Chapter Two : Small Businesses

 Small business is a
business which is
independently
owned and operated,
not dominated in its
field of operation
and meets certain
standard of number
of employee and
capital.
 CONTINU...

In general there are two

approaches to define a
small business;
• measures of the
size and
• economic/ control
criteria
 Size criteria

Number of employees: -for

Some of the criteria’s to example in Ethiopian case it
measure the size are is Less than 30 employees (6-
30).

Investment paid up capital: -

for Ethiopia it is 100,001- Volume of sales, production
1,500,000 (industry), and and deposits are also used to
50,001-500,000 birr measure the size of business
(service).

If there is ambiguity in the

definition between the usage
of man power and capital, it
is recommended to use the
total paid up capital as a
measurement criteria
 Economic/Control criteria

 Market share: has no significant

influence on the price of national
quantities of goods sold to any
significant level.
 Independence: independence means
that an owner has control of the
business himself.
 Personalized management: It implies
that the owner actively participates in
all aspects of the management of the
business and in major decision making
process.
 Technology: small business is generally
labour intensive
 Geographical area of operation: the
area of operation of a small business is
often local
 Economic, social and political aspects of
small business enterprises in Ethiopia

 Socialistic idea (the equality

argument )
 Less capital and more labour
 Removing regional
imbalances (the
decentralization
arguments)
 Creating self-employment
opportunities
 Ancillary functions
 Export promotion
 Supply of critical raw
materials
 Small business failure factors

 Management
incompetence
 Poor financial control
 Lack of adequate capital
 Over investment in fixed
asset
 Failure to plan current as
well as future operation
 CONT.....
 Improper Attitude (The
entrepreneur may not
respect time, employees
and may have lazy lifestyle
and dictatorial style of
work)
 Inadequate marketing plan
 Incorrect market
identification
 Poor distribution channel
 Weak marketing
communication or
promotion
 Failure to adopt proper
inventory control system
How to avoid the pitfalls/difficulties of a
small business

 Know your business in depth:

 Have a Good Relation with Stake
Holders
 Prepare business plan
 Managing financial resources
 Understanding financial
statement
 Learn to manage people
effectively
 Keep in tune with yourself
 Take up short professional
courses in management
(entrepreneurship):
 Be sensitive to your customers
 Setting up a small business..

 The first and for most step in starting a small business is to

find out a suitable business idea and give a practical
shape to the idea.
 To think of a goal for the business in the long run rather than
to look for the immediate tomorrow is called Basic Business
Idea.
 The basic business idea is to meet the broadest needs of the
customers and has a long life perhaps from5-50years.
 The basic business idea facilitates choice of product under
an overall plan.
.

.
 CONTINU...

 The product line consists of different families of

products.
 The product range on the other hand includes
different sizes of the product within the product line.
 In order to establish a business venture with an
entrepreneurial system an entrepreneur needs to take the
following steps
1. Search for business idea
2. Process the idea
3. Select the best idea
 What a project an entrepreneur should
have?

 The project an entrepreneur choose should be based

on SWOT analysis.

Strength

Weakness Threat
Opportunity
 Strengths:- are positive internal factors that
contribute to an individual’s ability to accomplish
his/her mission, goals and objectives
 Weaknesses:- are negative internal factors that
inhibit an individual’s ability to accomplish his/her
mission, goals and objectives.
An entrepreneur should try to magnify his
strengths and overcome or compensate for
his/her weaknesses.
 Opportunities:- are positive external options that
an individual could exploit to accomplish his/her
mission, goals and objectives.
 Threats:- are negative external forces that hinder
an individual from accomplishing his/her mission,
goals and objectives. These could arise due to
competition, change in government policy,
economic recession, technological advances etc.
Threats in the environment can arise from
competition, technological breakthroughs, change
in government
 Project classifications

➢ Quantifiable and Non-

Quantifiable projects

➢ Sectorial projects :-under

this the following projects
can be mentioned
 Agricultural sector
 Power sector
 Industry and mining
 Social service sector
 Transport and
communication
 CONTINU...

