Bus Entr - Lecture Notes Updated

University of Mines and
Technology (UMaT)
Business
Entrepreneurship
Lecture Notes
CE EL ES GL GM MA MC MN MR PE 454
Complied by:
Akyene Tetteh (PhD)
Semester II (January 2018)
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Table of Contents
Chapter 1.............................................................................................................................................- 1 -
The History of Entrepreneurship ..........................................................................................................- 1 -
Introduction.........................................................................................................................................- 1 -
Learning Objectives ............................................................................................................................- 1 -
1.1 Concept of Entrepreneur ................................................................................................................- 1 -
1.1.1 Entrepreneur as Risk Bearer ....................................................................................................- 2 -
1.1.2 Entrepreneur as an Organizer ..................................................................................................- 2 -
1.1.3 Entrepreneur as an Innovator ...................................................................................................- 2 -
1.2 Other Definitions of Entrepreneur ..................................................................................................- 3 -
1.3 Characteristics of Entrepreneur ......................................................................................................- 3 -
1.4 Functions of an Entrepreneur .........................................................................................................- 5 -
1.4.1 Idea Generation .......................................................................................................................- 5 -
1.4.2 Determination of Business Objectives .....................................................................................- 5 -
1.4.3 Raising of Funds .....................................................................................................................- 5 -
1.4.4 Procurement of Machines and Materials ..................................................................................- 5 -
1.4.5 Market Research .....................................................................................................................- 5 -
1.4.6 Determining form of Enterprise ...............................................................................................- 6 -
1.4.7 Recruitment of Manpower .......................................................................................................- 6 -
1.4.8 Implementation of the Project .................................................................................................- 6 -
1.5 Risks Involved with Entrepreneurship ............................................................................................- 6 -
1.5.1 Financial Risk .........................................................................................................................- 6 -
1.5.2 Personal Risk ..........................................................................................................................- 6 -
1.5.3 Carrier Risk ............................................................................................................................- 6 -
1.5.4 Psychological Risk ..................................................................................................................- 6 -
1.6 Types of Entrepreneur ...................................................................................................................- 7 -
1.6.1 The Type of Business. .............................................................................................................- 7 -
1.6.1.1 Business Entrepreneur ......................................................................................................- 7 -
1.6.1.2 Trading Entrepreneur .......................................................................................................- 7 -
1.6.1.3 Industrial Entrepreneur .....................................................................................................- 7 -
1.6.1.4 Corporate Entrepreneur ....................................................................................................- 7 -
1.6.1.5 Agricultural Entrepreneur .................................................................................................- 7 -
1.6.2 The Use of Technology ...........................................................................................................- 7 -
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1.6.2.1 Technical Entrepreneur ....................................................................................................- 7 -
1.6.2.2 Non-Technical Entrepreneur .............................................................................................- 7 -
1.6.2.3 Professional Entrepreneur .................................................................................................- 7 -
1.6.3 Motivation ..............................................................................................................................- 8 -
1.6.3.1 Pure Entrepreneur.............................................................................................................- 8 -
1.6.3.2 Induced Entrepreneur .......................................................................................................- 8 -
1.6.3.3 Motivated Entrepreneur ....................................................................................................- 8 -
1.6.3.4 Spontaneous Entrepreneur ................................................................................................- 8 -
1.6.4 Entrepreneurial Activity ..........................................................................................................- 8 -
1.6.4.1 Novice .............................................................................................................................- 8 -
1.6.4.2 Serial Entrepreneur ...........................................................................................................- 8 -
1.6.4.3 Portfolio Entrepreneur ......................................................................................................- 8 -
1.6.5 Clearance Danhof’s Classifications .........................................................................................- 8 -
1.6.5.1 Innovative Entrepreneur ...................................................................................................- 8 -
1.6.5.2 Adoptive or Imitative Entrepreneur ..................................................................................- 9 -
1.6.5.3 Fabian Entrepreneurs........................................................................................................- 9 -
1.6.5.4 Drone Entrepreneurs.........................................................................................................- 9 -
1.6.6 The Scale of Enterprise ...........................................................................................................- 9 -
1.6.6.1 Small Scale ......................................................................................................................- 9 -
1.6.6.2 Large Scale ......................................................................................................................- 9 -
1.7 Distinction between Entrepreneur and Manager .............................................................................- 9 -
1.8 INTRAPRENEURS..................................................................................................................... - 10 -
1.9 ULTRAPRENEURS.................................................................................................................... - 11 -
Chapter Summary .............................................................................................................................. - 11 -
Chapter 2........................................................................................................................................... - 12 -
The Concept of Entrepreneurship....................................................................................................... - 12 -
Introduction....................................................................................................................................... - 12 -
Learning Objective ............................................................................................................................ - 12 -
2.1 Concept of Entrepreneurship ........................................................................................................ - 12 -
2.2 Innovation ................................................................................................................................... - 12 -
2.3 Types of Thinking ....................................................................................................................... - 13 -
2.3.1 Vertical Thinking .................................................................................................................. - 13 -
2.3.2 Creative Thinking ................................................................................................................. - 13 -
2.3.2.1 Barriers to Creative Thinking ......................................................................................... - 13 -
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2.3.2.2 Creative Thinking Techniques ........................................................................................ - 13 -
2.4 Risk Bearing ................................................................................................................................ - 15 -
2.5 Role of Entrepreneurship in Economic Development ................................................................... - 15 -
2.6 Barriers to Entrepreneurship ........................................................................................................ - 16 -
2.6.1 Environmental Barriers ......................................................................................................... - 16 -
2.6.2 Personal Barriers ................................................................................................................... - 17 -
2.6.3 Social Barriers ...................................................................................................................... - 17 -
Chapter Summary .............................................................................................................................. - 17 -
Chapter 3........................................................................................................................................... - 18 -
The Entrepreneurial Process .............................................................................................................. - 18 -
Introduction....................................................................................................................................... - 18 -
Learning Objective ............................................................................................................................ - 18 -
3.1 Critical Factors for Starting a New Enterprise .............................................................................. - 18 -
3.1.1 Personal Attributes ................................................................................................................ - 19 -
3.1.2. Environmental Factors ......................................................................................................... - 20 -
3.1.3. Other Sociological Factors ................................................................................................... - 20 -
3.2 Evaluating Opportunities for New Businesses .............................................................................. - 21 -
3.2.1 The Opportunity.................................................................................................................... - 21 -
3.2.1.1 The Customer ................................................................................................................. - 21 -
3.2.1.2 The Timing .................................................................................................................... - 21 -
3.2.2 The Entrepreneur and the Management Team ........................................................................ - 22 -
3.2.3 Resources ............................................................................................................................. - 22 -
3.3 The SWOT Analysis .................................................................................................................... - 22 -
3.3.1 Strengths and Weaknesses Analysis ...................................................................................... - 22 -
3.3.2 Opportunities and Threats Analysis ....................................................................................... - 23 -
Chapter Summary .............................................................................................................................. - 24 -
Chapter 4........................................................................................................................................... - 25 -
The Environment for Entrepreneurship .............................................................................................. - 25 -
Introduction....................................................................................................................................... - 25 -
Learning Objectives .......................................................................................................................... - 25 -
4.1 The Business Environment for Entrepreneurs ............................................................................... - 25 -
4.2 Political and Governmental Analysis ........................................................................................... - 26 -
4.2.1 Global and International Issues ............................................................................................. - 26 -
4.2.1.1 Trade Barriers and Tariffs. ............................................................................................. - 26 -
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4.2.1.2 Trade Agreements. ......................................................................................................... - 26 -
4.2.1.1 Political Risk. ................................................................................................................. - 26 -
4.2.2 National Issues ...................................................................................................................... - 26 -
4.2.2.1 Taxation ......................................................................................................................... - 26 -
4.2.2.2 Regulation ...................................................................................................................... - 27 -
4.2.2.3 Patent Protection ............................................................................................................ - 27 -
4.2.2.4 Government Spending .................................................................................................... - 27 -
4.2.3 Regional, and Local Issues .................................................................................................... - 27 -
4.2.3.1 Licensing ....................................................................................................................... - 27 -
4.2.3.2 Securities and Incorporation Laws .................................................................................. - 28 -
4.2.3.3 Incentives ....................................................................................................................... - 28 -
4.3 Stakeholder Analysis ................................................................................................................... - 28 -
4.3.1 Seven Dimensions................................................................................................................. - 28 -
4.4 Macroeconomic Analysis ............................................................................................................. - 29 -
4.4.1 Structural Change ................................................................................................................. - 29 -
4.4.2 Cyclical Change .................................................................................................................... - 29 -
4.5 Technological Analysis ................................................................................................................ - 29 -
4.5.1 Pure Invention....................................................................................................................... - 30 -
4.5.2 Process Innovation ................................................................................................................ - 30 -
4.6 Sociodemographic Analysis ......................................................................................................... - 30 -
4.6.1 Demographics ....................................................................................................................... - 30 -
4.6.2 Social Trends and Values ...................................................................................................... - 30 -
4.7 Ecological Analysis ..................................................................................................................... - 31 -
4.8 Competitor Analysis .................................................................................................................... - 31 -
4.8.1 Identifying the Competition .................................................................................................. - 31 -
4.8.2 Ranking Competitors ............................................................................................................ - 31 -
Chapter Summary .............................................................................................................................. - 31 -
Chapter 5........................................................................................................................................... - 32 -
Entrepreneurship Development, ......................................................................................................... - 32 -
The Role of Vision, Mission and Objective ........................................................................................ - 32 -
Introduction....................................................................................................................................... - 32 -
5.1 Defining Vision ........................................................................................................................... - 32 -
5.2 Components of Vision ................................................................................................................. - 33 -
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5.2.1 Core Ideology ....................................................................................................................... - 33 -
5.2.2 Envisioned Future ................................................................................................................. - 33 -
5.3 Importance of Vision ................................................................................................................... - 33 -
5.3.1 Key Elements that Make a Leader with Vision to Succeed..................................................... - 34 -
5.3.2 Ways of keeping Vision Alive ............................................................................................... - 34 -
5.4 Mission Statement ....................................................................................................................... - 35 -
5.4.1 Characteristics of Mission Statement ..................................................................................... - 35 -
5.4.2 Distinction between Vision and Mission ................................................................................ - 36 -
5.5 Organizational Goals and Objectives............................................................................................ - 36 -
5.5.1 Organizational Goals............................................................................................................. - 36 -
5.5.2 Organizational Objectives ..................................................................................................... - 37 -
5.5.2.1 Importance of objectives ................................................................................................ - 37 -
5.5.2.2 Characteristics of good objectives................................................................................... - 37 -
5.5.3 Distinction Between Objectives and Goals ............................................................................ - 38 -
Chapter Summary .............................................................................................................................. - 38 -
Chapter 6........................................................................................................................................... - 39 -
Forms of Business Ownership and Legal Implications ....................................................................... - 39 -
Introduction....................................................................................................................................... - 39 -
6.1 Forms of Business organization ................................................................................................... - 39 -
6.2 Forms of Business Ownership ...................................................................................................... - 40 -
6.2.1 Sole Proprietorship................................................................................................................ - 40 -
6.2.1.1 Advantages of Sole Proprietorship .................................................................................. - 40 -
6.2.1.2 Disadvantages of Sole proprietorship .............................................................................. - 41 -
6.2.2 Partnership ............................................................................................................................ - 41 -
6.2.2.1 Types of Partnership ....................................................................................................... - 42 -
6.2.2.2 Types of Partners ........................................................................................................... - 42 -
6.2.2.3 Advantages of Partnership .............................................................................................. - 43 -
6.2.2.4 Disadvantages of Partnership .......................................................................................... - 43 -
6.2.2.5 Dissolution orTermination of a Partnership ..................................................................... - 43 -
6.2.3 Limited Liability Companies ................................................................................................. - 43 -
6.2.3.1 Types of Limited Liability Companies ............................................................................ - 44 -
6.2.3.2 Private liability Companies ............................................................................................. - 44 -
6.2.3.3 Advantages of Limited Liability Companies ................................................................... - 44 -
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6.3.3.4 Disadvantages of Limited Liability Companies ............................................................... - 44 -
6.2.4 Cooperative .......................................................................................................................... - 45 -
6.2.4.1 Types of Cooperative ..................................................................................................... - 45 -
Chapter Summary .............................................................................................................................. - 45 -
Chapter 7........................................................................................................................................... - 46 -
Business Plan .................................................................................................................................... - 46 -
Introduction....................................................................................................................................... - 46 -
7.1 The Importance of Business Plan ................................................................................................. - 46 -
7.2 The Business Plan Planning Process ............................................................................................ - 46 -
7.3 The Story Model .......................................................................................................................... - 47 -
7.4 Business Plan Structure................................................................................................................ - 47 -
7.4.1 The Cover Page..................................................................................................................... - 47 -
7.4.2 Executive Summary .............................................................................................................. - 48 -
7.4.3 Table of Content ................................................................................................................... - 48 -
7.4.4 Customer, Industry and Competitor Analysis ........................................................................ - 48 -
7.4.4.1 Customer........................................................................................................................ - 48 -
7.4.4.2 Industry.......................................................................................................................... - 48 -
7.4.4.3 Competitor Analysis ....................................................................................................... - 48 -
7.4.5 Company and Product Description ........................................................................................ - 49 -
7.4.6 Marketing Plan ..................................................................................................................... - 49 -
7.4.6.1 Target Market Strategy ................................................................................................... - 49 -
7.4.6.2 Product/Service Strategy ................................................................................................ - 49 -
7.4.6.3 Pricing Strategy .............................................................................................................. - 50 -
7.4.6.4 Distribution Strategy ...................................................................................................... - 50 -
7.4.6.5 Marketing Communications Strategy .............................................................................. - 50 -
7.4.6.6 Sales Strategy ................................................................................................................. - 50 -
7.4.6.7 Sales and Marketing Forecasts ........................................................................................ - 51 -
7.4.7 Operations Plan ..................................................................................................................... - 51 -
7.4.7.1 Operations Strategy ........................................................................................................ - 51 -
7.4.7.2 Scope of Operations ....................................................................................................... - 51 -
7.4.7.3 Ongoing Operations: ...................................................................................................... - 52 -
7.4.8 Development Plan ................................................................................................................. - 52 -
7.4.8.1 Development Strategy .................................................................................................... - 53 -
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7.4.8.2 Development Timeline: .................................................................................................. - 53 -
7.4.9 Team .................................................................................................................................... - 53 -
7.4.9.1 Team Members and their Roles ...................................................................................... - 53 -
7.4.9.2 Compensation and Ownership ........................................................................................ - 54 -
7.4.10 Critical Risks ...................................................................................................................... - 54 -
7.4.10.1 Market Interest and Growth Potential ........................................................................... - 54 -
7.4.10.2 Competitor Actions and Retaliation .............................................................................. - 54 -
7.4.10.3 Time and Cost of Development .................................................................................... - 54 -
7.4.10.4 Operating Expenses ...................................................................................................... - 55 -
7.4.10.5 Availability and Timing of Financing ........................................................................... - 55 -
7.4.11 Offering .............................................................................................................................. - 55 -
7.4.12 Financial Plan ..................................................................................................................... - 55 -
7.4.13 Appendices ......................................................................................................................... - 55 -
Chapter Summary .............................................................................................................................. - 56 -
Chapter 8........................................................................................................................................... - 57 -
Sources of Business Finance .............................................................................................................. - 57 -
Introduction....................................................................................................................................... - 57 -
8.1 Acquisition and Allocation of Funds ............................................................................................ - 57 -
8.2 Sources of Funds for Venture Operation ...................................................................................... - 58 -
8.2.1 The Personal and Family ....................................................................................................... - 58 -
8.2.2 Internal Sources .................................................................................................................... - 58 -
8.2.3 External Sources ................................................................................................................... - 59 -
8.2.3.1 Short Term Finance ........................................................................................................ - 59 -
8.2.3.2 Medium term Finance: ................................................................................................... - 60 -
8.2.3.3 Long term finance: ......................................................................................................... - 61 -
8.3 Reasons why entrepreneurs will require Loan facilities ................................................................ - 61 -
Chapter Summary .............................................................................................................................. - 62 -
Chapter 9........................................................................................................................................... - 63 -
Business Accounting ......................................................................................................................... - 63 -
9.1 Cash Register .............................................................................................................................. - 63 -
9.2 Cash Inflow and Cash Outflow .................................................................................................... - 63 -
9.2.1 Cash Inflow .......................................................................................................................... - 63 -
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9.2.2 Cash Outflow ........................................................................................................................ - 64 -
9.3 Recording Cash Inflow and Outflow ............................................................................................ - 65 -
9.4 Unit of Sale, Unit Cost and Unit Price .......................................................................................... - 67 -
9.5 Types of Cost .............................................................................................................................. - 68 -
9.5.1 Start-up Cost ......................................................................................................................... - 68 -
9.5.2 Operational Costs, ................................................................................................................. - 69 -
9.5.2.1 Fixed Cost ...................................................................................................................... - 69 -
9.5.2.1 Variable Cost ................................................................................................................. - 69 -
Chapter Summary .............................................................................................................................. - 69 -
Chapter 10......................................................................................................................................... - 70 -
Project Management .......................................................................................................................... - 70 -
Introduction....................................................................................................................................... - 70 -
10.1 Characteristics of a Project ......................................................................................................... - 70 -
10.2 Classification of Projects............................................................................................................ - 70 -
10.3 Project Life Cycle ...................................................................................................................... - 72 -
10.4 Phases of Project Management ................................................................................................... - 74 -
10.5 Objectives of Project Management ............................................................................................. - 74 -
10.6 Roles and Responsibilities of Project Manager ........................................................................... - 74 -
10.7 Need of Project Management ..................................................................................................... - 75 -
10.8 Project Appraisal and Evaluation ............................................................................................... - 75 -
10.8.1 Elements of Project Appraisal ............................................................................................. - 75 -
10.9 Project Report ............................................................................................................................ - 76 -
Chapter Summary .............................................................................................................................. - 76 -
References......................................................................................................................................... - 77 -
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Chapter 1
The History of Entrepreneurship
Introduction
In this chapter, students will learn about the genesis of entrepreneur, the features and various
definitions of entrepreneur. The characteristics of entrepreneurs, distinction between entrepreneur and
manager and types of entrepreneur. Besides the chapter introduces the concept of intrapreneur,
ultrapreneur and the difference between intrapreneur and entrepreneur. Understanding this unit will
provide student with a basis for understanding subsequent units.
Learning Objectives
❒ To introduce the concept of entrepreneur.
❒ Present the classifications of entrepreneurs.
❒ Discuss characteristics and functions of entrepreneur.
❒ Differentiate between entrepreneur and manager.
❒ Introduce the concepts of intrapreneur and ultrapreneur.
1.1 Concept of Entrepreneur

The word ‘entrepreneur’ is derived from French word ‘Entreprendre’ which means ‘to
undertake.’
Its evolution is as follows:
EARLY PERIOD: The earliest definition of the entrepreneur as a go-between is Marco Polo. He
tried to establish trade route to the Far East. He used to sign a contract with a venture capitalist to
sell his goods. The capitalist was the risk bearer. The merchant adventurer took the role of trading.
After his successful selling of goods and completing his trips, the profits were shared by the
capitalist and the merchant.
MIDDLE AGES: The term entrepreneur was referred to a person who was managing large
projects. He was not taking any risk but was managing the projects using the resources provided.
An example is the cleric who is in charge of great architectural works such as castles, public
buildings, cathedrals etc.
17th CENTURY: An entrepreneur was a person who entered into a contractual arrangement with
the Government to perform a service or to supply some goods. The profit was taken (or loss was
borne) by the entrepreneur.
18th CENTURY: It was Richard Cantillon, French Economist, who applied the term entrepreneur
to business for the first time. He is regarded by some as the founder of the term. He defined an
entrepreneur as a person who buys factor services at certain prices with a view to sell them at
uncertain prices in the future
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19th CENTURY: The entrepreneurs were not distinguished from managers. They were viewed
mostly from the economic perspective. He takes risk, contributes his own initiative and skills. He
plans, organizes and leads his enterprise.
20th CENTURY: During the early 20th century Dewing equated the entrepreneur with business
promoter and viewed the promoter as one who transformed ideas into a profitable business. It was
Joseph Schumpeter who described an entrepreneur as an innovator. According to him an
entrepreneur is an innovator who develops untried technology.
21th CENTURY: Research Scientists live De Bone pointed out that it is not always important that
an individual comes up with an entirely new idea to be called an entrepreneur, but if he is adding
incremental value to the current product or service, he can rightly be called an entrepreneur.
According to Cantillon “An entrepreneur is a person who buys factor of services at certain prices
with a view to selling its product at uncertain prices”. Entrepreneur, according to Cantillon, an
entrepreneur is a bearer of risk, which is non-insurable. Schumpeter gave a central position to the
entrepreneur who believed that an entrepreneur was a dynamic agent of change; that an
entrepreneur was a catalyst who transformed increasingly physical, natural and human resources
into correspondingly production possibilities. Since then the term entrepreneur is used in various
ways and various views. These views are broadly classified into three groups, namely risk bearer,
organizer and innovator.
1.1.1 Entrepreneur as Risk Bearer

