritize and to use its resources to improve the most critical service
attributes. The data are collected via surveys of a sample of customers. In these surveys, these
customers respond to a series of questions based around a number of key service dimensions.

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The methodology was originally based around 5 key dimensions:
a. Tangibles: Appearance of physical facilities, equipment, personnel, and
communication materials.
b. Reliability: Ability to perform the promised service dependably and accurately.
c. Responsiveness: Willingness to help customers and provide prompt service.

d. Assurance: Knowledge and courtesy of employees and their ability to convey trust
and confidence.
e. Empathy: The firm provides care and individualized attention to its customers.

This has been adapted later by some to cover:

a. Tangibles: Appearance of physical facilities, equipment, personnel, and
communication materials.
b. Reliability: Ability to perform the promised service dependably and accurately.
c. Responsiveness: Willingness to help customers and provide prompt service.
d. Competence: Possession of required skill and knowledge to perform service.
e. Courtesy: Politeness, respect, consideration and friendliness of contact personnel.
f. Credibility: Trustworthiness, believability, honesty of the service provider.
g. Feel secure: Freedom from danger, risk, or doubt.
h. Access: Approachable and easy of contact.
i. Communication: Listens to its customers and acknowledges their comments. Keeps
customers informed in a language which they can understand.
j. Understanding the customer: Making the effort to know customers and their needs.

The authors conducted a qualitative study, from which they concluded that customers ranked
the importance of two SERVQUAL dimensions consistently regardless of service industry.
Reliability is the most important contributing factor to service quality and tangibles is the
least important.

Purchasing process and JIT

Purchasing is the formal process of buying goods and services. The purchasing process can
vary from one organization to another, but there are some common key elements.
The process usually starts with a demand or requirements – this could be for a physical part
(inventory) or a service. A requisition is generated, which details the requirements (in some
cases providing a requirements speciation) which actions the procurement department. A
request for proposal (RFP) or request for quotation (RFQ) is then raised. Suppliers send their
quotations in response to the RFQ, and a review is undertaken where the best offer (typically
based on price, availability and quality) is given the purchase order.

Purchase orders are normally accompanied by terms and conditions which form the
contractual agreement of the transaction. The supplier then delivers the products or service
and the customer records the delivery (in some cases this goes through a goods inspection
process). An invoice is sent by the supplier which is cross-checked with the purchase order
and documents specifying which goods have been received. The payment is then made and
transferred to the supplier.

Just-In-Time (JIT) manufacturing is a Japanese management philosophy applied in

manufacturing which involves having the right items of the right quality and quantity in the
right place and the right time. It has been widely reported that the proper use of JIT
manufacturing has resulted in increases in quality, productivity and efficiency, improved

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communication and decreases in costs and wastes. Just in Time (JIT) production is a
manufacturing philosophy which eliminates waste associated with time, labour, and storage
space. Basics of the concept are that the company produces only what is needed, when it is
needed and in the quantity that is needed. The company produces only what the
customer requests, to actual orders, not to forecast. JIT can also be defined as producing the
necessary units, with the required quality, in the necessary quantities, at the last safe
moment. It means that companies can manage with their own resources and allocate them
very easily. Benefits that JIT concept can provide to the company are huge and very diverse.
The main benefits of JIT are listed below:
a. Reduced set up times in warehouse - the company in this case can focus on
other processes that might need improvement.
b. Improved flows of goods in/through/out warehouse - employees will be able
to process goods faster.
c. Employees who possess multi-skills are utilized more efficiently – the company can
use workers in situations when they are needed, when there is a shortage of
workers and a high demand for a particular product.

There are several problems which are connected within JIT concept. Maybe the major
problem with JIT operation is that it leaves the supplier and downstream consumers open to
supply shocks. With shipments coming in sometimes several times per day, the company is
especially susceptible to an interruption in the flow. For that reason, some companies are
careful to use two or more suppliers for most of their assemblies. The hidden costs are
present and they include labour union leverage, problems with flexible manufacturing
systems (FMS), problems developing for the flexible workforce, difficulties with supplying
commodities using JIT, increased expenses for suppliers.