➢ Techno-economic project
 Factor intensity oriented classification(labor vs capital
intensive)
 Causation oriented classification
 Magnitude oriented classification
➢ Financial institution classification
 New project
 Expansion project
 Modernization project
 Diversification project
 Characteristics of small scale industry

 Closely held
 Personal character
 Limited scale of operation
 Indigenous resources
 Labour intensive
 Local area of operation
 Simple organization
END
 Chapter Three: Business planning

 A business plan is a written document prepared by the

individual entrepreneur or partners that describes the
goals and objectives of the business along with steps
necessary to achieve those goals.

 Business plan is also defined as a written summary of the

entrepreneur’s proposed venture, its operational and
financial details, its marketing opportunities & strategy,
and its manager’s skills and abilities.
 When business plans are produced

 We found that on average, the

most successful entrepreneurs
were those that wrote their
business plan between six and
12 months after deciding to
start a business
➢ At star-up of new business
➢ Buyout stage/business
purchase
➢ Ongoing review stage
➢ Major decision
Who is going to prepare business plans
 The business plan should be
prepared by:
Managers: Entrepreneurs.
 The person or persons
responsible for
implementing the plan
should be heavily
involved in its
Owners: development. Some people
hire consultants or have
employees draft the plan. If
you're going to be accountable
for the decisions that will be
based on the plan, then you
need to be involved in its
Lenders development
 Why business plans

 Managers: -Clarifying ideas and finding strength,

weakness, opportunity & threats.
 Owners:-Assessing feasibility & viability of business,
setting objective & budgets:
 Lenders: -Evaluate risk us. Benefits, appraise quality
of management
 Scope of Business plan

 Business plan includes information on the following

aspects:
 Economic/Market aspects: Economic
justification like market size, market
growth, market share.
 Technical aspects: Details on technology
needed, equipment and match their sources
 CONTINU....

 Financial aspects: Total investment, cost of

capital, ROI, source of capital, enterprise
contribution
 Production aspects: product, its design,
standard of quality, usage, production
aspect like production process, schedule,
technology.
 Managerial aspects: Qualification &
experience, commitment & planning
 Formats of a business plan

 Cover Sheet:
 Executive summary
 Company History
 Business Profile
 Business Strategy
 Description of the firm’s product
 marketing strategy
 Competitors Analysis
 Officers’ owners’ Resumes
 Plan of operation
 Financial data
 Loan Proposal
 Formats of a business plan

I) Cover Sheet

 Cover sheet is like the

cover page of the book.
It mentions the name
of the project, address
of the headquarters (if
any) and name and
address of the
promoters.
 Formats of a business plan

II) Executive Summary

 A careful presentation of
information should be done to
attract the attention of the
evaluators. It should be in brief (not
more than two or three pages) yet it
should have all the factual details
about the project that can improve
its marketability. It should briefly
describe the company; mention
some financial figures and some
salient features of the project.
Generating interest in the minds of
the readers is the prime motive of
the executive summary.
 Formats of a business plan

III) The Business (company history)

 This will give details about the

business concept. It will discuss
the objective of the business, a
brief history about the past
performance of the company (if
it is an old company), what
would be the form of ownership
(whether it would be a single
proprietor, partnership,
cooperative society or a company
under company law). It would
also label the address of the
proposed headquarters
 Formats of a business plan

IV) Funding Requirement

 Since the investors and financial

institutions are one of the key bodies
examining the business plan report
and it is one of the primary objectives
of preparing the business plan report,
a careful, well-planned funding
requirement should be documented.
It is also necessary to project how
these requirements would be
fulfilled. Debt equity ratio should be
prepared, which can give an
indication about how much finance
would the company require and how
it would like to fund the project
 Formats of a business plan

V) The Product or Services:

 A brief description of
product/services is given in
this subsection. It includes the
key features of the product, the
product range that would be
provided to the customers and
the advantages that the
product holds over and above
the similar products/
substitute products available
in the market. It also gives
details about the patents,
trademarks, copyrights,
franchises, and licensing
agreements.
 Formats of a business plan

VI) The Plan

 Now the
functional
plans for
marketing,
finance,
human
resources and
operations are
to be drawn
 Formats of a business plan

 Organizational Plan  1) Marketing Plan:

Marketing mix
 Financial Plan strategies are to be
drawn, based on the
 Operational Plan: market research.