Richard Cantilon defined entrepreneur as an agent who buys factors of production at certain prices
in order to combine them into a product with a view to selling it at uncertain prices in future. He
illustrated a farmer who pays contractual incomes, which are certain to land owners and laborers,
and sells at prices that are ‘uncertain’. He includes merchants also who make certain payments in
expectation of uncertain receipts. Hence both of them are risk-bearing agents of production. Knight
described entrepreneur to be a specialized group of persons who bear uncertainty. Uncertainty is
defined as risk, which cannot be insured against and is incalculable. He made distinction between
certainty and risk. A risk can be reduced through the insurance principle, where the distribution of
outcome in a group of instances is known, whereas uncertainty cannot be calculated.
1.1.2 Entrepreneur as an Organizer

According to Baptist Say “an entrepreneur is one who combines the land of one, the labor of
another and capital of yet another, and thus produces a product. By selling the product in the
market, he pays interest on capital, rent on land and wages to laborers and what remains is his/her
profit”. Say made distinction between the role of capitalist as a financer and the entrepreneur as an
organizer. This concept of entrepreneur is associated with the functions of coordination,
organization and supervision.
1.1.3 Entrepreneur as an Innovator

Joseph A. Schumpeter in 1934 assigned a crucial role of ‘innovation’ to the entrepreneur. He
considered economic development as a dynamic change brought by entrepreneur by instituting
new combinations of factors of production, i.e. innovations. The introduction of new combination
according to him, may occur in any of the following forms; (a) Introduction of new product in the
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market, (b) Use of new method of production, which is not yet tested, (c) Discovery of new source
of raw materials etc.
Hence the concept of entrepreneur is associated with three elements risk-bearing, organizing and
innovating. Hence an entrepreneur can be defined as a person who tries to create something
new, organizes production and undertakes risks and handles economic uncertainty involved
in enterprise.
1.2 Other Definitions of Entrepreneur

1. According to F.A. Walker: “Entrepreneur is one who is endowed with more than average
capacities in the task of organizing and coordinating the factors of production, i.e. land, labour
capital and enterprises”.
2. Marx regarded entrepreneur as social parasite.
3. Peter F. Drucker defines an entrepreneur as one who always searches for change, responds to
it and exploits it as an opportunity. Innovation is the basic tool of entrepreneurs, the means by
which they exploit change as an opportunity for a different business or service.
4. According to E.E. Hagen: “An entrepreneur is an economic man who tries to maximize his
profits by innovation, involve problem solving and gets satisfaction from using his capabilities on
attacking problems”.
5. Frank Young defined entrepreneur as a change agent.
6. International Labour Organization (ILO) defines entrepreneurs as those people who have the
ability to see and evaluate business opportunities, together with the necessary resources to take
advantage of them and to initiate appropriate action to ensure success.
1.3 Characteristics of Entrepreneur

Entrepreneur is a person of telescopic faculty drive and talent who perceives business opportunities
and promptly seizes them for exploitation. Entrepreneur needs to possess competencies to perform
entrepreneur activities. Table 1.1 gives entrepreneurial characteristics.
Table 1.1: Personal Entrepreneurial Characteristics
Core Competencies Entrepreneurial Activities

1. Initiative Does things before asked for or forced to by events and acts to extend
the business to new areas, products or services.
2. Perceiving opportunities Identifies business opportunities and mobilizes necessary resources
to make good an opportunity.
3. Persistence Takes repeated or different actions to overcome obstacles.
4. Information gathering Consults experts for business and technical advice. Seeks
information of client or supplier’s needs. Personally, undertakes
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market research and make use of personal contacts or information
networks to obtain useful information.
5. Concern for quality work States desire to produce or sell a better-quality product or service.
Compares his performance favorably with that of others.
6. Commitment to Makes a personal sacrifice or expands extraordinary effort to
contractual obligations complete a job, accepts full responsibility in completing a job
contract on schedule, pitches in with workers or work in their place
to get the job done and shows utmost concern to satisfy the customer.
7. Efficiency orientation Finds ways and means to do things faster, better and economically.
8. Planning Various inter-related jobs are synchronized according to plan.
9. Problem solving Conceives new ideas and finds innovative solutions.
10. Self-confidence Makes decisions on his own and sticks to it in spite of initial
setbacks.
11. Experience Possesses technical expertise in areas of business, finance,
marketing, etc.
12. Self-critical Aware of personal limitations but tries to improve upon by learning
from his past mistakes or experiences of others and is never
complacent with success.
13. Persuasion Persuades customers and financiers to patronize his business.
14. Use of influence Develops business contacts, retains influential people as agents and
strategies restricts dissemination of information in his possession.
15. Assertiveness Instructs, reprimands or disciplines for failing to perform.
16. Monitoring Develops a reporting system to ensure that work is completed and
quality norms.
17. Credibility Demonstrates honesty in dealing with employees, suppliers and
customers even if it means a loss of business.
18. Concern for employee Expresses concern for employees by responding promptly to their
welfare grievances
19. Impersonal relationship Places long-term goodwill over short-term gain in a business
relationship.
20. Expansion of capital Reinvests a greater portion of profits to expand capital of the firm.
base
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21. Building product image Concerned about the image of his products among consumers and
does everything possible to establish a niche for his products in the
market.
1.4 Functions of an Entrepreneur

An Entrepreneur has to perform a number of functions right from the generation of idea up to the
establishment of an enterprise. He also has to perform functions for successful running of his
enterprise. Entrepreneur has to perceive business opportunities and mobilize resources like man,
money, machines, materials and methods. The following are the main functions of an
Entrepreneur.
1.4.1 Idea Generation

The first and the most important function of an Entrepreneur is idea generation. Idea generation
implies product selection and project identification. Idea generation is possible through vision,
insight, keen observation, education, experience and exposure. This needs scanning of business
environment and market survey.
1.4.2 Determination of Business Objectives

Entrepreneur has to state and lay down the business objectives. Objectives should be spelt out in
clear terms. The Entrepreneur must be clear about the nature and type of business, i.e. whether
manufacturing concern or service-oriented unit or a trading business so that he can very well carry
on the venture in accordance with the objectives determined by him.
1.4.3 Raising of Funds

All the activities of the business depend upon the finance and hence fund raising is an important
function of an Entrepreneur. An Entrepreneur can raise the fund from internal source as well as
external source. He should be aware of different sources of funds. He should also have complete
knowledge of government sponsored schemes like MASLOC in which he can get government
assistance in the form of seed capital, fixed and working capital for his business.
1.4.4 Procurement of Machines and Materials

Another important function of an Entrepreneur is to procure raw materials and machines.
Entrepreneur has to identify cheap and regular sources of raw materials which will help him to
reduce the cost of production and face competition boldly. While procuring machineries he should
specify the technical details and the capacity. He should consider the warranty, after sales service
facilities etc. before procuring machineries.
1.4.5 Market Research

Market research is the systematic collection of data regarding the product which the Entrepreneur
wants to manufacture. Entrepreneur has to undertake market research persistently to know the
details of the intending product, i.e. the demand for the product, size of the market/customers, the
supply of the product, competition, the price of the product etc.
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1.4.6 Determining form of Enterprise
Entrepreneur has to determine form of enterprise depending upon the nature of the product, volume
of investment etc. The forms of ownership are sole proprietorship, partnership, Joint Stock
Company, co-operative society etc. Determination of ownership right is essential on the part of the
entrepreneur to acquire legal title to assets.
1.4.7 Recruitment of Manpower

To carry out this function an Entrepreneur has to perform the following activities.
(a) Estimating man power requirement for short term and long term.
(b) Laying down the selection procedure.
(c) Designing scheme of compensation.
(d) Laying down the service rules.
(e) Designing mechanism for training and development.
1.4.8 Implementation of the Project

Entrepreneur has to develop schedule and action plan for the implementation of the project. The
project must be implemented in a time bound manner. All the activities from the conception stage
to the commissioning stage are to be accomplished by him in accordance with the implementation
schedule to avoid cost and time overrun. He has to organize various resources and coordinate
various activities. This implementation of the project is an important function of the Entrepreneur.
1.5 Risks Involved with Entrepreneurship

Entrepreneurship involves the following types of risks.
1.5.1 Financial Risk

The entrepreneurship has to invest money in the enterprise on the expectation of getting in return
sufficient profits along with the investment. He may get attractive income or he may get only
limited income. Sometimes he may incur losses.
1.5.2 Personal Risk

Starting a new venture uses much of the entrepreneur’s energy and time. He or she has to sacrifice
the pleasures attached to family and social life.
1.5.3 Carrier Risk

This risk may be caused by a number of reasons such as leaving a successful career to start a new
business or the potential of failure causing damage to professional reputation.
1.5.4 Psychological Risk

Psychological risk is the mental agonies an entrepreneur bears while organizing and running a
business venture some entrepreneurs who have suffered financial catastrophes have been unable
to bounce back.
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1.6 Types of Entrepreneur
Today various types of Entrepreneurs are found engaged in different types of activities, not only
in industrial activities but also in agriculture and commercial activities. Today we can recognize
Entrepreneur in industry, service and business sectors which are technically called as ISB sectors.
Entrepreneurs are classified in a number of ways as discussed below.
1.6.1 The Type of Business.

Entrepreneurs are classified into different types. They are
1.6.1.1 Business Entrepreneur

He is an individual who discovers an idea to start a business and then builds a business to give
birth to his idea.
1.6.1.2 Trading Entrepreneur

He is an entrepreneur who undertakes trading activity, i.e. buying and selling manufactured goods.
1.6.1.3 Industrial Entrepreneur

He is an entrepreneur who undertakes manufacturing activities.
1.6.1.4 Corporate Entrepreneur

He is a person who demonstrates his innovative skill in organizing and managing a corporate
undertaking.
1.6.1.5 Agricultural Entrepreneur

They are entrepreneurs who undertake agricultural activities such as raising and marketing of
crops, fertilizers and other inputs of agriculture. They are called agripreneurs.
1.6.2 The Use of Technology

Entrepreneurs are of the following types.
1.6.2.1 Technical Entrepreneur

They are extremely task oriented. They are of craftsman type. They develop new and improved
quality goods because of their craftmanship. They concentrate more on production than on
marketing.
1.6.2.2 Non-Technical Entrepreneur

These entrepreneurs are not concerned with the technical aspects of the product. They develop
marketing techniques and distribution strategies to promote their business. Thus, they concentrate
more on marketing aspects.
1.6.2.3 Professional Entrepreneur

He is an entrepreneur who starts a business unit but does not carry on the business for long period.
He sells out the running business and starts another venture.
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1.6.3 Motivation
Entrepreneurs are of the following types:
1.6.3.1 Pure Entrepreneur

They believe in their own performance while undertaking business activities. They undertake
business ventures for their personal satisfaction, status and ego. They are guided by the motive of
profit.
1.6.3.2 Induced Entrepreneur

He is induced to take up an entrepreneurial activity with a view to avail some benefits from the
government. These benefits are in the form of assistance, incentives, subsidies, concessions and
infrastructures.
1.6.3.3 Motivated Entrepreneur

These entrepreneurs are motivated by the desire to make use of their technical and professional
expertise and skills. They are motivated by the desire for self-fulfillment.
1.6.3.4 Spontaneous Entrepreneur

They are motivated by their desire for self-employment and to achieve or prove their excellence
in job performance. They are natural entrepreneurs.
1.6.4 Entrepreneurial Activity

They are classified as follows:
1.6.4.1 Novice
A novice is someone who has started his/her first entrepreneurial venture.
1.6.4.2 Serial Entrepreneur

A serial entrepreneur is someone who is devoted to one venture at a time but ultimately starts
many. He repeatedly starts businesses and grows them to a sustainable size and then sells them
off.
1.6.4.3 Portfolio Entrepreneur

A portfolio entrepreneur starts and runs a number of businesses at the same time. It may be a
strategy of spreading risk or it may be that the entrepreneur is simultaneously excited by a variety
of opportunities.
1.6.5 Clearance Danhof’s Classifications

Danhof classifies Entrepreneur into four types.
1.6.5.1 Innovative Entrepreneur

This category of Entrepreneur is characterized by smell of innovativeness. This type of
Entrepreneur, sense the opportunities for introduction of new ideas, new technology, discovering
of new markets and creating new organizations. Such Entrepreneur can work only when certain
level of development is already achieved and people look forward to change and improve. Such
-8-
Entrepreneur are very much helpful for their country because they bring about a transformation in
life style.
1.6.5.2 Adoptive or Imitative Entrepreneur

Such entrepreneurs imitate the existing entrepreneur and set their enterprise in the same manner.
Instead of innovation, may just adopt the technology and methods innovated by others. Such types
of entrepreneur are particularly suitable for under-developed countries for imitating the new
combination of production already available in developed countries.
1.6.5.3 Fabian Entrepreneurs

Fabian entrepreneurs are characterized by great caution and skepticism, in experimenting any
change in their enterprises. They imitate only when it becomes perfectly clear that failure to do so
would result in a loss of the relative position in the enterprises.
1.6.5.4 Drone Entrepreneurs

Such entrepreneurs are conservative or orthodox in outlook. They always feel comfortable with
their old-fashioned technology of production even though technologies have changed. They never
like to get rid of their traditional business, traditional machineries and traditional system of
business even at the cost of reduced returns.
1.6.6 The Scale of Enterprise

1.6.6.1 Small Scale
These entrepreneurs do not possess the necessary talents and resources to initiate large-scale
production and to introduce revolutionary technological changes.
1.6.6.2 Large Scale

They possess the necessary financial and other resources to initiate and introduce new
technological changes. They possess talent and research and development facilities.
1.7 Distinction between Entrepreneur and Manager

Often the two terms namely entrepreneur and manager are considered as synonym. However, the
two give different meaning. The major points of distinction between the two are presented in table
1.2.
Table 1.2: Distinction between Entrepreneur and Manager

Points Entrepreneur Manager
1. Motive The main motive of an Main motive of a manager is to render
entrepreneur is to start a venture services in an enterprise already set by
for his personal gratification. someone else.
2. Status Owner Servant
3. Risk Assumes risk and uncertainty Manager does not bear any risk
involved in enterprise.
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4. Rewards Profits, which are highly uncertain Salary which is certain and fixed.
and not fixed.
5. Innovation Entrepreneur himself thinks over A manager simply executes plans
what and how to produce goods to prepared by the entrepreneur.
meet the changing needs of the
customers. Hence, he acts as
innovator / change agent.
6. Qualification An entrepreneur needs to possess A manager needs to possess distinct
qualities and qualifications like qualifications in terms of sound
high achievement motive, knowledge in management theory and
originality in thinking, foresight, practice.
risk bearing ability etc.
1.8 INTRAPRENEURS
A new breed of entrepreneurs is coming to the fore in large industrial organizations. They are
called as ‘Intrapreneurs’. In large organizations, the top executives are encouraged to catch hold
of new ideas and then convert them into products through research and development activities
within the framework of organizations. It is found in developed countries that such Intrapreneurs
in large number are leaving the organization and started their own enterprises. Many of such
Intrapreneurs have become exceedingly successful in their ventures. The difference between
entrepreneurs and Intrapreneurs is given in table 1.3.
Table 1.3: Difference between Entrepreneurs and Intrapreneurs

Entrepreneurs Intrapreneurs
1. Dependency He is independent in his operation. He is dependent on the
entrepreneurs i.e. owner.
2. Raising of funds He himself raises funds required for He does not raise funds for the
the organization. organization.
3. Risk Entrepreneurs bears the risk He does not fully bear the risk
involved in the business. involved in the organization.
4. Operation An entrepreneur operates from An intrapreneur operates from
outside. inside.
Entrepreneurs converts the ideas Intrapreneurs takes the
into viable opportunities. responsibility of creating
innovation.
Entrepreneurs takes the profit of the
business.
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He is provided with a variety of
perquisite for his innovation.
1.9 ULTRAPRENEURS
Through the entrepreneurship has been there for a long time, its performance and execution evolve
with the prevalent economic conditions of the day. The entrepreneurs of the 90s are a different
breed in relation to their immediate predecessors from the 80s. Thus, the path of successful
entrepreneurship is ever changing as the art and science of entrepreneurship, is taking a new-colors.
Now-a-days new products and services are conceived, created, tested, produced and marketed very
quickly and with great speed. Therefore, today’s entrepreneurs need to have different mindset
about establishing and operating a company. This mindset is what is called ultrapreneuring.
Chapter Summary
An entrepreneur is a person who buys factor services at certain prices with a view to selling its
products at uncertain prices. Entrepreneur is a dynamic agent of change. An entrepreneur is a
person of telescopic faculty, drive and talent who perceives business opportunities and promptly
seizes them for exploitation. Entrepreneur needs to possess some core competencies like
innovative, perceiving opportunities, persistence, information gathering, concern for quality,
planning, problem solving etc. a clear distinction can be made between an entrepreneur and a
manager. An entrepreneur has to perform various functions like idea generation, determination of
business objectives, raising of funds, procurement of machines and materials, market research,
deciding forms of ownership, recruitment of man power etc. entrepreneurs can be classified based
on various factors. Intrapreneurs take the responsibility of innovation.
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Chapter 2
The Concept of Entrepreneurship
Introduction
In this chapter, students will learn about the concept and definition of entrepreneurship, innovative
ways of thinking and the roles and barriers of entrepreneurship. Understanding of this unit concludes
the foundation for understanding subsequent units.
Learning Objective
❒ To introduce the concept of entrepreneurship
❒ To introduce innovative thinking
❒ Present the role of entrepreneurship in economic development.
❒ Present the barriers to entrepreneurship.
2.1 Concept of Entrepreneurship

What is meant by entrepreneurship? The concept of entrepreneurship was first established in the
1700s, and the meaning has evolved ever since. Many simply equate it with starting one’s own
business.
“Entrepreneurship is the attempt to create value through recognition of business

opportunity, the management of risk taking appropriate to the opportunity and through the
communicative and management skills to mobilize human, financial and material resources
necessary to bring a project to fruition”.
Thus, from the definitions above we can see that while defining the concept ‘entrepreneurship’,
strong emphasis is laid on:
❖ Creation of organizations.
❖ Recognition of business opportunity (Innovation).
❖ Management of Risk.
❖ Mobilization of human, financial and material resources.
2.2 Innovation
Innovation is doing something new or something different. Entrepreneurs constantly look out to
do something different and unique to meet the changing requirements of the customers.
Entrepreneurs need not be inventors of new products or new methods of production or service, but
may possess the ability of making use of the inventions for their enterprises. For example, in order
to satisfy the changing needs of the customers, MELCOM has introduced customer loyalty cards,
Achimota shopping mall has introduced daily raffle to reward customer i.e. paying the daily
shopping bill of customers, STC new booking system online and introduction of internet buses,
Uber taxi services in Ghana. Hence entrepreneurship needs to apply inventions on a continuous
basis to meet customers changing demands for products.
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2.3 Types of Thinking
2.3.1 Vertical Thinking
A way of solving problems using conventional logical process. This type of thinking encourages
individuals to employ a sequential approach to solving problem where a creative and
multidirectional response are seen as imprudent. Vertical thinkers prefer to rely on external data
and facts in order avoid failure or counterfactual thinking.
Some characteristics of vertical thinking;