FINANCE AND RECORDS KEEPING

Every organisation, big or small, will require some funding to enable it run its operations
effectively. Funding has become a major challenge to most business in recent times due to
high cost of borrowing or unwilling of investors to pump monies into business. This has
made very difficult for businesses, especially small business to operate to full capacity. It is
also imperative for businesses to keep proper records of their activities to ensure transparency
in their operations.

Why small businesses fail financially

Many small businesses pull out of business before their first anniversary. This phenomenon is
worrisome and is caused by many factors as follows:

1. Under-capitalisation
A number of entrepreneurs do not know where to go to ask for a loan. A bank, credit union,
investors or venture capital companies could provide funding to start a firm. An aspiring
entrepreneur must have a percentage of the loan being requested, a good credit score, and
the means to pay back the loan. Most banks and institutions are tight with the amount they
want to loan for small businesses. In some cases this is due to the requesting
entrepreneur not understanding how much money his or her new firm will require.
Often, entrepreneurs underestimate the money and time required to make a business
profitable. For many small businesses the lack of start- up capital causes a shortcoming
before the business reaches profitability.

2. Poor Cash Flow

A lack of cash flow is often the biggest failure indicator. A lack of cash flow could cause a

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business to fall behind on wage payments, rent, and insurance and loan payments. A lack of
cash flow also could inhibit the venture’s ability to reinvest for future profits such as the
ordering of products or supplies and marketing execution. When a venture is borrowing to
pay off past debts, it is usually a sign of disaster to come.

3. Poor Record Keeping

Keeping good detailed records of sales, expenses and debts alone is critical for the survival of
any business. This is especially true for volatile small businesses.
How can any financial planning be done when there is no understanding of cash on hand,
outstanding credits and current expenses? Poor record keeping makes it virtually impossible
for owners to know the financial status of his or her venture. The fact is many small firm
owners do not want to complete this menial task, regardless of its importance.

4. Poor Planning
Poor planning or a complete lack of planning is one major reason small businesses have a
short life expectancy. The importance of researching demand for product or service,
identifying the target market, calculating necessary capital and selecting a location are all
critical facets of planning that lead to determining a clear business plan. Another area of
planning entrepreneurs should consider is the managerial duties that will be required in day-
to-day operations. The owner will not simply be selling the product and talking to customers.

In most cases he will be involved in all aspects of the business and should not underestimate
the impact of these activities on his or her time and availability. Proper planning plays a
critical role in the success of small businesses and should not be overlooked.

5. Tax and Regulation Burdens

Burdens brought on by tax codes and regulations have a significant impact in determining the
success of small businesses. Small business owners spend an incalculable amount of time
determining whether the regulation applies or not, whether his or her business is in
compliance, and what, if any action needs to be taken. Small businesses are required by law
to file their tax returns, fulfill other local government levies and pay employees’ social
security. This is a significant financial difference for small businesses competing with large
firms. It is easy to understand how these hardships translate to financial and management
difficulties for small business owners. The government is aware of these challenges for small
businesses and must search for an answer to level the playing field.

Start-up and running costs

New businesses spend money before they ever open their doors or offer product for sale. This
money needed to start a new venture is termed as the start-up cost. Start-up costs are one-
off costs associated with setting up a business. For example, for a sandwich delivery
service, these might include buying a van, getting uniforms for staff, bread baskets as well as
cutlery and equipment. It may also include buying premises. On the other hand, running costs
are the day-to-day costs associated with operating a business.

Sources of Funds
There are several Initial expenses and running costs associated with a venture. These
includes legal and licenses fees, office supplies and equipment, brochures and letterhead
design costs, business cards, website development, utility deposits and installations, rent
deposit, cell phones/pagers, banking setup fees, computer and accessories costs.
Furthermore, there are long term expenses such as acquisition of office space. There are
some expenses that are repetitive in nature such as salaries and wages, tax payable, rent,

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utilities, internet usage, insurance, advertising, maintenance and repairs, travelling, banking
charges, legal and professional fees. It is imperative for the entrepreneur to have adequate
fund to meet such financial need.