 Marketing Plan
 Formats of a business plan
 2) Operational Plan: The operational
plan would give information about (i)
Plant location: why was a particular
location chosen? Is it in the vicinity of
the market, suppliers, labor or does it
have an advantage of government
subsidies for that particular location
or are there any other specific reasons
for choosing the particular location?,
(ii) Plan for material requirements,
inventory management and quality
control are also drawn for identifying
further costs and intricacies of the
business. Finally, the budget for
operational plan is also drawn
 3) Organizational Plan: The
organizational plan indicates
the pattern of flow of
responsibilities and duties
amongst people in the
organization, it provides
details about the manpower
plan that would be required to
put life into the business and it
would also enlist the details
about the laws that would be
governed in managing the
employees of the organization.
In the end the organizational
plan is also budgeted.
 Formats of a business plan
4) Financial Plan: The financial plan is
usually drawn for two to five years
for an existing company. For a new
organization the following
projections are drawn:
a) Projected Sales
b) Projected Income and Expenditure
Statement
c) Projected Break Even Point
d) Projected Profit and Loss Statement
e) Projected Balance Sheet
f) Projected Cash Flows
g) Projected Funds Flow
h) Projected Ratios
VII) Critical Risks
 The investors are
interested in knowing the
tentative risks to evaluate
the viability of the business
and to measure the risks
involved in the business.
This can further give
confidence to the investors
as they can calculate the
risks involved in the
business from their
perspectives as well
 Formats of a business plan

VIII) Exit Strategy IX) Appendix

The appendix can

 The exit strategies would
provide details about how
provide
the organization would be information about
dissolved, what would be the Curriculum
the share of each
stakeholder in case of Vitae of the owners,
winding-up of the Ownership
organization. It further Agreement and the
helps in measuring the
risks involved in investing like
 Common Mistakes in Business Plan
Preparation

 Single-Purpose use
 One-person commitment
 Being neglect
 Unworkable document
 Unbalanced application
 Disillusionment
 Too-action Oriented
 No Performance Standard
 Poor progress Control
 Early consumption
 Chapter four
Product and Service Concept

4.2.Product technology
4.1. product/service
development

 is the term used to describe  Most companies apparently

the complete process of
bringing a new product or
service in the market.
 this chapter explores the new
product development process
and at the same time sketch
outs the product development
procedure in reality where
consideration of real life
situation and consumer
insight are the main concern.
are introducing a wide variety
of smaller, more efficient, and
more intelligent products,
coupled with a leaner, more
efficient approach to
operation.
 The goal is to create products
and services by identifying an
emerging trend and to match
that trend with the right
technology and
understanding of the
purchasing dynamics.
 Organization's success is dependent on
customer satisfaction and delight.
 Customer satisfaction is achieved through
the development of product and service,
 which have all attributes required by the
customer.
 A success product or services do not only
have an attractive package design but
should be also able to provide robust
performance. Thus, product design must
be practical enough for production and
powerful enough to provide a competitive
advantage
 The essence of product design is to satisfy
customer and maximizes the value for the
customer at minimum cost
4.3 Product/Service Development Process