➢ is logical
➢ results in unique or few solutions
➢ is convergent
➢ is more natural for most of us
2.3.2 Creative Thinking

Creative thinking also refers to as lateral thinking is using reasoning that is not immediately
obvious and involving ideas that may not be obtainable by using only traditional step-by-step logic.
The term was promulgated in 1967 by Edward de Bono. He cites as an example the Judgment of
Solomon, where King Solomon resolves a dispute over the parentage of a child by calling for the
child to be cut in half, and making his judgment according to the reactions that this order receives
(Anon, 2018). The issue with creative thinking is that almost by definition any idea that has not
already been examined is going to sound crazy. But a good solution will probably sound crazy –
at first.
Some characteristics of creative thinking;

➢ is imaginative
➢ generates many possible solutions
➢ is divergent
2.3.2.1 Barriers to Creative Thinking

Creative thinking is hindering by fear of:
❖ making mistakes;
❖ looking foolish;
❖ being criticized;
❖ being outcast; and
❖ being associated with taboos.
These reasons hindered subordinates from coming up with new ideas. If asked at a meeting for
ideas to solve a particular problem, most are unlikely to do so. They are simply afraid of looking
foolish.
2.3.2.2 Creative Thinking Techniques

Many techniques exist to stimulate creative thinking and whilst the following list is not exhaustive,
the examples below can work well when coming up with new industry.
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2.3.2.2.1 Brainstorming
The brainstorming process is as follows:
(i) Organize the team, materials and scribe
(ii) Appoint a chairperson
(iii) State the problems we are trying to solve
(iv) Restate the problem a number of times
(v) Brainstorm the restated problems and record the ideas
(vi) When the session slows down, invite the ‘wildest idea’
(vii) At the end of the session, classify all ideas then evaluate
(viii) Do not eliminate ideas too quickly
To be successful, brainstorming sessions need a good chairperson. It is vital that no discussions

are allowed on any idea during the session, the idea is just recorded. The chairperson’s role is to
keep the ideas coming, often fast and furious, with people striking sparks off each other. The
evaluation is the hard part, but don’t strike out the crazy ones too quickly – they might just be the
key to a good solution.
2.3.2.2.2 The Six Thinking Hats

Design options can generate much discussion during the evaluation process. This needs to be
controlled if we are to make good use of our time. It is easy to take sides, to defend our own ideas
and to attack what we may see as opposing ideas. This may not be constructive. An approach that
helps to avoid confrontation and which channels our critical analysis is the ‘Six Thinking Hats’
approach (Dr Edward de Bono). Using this technique, a group can evaluate an idea and can argue
both the pros and cons whilst remaining as objective as possible. A chairperson should formally
facilitate the process. An individual may ‘wear’ a hat to produce a comment without any possible
attached stigma - ‘wearing the black hat for a moment I don’t think that this will work…’. The
person who is always critical without being constructive has to become constructive (or lose face)
when asked by the chair - ‘now let us wear the yellow hat and see what good things may result
from this idea’.
Caution!!! The process does need to be facilitated. Like any of these methods, it may not be useful
and may even be counter-productive unless managed correctly.
The hats…
1. White hat - Neutral - (think of white paper)
Information - What do we know? What information do we want? What do we need?
2. Red hat - Fire, Warmth
Feelings, emotion, intuition, hunches
3. Black hat - Caution
Legality, judgement, morality
4. Yellow hat - Sunshine
Positive, optimism, benefits
5. Green hat - Growth
New ideas, new slants, options, opportunities
6. Blue hat - Sky
Overview, control of the process, agenda, next step, action plans, conclusions
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2.4 Risk Bearing
Giving birth to a new enterprise involves risk. Doing something new and different is also risky.
The enterprise may earn profit or incur loss, which depends on various factors like changing
customer preferences, increased competition, shortage or raw materials etc. An entrepreneur needs
to be bold enough to assume the risk involved and hence an entrepreneur is a risk-bearer not risk-
avoider. This risk-bearing ability keeps him to try on and on which ultimately makes him to
succeed.
Though the terms entrepreneur and entrepreneurship are used interchangeable, yet they are
conceptually different. The relationship between the two is indicated in fig. 2.1 and table 2.1.
Fig. 2.1: Concept of Entrepreneurship
Table 2.1: Relationships between entrepreneur and entrepreneurship

Entrepreneur Entrepreneurship
Person Process
Organizer Organization
Innovator Innovation
Risk-bearer Risk-bearing
Motivator Motivation
Creator Creation
Visualizes Vision
Leader Leading
Imitator Imitation
2.5 Role of Entrepreneurship in Economic Development

Economic development essentially means a process of upward change whereby the real per capita
income of a country increases for a long period of time. The economic history of the presently
developed countries, for example, USA and Japan tends to support the facts that the economy is
an effect for which the entrepreneurship is the cause. The crucial role played by the entrepreneurs
- 15 -
in the western countries has made the people of underdeveloped countries conscious of the
significance of entrepreneurship in economic development. Parson and Smelter described
entrepreneurship as one of the two necessary conditions for economic development, the other
being increased output of capital. The important role that an entrepreneurship plays in the
economic development of an economy can be put in a more systematic manner as follows.
1. Entrepreneurship promotes capital formation by mobilizing the idle saving of the public.
2. It provides immediate large-scale employment. Thus, it helps to reduce unemployment in the
country.
3. It provides balanced regional development.
4. It helps reduce the concentration of economic power.
5. It stimulates the equitable redistribution of wealth, income and even political power in the
interest of the country.
6. It encourages effective resources mobilization of capital and skill which might otherwise remain
unutilized and idle.
7. It also induces backward and forward linkages which stimulated the process of economic
development in the country.
8. It promotes country’s export trade i.e. an important ingredient for economic development.
2.6 Barriers to Entrepreneurship

A large number of entrepreneurs particularly in the small enterprises fail due to several problems
and barriers. The greatest barrier to entrepreneurship is the failure of success. These barriers to
entrepreneurship are classified into three as follows:
2.6.1 Environmental Barriers

The following are the important environmental barriers to entrepreneurship:
1) Non-Availability of Raw Material: Non-availability of raw materials especially during peak
season is one of the obstacles inhibiting entrepreneurship. This leads to competition for raw
material.
2) Lack of Skilled Labor: This is the most important resource in any organization. Unfortunately,
desired manpower may not be available in an organization. This is either due to lack of skilled
labor or due to lack of committed or loyal employees in the organization.
3) Lack of Good Machinery: Good machines are required for the production of goods, because
of rapid technological developments, machines become obsolete very soon. Small entrepreneurs
find it difficult to get large amount of cash for installing modern machinery.
4) Lack of Infrastructure: Lack of infrastructure facilities are a major barrier to the growth of
entrepreneurship particularly in under developed and developing economies. The infrastructural
facilities include land and building, adequate and cheap power, proper transportation, water and
drainage facilities etc.
5) Lack of Fund: There are various methods by which an entrepreneur arranges for funds, e.g.,
own savings, borrowings from friends and relatives, banks and other financial institutions. Many
people do not enter into entrepreneurial activities because of lack of funds.
6) Other Environmental Barriers: Lack of business education, Lack of motivation from
government, corruption in administration, high cost of production etc. are the other environmental
barriers that inhibit the growth of entrepreneurship in underdeveloped countries.
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2.6.2 Personal Barriers
Personal barrier are those barriers that are caused by emotional blocks of an individual. Some of
the personal barriers may be outlined as below:
1) Unwillingness to Invest Money: Even though people have money, still they do not come in
entrepreneurship. They are not willing to take the risk of investing money in business.
2) Lack of Confidence: Many people thing that they lack what it takes to become an entrepreneur.
They feel that they could not master all the skills. Thus, most people are reluctant to become
entrepreneurs.
3) Lack of Motivation: When an individual starts a new venture, he is filled with enthusiasm and
drive to achieve success. But when he faces the challenges of real business or bears loss, or his
ideas don’t work, he loses interest or motivation.
4) Lack of Patience: The desire to achieve success in the first attempt or to become rich very soon
is the prime motivating factor of modern youth. When such dreams do not come true, they lose
interest. This gradually drives to fail in business.
5) Inability to Dream: Entrepreneurs, who are short on vision or become satisfied with what they
achieve, sometimes lose interest in further expansion/growth of business.
2.6.3 Social Barriers

The social attitude inhibits many people even from thinking of starting a business. The important
social barriers are as follows.
1) Low Status: The society thinks that entrepreneurs are the people who exploit the society. Thus,
the attitude of the society towards entrepreneurs is not positive.
2) Custom and Tradition of People: Most people want a real job. Even parents who are
entrepreneurs wouldn’t like their children to be entrepreneurs. Thus, lack of support from society
and family hinder the growth of entrepreneurs.
Chapter Summary
Entrepreneurship is purposeful activity of an individual or a group of associated individuals,
undertaken to initiate, maintain or earn profit by production and distribution of economic goods or
services. It is an act of starting and running an enterprise. There are many barriers to the
entrepreneurship. They may be lack of viable concept, lack of market knowledge, lack of skills,
lack of seed capital etc.
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Chapter 3
The Entrepreneurial Process
Introduction
An entrepreneur is someone who perceives an opportunity and creates an organization to pursue
it. The entrepreneurial process includes all the functions, activities, and actions that are part of
perceiving opportunities and creating organizations to pursue them. This chapter equip students
with entrepreneurial process to start their own enterprises by looking at critical factors for starting
a new enterprise and how to evaluate new business opportunities.
Learning Objective
❒ Present critical factors for starting a new enterprise.
❒ Present ways to evaluate new business opportunities.
3.1 Critical Factors for Starting a New Enterprise

We will begin by examining the entrepreneurial process (see Figure 3.1). These are the factors—
personal, sociological, organizational, and environmental—that give birth to a new enterprise and
influence how it develops from an idea to a viable enterprise. A person gets an idea for a new
business through either a deliberate search or a chance encounter. Whether or not he or she decides
to pursue that idea depends on factors such as alternative career prospects, family, friends, role
models, the state of the economy, and the availability of resources.
Fig. 3.1. A Model of The Entrepreneurial Process

There is almost always a triggering event that gives birth to a new organization. Perhaps the
entrepreneur has no better career prospects. For example, Melanie Stevens was a high school
dropout who, after working a number of minor jobs, had run out of career options. She decided
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that making canvas bags in her own tiny business was better than earning low wages working for
someone else. Within a few years, she had built a chain of retail stores throughout Canada.
Sometimes the person has been passed over for a promotion or even laid off or fired. Howard Rose
had been laid off four times as a result of mergers and consolidations in the pharmaceutical
industry, and he had had enough of it. So, he started his own drug packaging business, Waverly
Pharmaceutical. Tim Waterstone founded Waterstone’s bookstores after he was fired by W.H.
Smith. Ann Gloag quit her nursing job and used her bus-driver father’s $40,000 severance pay to
set up Stagecoach Bus Company with her brother, exploiting legislation deregulating the United
Kingdom’s bus industry. Jordan Rubin was debilitated by Crohn’s disease when he invented a diet
supplement that restored his health; he founded a company, Garden of Life, to sell that diet. Noreen
Kenny was working for a semiconductor company and could not find a supplier to do precision
mechanical work, so she launched her own company, Evolve Manufacturing Technologies, to fill
that void.
3.1.1 Personal Attributes

Entrepreneurs have a higher internal locus of control, which means that they have a stronger desire
to be in control of their own fate. This has been confirmed by many surveys in which entrepreneurs
said independence was a very important reason for starting their businesses. The main reasons they
gave were independence, financial success, self-realization, recognition, innovation, and roles (to
continue a family tradition, to follow the example of an admired person, to be respected by friends).
The most important characteristics of a successful entrepreneur- The ten (10) Ds
Table 3.1. The Ten (10) Ds

Ds Attributes
Dream Entrepreneurs have a vision of what the future could be like for them and their
businesses. And, more important, they have the ability to implement their
dreams.
Decisiveness They don’t procrastinate. They make decisions swiftly. Their swiftness is a
key factor in their success.
Doers Once they decide on a course of action, they implement it as quickly as
possible.
Determination They implement their ventures with total commitment. They seldom give up,
even when confronted by obstacles that seem insurmountable.
Dedication They are totally dedicated to their businesses, sometimes at considerable cost
to their relationships with friends and families. They work tirelessly.
Devotion Entrepreneurs love what they do. It is that love that sustains them when the
going gets tough. And it is love of their product or service that makes them so
effective at selling it.
Details The entrepreneur must be on top of the critical details.
- 19 -
Destiny They want to be in charge of their own destiny rather than dependent on an
employer.
Dollars Getting rich is not the prime motivator of entrepreneurs. Money is more a
measure of success. Entrepreneurs assume that if they are successful, they
will be rewarded.
Distribute Entrepreneurs distribute the ownership of their businesses with key
employees who are critical to the success of the business.
3.1.2. Environmental Factors

Perhaps as important as personal attributes are the external influences on a would-be entrepreneur.
It’s no accident that some parts of the world are more entrepreneurial than others. The most famous
region of high-tech entrepreneurship is Silicon Valley. Because everyone in Silicon Valley knows
someone who has made it big as an entrepreneur, role models abound. It seems as if everyone in
the valley catches that bug sooner or later and wants to start a business. To facilitate the process,
there are venture capitalists who understand how to select and nurture high-tech entrepreneurs,
bankers who specialize in lending to them, lawyers who understand the importance of intellectual
property and how to protect it, landlords who are experienced in renting real estate to fledgling
companies, suppliers who are willing to sell goods on credit to companies with no credit history,
and even politicians who are supportive. Knowing successful entrepreneurs at work or in your
personal life makes becoming one yourself seem much more achievable. Indeed, if a close relative
is an entrepreneur, you are more likely to want to become an entrepreneur yourself, especially if
that relative is your mother or father.
3.1.3. Other Sociological Factors

Besides role models, entrepreneurs are influenced by other sociological factors. Family
responsibilities play an important role in the decision to start a company. It is a relatively easy
career decision to start a business when you are 25 years old, single, and without many personal
assets and dependents. Another factor that determines the age at which entrepreneurs start
businesses is the trade-off between the experience that comes with age and the optimism and
energy of youth. As you grow older you gain experience, but sometimes when you have been in
an industry a long time, you know so many pitfalls that you are pessimistic about the chance of
succeeding if you decide to go out on your own. Someone who has just enough experience to feel
confident as a manager is more likely to feel optimistic about an entrepreneurial career. Perhaps
the ideal combination is a beginner’s mind with the experience of an industry veteran. A beginner’s
mind looks at situations from a new perspective, with a can-do spirit.
When they actually start a business, entrepreneurs need a host of contacts, including customers,
suppliers, investors, bankers, accountants, and lawyers. So, it is important to understand where to
find help before embarking on a new venture. A network of friends and business associates can be
of immeasurable help in building the contacts an entrepreneur will need. They can also provide
human contact, which is important because opening a business can be a lonely experience for
anyone who has worked in an organization with many fellow employees.
- 20 -
3.2 Evaluating Opportunities for New Businesses
Let’s assume you believe that you have found a great opportunity for starting a new business. How
should you evaluate its prospects? Or, perhaps more importantly, how will an independent person
such as a potential investor or a banker rate your chances of success? There are three crucial
components for a successful new business: the opportunity, the entrepreneur (and the management
team, if it’s a high-potential venture), and the resources needed to start the company and make it
grow. These are shown schematically in Figure 3.2 in the basic Timmons framework. At the center
of the framework is a business plan, the result of integrating the three basic ingredients into a
complete strategic plan for the new business. The parts must fit together well.
Fig 3.2. Three driving forces (Based on Jeffry Timmons’ framework)
3.2.1 The Opportunity

Perhaps the biggest misconception about an idea for a new business is that it must be unique. Too
many would-be entrepreneurs are almost obsessed with finding a unique idea. Then, when they
believe they have it, they are haunted by the thought that someone is just waiting to steal it from
them. Almost any idea a would-be entrepreneur might have will also have occurred to others. So,
the idea in itself is not what is important. In entrepreneurship, ideas really are a dime a dozen.
Developing the idea, implementing it, and building a successful business are the important things.
3.2.1.1 The Customer

Many would-be entrepreneurs fail to think carefully enough about who makes up the market for
their product or service. They should have a very specific answer to this question: ‘‘Can you give
me the names of prospective customers?’’ If they have a consumer product—let’s say it’s a new
shampoo—they should be able to name the buyers at different chains of drug stores in their area.
If they are unable to name several customers immediately, they simply have an idea, not a market.
There is no market unless customers have a real need for the product—a proven need rather than
a hypothetical need in the mind of a would-be entrepreneur.
3.2.1.2 The Timing

Time plays a crucial role in many potential opportunities. Most entrepreneurs should avoid fads or
any window of opportunity they believe will be open for a very brief time because it inevitably
- 21 -
means they will rush to open their business, sometimes before they have time to gather the
resources they will need. That can lead to costly mistakes.
3.2.2 The Entrepreneur and the Management Team

Regardless of how right the opportunity may seem to be, it will not become a successful business
unless it is developed by a person with strong entrepreneurial and management skills. What are
the important skills?
First and foremost, entrepreneurs should have experience in the same industry or a similar one.
Starting a business is a very demanding undertaking indeed. It is no time for on-the-job training.
If would-be entrepreneurs do not have the right experience, they should either get it before starting
their new venture or find partners who have it. Without relevant experience, the odds are stacked
against the novice in any industry.
Second to industry know-how is management experience, preferably with responsibility for

budgets or, better yet, accountability for profit and loss. It is even better if a would-be entrepreneur
has a record of increasing sales and profits. Of course, we are talking about the ideal entrepreneur.
Very few people measure up to the ideal. That does not mean they should not start a new venture.
But it does mean they should be realistic about the size of the business they should start.
3.2.3 Resources
Successful entrepreneurs are frugal with their scarce resources. They keep overheads low,
productivity high, and ownership of capital assets to a minimum. By so doing, they minimize the
amount of capital they need to start their business and make it grow.
3.3 The SWOT Analysis

SWOT entails the objective analysis of a business’s Strengths, Weaknesses, Opportunities and
Threats. In order to identify its strengths, weaknesses, opportunities and threats, an organization
has to carry out internal evaluation (strength, weakness) and external evaluation (opportunities,
threats).
The Internal Evaluation starts with: The identification of the profit contribution of each area,
followed by allocation of resource, determination of risks involved, variety reduction, realistic
allocation of costs and the assessment of company resources. External evaluation starts with the
determination of market standing, determination of competitors’ strengths and weaknesses,
assessment of the vulnerability of the business’ main products to substitutes, assessment of the
effects of economic changes on the business, inter firm comparisons and Stock Market Valuation
in terms of an assessment of the company’s vulnerability to takeover (Dixon-Ogbechi, 2003).
3.3.1 Strengths and Weaknesses Analysis

This involves scanning the internal environment of the business in order to identify its strengths
and weaknesses. The entrepreneur needs to evaluate the strengths and weaknesses of the business
periodically. Also, the entrepreneur can assess the internal environment of the business by
critically looking at the internal factors in terms of the 5S, namely: Skills, Strategy, Staff, Structure,
Systems and Shared Values (Dibb et al., 1991). To do this effectively the entrepreneur needs to
- 22 -
ask him/herself and answer questions pertaining to the 5S (five ‘S’) in terms of their strengths and
weaknesses by developing questionnaires to ask questions pertaining to major internal
environmental factors such as:
Skills:
What skills do the organizational members possess?
What are the distinctive competencies of the organization?
Strategy:
Does your business have a clear vision and mission?
Are your business objectives/goals derived from its mission?
Does your business have plans?
Do you follow the laid down plans of the business as scheduled?
Does your business have clear strategies to operationalize its policies?
What skills do the organizational members possess?
What are the distinctive competencies of the organization?
Staff:
Does the business have qualified staff for the relevant positions?
Are the staff rightly placed?
Does the business have adequate number of personnel to man the various positions?
Structure:
Does the business have an organizational structure or organogram?
What type of organization structure does your business adopt?
Are there clear lines of reporting and communication?
Systems:
Does your organization have a system?
What kind of systems (e.g. Accounting, Quality Control, and Inventory) does your business have
in place? (Anon., 2010).
If the answers to these questions are positive/or the factors are present, then you record them as
strengths and if the answers are negative/ the factors are absent, then you record them as
weaknesses. After this, each factor is rated as to whether it is a major strength, minor strength,
neutral factor, minor weakness, or major weakness (Business-Plan, 2010).
3.3.2 Opportunities and Threats Analysis