An entrepreneur can raise funds from own capital (equity financing), owe capital or (debt
financing) sources or both (a blend of both).

The own sources often include relying on personal savings from previous or current
employment; rely on Susu or receive support from family and friends through remittances.
Existing firms might want to plough back profit. The owe source includes vendor
financing/trade credit, micro lenders, factoring, leasing/ hire purchase, banks (term loans &
overdrafts), rural banks, credit unions, financial NGOs, savings and loan Associations. The
entrepreneur at certain stage of the venture would want to take advantage of the capital
market.

Read on for some further details to some of these methods for raising finance.
1. Issuing Shares on the capital market
Ordinary (equity) shares are issued to the owners of a venture. They have a nominal
or 'face' value. The market value of a quoted venture's shares bears no relationship to
their nominal value, except that when ordinary shares are issued for cash, the issue
price must be equal to or be more than the nominal value of the shares.

Preference shares have a fixed percentage dividend before any dividend is paid to
the ordinary shareholders. As with ordinary shares a preference dividend can only be
paid if sufficient distributable profits are available, although with 'cumulative'
preference shares the right to an unpaid dividend is carried forward to later years. The
arrears of dividend on cumulative preference shares must be paid before any dividend
is paid to the ordinary shareholders.

2. Loan stock
Loan stock is long-term debt capital raised by a company for which interest is paid,
usually half yearly and at a fixed rate. Holders of loan stock are therefore long-term
creditors of the venture. Loan stock has a nominal value, which is the debt owed by
the venture, and interest is paid at a stated "coupon yield" on this amount.
Debentures are a form of loan stock, legally defined as the written
acknowledgement of a debt incurred by a venture, normally containing provisions
about the payment of interest and the eventual repayment of capital.

3. Retained earnings
For any venture, the amount of earnings retained within the business has a direct
impact on the amount of dividends. Profit re-invested as retained earnings is profit
that could have been paid as a dividend. The major reasons for using retained earnings
to finance new investments, rather than to pay higher dividends and then raise new
equity for the new investments is that the use of retained earnings as opposed to
new shares or debentures avoids issue costs and the use of retained earnings
avoids the possibility of a change in control resulting from an issue of new shares.

4. Bank lending
Borrowings from banks are an important source of finance to companies. Companies
can borrow from banks to finance short to medium term investments like acquiring
raw materials or new machinery.

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5. Leasing
A lease is an agreement between two parties, the "lessor" and the "lessee". The lessor
owns a capital asset, but allows the lessee to use it. The lessee makes payments under
the terms of the lease to the lessor, for a specified period of time. Leasing is,
therefore, a form of rental. Leased assets have usually been plant and machinery, cars
and commercial vehicles, but might also be computers and office equipment.

6. Hire purchase
Hire purchase is a form of installment credit. Hire purchase is similar to leasing, with
the exception that ownership of the goods passes to the hire purchase customer
on payment of the final credit installment, whereas a lessee never becomes the
owner of the goods.
7. Government assistance
The government provides finance to companies in cash grants and other forms of
direct assistance, as part of its policy of helping to develop the national economy,
especially in high technology industries and in areas of high unemployment.
8. Venture capital
Venture capital is money put into an enterprise which may all be lost if the enterprise
fails. A businessman starting up a new business will invest venture capital of his own,
but he will probably need extra funding from a source other than his own pocket.

However, the term 'venture capital' is more specifically associated with putting
money, usually in return for an equity stake, into a new business, a management buy-
out or a major expansion scheme. The institution that puts in the money recognises
the gamble inherent in the funding. There is a serious risk of losing the entire
investment, and it might take a long time before any profits and returns materialise.

9. Franchising
Franchising is a method of expanding business on less capital than would otherwise
be needed. For suitable businesses, it is an alternative to raising extra capital for
growth. Under a franchising arrangement, a franchisee pays a franchisor for the right
to operate a local business, under the franchisor's trade name. The franchisor must
bear certain costs (possibly for architect's work, establishment costs, legal costs,
marketing costs and the cost of other support services) and will charge the franchisee
an initial franchise fee to cover set-up costs, relying on the subsequent regular
payments by the franchisee for an operating profit.

