5.

ESSENTIALS OF BUSINESS OWNERSHIP

ENTERING THE BUSINESS ENVIRONMENT

One can go into business through various forms

 A new start up
 Franchise
 Buying an already existing business
 Inheriting a business

Start up

This involves creating a new business from scratch, but this does not mean that the idea
necessarily new.

Owner entrepreneurs prefer to start a business from scratch because it is their own creation and
they can be proud of it!!

Advantages

 No predetermined formulas or rules to follow, therefore its much less rrestrictive as

compared to a franchise
 The owner has full control of all aspects of the business, including location, standards of
operation
 The entrepreneur may draw from previous their job some experience, skills and passion
to help them establish the business
 Enables the owner to design and create a unique business climate and image.

Disadvantages

 Startup businesses are typically more costly and risky since there is no proven formula
 It is not always easy to attract an effective team to start with
  All the details of starting the business are the responsibility of the owner e.g. coming up
with the business plan, licensing , product sourcing, etc
 Lack of credit worthiness is a serious barrier to financing
 It takes time to be established and be known.
 Increasing the chances of startup success
 Start the business in a business incubator
 Take time in a mentoring program
 Have a detailed start up budget
 Produce a product or service fro which there is a proven demand/ have established
customers
 Have experience in managing small ventures

Franchise

This involves starting a business within the framework of an existing larger business entity.

This is a form of business ownership created by contract whereby a company grants to a buyer
the rights to engage in selling or distributing its products or services under a prescribed business
format in exchange for royalties or shares of profits

The franchisor (owner) sells the rights to the franchisee and receives a fee for ongoing
support ,therefore having a vested interest in the success of the franchise.

A franchisor expands through a network of income producing enterprises that share a common
name, use common materials, sell similar products, and benefit from integrated distribution
systems and national brand name advertising.

Advantages

 The franchisee has a protected market

 A proven business opportunity, i.e. guaranteed supplies, systems already in place as well
as the market
 Access to management expertise through management training and technical assistance
 The experience of the franchiser makes up for the inexperience of the new entrepreneur
  An already established corporate image and brand awareness
 Financial support from franchisers
 Reduced changes of failure as compared to new start up

Disadvantages

 Its not the entrepreneur’s own creation

 They can be costly to implement e.g the charging of ongoing royalties cuts on profits on
franchises
 Too much control and restrictions which limits creativity on the part of the franchise i.e
lack of independence
 Standardisation of products and services to create a uniform image to customers limits
creativity
 Regular disclosure of information by the franchisee to protect royalties can be intrusive to
the financial affairs of the franchisee.
 Brand image of the franchiser can become a distinctive liability if things go wrong.

Buying an existing business

This is an outright purchase of an existing business

Advantages

 Business processes are already in place

 Established customers, employee, suppliers and facilities
 The entrepreneur can capitalise on the experience of the previous owner
 The established enterprise may have an ideal or the best location
 It can be a bargain!!
Disadvantages

 It is difficult to find a successful business for sale that is appropriate for an entrepreneur’s
needs. The business may have reached its maturity stage already and starting to decline
 Existing employees may resist change , or they may just be unsuitable for the new
entrepreneur
 There are high chances of buying something obsolete, such as equipment
 Performing due diligence can be time consuming and costly

Due diligence is the process of investigating a business to determine its value.

When buying an existing business it is important to ask 5 critical questions

1. Why does the owner want to sell?

2. What is the physical condition of the business?
3. What potential is the business left with?
4. What legal aspects should be considered?
5. Is the business financially sound?

Inheriting a business

Family owned businesses usually fail after the retirement or death of the founder.

There is lack of proper succession planning in small entrepreneurial ventures.

Clever entrepreneurs know the art of imparting their vision to their desired successors and they
mentor them on how they (the successors) should pursue the vision when the entrepreneur
retires.

Types of ventures

The appropriate legal and organizational format used to establish a new venture will vary
according to several factors such as context, people, legal and tax consequences, and cultural and
social norms. In this chapter, we consider the various organizational and legal forms that
entrepreneurs employ to achieve their objectives.. The most common business types include:
  Sole proprietorship
 Partnership
 Company
 Corporation

Government agents requirements in starting and running a business

 NATIONAL SOCIAL SECURITY AUTHORITY (NSSA)

 CITY COUNCIL
 ENVIRONMENTAL MANAGEMENT AUTHORITY (EMA)
 ZIMBABWE REVENUE AUTHORITY (ZIMRA)

 ZIMBABWE MANPOWER DEVELOPMENT FUND (ZIMDEF)

Exercise

Getting a License or Permit to Start a Business

When starting a business, be sure that you have all the required licenses and permits, keeping in
mind that you may need licenses from local government agencies.