This involves scanning the external environment of the business in order to identify the
Opportunities and Threats. The entrepreneur can assess the external environment of the business
by critically looking at the opportunities and threats emanating from changes in the major external
environmental factors. For instance, opportunities in the technological environment could be
availability of advanced technology, developments in Information Technology like the advent of
the GSM; opportunities in the Political/Legal environment could be favorable government
policies, tax holidays; opportunity in the Demographic environment could be great market
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demand; opportunities in the Economic environment could be growing export market increased
consumer spending and growing industry.
Positive seasonal influences are an opportunity in the natural environment; opportunities in the
other environment could be change in consumers taste in favour of your product and
Intermediaries’ cooperation. Examples of threats in some external environmental factors can come
from direct competitors, indirect competitors, consumers, substitute products or services and
suppliers, customers brand switching and innovations by competitors (Dixon-Ogbechi, 2003;
Business-Plan, 2010).
The entrepreneur can classify the overall attractiveness of a business once he/she has conducted a
thorough opportunities and threats analysis. To this effect, threats could be classified according to
their seriousness and probability of occurrence. To evaluate its opportunities, the business needs
to operate a reliable Management Information System (MIS). The information obtained will enable
the entrepreneur know if the business is ideal (i.e. it is high in major opportunities and low in major
threats); is speculative (i.e. it is high in both major opportunities and threats); mature business (i.e.
it is low in major opportunities and threats) and troubled (i.e. it is low in opportunities and high in
threats). An effective opportunity and threat analysis is advantageous to the entrepreneur; it will
enable the entrepreneur make decisions on whether the business should limit itself to those
opportunities where it now possesses the required strengths or should consider better opportunities
where it might have to acquire or develop certain strengths (Dibb et al., 1991; Aluko et al., 1998;
Dixon-Ogbechi, 2003; Business-Plan, 2010).
Chapter Summary
What distinguishes successful entrepreneur from less successful ones is the ability to spot an
opportunity for a high-potential venture and then to develop it into a thriving business. As the
business grows, the successful entrepreneur is able to attract key management team members, to
motivate employees, to find more and more customers and keep them coming back, and to build
increasingly sophisticated relationships with financiers.
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Chapter 4
The Environment for Entrepreneurship
Introduction
In this chapter describes the characteristics and segments of the macroenvironment, as well as
the characteristics and segments of the industry or competitive environment.
Learning Objectives
❒ To introduce business environment for entrepreneur.
❒ Present the macroenvironment which entrepreneurs operates within i.e. political and
government, stakeholders, macroeconomy, technology, sociodemography and ecology.
❒ How to analyze entrepreneur’s competitors.
4.1 The Business Environment for Entrepreneurs

What does the world look like to the entrepreneur? What parts of that world are important for
making entrepreneurial decisions and finding opportunities for the new venture? Figure 3.1 shows
the business environment as it might appear to an entrepreneur. The innermost circle represents
the firm and its resources. This is the core of the entrepreneur’s world; it holds the least amount of
uncertainty for the entrepreneur. The next circle holds all the elements that are part of the firm’s
industry, but are not part of the firm itself. There is more uncertainty here. The largest circle
represents everything that is not part of the firm’s industry, but is still important for the new
venture. This is the macroenvironment in which the firm operates. This domain has the most
uncertainty. Uncertainty is a barrier to entrepreneurship, but some people are willing to bear this
uncertainty. There are six identifiable segments within the macroenvironment:
1. Politics and government

2. Stakeholders
3. Macroeconomy
4. Technology
5. Sociodemography
6. Ecology
Fig. 4.1. The Business Environment for Entrepreneurs
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4.2 Political and Governmental Analysis
Politics is the art of the possible. Analyzing the political scene will give the entrepreneur a feeling
for what is possible, what is probable, and what is unlikely. The political and governmental
segment of the business environment is the arena in which different interest groups compete for
attention and resources to advance their own interests, establish their own values, and achieve their
own goals. It is where particular individuals and groups exercise political power. To a large extent,
the individual entrepreneur is forced to accept the current political environment of the new venture.
4.2.1 Global and International Issues

Although the entrepreneur may think that his or her business is strictly local, this is true of very
few businesses. We are all interconnected in a global economy, and events that occur thousands
of miles away can influence our businesses. The main global issues are trade barriers, tariffs,
political risks, and bilateral and multilateral relationships. All of these issues are interrelated.
4.2.1.1 Trade Barriers and Tariffs.

Trade barriers and tariffs hinder the free flow of resources across national boundaries. They are
the result of economic interest groups within a country attempting to prevent transnational
competition. The trend today is to reduce trade barriers worldwide.
4.2.1.2 Trade Agreements.

Since World War II, and especially since the end of the Cold War, the trend has been toward
increased trade agreements. These country-to-country and regional agreements have set the
economic rules businesses follow when they are interacting with other businesses within the
cosigning group of nations.
4.2.1.1 Political Risk.

The potential for instability, corruption, and violence in a country or region is known as political
risk. Political risk is an important variable, because in areas where it is high, resources are difficult
and costly to procure, protect, and dispose of. Further, the risk of governmental nationalization
and the legal appropriation of firms is always present. Even in a stable democracy, people can vote
to take away other people’s money.
4.2.2 National Issues

Political and governmental analysis at the national level refers to taxation, regulation, government
spending, and patent protection.
4.2.2.1 Taxation
The primary political factor facing the entrepreneur is taxation. Governments require large
amounts of money to promote the public good and carry out the will of the people (stakeholders).
However, taxation reduces the cash available to a firm for reinvestment. Thus, the entrepreneur
may invest or reinvest not the economically rational amount, but a somewhat lower amount—his
or her after-tax earnings.
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4.2.2.2 Regulation
Government agencies control the flow of resources to firms and the property rights of business
owners through federal regulation. The government creates these agencies in response to a special-
interest group or a group of stakeholders to protect its interests, values, and goals. Regulation is
not inherently bad; we all belong to one special- interest group or another. The effects of regulation
on business, however, are sometimes negative. Regulatory agencies impose significant costs on
firms in forms such as paperwork, testing and monitoring, and compliance. These costs may or
may not be recoverable through higher prices.
4.2.2.3 Patent Protection

National governments grant patents and enforce patent laws. A patent is legal property that enables
its holder to prevent others from using a product or service for a specified period of time. There
are three types of patents:
1. Utility patents, which cover new articles, processes, machines, and techniques
2. Design patents, which cover new and original ornamental designs for manufactured products
3. Plant patents, which cover various forms of life, and genetically-engineered organisms
4.2.2.4 Government Spending

In most countries, the national government is the largest purchaser and consumer of goods and
services. The government is therefore a large market, and it displays preferences for certain
products, services, and suppliers. These preferences are influenced by pressures from the various
interest groups, stakeholders, and political organizations that constantly lobby the government. At
times, the political winds seem to favor defense spending and new entrants into defense and related
industries. At other times, government priorities may work to the benefit of building infrastructure
or developing social programs. In the latter case, the beneficiaries would include construction
contractors, consultants, and related service industries.
4.2.3 Regional, and Local Issues

State, regional, or local tax policies can create opportunities or disadvantages for the entrepreneur.
At the state level, three other areas affect business: licensing, securities and incorporation laws,
and economic development and incentives.
4.2.3.1 Licensing
Licenses are economic privileges granted to individuals and firms that enable them to legally
conduct a business. Not all businesses require licenses, but many do. At one time, licenses were
valuable franchises and a way of limiting entry and raising quality within a particular industry.
Today, however, state and local authorities often consider licenses a revenue source and do little
to monitor the performance level of the licensees. The entrepreneur must remain watchful of
current licensing regulations and potential changes to upgrade enforcement that could affect the
new venture.
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4.2.3.2 Securities and Incorporation Laws
Many security regulations and incorporation laws are written and enforced by the states.
Entrepreneurs need to employ lawyers and accountants to ensure that the firm complies with all
state regulations.
4.2.3.3 Incentives
State and local authorities control the granting of economic-development incentives and tax
abatements to new or old businesses relocating within their jurisdiction. These incentives can be a
powerful stimulus for new firms. They may include subsidized job-training programs, real estate
improvements and favorable real estate tax treatment, and improved infrastructure (e.g., roads and
interchanges, sidewalks, water and sewer improvements). Local governments also control zoning
ordinances and laws, which determine how property can be used and developed. Every firm has a
local component. Entrepreneurs can scan and monitor these developments, especially when
considering where to locate.
In summary, the entrepreneur must be knowledgeable about a variety of political issues,

particularly those related to securing, protecting, and disposing of resources. The effect of political
power on property rights is of primary concern.
4.3 Stakeholder Analysis

Stakeholders and stakeholder analysis. Stakeholder analysis helps the entrepreneur identify which
groups and interests are friendly to the new venture and which are hostile. It enables the
entrepreneur to see whether any groups have an immediate affinity for the product or service, and
whether this affinity can be translated into a market. The analysis also reveals trends regarding
consumer attitudes and behavior for the new venture’s products, competing products, and
complementary goods.
4.3.1 Seven Dimensions

Stakeholders’ influences can be both positive and negative. Not all stakeholders are alike.
Stakeholders may vary along the following seven dimensions:
Resource capability: The degree to which stakeholders have access to resources that help influence
businesses or agencies that can be categorized into (financial, physical, technical, reputational,
human, and organizational; rare, valuable, hard to copy, and nonsubstitutable).
Extent of influence: The degree to which the interest group is able to promote its agenda.
Degree of organization: The extent to which stakeholders are organized for collective action
locally, regionally, and nationally. Some stakeholders are very well organized and influential.
Nature of interest: The type of agenda the interest group has: a specific agenda (e.g., cleaning up
toxic waste sites) or a general agenda (e.g., making business responsive to people’s needs).
Duration: The length of time the interest group has been active and its potential staying power.
Sometimes stakeholders are interested in issues that prove to be fads or of passing interest. This is
especially true in areas such as consumer goods, travel, and leisure industries.
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Degree of manifestation: The ability of the interest group to take its case directly to the public or
to the media.
Bases of influence: The extent to which an interest group can gain support from other interest
groups that share an affinity for similar causes.
4.4 Macroeconomic Analysis

The macroeconomy is the total of all goods and services produced, distributed, sold, and
consumed. Where does all of this activity take place? It happens at the global, national, and local
levels. The entrepreneur should analyze all three macroeconomies, but the time he or she spends
on any one of them should be proportional to the potential impact on the firm’s performance.
Macroeconomic change can occur at any of the three geographic levels discussed previously.
There are two types of macroeconomic change: structural change and cyclical change.
4.4.1 Structural Change

Structural changes in the macroeconomy are major, permanent shifts of resources and customers
from one sector of the economy to another. As these shifts occur, the financial capital, physical
resources, and employees diminish in an industry that is fading, and flow to the emerging industry.
An example of recent structural change can be found in the newspaper industry.
4.4.2 Cyclical Change

The second type of macroeconomic change is cyclical change. The macroeconomy enjoys periods
of growth followed by periods of contraction. These alternating time periods form what is called
the business cycle. Business cyclicality is the degree to which the new firm follows the trend of
the business cycle.
A venture that grows and contracts as the economy does is procyclical. An example is the
automobile industry and its suppliers. People buy more cars when their wages are high and rising
and they feel their jobs are secure. Thus, when the economy is good, car sales are good, and when
it is poor, car sales are slow.
A countercyclical industry has just the opposite pattern. Sales are better when the economy is
poor and wages are down. To a large extent, the fast-food industry is countercyclical because,
when people are economizing on eating out, they tend to choose lower-cost restaurants.
A venture that is unaffected by the business cycle is acyclical. For example, consumer staple
industries are frequently acyclical because people need soap and soup, shampoo, and light bulbs
regardless of how the economy is performing.
4.5 Technological Analysis

Technology can be defined as “the branch of knowledge that deals with industrial arts, applied
science, and engineering,” and “a process, an invention, or a method.” The first part of the
definition tells us that technological analysis is concerned with the “what” of science.
Technological analysis, then, requires scanning and monitoring from the time of basic research
through product development and commercialization. The second part of the definition implies
- 29 -
that technology is also concerned with the “how” of science. Therefore, a complete technological
analysis also includes scanning of operations and manufacturing techniques. Technological change
takes place in two ways: (1) through pure invention (and scientific discovery), and (2) through
process innovation.
4.5.1 Pure Invention

Pure invention is the creation of something that is radically different from existing technologies
or products. Because pure invention is different, it has certain characteristics that are economically
interesting. An invention may have no competitors at its birth, thereby giving a monopoly to the
individuals who hold its legal rights. The disadvantage at this time is that the invention also has
no market. Further, there may never be a market for the commercial version of the invention. The
combination of the monopolist upside with the no-ready-market downside makes the economic
aspect of invention risky because the outcomes are potentially so variable.
4.5.2 Process Innovation

After an invention has been successfully commercialized, the second type of technological change,
process innovation, becomes dominant. Whereas pure invention is radical and revolutionary,
carrying with it the potential to create new industries, process innovation is incremental and
evolutionary. Its purpose is to make existing industries more efficient. Process innovation refers
to the small changes in design, product formulation and manufacturing, materials, and service
delivery that firms make to keep their product up-to-date and their costs down. The critical question
for the entrepreneur should be: Which innovations have the best chance of success?
4.6 Sociodemographic Analysis

The sociodemographic phase of business environment analysis has two closely-related aspects:
demographics and social trends (sometimes referred to as lifestyle trends). The interaction that
results when these elements combine is known as popular culture. Enormous business
opportunities in consumer and durable goods, retailing and services, leisure and entertainment, and
housing and construction are found in a society’s popular culture.
4.6.1 Demographics
Demographic changes are a major source of long-term social change. Demography is the study
of trends in human populations: the size of the population and its various subgroups; the
population’s age structure, geographic distribution, and ethnic and racial mix; and the distribution
of income and wealth within the population. Demographic change refers to changes in any of these
variables as well as changes in the relationships between them. Demography is destiny, because
all of these factors form the essence of consumer demand, industrial capacities, and purchasing
power. Markets are created from demographic analysis.
4.6.2 Social Trends and Values

Social trends refer to the modes and manners in which people live their lives. Lifestyles reflect
people’s tastes and preferences from an economic standpoint. Lifestyle-related variables that affect
new venture creation include household formation, work modes and labor-force participation rates,
education levels and attainments, patterns of consumption, and patterns of leisure.
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4.7 Ecological Analysis
Ecological analysis is the study of the current state of the ecology. The ecology pertains to such
issues as pollution and waste disposal, recycling of usable materials, protection of wildlife and
wilderness preserve areas, workplace safety and hazards, and overall quality of life. Ecological
analysis cuts across all the other areas already discussed: politics and government, the
macroeconomy, technology, and lifestyle. Ecological issues are bottomline concerns; the
entrepreneur must be as accountable for them as any other businessperson or citizen. Ecological
awareness goes beyond simply addressing the manufacturing issues of pollution and waste. The
entrepreneur is part of the world movement toward sustainable development that is, meeting the
needs of the current generation without compromising the needs of future generations.
4.8 Competitor Analysis

The new entrant in an industry must perform a detailed analysis of its competition.
4.8.1 Identifying the Competition

The first step the firm must take in identifying the competition is to determine who the competition
is. This step is the equivalent of asking, what business am I in? and what needs does my product
or service fulfill for the customer? The competition consists of firms that fill the same customer
needs as the new venture, or have the potential to serve those customers. How can the presence of
these competitors be determined? Current competitors can be identified in a number of ways. A
direct method is to ask customers (of existing firms) or potential customers (of new ventures)
where else they would consider procuring the product or service
4.8.2 Ranking Competitors

The next step is to evaluate a set of relevant current and potential competitors based on the qualities
of their resources. This analysis will give a picture of the competitors’ relative strengths and
weaknesses and will present a comparative framework, enabling the entrepreneur to position the
new venture. Weaker competitors may be attacked head-on. Competitors with characteristics
similar to those of the new entrant may be candidates for alliances that would strengthen both
firms. Or the entrepreneur may be required to position the new venture around powerful
competitors to avoid head-to-head conflict.
Chapter Summary
The entrepreneur must understand the macroenvironment, for it establishes the political, economic,
technological, sociodemographic, and ecological rules under which the new firm is created and
must operate. The entrepreneur must be able to scan and monitor the macroenvironment and to
recognize the contingencies and constraints the macroenvironment imposes. This analysis,
however, is not enough for the firm’s success. The entrepreneur must be able to forecast and assess
development, using as a knowledge resource the four attributes required for competitive
advantage. Also required is the ability to marshal the resources necessary to overcome the
constraints or effectively deal with the contingencies.
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Chapter 5
Entrepreneurship Development,
The Role of Vision, Mission and Objective
Introduction
This chapter prepares entrepreneur in terms of how to model their vision, mission and objectives.
The unit defines vision and its components, the importance of vision, ways of keeping your vision
alive and many more. In order to be successful entrepreneur, need to clearly define their vision,
mission and objectives.
Learning Objectives
❒ To correctly define vision, mission and objectives.
❒ Present the components of vision and its importance.
❒ State mission statement and its characteristics
❒ To introduce organization goals and objectives
5.1 Defining Vision

Vision is a picture of your company in the future. It is your inspiration, the framework for all your
strategic planning and it is also articulate your dreams and hopes for your business (Ward, 2010).
Vision again is short, concise, and inspiring statement of what the organization intends to become
and achieve in the future, often stated in competitive terms. Vision refers to the category of
intentions that are broad, all-inclusive and forward-thinking. It is the image that a business must
have of its goals before it sets out to reach them. It describes aspirations for the future, without
specifying the means that will be used to achieve these desired needs. A good vision is one which
foster risk taking and experimentation. It answers the question: “what will success look like?” A
good vision possesses the following features:
➢ It should be inspiring.
➢ It should foster long term thinking.
➢ It should be original and unique.
➢ It should be competitive.
➢ It should be realistic.
Examples:
University of Mines and Technology, Vision
“The vision of the University is to be a Centre of Excellence in Ghana and Africa for producing
world-class professionals in the fields of mining, petroleum, technology and related disciplines.”
Unilever Ghana, Vision

“To make sustainable living commonplace. We believe this is the best long-term way for our
business to grow.”
Walt Disney, Vision

“Make people happy”
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Zoomlion, Vision
“Champion of clean, green and healthy Communities.”
5.2 Components of Vision

Components of Vision according to Collins & Porras, (1996) can be broadly classified into two,
namely: (i) Core Ideology and (ii) Envisioned future
5.2.1 Core Ideology

It is what the organization stands for, the very purpose for which the organization is created. The
core ideology can be further sub-divided into two namely:
Core value i.e. core tenet of the organization, guiding principles, what the organization stands for.
It is a state of belief that is very difficult or impossible to change. It has to do with the foundation
on which the business relationship both to the society and the entire stakeholders is built. It is the
extent of integrity the organization is ready to maintain.
Core purpose: the reason for the organization’s existence, a clear description of the activities of
the organization. Any organization or individual that misses its purpose is not fit to live; the core
purpose must be seen to be achieved. If the purpose is to create an enduring financial system such
organization must be seen to fulfill such purpose.
5.2.2 Envisioned Future

It is creative, looking to a future of greatness; it keeps the organization as well as individual
motivated even if the founders are no longer in existence.
5.3 Importance of Vision