Models of credit granting

One of the challenges entrepreneurs face is funding. The issue is accessibility,
availability and affordability of funds. In recent times, with the influx of microfinance
institutions and banks, the issue is not so much of availability, but the cost of access.
SMEs credit is found to be most expensive because of the risk associated with
financing an unproven idea or venture. Funding is required in the entire life of the
venture – from development, start up and existence, early growth, rapid growth and
finally the exit stages of the venture.

Financing the venture with equity capital may not always be helpful or possible.
There will be the need for debt (to seek support from lenders) sometime in the life of
the venture. Being able to secure a loan from a lender means that you are able to
meet the credit criteria. Some of the credit granting models used are CAMPARI de ICE
or CAMEL or the 5Cs.

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1. The CAMPARI de ICE model
The issues that is often of importance to the lender as the following:
• C – character of the applicant (reputation)
• A – ability to enter into loan contract
• M – means i.e. strategy for managing risk and the suitability of its assets
• P – purpose of the loan
• A – amount of the loan
• R – repayment probability
• I – insurance i.e. security or collateral
• I – interest i.e. the expected reward due to the level of risk

C – commission i.e. commitment fees for reserving the facility to the borrower
• E – extras e.g. hidden fees such as legal fees.
2. CAMEL model
This often used in lending to MFIs. In the CAMEL model, the lender looks at the following:
• C – capital adequacy (seed capital invested in the business)
• A – asset quality (net worth (total assets- total liability)
• M – management (skill and experience of the entrepreneur)
• E – earnings (potential return on assets)
• L – liquidity (sufficient cash flow to meet obligations as and when they arise
3. Five Cs model
It is the most commonly used model. It looks at the following:
• C- character – borrower reputation/integrity
• C- capital – net worth (total assets – total liability
• C- conditions – of the borrower and the overall economy
• C- collateral – insurance or security
• C- capacity – sufficient cash flow to meet the obligation

Meeting creditors requirements

The following are some of the ways to help secure credit:
∗ Apply to lenders that share your vision
∗ Always keep an up-to-the-second records
∗ Develop a well thought business plan
∗ Be honest and use loans for their intended purposes
∗ Meet payment deadlines
∗ Prepare and submit documentations that meet lenders’ criteria
∗ Negotiate for flexible terms of repayment

Institutions that provide financial support

One major constraint that businesses face is the availability and adequacy of funds.
Inadequate funds have seen many businesses operate either below their full capacity or
wound up. However, there are some institutions that provide funding to businesses to enable
them continue with their operations. These institutions are discussed below.

1. National Board Small Scale Industries

The National Board for Small Scale Industries (NBSSI) is the apex governmental body for
the promotion and development of the Micro and Small Enterprises (MSE) sector in Ghana.
It was established by an Act of the Parliament of the Third Republic of Ghana (Act 434 of
1981) and operationalised in 1985 because government views the sector as having the
potential to contribute substantially to reducing the high unemployment and to the growth

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of the economy of Ghana. MSEs account for a significant share of economic activity in Ghana
and can play an important role in achieving the development goals for production. The long-
term goal is for MSEs to maximize their contribution to the country’s economic and social
development with respect to production, income distribution and employment and the
closer integration of women and people in rural areas with the national economy.

2. Business Sector Advocacy Challenge

The BUSAC fund supports the growth of a competitive private sector in Ghana by improving
the business environment. The BUSAC fund enables the private sector in Ghana – as well as
trades unions and the media – to influence public policy formulation by undertaking
appropriate research, developing evidence-based policy positions, advocating those positions
with government and other private sector organisations.

3. Micro Finance Institutions

GHAMFIN is an informal network of institutions and individuals that operate within Ghana's
Microfinance Industry. This network evolved from the concern of some Ghanaian
Microfinance Institutions (MFIs) for the development of best practices in delivery of
microfinance services. GHAMFIN regularly collaborates with government and donor
organizations in Ghana, particularly in the area of policy change activities and
implementation of capacity building and institutional strengthening programs e.g., MicroStart
(UNDP/AfDB), and the Social Investment Fund.