Business activities that are regulated locally include auctions, construction, dry cleaning,
farming, plumbing, restaurants, retail, and vending.

 Select a business in a regulated industry and research what would be needed to start the
venture in a specific location.

Understand the importance of ethics and social responsibility in operating venture.

Ethics

Learning Objectives

1. Define ethics.
2. Explain business ethics.
3. Describe small business ethics.
4. Understand why a small business should have an ethics policy.
5. What are the Costs of Unethical Business Conduct?

Ethics are about doing the right thing. They are about well-based standards of right and wrong
that prescribe what humans ought to do—usually in terms of rights, obligations, benefits to
society, fairness, or specific virtues.

Business Ethics

Business ethics is applying the virtues and discipline of ethics to business behavior. They set the
standard for how your business is conducted and define the value system of how you operate in
the marketplace and within your business.

As businesses interact with society a shared interest and interdependence develops between the
business and other groups as the organization is interacting with stakeholders (Freeman, 1984).
These stakeholders refer to the people and groups affected by or whom can affect a business’
operations, policies, and decisions (Twomey & Jennings, 2011), and stakeholder power,
especially consumers, has become more important in the 21st century where the power in the
market has shifted from producers and sellers to buyers and consumers

Business Ethics Violations

Companies who violate the ethical standard might face the judgement of law and criticism of the
public. Legally, an act is not a criminal act until proven guilty; many businesses abide the law,
however their actions wouldn’t be called ethical. When a business violates the law, it also
violates the business ethics standard. The most common legal cases against big corporations
often are:
PROPOSED SOLUTIONS OR RECOMMENDATIONS IN MEETING ETHICAL
CHALLENGES

 Training in Business Ethics and Morality

 Develop a Professional Code of Ethics
 Legal Requirements: Good Faith
 Know and obey the law (Emerson, 2009).
 Conduct business in good faith and make goodwill a broad philosophy of doing business.
 Emphasize and value business relationships (Weinstein, 2012).
 Engage in practices that will demonstrate that the business values and wants to retain
customers and employees, as well as grow its customer base (Peppers & Rogers, 2004).
 Exercise moral courage by doing the right thing (Sims, 2013), even if its costs the
business in terms of losses or decreased profits.
Social responsibility in operating venture.

Business ventures are a unit of society in which they operate. These enterprises depend on
society for the needed resources like men, material, capital and also for selling their products. In
fact, business depends on the society for its existence, growth and promotion. Hence
entrepreneurs have a definite social role and responsibility towards the society. Social
responsibility denotes the responsibility of the business towards various sections of the society.
Businessmen must consider wider public interest while taking business decisions.

In the words of Adolph Berle, “Social responsibility is the business’s responsiveness to public
consensus, i.e., the obligation of the business to meet those demands and aspirations of the
society about which there is public consensus.”

H.R. Bowen defines as “Social responsibility is the obligation to pursue those policies, to make
those decisions or to follow those lines of action which are desirable in terms of objectives and
values of our society,”

Nicholas Sirpolis has defined social responsibility as: “The circle of care and concern that a
business has for the well-being of society.”

Causes of Growing Concern for Social Responsibility

 Success in Competition

 Consumer Movement

 Protection to Existence

 Increase in Profits

 Expansion and Development of Business

 To Provide Maximum Satisfaction

ADVANTAGES OF SOCIAL RESPONSIBILITY IN OPERATING A VENTURE

  Social responsibility doubles as marketing.

 It attracts investment.

 Improves your team motivation and productivity

 Improves employee retention and attracts better candidates

 Is seen by customers as a competitive edge

 Provides governance flexibility and financial grant opportunities

ARGUMENTS “AGAINST” ENTREPRENEUR’S SOCIAL RESPONSIBILITY

 Reduction in Total Profits : It is thought that diverting resources away from the firm to
socially responsible programmers may undermine the competitive strength of
entrepreneur.
 Financial Burden: Social obligations can be very expensive and may cause entrepreneurs
to forgo attractive business investments or even to go out of business.
 Dilution of Purpose : The pursuit of social goals may dilute the economic productivity of
the business enterprise.
 Challenges in Capital Formation
 Dilution in the Reputation of Business
 Increase in Financial Load

6. CREATIVITY AND INNOVATION

In today’s fast-moving and high-technology environment, the focus on quality has given way to
a focus on creativity and innovation. High quality is now a given for products and services.

Competition is fiercer and more intense than ever before. Technology breakthroughs can be
transferred to any part of the world in a matter of days.
The key to being competitive is staying ahead of the competition. That means coming up faster
with more competitive products and services than the competition. The problem that every
organization—be it public or private, profit or nonprofit, product or services—has is a need to
have more innovative ideas effectively implemented.