 Product development is the process

 Once the opportunity is
selected, and a
business model has
been designed the next
step is to develop a  Product/service development process is
commercial version of
the opportunity which
in most cases is either a
through which companies react to market
signals, respond to changes in customer
demand, adopt new technologies, foray
into new areas, and ensure continuous
growth. It is a core process in achieving
strategic objectives, renewal of the
company business model and deterring
competition from displacing the company
from its market position.
part of the overall new-venture creation
process. Even though there are many
models that advocate what the
product/service generation process should
look like, for this purpose we shall adopt
four distinct stages

product or a service
 four distinct stages

These stages can

be referred to as:

Idea Generation

Incubation

Implementation

Diffusion
 New Idea  Product
Generation Development
 Idea Screening  Market Testing
 Concept  Commercialization
Development and
Testing
 Marketing Strategy
Development
 Business Analysis
 4.4. Product protection

 Intellectual property is  intellectual property is

a legal definition of protected by such legal
ideas, inventions, means as patents,
artistic works and copyrights, and
other commercially trademark
viable products created registrations
out of one's own
mental processes
 Continu….

4.4.1 Patents

A patent is a contract  An entrepreneur who

between an inventor and
the government in which invents a new thing or
the government, in improves an existing
exchange for disclosure invention needs to get
of the invention, grants
the inventor the legal protection for her
exclusive right to enjoy invention through a
the benefits resulting' patent right.
from the possession of
the patent
 Continu…

 Utility Patent: A  Design Patent: This

utility patent protects patent protects the
any new invention or appearance of an object
functional and covers new,
improvements on original, ornamental,
existing inventions. and unobvious designs
for articles of
manufacture
 Continu…

A patent provides the What Can Be Patented Then?

owner
 with exclusive rights to
 hold,
 transfer, and
 license
the production and sale
of a product/process
Processes: Methods of
production, research, testing,
analysis, technologies with
new applications.
Machines: Products,
instruments, physical objects.
Manufactures:
Combinations of physical
matter not naturally found.
Composition of matter:
Chemical compounds,
medicines, etc.
 4.4.2 Trademarks

 A trademark may be a  These are distinctive

word, symbol, design, names, marks, symbols
or some combination of or motto identified
such, or it could be a with a company’s
slogan or even a product or service and
particular sound that
registered by
identifies the source or
government offices.
sponsorship of certain
goods or services
 Continu…

 Unlike the patent, a  Trademarks unlike

trademark can last patents are periodically
indefinitely, as long as renewed unless
the mark continues to invalidated by
perform its indicated cancellations,
function. abandonment, or other
technical
registration/renewal
issues
 Benefits of a Registered Trademark
➢ It provides notice to everyone
that you have exclusive rights
to the use of the mark
throughout the territorial
limits of the country.
➢ It entitles you to sue in federal
court for trademark
infringement, which can
result in recovery of profits,
damages, and costs.
➢ It establishes incontestable
rights regarding the
commercial use of the mark.
➢ It establishes the right to
deposit registration with
customs to prevent
importation of goods with a
similar mark.
➢ It entitles you to use the
notice of registration (®).
➢ It provides a basis for filing
trademark application in
foreign countries.
 4.4.3 Copyright

 Copyright is a right given  It protects original works of

to prevent others from authorship including
literary, dramatic, musical,
printing, copying, or and artistic works, such as
publishing any original poetry, novels, movies,
works of authorship. songs, computer software,
and architecture. They
 Copyrights provide pertain to intellectual
exclusive rights to property. Usually
creative individuals for copyrights are valid for the
the protection of literary life of the inventor plus a
or artistic productions. few decades.
 Chapter 5
Marketing and new venture development
Marketing Research
 it is the systematic gathering,
recording and analyzing of data
about problems related to the
marketing of goods and services.
 It is the function which links the
consumer [customer] and public to
the marketer through information-
information used to identify and
define marketing opportunities and
problems; generate, define, and
evaluate marketing actions; monitor
marketing performance; and
improve understanding of marketing
as a process.
Characteristics of a marketing
research
 Marketing research should be systematic
 Marketing research is a process
 Data may be available from difference
sources
 Marketing research may be applied to any
aspect of marketing that requires
information to aid decision making.
 Research findings and their
implementation must be communicated to
the appropriate decision matter.
 In conducting marketing research,
scientific methods should be followed. The
scientific method requires objectivity,
accuracy, and thoroughness.
 The Scope of Marketing Research