4. Banks
Banks are a major source of funding for businesses. They provide short to long term financial
assistance to businesses to enable them expand their operations. The financial support may
come in the form of an overdraft, mortgage or a collateral loan.

Records Keeping and Documents

Record keeping is an important aspect of every business. It helps the business to ascertain the
true financial position of its affairs. It also helps the business to meet its financial obligations.
Book keeping includes recording of journal, posting in ledgers and balancing of accounts. All
the records before the preparation of trial balance is the whole subject matter of book
keeping. Thus, book keeping may be defined as the science and art of recording transactions
in money or money’s worth so accurately and systematically in a certain set of books
regularly that the true state of business’ affairs can be correctly ascertained. Here, it is
important to note that only those transactions related to business are recorded which can
be expressed in terms of money.

Objectives of Book keeping

It is important to keep records for the following reasons:
a) Book- keeping provides a permanent record of each transaction.
b) Soundness of a firm can be assessed from the records of assets and abilities on
a particular date.
c) Entries related to incomes and expenditures of a concern facilitate to know the
profit and loss for a given period.
d) It enables to prepare a list of customers and suppliers to ascertain the amount to
be received or paid.
e) It is a method gives opportunities to review the business policies in the light of
the past records.
f) Amendment of business laws, provision of licenses, assessment of taxes etc.,
are based on records.

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8. Cash Book
Cash Book is a sub-division of Journal recording transactions pertaining to cash receipts and
payments. Firstly, all cash transactions are recorded in the Cash Book wherefrom they are
posted subsequently to the respective ledger accounts. The Cash Book is maintained in the
form of a ledger with the required explanation called as narration and hence, it plays a dual
role of a journal as well as ledger. All cash receipts are recorded on the debit side and all cash
payments are recorded on the credit side. All cash transactions are recorded chronologically
in the Cash Book. The Cash Book will always show a debit balance since payments cannot
exceed the receipts at any time.

Financial Statements and Analysis

Financial Statements represent a formal record of the financial activities of an entity. These
are written reports that quantify the financial strength, performance and liquidity of a venture.
Financial Statements reflect the financial effects of business transactions and events on the
entity. The four main types of financial statements are:

1. Statement of Financial Position

Statement of financial position, also known as the Balance Sheet, presents the financial
position of an entity at a given date. It is comprised of the following three elements:
a) Assets: Something a business owns or controls (e.g. cash, inventory, plant and
machinery, etc)
b) Liabilities: Something a business owes to someone (e.g. creditors, bank loans, etc)
c) Equity: What the business owes to its owners. This represents the amount of
capital that remains in the business after its assets are used to pay off its
outstanding liabilities. Equity therefore represents the difference between the assets
and liabilities.

2. Income Statement
Income statement, also known as the Profit and Loss Statement, reports the venture's
financial performance in terms of net profit or loss over a specified period. Income Statement
is composed of the following two elements:
a) Income: What the business has earned over a period (e.g. sales revenue,
dividend income, etc)
b) Expense: The cost incurred by the business over a period (e.g. salaries and wages,
depreciation, rental charges, etc)
Net profit or loss is arrived by deducting expenses from income.

3. Cash Flow Statement

Cash flow statement presents the movement in cash and bank balances over a period. The
movement in cash flows is classified into the following segments:
a) Operating Activities: Represents the cash flow from primary activities of a business.
b) Investing Activities: Represents cash flow from the purchase and sale of assets other
than inventories (e.g. purchase of a factory plant)
c) Financing Activities: Represents cash flow generated or spent on raising and repaying
share capital and debt together with the payments of interest and dividends.

4. Statement of Changes in Equity

Statement of Changes in Equity, also known as the Statement of Retained Earnings, details
the movement in owners' equity over a period. The movement in owners' equity is derived
from the following components:
a) Net Profit or loss during the period as reported in the income statement
b) Share capital issued or repaid during the period
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 c) Dividend payments
d) Gains or losses recognized directly in equity (e.g. revaluation surpluses)
e) Effects of a change in accounting policy or correction of accounting error.