The distinguishing function of a leader is to develop a clear and compelling picture of the future
and to secure commitment to that ideal. In addition to vision, the appropriate combinations of the
following factors indicated in figure 1 below will bring about an effective organization:
Fig 5.1: Processes of a developing vision
- 33 -
Take away vision = Organization confusion
Take away skills = Organization anxiety
Take away incentives = organization gradual change
Take away resources = Organization frustration
Take away action plan = false starts
5.3.1 Key Elements that Make a Leader with Vision to Succeed

▪ Take personal responsibility for initiating change: The entrepreneur must take personal
responsibility to initiate the necessary change. People resist change; most people see the
negative effect of the change, but as an entrepreneur, one must stay focused and take
charge.
▪ Create a vision and strategy for the organization: An entrepreneur is the creator of its
vision; it is usually first conceived within, and then expressed in writing, the realization of
which requires appropriate strategies to be put in place for its implementation.
▪ Trust and support others: The entrepreneur cannot realize his vision without others. It is
therefore necessary to ensure that the entrepreneur communicate his/her vision in a very
clear and unambiguous way to elicit the support of others. Since the vision cannot be
realized alone there is need for trust so that none of the members of the organization work
under suspicious condition.
▪ Open yourself for criticism and be ready to adjust. An entrepreneur must be able to
subject the vision to criticism so as to amend and make the vision better. Humility to adjust
where necessary is important.
5.3.2 Ways of keeping Vision Alive

o Honour and live the vision as the organization’s constitution. The vision is not a
document prepared and hung in the office. The culture and value of the organization must
take its root from the vision.
o Encourage new members’ understanding and commitment through early

introduction. New members of the organization must be taught and understand the
aspiration of the organization.
o Make it constantly visible. Let the attitude of the leaders always reflect the organizational
vision. The decision-making process must be in line with the organization vision, so that
all members of the organization are constantly aware that it is the organizational vision that
is directing the activities within the organization.
o Create integrity through alignment and congruency – decision making patterns,

personnel policies etc. must be in line with the vision.
o Review the vision periodically, revising as appropriate to reflect changing conditions.
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5.4 Mission Statement
Mission on the other hand is what an organization is and the reason for its existence. A meaningful
mission must specifically state the fundamental and unique reason for its being and how it is
different from other corporate organizations.
Pearce and Robinson, (2004) defined mission as the fundamental, unique purpose that sets a
business apart from other firms of its type and identifies the scope of its operations in product and
market terms. Mission gives specific direction and focus to the organization.
Thompson (1997) sees mission as the “essential purpose of the organization, concerning
particularly why it is in existence, the nature of business (es) it is in and the customers it seeks to
serve and satisfy.’ In defining the mission statement, the organization must take into account five
key elements namely:
❖ History of the organization
❖ The current performance of the organization
❖ The environment where it operates
❖ The resources available and
❖ Distinctive competences
5.4.1 Characteristics of Mission Statement

Kazim (2004) identified seven characteristics of effective mission statement as follows:
✓ It should be visible: A mission should always aim high but it should not be an impossible
statement. It should be realistic and achievable.
✓ It should be precise: mission statement should not be too narrow to restrict organization
activities and it should not be too broad to make it meaningless giving no direction.
✓ It should be clear: Mission statement should be clearly stated to the extent that it can lead
the organization into definite action.
✓ It should be motivating: Mission statement must be motivating to the employees and

society. It must delight the stakeholders to enable it achieve the embodiments of the
statements.
✓ It should be distinctive: Mission statement should be unique to each organization and

differentiate it from similar organizations.
✓ It should indicate major components of strategy: which are long-range, decisions, plans,
mission, goals, objectives, options, resources allocation, resource utilization, process and
advantages improvement
✓ It should indicate how objectives are to be accomplished in terms of concrete specific

targets defined for mission derived goals.
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Examples of Mission Statements
NIKE Inc.
To bring inspiration and innovation to every athlete in the world.
Zoomlion
To be at the forefront of the environmental sanitation services industry, by the introduction and
utilization of simple but modern technologies and methods of waste management at affordable and
competitive rate.
There are diverse issues which need to be covered while framing the mission statement of a
company. The various components of a well framed mission statement are stated as follows:
❖ Product or services
❖ Customers
❖ Technology
❖ Survival growth and profitability
❖ Company philosophy
❖ Public image
5.4.2 Distinction between Vision and Mission
Basic Vision Mission

Concept It communicates both – purpose and It defines the purpose and primary
values of the business objectives related to your customer needs
and team values.
Answer It answers the question: Where you It answers the question: How you will get
want to be? to where you want to be?
Purpose The purpose is to inspire people and The purpose is to inform what the
motivate their emotional drivers to organization does.
achieve it.
Time Frame A vision statement talks about the A mission statement talks about the
future of the organization. present which ultimately leads to the
future.
5.5 Organizational Goals and Objectives

5.5.1 Organizational Goals
Kazim (2004) defined goals as what an organization hopes to accomplish in a future period of
time. They represent a future state or an outcome of the effort put in now. Goals are intermediate
results which is expected to be achieved by a certain span of time. Goals may be classified into
two categories:
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i) Financial goals: they are related to the return on investment or growth in revenues.
ii) Strategic goals: they focus on the achievements of the competitive advantage of the
industry.
Goals should be well constructed and realistic in nature. Example:
Customer Service – provide quality service to the customer at least at par with the highest standard
in the industry.
5.5.2 Organizational Objectives
Kazim (2004) sees objective as the ends that state specifically how the goals shall be achieved.
Objectives are concrete and specific in contrast to goals which are generalized; objectives make
the goals operational. While goals may be qualitative, objectives tend to be mainly quantitative in
specification, thus making objectives measurable and comparable.
5.5.2.1 Importance of objectives

Objectives are vital to the survival of organization especially in the area of unifying different
sections and harmonization of different interests. Objectives are important for the following
reasons:
➢ To provide directions for the organization.
➢ It allows the organization to relate effectively and efficiently with its environment
➢ It aids decision making
➢ It allows the organization to pursue its vision and mission
➢ It allows resources to be effectively and efficiently allocated among competing needs.
➢ It provides the standard for performance evaluation.
➢ To establish a basis for control.
5.5.2.2 Characteristics of good objectives

Since objectives are important tools to measure and evaluate organizational performance, it is
important for such tool to possess certain characteristics such as:
✓ Clear and understandable by all the stakeholders
✓ It should be concise, specific and direct
✓ It must be measurable in quantitative or qualitative terms
✓ It must have a time horizon which must be clearly stated within which objective must be
accomplished
✓ It must be challenging and attainable
✓ There must be harmony among different objectives
✓ Prioritizing of objectives where resources available are inadequate to pursue multiple
objectives at the same time.
There are many factors which have impact on the formulation of objectives in an organization.
These factors are kept in mind before considering any organization objectives. These factors are:
• Size of the organization

• Level of management
• Organization culture
• Social responsiveness
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Objectives may be of various types. Examples
➢ Profit Objective – it is the most important objective for any organizations. In order to earn
a profit, a company has to set multiple objectives in key result areas such as market share,
new product development, quality of services etc. These may also be termed as
performance objectives.
➢ Marketing Objective – may be expressed in terms of percentage increase or decrease in

market shares. Example to increase the number student intake in UMaT from 550 to 1000
in 2020.
➢ Productivity Objective – may be expressed in terms of ratio of input to output. This

objective may also be stated in terms of cost per unit of production. Example to increase
the input to output ratio from 1: 0.80 to 1:85.
➢ Financial Objective – relate to cash flow, debt equity ratio, working capital, new issues,
stock exchange operations, collection periods, debt instruments etc. to achieve 10% growth
in earning per share.
➢ Human Resources Objectives – may be described in terms of absenteeism, turnover,

number of grievances, strikes and lockout etc. Example is to decrease the rate of
absenteeism.
5.5.3 Distinction Between Objectives and Goals

Basics Objectives Goals
Concepts It represents managerial commitment It refers to the long-term purpose
to achieve a specified result in a which an organization strive to
specified period of time. achieve.
Measurement It is easy to measure them as they are It is difficult to measure them.
generally quantifiable.
Time Period They are mid-term or short term in They are long term in nature.
nature.
Action It refers to the specific action which It refers to the generic action towards
support the associated goals. which one strives.
Chapter Summary
This unit has been able to define vision and the components of vision. It identified core ideology
and envisioned future as the two components of vision. It also discussed important elements that
make leaders with vision succeed. Other key areas such as: - ways of keeping vision alive and
requirements for effective vision evaluation were also discussed. The unit also discusses
organization mission, goals and objectives.
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Chapter 6
Forms of Business Ownership and Legal Implications
Introduction
This unit touches on forms of business ownership and its classifications. It can be categorized into
sole proprietorship, partnership, limited liability companies, and cooperative societies. All these
various forms of businesses will be studied in this session. In addition, the legal requirement for
establishing each category will be looked at.
Learning Objectives
❒ Define sole proprietorship; discuss its advantages and disadvantages.
❒ Explain partnership, types, formation, dissolution of partnership
❒ Explain limited liability companies, types and its advantages and disadvantage.
❒ Explain co-operative societies and types
6.1 Forms of Business organization

There are various forms of business organizations that exist in the Ghana. A business is a profit-
seeking enterprise established for the purpose of creating goods and services that meet the needs
of mankind. Business activities are undertaken to improve the financial and the material welfare
of the participants. Selecting a form of business ownership is a landmark step in the creation of a
venture. Consequently, it is imperative that an entrepreneur carefully searches for the types of legal
ownership and then consults an attorney (lawyer), and an accountant or both to verify whether the
choice addresses their specific needs (Scarbough et al., 2009). One of the main reasons small
businesses fail is that they do not seek legal and accounting help at the beginning. To stay in
business, an entrepreneur may need help from someone with more expertise than he/she has in
certain areas, or may help to raise more money to expand. How you form your business can make
tremendous difference in your long-term success as an entrepreneur.
Although an entrepreneur may change the form of ownership later, this change can be expensive,
time consuming, and complicated. There is no single best form of business ownership. Each form
has its own unique set of advantages and disadvantages. The key to choosing the optimum form
of ownership is the ability to understand the characteristics of each business entity and how they
affect an entrepreneur’s business and personal circumstances.
The following, according to Scarborough et al., (2009), are relevant issues the entrepreneur should
consider in the evaluation process:
Tax consideration: Year-to-year fluctuations in a company’s income require an entrepreneur to
calculate the firm’s tax liability under each ownership option every year.
Liability exposure: Certain forms of ownership offer business owners greater protection from
personal liability due to financial problems, faulty products, and a loss of other difficulties. An
entrepreneur must evaluate the potential for legal and financial liabilities and decide the extent to
which they are willing to assume personal responsibility for their companies’ obligations.
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Start–up and future capital requirements: The form of ownership can affect an entrepreneur’s
ability to raise start-up capital. Also, as a business grows, capital requirements increase, and some
forms of ownership make it easier to attract outside financing.
Management ability: Entrepreneurs must assess their own ability to successfully manage their
own companies. Otherwise, they may need to select a form of ownership that allows them to
involve people who possess those needed skills or experience in the company.
Business goals: The projected size and profitability of a business influences the form of ownership
chosen. Business often evolves into a different form of ownership as they grow, but moving from
one format can be complex and expensive. Legislation may change and make current ownership
options less attractive.
Management succession plans: Entrepreneurs, in selecting a form of business ownership, must
look ahead to the day when they will pass their companies on to the next generation or to a buyer.
Some forms of business ownership better facilitate this transition. In other cases, when the owner
dies –so does the business.
Cost of formation: The cost of formation to create business ownership varies from one form to the
other. Entrepreneurs must weigh the benefits and the costs of the form they choose.
6.2 Forms of Business Ownership

Whether small or large, every business fit one of three categories of legal ownership, sole
proprietorships, partnership, and corporations.
6.2.1 Sole Proprietorship

The sole proprietorship is the simplest and most popular form of ownership. This form of business
ownership is designed for a business owned and managed by one individual. Sole proprietorship
is the easiest kind of business for you to explore in your quest for an interesting career. The sole
proprietor is the only owner and ultimate decision maker for the business. The sole proprietorship
has no legal distinction between the sole proprietor status as an individual and his or her status as
a business owner. The simplicity and ease of formation makes the sole proprietorship the most
popular form of ownership in Ghana. Although sole proprietorships are common in a variety of
industries, they are concentrated primarily among small businesses unit such as repair shops, small
retail outlets, and service providers, for example, such as painters, plumbers, and barbing saloon.
6.2.1.1 Advantages of Sole Proprietorship

1) Least cost of business ownership to establish
2) Minimum or no special legal restriction
3) Ownership of all profit
4) No special taxes since business income and proprietors’ income are taxed as one.
5) Maximum incentive to succeed
6) Privacy
7) Flexibility of operation
8) Easy to discontinue
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6.2.1.2 Disadvantages of Sole proprietorship
1) Unlimited personal liability
2) Limited access to capital for expansion
3) Limited skills and abilities
4) Feelings of isolation /overwhelming time commitment
5) Few fringes benefit
6) Limited growth
7) Lack of continuity for the business that has a limited life span.
6.2.2 Partnership
Another option for organizing a business is to form a partnership. A partnership is a legal form of
business with two or more owners. Partners legally share a business assets, liabilities, and profits
according to the terms of a partnership agreement. The law does not require a written partnership
agreement, also known as the articles of partnership, but it is wise to work with an attorney to
develop an agreement that documents the status, rights and responsibilities of each partner. The
partnership agreement is a document that states all of the terms of operating the partnership for the
protection of each partner involved. Banks often want to review the partnership agreement before
lending the business money.
A partnership agreement can include any legal terms the partner’s desire. The standard partnership
agreement will likely include the following information:
1) Name of the partnership

2) Purpose of the business
3) Location of the business
4) Duration of the partnership
5) Names of the partners and their legal addresses
6) Contributions of each partner to the business, at the creation of the partnership and later.
7) Agreement on how the profits or losses will be distributed.
8) Agreement on salaries or drawing rights against people for each partner.
9) Procedure for expansion through the addition of new partners.
10) Distribution of the partnership asset to the partners.
11) Sale of the partnership interest
12) Absence or disability of one of the partners
13) Voting rights
14) Decision making authority
15) Financial authority
16) Handling tax matters
17) Alteration or modifications of the partnership agreement.
18) Termination of partnership
19) Distribution of assets upon dissolution of the partnership
A Partnership can be regarded as an improvement on sole proprietorship form of business

organization, the minimum number of people that can form a partnership is two, while the
maximum is twenty, with the exception of partnerships comprising professionals; for example,
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lawyers, accountants, doctors, to mention just a few. Notably, most partnerships are usually formed
by professionals and those that engage in service-oriented business concerns.
6.2.2.1 Types of Partnership
There are four types of partnership, based on the basis of liability of partners:
(1) General partnership: This is a partnership in which all owners share in operating the business
and in assuming liability for the business’ debts.
(2) Limited partnership: This is a partnership with one or more general partners and one or more
limited partners. Limited partnership is one in which certain partners are liable only for the amount
of their investment. The purpose of a limited partnership is to allow one or more individuals to
provide capital on which a return is expected. In case of liquidation, the limited partners only lose
the capital.
(3) Master Limited Partnership (MLP): This is a newer form of partnership which looks much
like a corporation in that it acts like a corporation and is traded on the stock exchanges like a
corporation but it is taxed like a partnership and thus avoids the corporate income tax.
(4) Limited Liability Partnership (LLP): LLP limited partners risk losing their personal assets to
only their own acts and omissions of people under their supervision. This newer type of partnership
was created to limit the disadvantage of unlimited liability.
6.2.2.2 Types of Partners
This is based on the basis of the involvement in partnership. An entrepreneur interested in being
involved in partnership form of business should endeavor to understand the types of partners that
he/she can choose to be in this form of business. Partners may be classified on the basis of liability,
degree of management participation in management share in the profit and so on. The following
types of partners are organized:
1) General partner: A general partner is an owner (partner) who has unlimited liability and is
active in managing the firm.
2) Limited partner: A limited partner is an owner who invests money in the business but does not
have any management responsibility or liability for losses beyond the investment.
3) Silent partners: These are partners who are known by the public as owners of the business, but
they may take no active role in marketing the business.
4) Secret partners: These are partners who take active role in the management of the company but
they are unknown to the outsiders as partners.
5) Sleeping partners: These are also known as dormant partners, they are neither known as partners
by the public nor do they participate in managing the company. They only share from the profit
/loss of the business to the tune of capital contributed.
6) Nominal partners: These kinds of partners are publicly known that they are partners although
they have no investment in the business and therefore have no rights of management. They merely
lend their names to the enterprise and may be liable for certain debt of the partnership.
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6.2.2.3 Advantages of Partnership
➢ Easy to establish
➢ More financial resources
➢ Shared management and pooled /complementary skills and knowledge
➢ Division of profits
➢ Minimum governmental regulation/limited legal restrictions
➢ Flexibility
➢ Freedom from double taxation
➢ Secrecy
➢ Longer survival
6.2.2.4 Disadvantages of Partnership

➢ Unlimited liability
➢ Division of profits
➢ Disagreement among partners especially with regard to authority and control
➢ Difficult to terminate because partners are bound by the law of agency
➢ Restrictions on transfer of ownership
➢ Lack of continuity
6.2.2.5 Dissolution orTermination of a Partnership

Partners expect their business relationships are going to last forever. However, most do not. There
are possibilities that problems may occur when the entrepreneur realizes he or she is not in charge
of his or her own company. Even when partnerships work, there are always fears that the partners
will develop different business goals. Partners may dissolve or terminate the partnership. Thus
dissolution occurs when a general partner ceases to be associated with the business. This may be
as a result of:
❖ Expiration of a time period or completion of the project undertaken as delineated in the
partnership agreement.
❖ Expressed wish of any general partner to cease operation.
❖ Expulsion of a partner under the provisions of the agreement.
❖ Withdrawal, retirement, insanity, or death of a general partner (except when the partnership
agreement provides a method of continuation).
❖ Bankruptcy of the partnership or of any general partner.
❖ Admission of a new partner resulting in the dissolution of the old partnership and
establishment of a new partnership.
❖ A judicial decree that a general partner is insane or permanently incapacitated, making
performance or responsibility under the partnership agreement impossible.
❖ Mounting losses that make it unpractical for the business to continue.
Termination is the final act of intentionally closing the partnership as a business. This can occur
after the partners have agreed to cease operations and all affairs of the partnership have been
concluded.
6.2.3 Limited Liability Companies
The incorporation of companies differs from one country to the other. Each country has a body of
laws that guide the registration and operations of companies. In Ghana, the Companies Act (Act,
179) of 1963 is the major law that guides formation and registration of companies in Ghana.
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Formation of Company and Capacity of Individual. According to Section 8 of Act 179, two or
more persons may form and incorporate a company by complying within requirements of the act.
It also specifies the category of people that can come together to form a company.
6.2.3.1 Types of Limited Liability Companies

a. Limited by shares
b. Limited by guarantee
c. An unlimited company.
A company is said to be limited by shares, if the liability of its members is limited by the
memorandum to the amount, if any unpaid on the shares respectively held by them.
A company is said to be limited by guarantee if the memorandum to such amount as the members
may respectively thereby undertake to contribute to the assets of the company in the event of its
being wound up.
A company is said to be unlimited when the members do not have any limit on the liability of its
members.
6.2.3.2 Private liability Companies
The private liability company can be formed by minimum of two persons and maximum of fifty
persons excluding employees of the company both past and present (according to Section 22
Subsection 3). The total number of members of a private company shall not exceed fifty, not
including persons who are bonafide in the employment of the company or were while in that
employment and have continued after the determination of that employment to be, members of the
company. The articles of the private company must restrict the transfer of its shares, i.e. the share
of the company is not transferable through public offer for subscription. The law also requires the
name of private company to end with the word “limited”.
The public liability company is a company where the shareholders are members of the public.
The shares are generally freely transferable. Public companies are large trading concerns with
minimum membership of two but no maximum. The name of a public company is expected to end
with Public Limited Company (PLC).
6.2.3.3 Advantages of Limited Liability Companies
❖ It has a legal entity;
❖ Limited liability of shareholders
❖ Ability to attract capital
❖ Ability to continue indefinitely
❖ Transferable ownership
❖ Separation of ownership from management
❖ The death of a shareholder does not mean the end of the company;
❖ Accessibility to large capital which enhance growth.
6.3.3.4 Disadvantages of Limited Liability Companies