 □Market Research
 □Sales
analysis/Research
 □Consumer Research
 □Advertising Research
 The Marketing Research Proces

 □Problem definition
 □Examination of primary
& secondary data
 □Analysis of data
 □Making
Recommendation
 □Implementation of
findings
 Marketing Intelligence

 Marketing intelligence is the

systematic collection and
analysis of publicly available
information about competitors
and developments in the
marketplace.
 Techniques range from quizzing
the company’s own employees
and benchmarking competitors’
products to researching internet,
lurking around industry
tradeshows, and even routing
through rivals’ trash bins.
 Competitive Analysis

 □Competitive analysis is a widely

used approach for developing
strategies in many industries.
 □According to Porter, the nature of
competitiveness in a given industry
can be viewed as a composite of five
forces:
 1. Rivalry among competing firms
 2. Potential entry of new competitors
 3. Potential development of
substitute products
 4. Bargaining power of suppliers
 5. Bargaining power of consumers
 Marketing Strategies

 Marketing strategy refers to the marketing

logic by which the company hopes to
create customer value and achieve
profitable relationships.
 Companies know that they cannot
profitably serve all consumers in a given
market.
 Thus, each company must divide up the
total market, choose the best segment, and
design strategies for profitably serving
chosen segments. This process involves
market segmentation, target
marketing, differentiation(actually
differentiating the market offering
to create superior customer value),
and positioning
 Diversification Strategies

 In search of growth, a firm has four

options:
 1. Market Penetration: the firm can
stay with its base product or service,
and its existing market
 2. Product Development: the firm
can develop related or new products
for its existing market.
 3. Market Development: the firm
can develop related or new markets
for its existing products.
 4. Entry in to new Market: the firm
might try to move into related or
new markets with related or new
products.
 International Markets

 International marketing is
important because of the
economic theory of
comparative advantage.
 This theory states that each
country has natural
advantages over others in the
production of certain goods,
and therefore specialization
and the trading of surpluses
will benefit everybody
 Reasons for Internationalization

 Small or saturated
domestic markets
 Economies of scale
 International production
 Customer relationships
 Market diversification
 International
competitiveness
 Chapter 6: Organizing and Financing the
New Venture

 When establishing an
entrepreneurial team people
should look for
➢ Those who share the
same values and vision
for the company
➢ Those who have
complementary skills
➢ Those who have integrity
➢ Those who can manage
the risks of a small
business
The following are common errors in team
building

 Not considering experience

and qualification of each
member
 Putting together a team
whose members have
different goals
 Using only insiders in the
board of directors
 Using family members as
attorney and accountant
 Sources of Finance

Debt financing (short term) Equity Financing

 □Trade credit (Open-

book credit&  □Stock (Preferred &
Promissory notes) Common stock)
 □Loans (Secured  □Retained earnings
Loans & Unsecured
 □Sale of assets
Loans)
 □Commercial paper
 Debt as Long-term
financing
 Venture capital

Venture capital

 Venture capitalists may

be investment bankers
when they invest capital,
make loans, and give
management advice
intended to assist the
company to achieve
significant growth.
 Many companies
financed by venture
capitalists convert from
 Government program

 □In USA Small

Business
Administration loans
are available to smaller
businesses.
 Chapter 7: Managing Growth and
Transaction

 Preparing for the

Launch of the
Venture
 □Hiring New
Employees
 □Creating Awareness
of the New Venture
 Managing Early Growth of Venture

 □Motivating and
leading the team
 □Financial Control
 □Managing Cash Flow
 □Managing Assets
 □Managing Costs and
Profits
 □Taxes
 New Venture Expansion Strategies

 Mergers & acquisitions

 Licensing
 Franchising
 View publication