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical
values taken from an enterprise's financial statements. Often used in accounting, there are
many standard ratios used to try to evaluate the overall financial condition of a corporation or
other organization. Financial ratios may be used by managers within a firm, by current and
potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use
financial ratios to compare the strengths and weaknesses in various companies. If shares in a
venture are traded in a financial market, the market price of the shares is used in certain
financial ratios.
Financial ratios allow for comparisons
• between companies
• between industries
• between different time periods for one venture
• between a single venture and its industry average

USING INFORMATION COMMUNICATION TECHNOLOGY

In the knowledge society, firms need to develop competitive advantages based on an
adequate and intensive use of information and communication technologies (ICTs), which is
an essential element of success in today’s market. This fact is especially relevant for small
and medium sized enterprises (SMEs), whose survival depends, among other factors, on the
use they make of ICTs to develop new organizational models, compete in new markets or
enhance their internal and external communication relationships.

Meaning of Information Communication Technology

Information and communications technology (ICT) is often used as an extended synonym for
information technology (IT), but is a more specific term that stresses the role of unified
communications and the integration of telecommunications (telephone lines and wireless
signals), computers as well as necessary enterprise software, middleware, storage, and audio-
visual systems, which enable users to access, store, transmit, and manipulate information.

The term ICT is also used to refer to the convergence of audio-visual and telephone networks
with computer networks through a single cabling or link system. There are large economic
incentives (huge cost savings due to elimination of the telephone network) to merge the
telephone network with the computer network system using a single unified system of
cabling, signal distribution and management.

ICT and SMEs

The relevant literature has traditionally suggested different perspectives or aspects of ICTs
that must be considered by SMEs. From an economic and management view-point, ICTs
have been regarded as: (1) a social construction; (2) an information provider; (3) an
infrastructure – hardware and software; and (4) a business process and system. From a
marketing point of view, ICTs have also been viewed as: (1) a variety of separate applications
(Internet, databases, PowerPoint); (2) a marketing channel; (3) a communication/promotional
medium; (4) a marketing technique; and (5) a tool for relationship marketing.
Obviously, ICTs are more than just computers or the Internet. Although there has been a
tendency to focus on Internet technology, the study of technology effects in economy and
business fields must also be closely considered. Today, ICTs must be conceived broadly to
encompass the information that businesses create and use, as well as the wide spectrum
of increasingly convergent and linked technologies that process that information.

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Therefore, ICTs can be viewed as a collective term for a wide range of software,
hardware, telecommunications and information management techniques, applications and
devices, and are used to create, produce, analyse, process, package, distribute, receive,
retrieve, store and transform information (Porter and Millar, 1985; Brady et al., 2002).

Nowadays, the widespread uses of ICTs are changing the way people or companies work. It
is a feature of the technological advancements of this period in history where there has been
immense innovation in information management and communication so that in many
countries, information and knowledge are easily conveyed, accessed and used. Thus, the pace
of technological change and what is available for use by firms has revolutionized how they
interact and do business.
In particular, ICTs have a valuable potential for developing SMEs through more effective use
and better integration of ICTs in business processes while assisting them to make more
efficient decisions relevant to their performance. ICTs have the potential to generate a step
change among SMEs and make them more competitive, innovative and generate growth.
Since SMEs play a role of increasing importance in the economy (especially when we
consider their contribution to the generation of jobs as well as the social-economic
development of the community where they are located) (Hartigan, 2005), it is then desirable
that SMEs are stimulated into adopting new technologies more rapidly, and creating
innovative products more competitively. It requires that SMEs have the right environment to
prosper, form a skilled workforce and drive economic growth. In recent years, large
numbered SMEs have acquired direct access to computers or other types of digital
technologies, primarily for individual task development.