❖ When company becomes very large, there is no personal relationship between the customers
and the owners;
❖ Official red tapism may delay decision making;
❖ Chain of command becomes long which lead to communication breakdown.
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❖ Cost and time involved in the incorporation process
❖ Double taxation
❖ Charter restrictions
❖ Extensive legal requirement and restrictions
❖ Potential for diminished management incentives
❖ Potential loss of control by the owners
❖ Difficulty of termination
❖ Possible conflict with share stockholders and board of directors
6.2.4 Cooperative
A form of business ownership which involves a collective ownership of a production, storage,
transportation or marketing organisation is what is referred to as a co-operative. Some individuals
dislike the notions of having owners, managers, workers and buyers as separate parties with
separate goals for business organisation. They envision a situation whereby people will co-operate
with one another as an association and share the wealth more evenly. This is what necessitates the
form of business ownership referred to as cooperatives.
6.2.4.1 Types of Cooperative

✓ Consumer/producer cooperative
✓ Workers co-operative
✓ Finance co-operatives
Co-operatives allow small businesses to obtain quantity discounts on purchases, reducing costs
and enabling the cooperative to pass on the savings to its members.
Chapter Summary
It goes without saying that it is not easy to choose the best form of business organisation. Its
evidence is outlined in this chapter that an entrepreneur may participate in the business world in a
variety of ways. He / She can start a sole proprietorship, partnership, limited liability company
(private or public), or cooperative, there are advantages and disadvantages to each, but whichever
one is selected there are risks. Before you decide which form is good for you, you need to
o Assess the nature, goals and anticipated future of the business.
o Determine the resources, capabilities, and risk level of the owner.
o Review your current and expected tax situation.
o Understand the laws of your state and other jurisdictional regulations relating to forms of
business ownership.
o Involve professional advisers, such as an attorney and an accountant to advise and assist
with the decision process and take the appropriate action (Scarborough et al, 2009).
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Chapter 7
Business Plan
Introduction
The most important aspect of writing the business plan is not the plan itself, but all the learning
that goes on as you identify your concept and then research the concept, the industry, the
competitors, and, most importantly, your customers. Technically well-written plan does not
necessarily ensure a successful new venture. Dwight Eisenhower famously stated, ‘‘In preparing
for battle I have always found that plans are useless, but planning is indispensable.” The purpose
of business planning is to tell a story; the story of your business.
Business planning is not just writing; it’s research, it’s talking to others, it’s iterative, it’s a learning
process. There is a common misperception that business planning is primarily used for raising
capital. Although a good business plan assists in raising capital, the primary purpose of the process
is to help entrepreneurs gain a deeper understanding of the opportunity they are envisioning. The
relatively little time spent developing a sound business plan can save thousands or millions of cedis
that might be wasted in a wild goose chase. The greatest benefit of business planning is that it
allows the entrepreneur to articulate the business opportunity to various stakeholders in the most
effective manner.
Learning Objectives
❒ Understand the business plan outline
❒ Write a business plan for any business venture.
7.1 The Importance of Business Plan

➢ The business planning process helps entrepreneurs to shape their original vision into a better
opportunity by raising critical questions, researching answers for those questions, and then
answering them.
➢ The business planning is that it allows the entrepreneur to articulate the business opportunity
to various stakeholders in the most effective manner.
➢ It provides the background information that enables the entrepreneur to communicate the
upside potential to investors.
➢ It also provides the validation needed to convince potential employees to leave their current
jobs for the uncertain future of a new venture.
➢ It can help secure a strategic partner, key customer, or supplier. In short, business planning
provides the entrepreneur with the deep understanding she needs to answer the critical
questions that various stakeholders will ask.
7.2 The Business Plan Planning Process
1. The planning process start with the conception of ideas (i.e. after going through the
entrepreneurial process).
2. Discuss your idea with friends, family, colleagues, and professors, among others.
3. Do your friends think they would buy this product or service (potential customers)? Have they
said things along the lines of ‘‘This is just like XYZ Company products’’ (potential
competitor)? Have they informed you of potential suppliers or other people you might want to
hire or at least talk to or learn from?
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4. All these bits and pieces of information are valuable learning that should be documented and
catalog.
5. Write a short summary (less than five pages) of your current vision. This provides a road map
for you and others to follow as you embark on a more thorough planning process.
6. Share this document with co-founders, family members, and trusted advisors.
7. Ask for feedback on what else you should be thinking about. What gaps do the people who
read this summary see?
8. Per the feedback from your trusted advisors, you can begin attacking major sections of the
plan.
Note
❖ Entrepreneurs are continuously updating and revising their business plan—they recognize
it is a learning process, not a finished product.
❖ Realize that the business plan is a ‘‘living document.’’
❖ Although the first draft will be polished, most business plans are obsolete the day they
come off the presses.
❖ As long as you are involved with the business you will continue to learn new things that
can improve your business, and the day you stop learning how to improve it is the day that
it will start its decline toward bankruptcy.
❖ Keep and file each major revision of your plan, and occasionally look back at earlier
versions for the lessons you’ve learned.
❖ The plan articulates your vision for the company, and it crystallizes that vision for you and
your team.
7.3 The Story Model

The guiding principle is that you are writing a story, and all good stories have a theme—a unifying
thread that ties the setting, characters, and plot together. A tagline is a sentence, or even a fragment
of a sentence, that summarizes the essence of your business. Put the tagline in a footer that runs
on the bottom of every page, business card, company letterhead, and other collateral material you
develop for the business.
7.4 Business Plan Structure

The structure of a business plan is as follows:
7.4.1 The Cover Page

The cover of the plan should include the following information: company name, tagline, contact
person, address, phone, fax, e-mail, date, disclaimer, and copy number. The contact person for a
new venture should be the president or some other founding team member.
Business plans should have a disclaimer along these lines:
This business plan has been submitted on a confidential basis solely to selected, highly
qualified investors. The recipient should not reproduce this plan or distribute it to others
without permission. Please return this copy if you do not wish to invest in the company.
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Although you cannot physically control what someone else might do with your plan, the statement
at least reminds them to respect your wishes and that is usually good enough. The cover should
also have a line stating which number copy it is. For example, you will often see on the bottom
right portion of the cover a line that says ‘‘Copy 1 of 5 copies.’’ Entrepreneurs should keep a log
of who has copies so that they can control for unexpected distribution. The cover should be eye-
catching. Example a picture of the product or prototype.
7.4.2 Executive Summary

This section is the most important part of the business plan; hit your readers with the most
compelling aspects of your business opportunity right up front. The first sentence or paragraph
should highlight the potential of the opportunity. For example:
The current market for widgets is $50 million, growing at an annual rate of 20%. Moreover, the
emergence of mobile applications is likely to accelerate this market’s growth. Company XYZ is
positioned to capture this wave with its proprietary technology: the secret formula VOOM.
Provide compelling information about each of the following subsections: description of

opportunity, business concept, industry overview, target market, competitive advantage, business
model and economics, team and offering, and financial snapshot. The executive summary touches
on the most important or exciting points of each section. Keep it brief and make it compelling.
7.4.3 Table of Content

A detailed table of contents is critical. It should include major sections, subsections, exhibits, and
appendices. The table of contents provides the reader a road map to your plan.
7.4.4 Customer, Industry and Competitor Analysis

7.4.4.1 Customer
Define who the customer is by using demographic information. The better the entrepreneur can
define her specific customers, the more apt she is to deliver a product that these customers truly
want. Entrepreneurs should develop profiles of the different kinds of customers they target.
Besides demographics entrepreneurs can identifies customer by address, phone number, and e-
mail. Early in your conceptualization of your product or service, go out and interview potential
customers.
7.4.4.2 Industry
The goal of this section is to illustrate the opportunity and how you intend to capture it. Delineate
both the current market size and how much you expect it to grow in the future. Indicate what kind
of market you’re facing. Explore the industry economics (i.e. Profit Margin). Besides describe
your overall market in terms of revenues, growth, and future trends that are pertinent.
7.4.4.3 Competitor Analysis

The competition analysis should be completed using a competitive profile matrix (see Table 7.1).
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Table 7.1 Competitor Analysis
Source: Bygrave and Zacharakis, 2010.
7.4.5 Company and Product Description

Begin by identifying the company name and where the business is incorporated. Provide a brief
overview of the concept for the company and then highlight what the company has achieved to
date. If you have reached any major milestones, be sure to list them, but don’t worry if the business
plan is your first step. Subsequent drafts will provide you with opportunities to showcase what you
have achieved. Communicate to customers the product and its differentiating features. Remember
graphic representations are visually powerful. Highlight how your product fits into the customer
value proposition. In essence, you need to tell us why your product is better, cheaper, or faster
and how that creates value for the customer. State your competitor advantage.
7.4.6 Marketing Plan

The primary components of this section are descriptions of the target market strategy,
product/service strategy, pricing strategy, distribution strategy, marketing communications
strategy, sales strategy, and sales and marketing forecasts.
7.4.6.1 Target Market Strategy

Every marketing plan needs some guiding principles. In targeting and positioning your product,
you should lean heavily on the knowledge you gleaned from the customer analysis. For instance,
product strategies often fall along a continuum whose endpoints are rational purchase and
emotional purchase.
7.4.6.2 Product/Service Strategy

Building from the target market strategy, this section of the plan describes how you will
differentiate your product from the competition. Discuss why the customer will switch to your
product and how you will retain customers so that they don’t switch to your competition in the
future. This section should also address what services you will provide the customer. What type
of technical support will you provide? Will you offer warranties? What kind of product upgrades
will be available and when? It is important to detail all these efforts because they will affect the
pricing of the product (refer to Figure 7.1).
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Figure 7.1: Product Attribute Map
7.4.6.3 Pricing Strategy

Pricing your product is challenging. Canvassing prevailing prices in the marketplace helps you
determine what the perceived value for your product might be. If your product is of better quality
and has lots of features, price it above market rates. First, it is difficult to accurately determine
your actual cost, especially if this is a new venture with a limited history. New ventures
consistently underestimate the true cost of developing their products. The cost includes salaries
and payroll taxes, computers and other assets, the overhead contribution, and more. Second, we
often hear entrepreneurs claim that they are offering a low price in order to penetrate and gain
market share rapidly. One major problem with launching at a low price is that it may be difficult
to raise the price later; it can send a signal of lower quality. In addition, demand at that price may
overwhelm your ability to produce the product in sufficient volume, and it may unnecessarily strain
cash flow.
7.4.6.4 Distribution Strategy

This section of your written plan identifies how your product will reach the customer. Since much
of the cost of delivering a product is tied up in its distribution, your distribution strategy can define
your company’s fortune as much as or more than the product itself. Some distribution strategies
include Brick and Mortar, Direct Channel, Multi-Channel and Omni-Channel.
7.4.6.5 Marketing Communications Strategy

Communicating effectively to your customer requires advertising and promotion, among other
methods. Since these tools are expensive, resource-constrained entrepreneurs need to carefully
select the appropriate strategies.
7.4.6.6 Sales Strategy

The section on sales strategy provides the backbone that supports all of the subsections described
so far. Specifically, it illustrates what kind and level of human capital you will devote to the effort.
You should complete a careful analysis of how many salespeople and customer support reps you
will need.
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7.4.6.7 Sales and Marketing Forecasts
Gauging the impact of sales efforts is difficult. Nonetheless, to build a compelling story,
entrepreneurs need to show projections of revenues well into the future. How do you derive these
numbers? There are two methods: the comparable method and the build-up method. The
comparable method models the sales forecast after what other companies have achieved and then
adjusts these numbers for differences in things like the age of the company and the variances in
product attributes. In essence, the entrepreneur monitors a number of comparable competitors and
then explains why her business varies from those models. In the build-up method, the entrepreneur
identifies all the possible revenue sources of the business and then estimates how much of each
type of revenue the company can generate during a given period of time. For example, a bookstore
generates revenues from books and artifacts. The build-up technique is an imprecise method for
the new startup with limited operating history, but it is critically important to assess the viability
of the opportunity.
7.4.7 Operations Plan

The key in the operations plan section is to address how operations will add value for your
customers. Here, you’ll detail the production cycle and gauge its impact on working capital. For
instance, when does your company pay for inputs? How long does it take to produce the product?
When does the customer buy the product and, more importantly, when does the customer pay for
the product? From the time you pay for your raw materials until you receive payment from your
customers, you will be operating in a negative cash flow.
7.4.7.1 Operations Strategy

The first subsection of your operations strategy section provides a strategy overview. How does
your business compare on the dimensions of cost, quality, timeliness, and flexibility? Emphasize
those aspects that provide your venture with a comparative advantage. It is also appropriate to
discuss the geographic location of production facilities and how this enhances your firm’s
competitive advantage. Your notes should cover such issues as available labor, local regulations,
transportation, infrastructure, and proximity to suppliers. In addition, the section should provide a
description of the facilities, discuss whether you will buy or lease them, and explain how you will
handle future growth.
7.4.7.2 Scope of Operations

What is the production process for your product or service? Creating a diagram makes it easier for
you to see which production aspects to keep in-house and which to outsource (Figure 2).
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Figure 7.2: Scope of Operations
7.4.7.3 Ongoing Operations:

This section builds upon the scope of operations section by providing details on day-to-day
activities. For example, how many units will you produce in a day and what kinds of inputs will
you need? An operating cycle overview diagram graphically illustrates the impact of production
on cash flow (refer to Figure 7.3).
Figure 7.3: Ongoing Operations Flowchart

7.4.8 Development Plan

The development plan highlights the development strategy and also provides a detailed
development timeline. Many new ventures will require a significant level of effort and time to
launch the product or service. This is the prologue of your story. For example, new software or
hardware products often require months of development. Discuss what types of features you will
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develop and tie them to the firm’s competitive advantage. This section should also discuss any
patent, trademark, or copyright efforts you will undertake.
7.4.8.1 Development Strategy

What work remains to be completed? What factors need to come together for development to be
successful? What risks to development do the firm face? Detailing the necessary work and what
needs to happen for you to consider the work successful helps you understand and manage the
risks involved.
7.4.8.2 Development Timeline:

A development time line is a schedule that you use to highlight major milestone and to monitor
progress and make changes. It’s often useful to illustrate time lines as Gantt charts (Figure 7.4).
Figure 7.4: Gantt Chart

7.4.9 Team
The team section of the business plan is often the section that professional investors read right after
the executive summary. This section is also critically important to the lead entrepreneur. It
identifies the members responsible for key activities and conveys why they are exceptionally
qualified to execute on those responsibilities. The section also helps you consider how well this
group of individuals will work together. It is well established that ventures started by strong teams
are much more likely to succeed than those led by weak teams.
7.4.9.1 Team Members and their Roles

This section identifies the key team members and their titles. Often the lead entrepreneur assumes
a CEO role. However, if you are young and have limited business experience, it is usually more
productive to state that the company will seek a qualified CEO as it grows.
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7.4.9.1.1 Advisory Boards, Board of Directors, Strategic Partners, External Members
Many entrepreneurs find that they are more attractive to investors if they have strong advisory
boards. In building an advisory board, you want to create a team with diverse skills and experience.
Industry experts provide legitimacy to your new business as well as strong technical advice. Other
advisors should bring financial, legal, or management expertise. Thus, it is common to see lawyers,
professors, accountants, and others who can assist the venture’s growth on advisory boards.
7.4.9.2 Compensation and Ownership

A capstone to the team section should be a table listing key team members by role, compensation,
and ownership equity. A brief description in the text should explain why the compensation is
appropriate. Many entrepreneurs choose not to pay themselves in the early months. Although this
strategy conserves cash flow, it would misrepresent the individual’s worth to the organization.
Therefore, the table should contain what salary the employee is due. If necessary, that salary can
be deferred until a time when cash flow is strong.
7.4.10 Critical Risks

Every new venture faces a number of risks that may threaten its survival. Although the business
plan, to this point, is creating a story of success, readers will identify and recognize a number of
threats. The plan needs to acknowledge these potential risks; otherwise, investors will believe that
the entrepreneur is naïve or untrustworthy and may possibly withhold investment. How should you
present these critical risks without scaring your investor or other stakeholders? Identify the risk
and then state your contingency plan. Critical risks are critical assumptions—factors that need to
happen if your venture is to succeed as currently planned.
7.4.10.1 Market Interest and Growth Potential

The biggest risk any new venture face is that, once the product has been developed, no one will
buy it. Although you can do a number of things to minimize this risk, such as market research,
focus groups, and beta sites, it is difficult to gauge overall demand, and the growth of that demand,
until your product hits the market. State this risk, but counter it with the tactics and contingencies
the company will undertake. For example, sales risk can be reduced by mounting an effective
advertising and marketing plan.
7.4.10.2 Competitor Actions and Retaliation

Too many entrepreneurs believe either that direct competition doesn’t exist or that it is sleepy and
slow to react. Don’t rely on this belief as a key assumption of your venture’s success. Most
entrepreneurs passionately believe that they offering something new and wonderful that is clearly
different from what is currently on the market. They go on to state that existing competition won’t
attack their niche in the near future. Acknowledge the risk that this assessment may be wrong. One
counter to this threat is that the venture has room in its gross margins to operate at lower-than-
anticipated price levels and the cash available to withstand and fight back against such attacks.
7.4.10.3 Time and Cost of Development

Many factors can delay and add to the expense of developing your product. The business plan
should identify the factors that may hinder development. You need to address how you will
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overcome the challenge of hiring and retaining the most qualified professionals, perhaps by
outsourcing. Compensation, equity participation, flexible hours, and other benefits that the firm
could offer might also minimize the risk. Whatever your strategy, you need to demonstrate an
understanding of the difficult task at hand and assure potential investors that you will be able to
develop the product on time and on budget.
7.4.10.4 Operating Expenses

Operating expenses have a way of growing beyond expectations. Sales, administration, marketing,
and interest expenses are some of the areas you need to monitor and manage. The business plan
should highlight how you forecast your expenses (comparable companies and detailed analysis)
and also lay out your contingency plans for unexpected developments. For instance, you may want
to slow the hiring of support staff if development or other key tasks take longer than expected.
7.4.10.5 Availability and Timing of Financing

One major risk that most new ventures face is that they will have difficulty obtaining needed
financing, both equity and debt. If the current business plan is successful in attracting investors,
cash flow will not be a problem in the short-term. However, most ventures will need multiple
rounds of financing. If the firm fails to make progress or meet key milestones, it may not be able
to secure additional rounds of financing. This can put the entrepreneur in the uncomfortable
position of having to accept unfavorable financing terms or, in the worst-case scenario, force the
company into bankruptcy. Your contingency plans should identify viable alternative sources of
capital and strategies to slow the ‘‘burn rate.’’
7.4.11 Offering
Using your vision for the business and your estimates of the capital required to get there, you can
develop a ‘‘sources and uses’’ schedule for the offering section of your business plan. The sources
section details how much capital you need and the types of financing, such as equity investment
and debt infusions. The uses section details how you’ll spend the money. Typically, you should
secure enough financing to last 12 to 18 months. If you take more capital than you need, you have
to give up more equity. If you take less, you may run out of cash before reaching milestones that
equate to higher valuations.
7.4.12 Financial Plan

The financial plan helps an entrepreneur to understand the financial aspect of the business like the
possible income the business will generate, the cost of operation, profit and possible taxes.
Although an accountant is a useful advisor, in the pre-launch stage, the lead entrepreneur needs to
understand the numbers inside and out. After all, the lead entrepreneur is the person who will be
articulating her vision to potential employees, vendors, customers, and investors. If the
entrepreneur is easily stumped by simple questions of profitability or costs, potential employees,
customers, and other parties important to the new venture’s success will lose confidence in the
lead entrepreneur’s ability to execute on the concept.
7.4.13 Appendices
The appendices can include anything and everything that you think adds further validation to your
concept but that doesn’t fit or is too large to insert in the main parts of the plan. Common inclusions
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would be one-page resumes of key team members, articles that feature your venture, and technical
specifications. If you already have customers, include a few excerpts of testimonials from them.
Likewise, if you have favorable press coverage, include that as well.
Chapter Summary
The business plan is more than just a document; it is a process, a story. Although the finished
product is often a written plan, the deep thinking and fact-based analysis that go into that document
provide the entrepreneur the keen insights needed to marshal resources and direct growth. The
whole process can be painful, but it almost always maximizes revenue and minimizes costs. The
reason is that the process allows the entrepreneur to better anticipate instead of react.
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Chapter 8
Sources of Business Finance
Introduction
Funding is a very vital aspect of a business; therefore, this session discusses the various ways of
raising capital for your business. It is not only for a business that is just starting up but also for an
existing business. Apart from funds acquisition, management of funds in business is also reflected
in the study.
Learning Objectives
❒ List and explain the personal and family sources of funds
❒ Explain the criteria for acquisition and allocation of funds
❒ Identify the different classifications of external sources of funds
❒ Identify the challenges of small and medium scale enterprises.
8.1 Acquisition and Allocation of Funds

Acquisition and allocation of funds is central to the success of any business venture. One of the
main problems facing effective management of small-scale enterprises is lack of basic financial
management skills needed to guide the business venture. These skills include the ability to keep
appropriate records of financial transactions, financial control, credit management, risk
management, personal financial discipline of the entrepreneur and inability to see the business as
separate from the owners. For a business venture to externally raise capital needed for its operation
the financial institutions require a level of minimum compliance with the basic issues raised above.
In addition, it is important that the entrepreneur avoid under or over estimation of the capital
requirements for its operations, otherwise too large capital will lead to unnecessary high costs and
inadequate capital will affect the growth of the business venture.
The United States (US) Small Business Administration (SBA) suggested the need for entrepreneur
to answer the following questions so as to realistically determine the volume of capital needed for
its operations:
✓ Why do I need the capital?
✓ How much do I need?
✓ When do I need it?
✓ For how long will I need it?
✓ Where can I obtain it?
✓ How can I repay it?
How will you determine your financial needs in the process of creating a business venture or
expanding an existing one?
• An entrepreneur must avoid under or over estimating the capital requirements for its
operations, otherwise too large capital will lead to unnecessary high costs and in adequate
capital will affect the growth of the business venture. Answers must be provided fo the
following questions: Why do I need the capital? How much do I need? When do I need it?
for how long will I need it? Where can I obtain it? and How can I repay it?
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• Note that feasibility studies are prepared for new ventures while Business Plans are for new
as well as existing businesses
8.2 Sources of Funds for Venture Operation

Money is needed to operate and grow or expand a business. Business may need money to purchase
equipment, inventory, create awareness, restructure or even renovation to be properly
positioned to handle challenges. It is often a great challenge for new business ventures to find or
accumulate the needed fund to commence or expand operation. Financing is the use and
manipulation of money. Raising money for a business is one aspect of financing. There are
different forms of raising funds open to the entrepreneurs. These sources vary in terms of the
volume of fund that can be accessed, the cost of the funds and the security required to obtain the
funds. The choice of individual entrepreneur will be determined by the following as suggested by
(Olannye & Oyibi, 2002);
➢ Knowing the number of sources of funds available

➢ Risk involves
➢ The duration of financing whether it is short term or long term.
➢ The cost of borrowing from each source
➢ Government restrictions and institutional constraints
➢ The value and nature of assets as security or collateral
The various sources of funds for business ventures are classified under the following:
i. The Personal and family sources
ii. The Internal sources
iii. The External sources
8.2.1 The Personal and Family

This source of finance is peculiar to a new venture, although it may also be applicable to an existing
venture particularly loans from friends and relations as explained below:
A. Personal savings: - It is expected that an individual that wants to start a business should
be able to have saved part of the funds required for the business. This is necessary because
relying on borrowed funds may be too dangerous for a new venture. It is also a way of
motivating the owner to know that if the venture fails the life saving will be lost.
B. Loan from family and friends: - Family members often want to support other family
members venturing into business, hence part of the venture funds are contributed in form
of loans or gifts. Also, friends support through loans and sometimes gifts to encourage their
friend that is starting a business.
8.2.2 Internal Sources

An internal source of funds is peculiar to an existing venture. The internally generated funds can
emanate from the following sources
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I. Retained Profits: - It is an accepted practice to finance the fixed and working capital
requirement from profits generated from the previous business activities of the venture.
II. Provisions: - Provision for tax and depreciation are another internal source of finance.
Since business tax are payable a year after profits have been declared, this amount could
serve as a source of fund for small business firm. Furthermore, annual provisions for
depreciation represent cash retained by the enterprise over and above the normal
undistributed profit.
III. Reducing Current Asset: - Reducing current assets is a source of fund and large
amount of money could be made available for financing the activities of the venture.
8.2.3 External Sources

The external sources of funds are those that are obtained outside the venture. The external sources
can be sub-divided into three namely; -
❖ Short- term finance

❖ Medium term finance
❖ Long term finance
8.2.3.1 Short Term Finance

Short term financing involves obligation debts that have maturity date of less than one year. The
typical example of short-term finance includes goods purchased on credits, outstanding short-term
loans from banks/ accrued payment such as deferred taxation, salaries and wages etc. Some of the
methods of short-term financing are; -
(i) Open account or Trade credits/ Account payable: - It is a form of financing in which the
seller extends credits to customers. The credit is reflected on the entrepreneur’s balance sheet as
accounts payable, and in most cases, it must be paid in 30 to 90 days.
(ii) Account receivable financing: - It is a short-term financing that involves either the pledge of
receivables as collateral for a loan or the sale of receivables (factoring). Accounts receivables loans
are made by banks, whereas factoring is done primarily by finance companies and factoring
concerns.
(iii) Bank overdraft facilities: - An arrangement which allows a person who keep a current
account with a bank the opportunity to draw above the balance in the account. The customers who
overdraws his/her account pays both the overdrawn account plus the interest on the amount
overdrawn.
(IV) Notes payable: - These are payments to banks (commercial) individuals or firms in which
the maker of such notes endorses them in favour of the payee. A typical example of notes payable
is a promissory note which is a short-term marketable debt security in which the borrower promises
to pay a stated sum on a stated future date, also known as one-name paper or commercial paper.
(V) Commercial draft: - It is a short-term credit instrument, it is similar to a promissory note,
except that the payee creates the draft in which the drawer indicates the time on the draft or sight
draft requiring payment on presentation.
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(VI) Bill of exchange: - A bill of exchange is a marketable short time debt security in which one
party (the drawer) directs another party (the acceptor) or draw to pay a stated sum on a stated future
date.
8.2.3.2 Medium term Finance:
This type of finance fills the funding requirements of a firm in the medium term. In essence,
medium term finance is not intended for long- or short-term use. By way of durational
availability, medium term finance can refer to funds made available for use between two and five
years. Generally, such funds are used for acquisition of small tools and light equipment with a few
years’ life span. Medium term financing are debts, often obtained by borrowing. They have
implications for interest payment.
The main sources of medium-term finance are:
A. Bank loans: The requirements for bank loans are usually tedious and cumbersome for young
entrepreneurs to meet, this is not to say it is not possible. According to Kuratko & Hodgetts
(2007) to secure a bank loan, an entrepreneur must be able to provide answers to the five mostly
asked questions together with descriptive commentaries:
❖ What do you plan to do with the money? Do not plan on using funds for a high-risk
venture, Banks seek the most secure venture possible
❖ How much do you need? Some entrepreneurs go to their bank with no clear idea of how
much money they need. All they know is that they want money. The more precisely the
entrepreneur can answer this question; the more likely the loan will be granted.
❖ When do you need it? Never rush to the bank with immediate requests for money with no
plan. Such a strategy shows that the entrepreneur is a poor planner, and most lenders will
not want to be involved.
❖ For how long will you need it? The shorter the period of time the entrepreneur needs the
money, the more likely he or she is to get the loan. The time at which the loan will be repaid
should correspond to some important milestone in the business plan.
❖ How will you repay the loan? This is the most important question. What if plans go awry?
Can other income be diverted to pay off the loans? Does collateral exist? Even if a quantity
of fixed assets exists, the bank may be unimpressed because it knows from experience that
assets sold at a liquidation auction bring only a fraction of their value.
B. Equipment Leasing: This is an arrangement between the owner of certain equipment and the
user of the equipment with the agreement that the user will pay an agreed sum of money for
making use of the equipment This is called “Rent.
C. Hire purchase: Hire purchase normally require the seller or owner of goods to sell some items
to the hirer or buyer on the terms that the hirer or buyer shall pay to the seller a number of
installments until a final installment has been paid when the ownership will be transferred
automatically to the buyer. Hire purchase can also be described as an arrangement in which
the buyer acquires an asset by making a percentage cash deposit at the inception and pays the
balance instalmentally at agreed rates and fixed dates. The buyer takes possession while the
seller retains the ownership until the last installment is paid.
D. Finance Companies: These are asset-based lenders that lend money against assets such as
receivables, inventory, and equipment. The advantage of dealing with a finance company is
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that it often will make loans that banks will not, although the finance houses charge higher
interest rates.
8.2.3.3 Long term finance:

As the name suggests this type of finance require that funds will be at the disposal of the business
venture for a very long period of time. The sources of funds that fall under this category include:
(i) Equity finance/ Shareholders fund: It is the money invested in the venture with no legal
obligation for entrepreneurs to repay the principal amount or pay interest on it. The use of the
equity funding thus requires no repayment in the form of debt. It does, however, require sharing
the ownership and profits with the funding source. Since no repayment is required equity capital
can be much safer and cheaper for new ventures than debt financing, although the entrepreneur
must be ready to give up part of his ownership rights to the willing investors.
(ii) Bonds/ Debenture: These are the instruments issued by a business venture, generally bearing
its common seal, normally called on the face of it a debenture, and providing for the payment of
or acknowledging the indebtedness in a specified sum, at a fixed date, with interest thereof.
Debenture could be secured, mortgaged and unsecured. A debenture is said to be secured when
specific assets of the venture had been pledged as collateral and the holder is given a right of lien
on those assets. A right of lien is a legal right given to the bond holders through the trustee to sell
the assets in respect of the loan in order to obtain the amount of money necessary to satisfy the
unpaid portion of the interest or the principal. While unsecured debentures are bonds issued
without the pledge of any specific type of collateral. Such bonds only have a claim on the earnings
and not assets. In the case of liquidation of the venture the debentures holders are settled first
before the preference shareholders.
(ii) Mortgage financing: Mortgage institutions provides this type of finance, such finance is
usually provided for acquisition of landed property for example purchase of land, purchase of
already completed building, development of new building or renovation of an existing structure.
The duration of payment is usually very long sometimes over 20 years.
✓ Identify any three realistic ways of raising capital for your new business
✓ Personal savings, loans from family members and loan from microfinance banks
8.3 Reasons why entrepreneurs will require Loan facilities
From our discussion so far, you will agree with me that potential, new and existing entrepreneurs
need loan to start or enlarge the volume of their operations in one way or the other. Generally,
entrepreneurs will require credit facilities for the following reasons:
Normal operations: An entrepreneur/small business owner may have to borrow part of the money
to run the business, especially when fund available is not sufficient to profitably run the business
venture.
Expansion purpose: If the business intends to expand existing operation or acquire some highly
sophisticated equipment, such business may be required to look outward to raise needed funds.
Financial difficulties: There may arise some financial difficulties as a result of general economic
depressions which may require business venture to seek financial assistance from any of the
sources already discussed. In addition, accumulation of high bad debts, temporary losses from
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operations and some more fundamental problems may cause a business to look outward for its
finance.
Chapter Summary
In this study session, you have been exposed to the different ways of sourcing funds for business
enterprises. These include criteria for acquisition and allocating fund. The internal and external
sources of fund were described. The problem associated with fund for SMEs from banks were
discussed. Long term funding in terms of equity, bonds/debentures and mortgage financing were
highlighted. The unit is concluded with reasons why entrepreneurs will require loan facilities.
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Chapter 9
Business Accounting
Introduction
Entrepreneurs and successful entrepreneurs need to have basic understand of accounting concepts.
This will help the entrepreneurs understand the fundamentals of the business numerically. The
section covers the components of cash register that is sources of inflow and outflows and its
recording in the cash book, unit sales, cost, price and profit and types of cost
Learning Objectives
By the end of this lesson students should be able to:
❒ Understand the importance and technique of preparing a cash register.
❒ Understand the meaning and concept of the term cash inflow and cash outflow.
❒ Explain the terms – unit cost, unit of sales and unit price.
❒ Explain the concept of profit.
❒ Understand the concept of Cost and its components: start up, fixed and variable cost.
9.1 Cash Register

The importance of cash (money) in business is similar to that of blood in the human or any other
living being. In business, all transactions are made by paying or receiving money (except in barter
trade) or equivalent of cash such as cheques. Sometimes when the businesses have trust in people,
cash does not cross hands immediately but instead they are given what is called “credit” or “loan”
with an understanding that money will be paid at some later date and loan considered paid.
All cash transactions are to be recorded in a book called a cash book or cash register. In
accounting language, the cash book is a book of original entry. The term entry simply means
making a note of the cash received or given. Maintaining a cash book or register is very essential
for every business. Without the entries from the cash Book, no further analysis of expenses, costs,
revenues, profit etc. can be made. Hence maintaining a cash book is very critical for the success
of a business.
9.2 Cash Inflow and Cash Outflow

9.2.1 Cash Inflow
Cash inflow is seen as receipts of money into an entrepreneurs’ business. For a student pocket
money received from parents is cash inflow. Now let us understand some of the ways by which
money comes in to the business and reasons for spending the money by the business.
The following are some ways money comes into the business:
➢ Owners’ Equity: own money invested in the business.
➢ Loan Received: money borrowed from friends, family, relatives, bank etc.
➢ Sales Receipts: money coming in by selling your products or service.
➢ Interest Earned: money coming in the form of interest on the deposits made in the bank.
➢ Rent Received: money coming in by renting out building or room.
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➢ Sale of Assets: money coming in by selling surplus property like furniture, machinery, old
car etc.
➢ Claims Received: money coming in the form of insurance claims like accident claims, fire
claims, maturity of insurance policies, etc.
➢ Government Subsidy Received: money coming in the form of grant paid by the
government. It is a form of financial assistance paid to an individual starting a business.
➢ Sale of Scrap: Money coming in by selling scrap and waste material, selling rejects etc.
Figure 9.1: Business Cash Inflows
Note: Remember that profit is not considered as inflow. Nobody gives money as “profit.” Profit is
being generated in the business. Hence profit is not to be included as “inflow.”
9.2.2 Cash Outflow

Cash outflow is seen as cash payments made. That is how money goes out of an entrepreneur’s
business. The following are list of some of the ways in which money goes out of the business:
➢ Land: purchasing land to start business.

➢ Building: constructing a building or purchasing a building to start business.
➢ Plant and Machinery: investing money in Plant and Machinery to start business.
➢ Furniture and Fixtures: Purchasing furniture and fixtures.
➢ Interior Decoration: Investing money in hiring an interior decorator.
➢ Tools: Purchasing tools for the business which will be utilized in the business.
➢ Computers: Purchasing computers.
➢ Raw Material: Buying of raw materials.
➢ Packing Material: Money required to buy packing material for products.
➢ Transportation: Purchasing a vehicle to be used for transporting raw materials, transporting
your products to the customer’s premises.
➢ Salary and Bonus: The money paid to employees.
➢ Employee Benefits: The perks given to employees like travel allowance, medical benefits
etc.
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➢ Incentives: Payment of incentives to employees based on their performance.
➢ Advertising: Money spent on publicizing the products through newspaper, television,
pamphlets, brochures, public hoardings, etc.
➢ Rent at Premises: Money being spent on paying the rent for the premises used for the
business.
➢ Interest on Loan: Borrowed money on which interest is to be paid.
➢ Insurance Premium: Money paid as premium to the insurance company for covering
various risks.
➢ Travel: Money spent on travelling for the owners and the employees.
➢ Sales Commission: Money given to the employees or agents as commission on sales.
Note: When items are used with longer life in business (furniture, machinery, cars, etc), a part of
its original value is computed as the cost for a given period say a month, year, etc. This is known
as depreciation. However, money is not paid for depreciation‖. So, depreciation is not a cash
outflow. It is a non-cash expenditure.
Figure 9.2: Business Cash Outflow
9.3 Recording Cash Inflow and Outflow

Table 9.1 show a cash book or register written for only cash transactions.
Table 9.1: Cash Register for Cash

Date Description Reference Number Cash Cash Paid (¢) Cash Balance
(Voucher/Bill) Received (¢) (¢)
1 2 3 4 5 6
The balance in the cash register (or the cash box) does not represent the profit. It only shows the
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cash balance of the firm. It is important to write the cash register regularly (daily or even more
frequently) to ensure no transaction is missed out. Every transaction, however small, must be
recorded immediately.
Practical Example
Kofi is an owner of a Hot Bread Shop in University of Mines and Technology. He sells bread and
“soobolo” to UMaT student at his shop. Details of daily transactions for the month of July, 2019
are given below. Suppose that he started his business with an opening balance of Gh¢3000.
(i) On July 1, he buys some furniture and basic supplies that cost him Gh¢1854.30
(ii) On July 2, he pays for 500 loafs of bread at Gh¢0.70per bread.
(iii) On July 2, he sold all the 500 loafs of bread at Gh¢1.00 per bread.
(iv) On July 3, he pays for 750 loafs of bread at Gh¢0.68 per bread.
(v) On July 3, he sold 729 loafs of bread at Gh¢1.00 per bread.
(vi) On July 4, he pays for 900 loafs of bread at Gh¢0.65 and fixed his lap top at a cost of
Gh¢399.70.
(vii) On July 4, he sold 911 loaf of bread for Gh¢1.00 and received loan facility of Gh¢1500.
(viii) On July 5, he pays for 900 loafs of bread at Gh¢0.65 per bread.
(ix) On July 5, he sold 910 bread for Gh¢1.00.
(x) On July 6, he pays Gh¢500 as his weekly wage and Gh¢100 his employee respectively.
Prepare Kofi’s Cash register for the month of July, 2019.
Solution
Kofi’s Cash Register for July, 2019
Date Description Reference Number Cash Cash Paid (¢) Cash Balance
(Voucher/Bill) Received (¢) (¢)
July 1 Opening 3,000.00
Balance
July 1 Buys furniture No. 235, Date 1,854.30 1,145.70
and basic 1/07/19
supplies
July 2 Pays for 500 No. 245, Date 350.00 795.70
loafs of bread at 2/07/19
Gh¢0.70
July 2 Sold 500 loafs No. 0001, Date 500.00 1,295.70
of bread at 2/07/19
Gh¢1.00
Gh¢0.68
of bread at 3/07/19
Gh¢1.00
- 66 -
Gh¢0.65
July 4 Fixed his laptop No. 1234, Date 399.70 530.00
for Gh¢399.70 4/07/19
of bread at 4/07/19
Gh¢1.00
July 4 Received a loan No. 1354, Date 1,500.00 2,941.00
facility of 4/07/19
Gh¢1,500.00
July 5 Pays for 900 No. 301, Date 585.00 2,356.00
Gh¢0.65
of bread at 5/07/19
Gh¢1.00
July 6 Pays his weekly No. 00001, Date 500.00 2,756.00
wage of Gh¢500 6/07/19
July 6 Pays employees No. 00002, Date 100.00 2,656.00
weekly wage of 6/07/19
Gh¢100
TOTAL 4,550.00 4884.00
9.4 Unit of Sale, Unit Cost and Unit Price