Yet now, these computers are beginning to be connected to each other, and for the first
time there is an opportunity for very large numbers of small companies to use computing
and communication capabilities to help coordinate their work. Specialized products have
been successfully developed and commercialized, and to some observers these applications
herald a paradigm shift in technology usage and implications. On the other hand, the
improvements in the costs and capabilities of ICTs are changing the ways in which
certain kinds of communications and coordination can occur (Summut-Bonnii and McGee,
2002).

Lowering the costs of coordination between firms may encourage more market transactions,
and at the same time, closer coordination across firm boundaries. Moreover, new capabilities
for communicating information faster, less expensively, and more selectively, may help to
create a rapidly changing organization with highly decentralized networks of shifting projects
teams (Roberts, 2000). In addition, the sum of these changes is creating a pervasive feeling in
business today that global interdependencies are becoming more critical. Thus, companies
realize that they need to take advantage of ICT capabilities for improving their
competitiveness and productivity (Ragaswamy and Lilien, 1997).

However, it is important to take into account that to adopt ICT systems and elements and
strategies, the benefits must outweigh investment and maintenance costs.
Consequently, commercial issues and potential returns must drive adoption. Beyond a
certain level of ICT adoption and diffusion, not all SMEs will necessarily catch up with
large firms simply because ICT may not bring large benefits, and SMEs will stay with
traditional business processes. Other aspects that should also be considered are the
availability of ICT competencies within the firm as well as the availability and cost of
appropriate interoperable small firm systems, network infrastructure and ICT-related

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support services (Leenders and Wierenga, 2002; Prasad et al., 2001; Roberts, 2000).

Guidelines for introducing ICT into SMEs

Guided by these considerations, some key elements can be mentioned to foster an
adequate introduction of ICT-based solutions in SMEs. First, it is highly recommended that
ICT-based solutions be introduced gradually in SMEs since sudden transformations risk
failing against unaware and unready business organizations (Argyres, 1999). Second,
adequate training and support are required (Wei and Morgan, 2004). It is useful to outline
that one of the main difficulties for SMEs in exploiting ICTs potentials is the lack of
awareness of the benefits to be derived coupled with little or no specific training on ICTs
(both at application and methodological levels). The smaller the enterprise, the greater this
problem gets, since most small companies are not using information technology for their
activities (apart from specific accounting services, and little more). Consequently, several
problems must be solved to make ICTs simpler to use, reliable and well integrated in the SMEs
activities.

The Benefits of ICT to SMEs

On the whole, ICT applications can provide several benefits across a wide range of intra and
inter firm business operations and transactions. Certainly, ICT applications can contribute to
improve information and knowledge management inside the firm, can reduce transaction
costs and can increase the speed and reliability of transactions for both business-to-business
(B2B) and business-to-consumer (B2C) transactions. In addition, they are effective tools for
improving external communications and quality of services for established and new
customers. More specifically, SMEs can obtain a wide range of benefits from the use of ICT
(Cela, 2005).

Among these benefits, it is possible to mention:

1. Enhance the productivity and effectiveness of certain activities or functions (Brady et al.,
2002).
2. Favour the adoption of new organizational, strategic and managerial models
(Johnston
and Lawrence, 1998; Kahn, 1996, 2001).
3. Enable the access to new environments as well as the generation of new markets
and business models (Corbitt, 2000; Javalgi and Ramsey, 2001).
4. Improve the qualification and specialization of human resources, which increases
the efficiency and efficacy (Vilaseca, 2003).
ICTs play an important role in enhancing the productivity and effectiveness of certain
activities or functions made by SMEs (Brady et al., 2002; Webster, 1992). For instance, ICTs
facilitate the selective automation of processes related to supporting the field sales force and
integrating sales activity into the company’s information structure. On the other hand, they
provide ready access to a vast array of global information resources and facilitate the
gathering of valuable competitive knowledge and consumer-related information that
simplifies marketing decision processes. Finally, ICTs provide the marketer with
extraordinary capability to target specific groups of individuals precisely and enable them to
practice mass-customization and one-to-one marketing strategies, by adapting
communications and other elements of the marketing mix to consumer segments (Pine et al.,
1995; Prasad et al., 2001).

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