Measurement is essential and crucial in any business. It is important to measure sales, costs, price
and profits. Without a common standard or yard stick, it would be difficult, if not impossible, to
manage an entrepreneur’s business meaningfully. So (unit of sale, unit of cost, etc.) is an important
concept and it is the heart of any business.
“Unit of Sales” can be defined as the measure of what products are sold. Example, unit of sale for
shoes is a pair of shoes, rice is kilogram, oil is liters, fabric is yards, gari is olunka, etc. Unit of
sales enhances the economics of the business understanding and easy standardization and
comparison of the business performance using historical data.
“Unit Cost” can be defined as the cost incurred by a company to produce, store and sell one unit
of sale of a particular product or service. Example retailing Hot Bread, the unit cost consists of:
cost of bread, packaging of the bread, advertising of the bread, and labour cost.
“Unit Price” is the price at which one unit of sale is sold. Example the amount charge for a hot
bread.
“Gross Profit” is the excess of unit price over unit cost.
Gross Profit per Unit = Unit Price – Unit Cost
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9.5 Types of Cost
Let differentiate between expenditure and expense.
Expenditure is a payment or disbursement. The expenditure may be for the purchase of an asset
like buying machinery, paying dues for items bought on credit, a distribution to the owners, buying
raw material, paying for advertising, salaries, etc. In simple terms, expenditure can be equated to
outflow of money (not just cash but including cheque payment).
An expense is the value of the resource that was used up, or was necessary in order to earn the
revenues during the time period. For example, the cost of the goods that were sold during the
period are considered to be expenses along with other items such as advertising, salaries, interest,
commissions, rent, and so on.
The distinction between expenditure and expense is expenditure is the outflow of money for the
purpose of making various payments. Expense is a subset of expenditures.
Cost incurred to start and run a business can be grouped into two: Start- up and Operational
(which will include fixed and variable costs).
9.5.1 Start-up Cost

Start-up cost is the cost which is incurred initially a business is started. It consists of expenses for
acquiring assets as well as initial raw material and other related items, till such time the cash flow
(i.e. money coming in and money going out) from the business can provide for these. The start-up
cost is also referred to as working capital.
The following is a list of some of the items to be bought to start your business:
➢ Land: Acquiring land to set up your business.
➢ Building: Constructing building to start your business.
➢ Computers: Purchasing computers.
➢ Equipment: Investing money in purchasing equipment.
➢ Machinery: Buying and installing machine.
➢ Vehicles: Buying vehicles used for transportation purposes.
➢ Vessels: The vessels which will be used in case of catering business.
➢ Software: The software needed to be installed in computer.
➢ Registration: For registering the company.
➢ Inauguration Ceremony.
➢ Raw Materials: Purchasing raw materials for a manufacturing business
➢ Salary during initial period.
➢ Rent Advance: Money to be paid as advance to the landlord.
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9.5.2 Operational Costs,
Operational cost is the cost incurred during the day-to-day operations of the business or enterprise.
These can be broadly categorized into two groups fixed and variable costs.
9.5.2.1 Fixed Cost

Fixed cost is a cost that does not change with increase or decrease in the amount of goods or
services produced or sold. It is important to remember that fixed costs are “fixed in nature” and
not necessarily “fixed in amount.” For example, rent is fixed per month, till it is revised by
negotiation
The following is a list of some of the items on which expenses will remain fixed in nature:
➢ Consultancy Charges
➢ Travel
➢ Salary
➢ Wages
➢ Rent
➢ Employee welfare
➢ Advertising
➢ Insurance premium
9.5.2.1 Variable Cost

Variable costs are costs that changes as the quantity of the good or service that a business produces
changes. In fact, a true variable cost will vary in exactly the same proportion as the output. An
example of a variable cost for a bakery would be the cost of flour, sugar, baking powder etc.
The following is a list of some of the items for which the costs incurred are variable:
➢ Raw Materials
➢ Packing Material
➢ Freight inward and outbound
➢ Sales Commission
➢ Royalty
➢ Factory Power
➢ Piece rate: Wages paid based on production
Chapter Summary
As entrepreneur’s business grow the need for basic accounting becomes dear for the entrepreneur.
His / Her knowledge in money inflow and outflow to business and how to record them put his/her
business in an easy credit accessing position. Besides, knowing the types of cost helps to reduce
cost of production and maximizing cost of sales.
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Chapter 10
Project Management
Introduction
A Project simply means an investment opportunity exploited for profit. It is an idea or plan which
is intended to be carried out or a finite task to be completed. In the words of Gillinger “Project is
a whole complex of activities involved in using resources to gain benefits.” The World Bank
defines a project as ‘an approval for a capital investment develops facilities to provide goods and
services.’ Project management is the process of planning, organizing, monitoring and controlling
of all aspects of a project and motivating all involved to achieve project objectives of safety and
completion within a defined time, cost and performance. Harrison and Lock (2004) has defined
project management as,” the achievement of a project’s objectives through people, and involves
organizing, planning and control of the resources assigned to the project together with the
development of constructive human relations with all those involved, both in company and with
the other companies involved.”
Learning Objectives
By the end of this lesson students should be able to:
❒ List the characteristics of a project.
❒ Classify a project and explain a project life cycle.
❒ Identify the phases of a project. different classifications of external sources of funds.
❒ Identify the objectives, roles and responsibilities of a project manager.
❒ Appraise and acquainted with project reports.
10.1 Characteristics of a Project

A project is undertaken to achieve a purpose. The following are the characteristics of a project.
❖ A project involves investment of money and money’s worth.
❖ The objective of a project is to earn profit.
❖ It is concerned with production of goods and services.
❖ Every project has risk and uncertainty associated with it.
❖ It has a fixed set of objectives.
❖ It is subjected to a lot of change.
❖ It has a definite beginning and an end.
❖ It has a life cycle reflected by growth, maturity and decay.
❖ It is combination of various elements such as technology, equipment, materials, machinery
and people.
❖ A project requires team work.
10.2 Classification of Projects

The different classifications are explained below:
A) Quantifiable and Non-Quantifiable Project :

Quantifiable projects are those in which quantitative assessment of benefits can be made. Projects
for industrial development, power generation, mineral development etc. fall under this category.
- 70 -
Non-quantifiable projects are those in which the benefits cannot be measured quantitatively.
Projects involving health, education and defense fall under this category.
B) Sectoral Projects:
A project may fall in the following sectors:
(i) Agriculture and allied sector.
(ii) Irrigation and power sector.
(iii)Transport and communication sector.
(iv) Industry and mining sector.
This classification is useful for resources allocation at macro levels.
C) Techno-Economic Projects:
Projects may be classified into the following three groups:
➢ Factor Intensity Oriented Classification: Project may be classified as Capital intensive
or Labour intensive. If large investment is made in plant and machinery the project will be
called Capital intensive. If large investment is made in human resources, the projects will
be termed as Labour-intensive.
➢ Causation Oriented Classification: It is classified as demand based or raw material based
projects. If a project is started by an entrepreneur due to non-availability of certain goods
or services and consequent demand for such goods or services the project is said to be based
on demand. If project is started by an entrepreneur simply because of the availability of
certain raw materials, skills or other inputs, the project is said to be based on raw material.
➢ Magnitude Oriented Classification: The size of investment forms the basis of
classification. May be classified as Large-scale, Medium-scale and Small-scale.
D) Financial Institutions Classification:

The projects are classified according to their age and experience and the purpose for which the
project is being taken up. They are as follows:
I) Profit Oriented Projects:
a) New projects.
b) Expansion projects.
c) Modernization projects.
d) Diversification projects.
II) Service Oriented Projects:

a) Welfare projects.
b) Service projects.
c) Research and development projects.
E) According to the Urgency of the Execution:

It is classified into three. They are as follows:
✓ Normal Projects: In this type of project adequate time is allowed for implementation. This
type of project will require minimum capital cost.
✓ Crash Projects: Additional capital costs are incurred to save time. It is normally achieved
in procurement and construction where time is brought from vendors and contractors by
paying extra money to them.
- 71 -
✓ Disaster Projects: Vendors who can supply within a very short time are selected
irrespective of the cost. Naturally capital cost will go up very high but projects time will
get much reduced.
10.3 Project Life Cycle

The project is initiated to achieve a mission and is said to be completed when the mission is
achieved. The project lives between these two cut off periods and this intermediate time is called
Project Life Cycle. Project life cycle consists of the following three stages:
❖ Pre-Investment Phase: It is concerned with formulation of objectives, demand

forecasting, evaluation of input characteristics, selection of strategy, projections of
financial profile, cost benefit analysis and finally pre-investment appraisal. Some
expenditure has to be incurred in the form of conducting surveys, feasibility studies etc.
❖ Construction Phase: This stage consumes maximum expenditure. Construction phase
consists of developing the infrastructure for the project. The capital requirement includes
cost on land, buildings, civil works, machinery equipment, ancillaries etc.
❖ Normalization Phase: The primary objective of this stage is to produce the goods and
services for which the project was established. The expenditure has to be incurred on raw
materials, fuel, utilities, and administration and operation maintenance. Etc.
According to Cleland and King (1968) a project passes through the following phases:
i. Conception phase.
ii. Definition phase.
iii. Production.
iv. Observation.
v. Divestment.
vi. Post-Mortem.
The following figure (9.1 and 9.2) model of the project life cycle that is suitable for any type of
project.
Figure 9.1 Archibald’s Project Life Span
- 72 -
Figure 9.2 Stuckenbruck’s Government System Life Span
Stuckenbruck also tabulates what must be done in each phase by both top management and as the
project mature, by the project manager as shown is Table 9.1.
Table 9.1 Stuckenburck Project Phase Action
- 73 -
10.4 Phases of Project Management
It consists of the following stages:
1. Project Identification: It refers to identification of business/investment opportunities. It

involves scanning of the environment to find out investment opportunities.
2. Project Formulation: It is the translation of the idea into concrete project with scrutiny of its
important preliminary aspects.
3. Project Appraisal: It involves searching, scrutiny, analysis and evaluation of market, technical,
financial and economic variables. It examines the viability of the project.
4. Project Selection: It is the process of choosing a project rationally in the light of objectives and
inherent constraints on the basis of appraisal.
5. Project Implementation: It is the stage of birth of an enterprise. At the end of this stage, the
idea becomes a reality.
6. Project Follow Up and Evaluation: It is the process of assessing the performance of the project
after it started functioning. Project evaluation simply means assessing the progress of the project.
10.5 Objectives of Project Management

The ultimate objective of project management is to attain the objectives for which the project has
been undertaken. The other objectives of project management are as follows:
1) To achieve maximum productivity at minimum cost.

2) To maximize income and return.
3) To minimize risk and uncertainty.
4) To eliminate waste and improve efficiency.
5) To make the most efficient and effective use of resources- manpower, money, materials,
technology etc.
10.6 Roles and Responsibilities of Project Manager

The following are the roles and responsibilities of a project manager:
1) Managing personnel.
2) Satisfy government, customer, promoters and public.
3) Coordinating and integrating activities across multiple functional lines.
4) Defining and maintaining the integrity of the project.
5) Setting targets and development of systems and procedures for accomplishment of project
objectives.
6) Developing project execution plan.
7) Coping with risk associated with project management.
8) Managing human interrelationships.
9) Maintaining the balance between technical and managerial project functions.
- 74 -
10.7 Need of Project Management
The need for project management arises due to the following reasons:
1) Complexity of Project: Project involve time, effort, money etc. If there is any fault in planning
or implementation of projects, the resources put in the projects would be a waste.
2) Achievement of Objectives: Unless projects are managed well, the objective for which the
projects are undertaken cannot be achieved.
3) Environmental Changes: A project should be well equipped to meet the environmental

challenges. The success of the project depends upon how the project is able to cope with the
changing environment.
4) Competition: To face out the competition provision of a good or a service is not sufficient. It
must provide a package which meets an entire need rather than just part of that need.
5) Constraints: The constraints relate to time, materials, demand, labour etc. The success of a
project depends on how well it is possible to manage the so-called constraints.
6) Risk and Uncertainty: At every stage of project life cycle there are challenges and problems.
As the project moves new challenges and problems may arise. The risks and uncertainties cannot
be eliminated but can be minimized through proper management of project.
7) Time Overrun and Cost Overrun: If a project takes more time than the scheduled time, it is
known as time overrun. If a project incurs more costs than budgeted, it is called cost overrun.
8) Project Control and Evaluation: It is done either at the end of the project or few years after
the completion of the project. This enables to learn lessons from the projects.
10.8 Project Appraisal and Evaluation

The project has to be appraised in relation to the feasibility of the technical, economic, financial,
commercial, managerial, social and other aspects of the project. It is defined as critical and careful
second look at the project by a person not associated with the project preparation. The objective
of a project appraisal is to decide whether to accept or reject an investment proposal.
10.8.1 Elements of Project Appraisal

There are mainly seven aspects of project appraisal. They are:
1) Technical Feasibility: It includes detailed estimates of the goods and services needed for the
project- land, machineries and equipments, raw material, trained labour etc. Location of the project
should be given special attention in relevance to technical feasibility. Another important feature of
technical feasibility relates the type of technology to be adopted for the project.
2) Economic Viability: It is a study on capital cost, working capital, operating cost and revenue,
marketing, profitability etc. It also includes an appraisal of anticipated demand and capacity
utilization.
- 75 -
3) Commercial Viability: The appraisal of commercial aspects of a project involves a study of
the proposed arrangements for the purchase of raw materials and sale of finished products etc. The
main objective is to see that the proposed arrangements will ensure that the best value is obtained
for money spent.
4) Financial Feasibility: It seeks to ascertain whether the project is financially viable regarding
the cost of project, cost of production and profitability, cash flow estimate and Performa balance
sheet. It will study whether the project will satisfy the return expectations of those who provide
the capital.
5) Managerial Competence: Proper evaluation of managerial ability and talent is an essential part
of appraisal of a project. While evaluating the management, back ground of the entrepreneur and
promoters, their character and integrity, past record of promotion etc. are studied.
6) Social Consideration: The social objective of a project is considered keeping in view of the
interests of the public. The projects which offers large employment potential, which are located in
backward areas or projects which will stimulate small industries or growth of ancillary industries
are given special consideration.
7) Ecological Analysis: It is necessary to ensure whether the project causes pollution, whether it
disturbs the equilibrium of ecology and whether it fits into the environment.
8) Project Risk Analysis: Project face a host of risk such as project completion risk, resource risk,
price risk, technology risk, political risk, interest rate risk etc. An analysis of such risks is helpful
in the appraisal of a project.
10.9 Project Report

A project report may be defined as a document with respect to any investment proposal based on
certain information and factual data for the purpose of appraising the project. It states as to what
business is intended to be undertaken by the entrepreneur and whether it would be physically
possible, financially viable, commercially profitable and socially desirable to do such a business.
Project report is an essential document for procuring assistance from financial institutions and for
fulfilling other formalities for implementation of the project. The project report (Detailed
Feasibility Report) is based on a preliminary report or pre-investment report. Thus, the project
report is a post investment decision report.
Chapter Summary
An entrepreneur success depends on his/her ability to execute project effectively and cost efficient.
This section equips the entrepreneur with basic tool of project management. The section walks an
entrepreneur through how to classify a project, the project life cycle, project management and other
project activities.
- 76 -
References
Aluko, M., O. Odugbesan, G. Gbadamosi, L. Osuagwu (1998), Business Policy and Strategy, Lagos,
Ikeja: Pumark Nig. Ltd.
Anon (2018), https://en.wikipedia.org/wiki/Lateral_thinking retrived 26/1/18

Brown, D. (2005), Critical Thinking Techniques, IRM Training-White Paper,
https://www.miun.se/siteassets/fakulteter/nmt/summer-university/creativethinkingpdf
Business-Plan (2010).”SWOT Analysis”. http://www.businessplan.co.za/swotanalyse.html
Bygrave, W. and Zacharakis, A (2010). Entrepreneurship Second Edition, John Wiley & Sons, Inc.,
633 pp., ISBN 978-0-470-45037-6.
Cleland, D.I. and King, W.R., 1968. Systems analysis and project management New York: McGraw-
Hill.
Dibb,S., L. Simkin, W.M. Pride, and O.C. Ferrell (1991), Marketing, London: Houghton Mifflin Co.
Dixon-Ogbechi, B.N. (2003), The Fundamentals of Business Policy and Strategy, Lagos: Philglad
Nigeria Ltd.
Dollinger, M. J. (2008). Entrepreneurship: Strategies and Resources Fourth Edition, Marsh

Publications Lombard Illinois, U.S.A, 601 pp., ISBN 978-0-9713130-6-4.
Harrison, F.L. and Lock, D., 2004. Advanced project management: a structured approach. Gower
Publishing, Ltd.
Havinal, V. (2009), Management and Entrepreneurship, New Age International (P) Ltd. Publishers,
New Delhi, India, 195 pp., ISBN (13): 978-81-224-2659-5.
Kazmi A. (2004). Business Policy and Strategic Management 2nd edition, New Delhi: Tata McGraw-
Hill Publishing Company Ltd. pp. 62-93
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University System, http://nou.edu.ng/uploads/fileuploads/69Jvd1jBzG1437568547.pdf.
Nickels, William G., Mchugh, James M. & Mchugh, Susan M. Understanding business7th Edition,
McGraw – Hill Irwin, pp. 140 -170.
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Management: An Entrepreneurial Approach 9th Edition, Pearson Prentice Hall, New Jersey, pp. 74 –
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International Thompson Business Press.
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University of Mines and

1.1 Concept of Entrepreneur

Its evolution is as follows:

1.1.1 Entrepreneur as Risk Bearer

1.1.2 Entrepreneur as an Organizer

1.1.3 Entrepreneur as an Innovator

1.2 Other Definitions of Entrepreneur

2. Marx regarded entrepreneur as social parasite.

5. Frank Young defined entrepreneur as a change agent.

1.3 Characteristics of Entrepreneur

Table 1.1: Personal Entrepreneurial Characteristics

Core Competencies Entrepreneurial Activities

1.4 Functions of an Entrepreneur

1.4.1 Idea Generation

1.4.2 Determination of Business Objectives

1.4.3 Raising of Funds

1.4.4 Procurement of Machines and Materials

1.4.5 Market Research

1.4.7 Recruitment of Manpower

1.4.8 Implementation of the Project

1.5 Risks Involved with Entrepreneurship

1.5.1 Financial Risk

1.5.2 Personal Risk

1.5.3 Carrier Risk

1.5.4 Psychological Risk

1.6.1 The Type of Business.

1.6.1.1 Business Entrepreneur

1.6.1.2 Trading Entrepreneur

1.6.1.3 Industrial Entrepreneur

1.6.1.4 Corporate Entrepreneur

1.6.1.5 Agricultural Entrepreneur

1.6.2 The Use of Technology

1.6.2.1 Technical Entrepreneur

1.6.2.2 Non-Technical Entrepreneur

1.6.2.3 Professional Entrepreneur

1.6.3.1 Pure Entrepreneur

1.6.3.2 Induced Entrepreneur

1.6.3.3 Motivated Entrepreneur

1.6.3.4 Spontaneous Entrepreneur

1.6.4 Entrepreneurial Activity

1.6.4.2 Serial Entrepreneur

1.6.4.3 Portfolio Entrepreneur

1.6.5 Clearance Danhof’s Classifications

1.6.5.1 Innovative Entrepreneur

1.6.5.2 Adoptive or Imitative Entrepreneur

1.6.5.3 Fabian Entrepreneurs

1.6.5.4 Drone Entrepreneurs

1.6.6 The Scale of Enterprise

1.6.6.2 Large Scale

1.7 Distinction between Entrepreneur and Manager

Table 1.2: Distinction between Entrepreneur and Manager

Table 1.3: Difference between Entrepreneurs and Intrapreneurs

2.1 Concept of Entrepreneurship

“Entrepreneurship is the attempt to create value through recognition of business

Some characteristics of vertical thinking;

2.3.2 Creative Thinking

Some characteristics of creative thinking;

2.3.2.1 Barriers to Creative Thinking

2.3.2.2 Creative Thinking Techniques

To be successful, brainstorming sessions need a good chairperson. It is vital that no discussions

2.3.2.2.2 The Six Thinking Hats

Fig. 2.1: Concept of Entrepreneurship

Table 2.1: Relationships between entrepreneur and entrepreneurship