Majaro (1988:27) differentiates between creativity and innovation as constructs. Creativity is the
thought process that leads to the development and generation of ideas. Innovation is the practical
implementation of the idea concept to ensure that the set aims on a commercial, profitable basis
are met, in line with a specific opportunity in the market environment. Innovation is therefore
ideas that seem to be newer, faster, more cost effective and possibly more aesthetical.

Creativity involves an ability to come up with new and different viewpoints on a subject. It
involves breaking down and restructuring our knowledge about the subject in order to gain new
insights into its nature. ‘It is your ability to combine ideas in a unique way or to make useful
associations among ideas. Involves the development of UNIQUE & NOVEL responses to
problems / opportunities” “ability to combine ideas in a unique way”. The ability to make or
otherwise bring into existences something new, whether a new solution to a problem, a new
method or device, or a new artistic object or form”\“new and useful”

Creativity is a quality which exhibits itself in the way in which people conduct their lives.
People who exhibit creative behaviour:

 challenge the status quo

 confront assumptions
 exhibit curiosity
 like to investigate new possibilities
 tend to take the initiative in most matters
 are highly imaginative
 are future-orientated
 tend to think visually
 see possibilities within the seemingly impossible
 are not afraid of taking risks
 are prepared to make mistakes
  are adaptable to different work environments
 are adaptable to changing circumstances
 see relationships between seemingly disconnected elements
 distil unusual ideas down to their underlying principles
 synthesise diverse elements
 are able to spot underlying patterns in events
 are able to cope with paradoxes
 look beyond the first ‘right idea’

How to Foster Creativity within Your Organization

There are several smaller steps leaders can take to make a big change on their organization. Here
are five ways you can foster creativity within your own team:

1. Reward Creativity

2. Hire the Right People

3. Try the “Yes, And…” Approach

 One method for spurring creative brainstorming is trying a technique used in

improvisational theater: “Yes, and…” The approach encourages colleagues to build off
their peers’ thoughts by first agreeing and then adding something to the discussion.
Taking “no” off the table ensures all ideas are heard.

4. Try Flexible Work Hours

5. Give Employees Time to Recharge

 With creativity can also come burnout. Employees need time to step back and hit the
refresh button. Companies do need to take burnout into consideration

Defining innovation

1. any new and unique idea

2. a new and unique idea that is produced and delivered to an external customer who is
willing to pay more for it than the cost to provide it plus a reasonable profit margin for
the supplier.
3. The process of translating an idea or invention into an intangible product, service, or
process that creates value for which the consumer (the entity that uses the output from the
idea) is willing to pay more than the cost to produce it.”
If you use the first definition of innovation, almost all organizations are innovative
organizations. If you use the second definition of innovation, less than 5% of the
organizations could be considered innovative. More than 95% of the new and unique
ideas that are generated within most organizations never complete the consumer to
deliverables cycle and produce a profit for the organization.

Innovate vs create
• Creative—Using the ability to make or think of new things involving the process by
which new ideas, stories, products, etc., are created.
• Create—Make something; to bring something into existence.
• The difference between creativity and innovation is that the output from the innovation
has to be a value-added output, while the output from creativity does not have to be value
added.
DEFINING AND INNOVATOR
The following are five different definitions of an innovator:
1. An innovator is an individual who creates a unique idea that is marketable.
2. An innovator is an individual or group that creates a unique idea and is able to guide it
through the processes necessary to deliver it to the external customer.
3. An innovator is a person who has the capability to create unique ideas and has the
entrepreneurship to turn these ideas into output that is marketed.
4. An innovator is a person who creates a unique idea and uses the facilities available to
produce an output that is marketable.
 5. An innovator is an individual who creates a unique idea that is marketable and guides
it through the development process so that its value to the customer is greater than the
resources required to produce it.
Definitions interpretation
• From the definitions the innovator must be capable of:
• Defining an unfulfilled need
• Creating a solution for the unfulfilled need
• Developing a value proposition
• Getting the value proposition approved by management, if it relates to an established
organization
• Getting the project funded
• Establishing an organization to produce the output
• Producing the output
• Marketing the output
• Selling the output
• Evaluating the success of the project
Basically innovator is “a person who identifies an unfulfilled need, creates ideas that
will fulfill the unmet need, and incorporate the skills of an entrepreneur

Broad forms of innovation

• Innovations can take an incremental or radical form as regards their effects on existing
economic structures:
• Incremental innovation - Minor change at the industry level
• Radical innovation - Major change at the industry level
• Change in technological system - New industry and/or change at the intersectoral level
• Change in techno-economic paradigm - New industry and/or change at the intersectoral
level with heavy socioeconomic consequences

TYPES OF INNOVATION

# Innovation Description
 Type

1. Profit Model How you make money

2. Network Connections with others to create value

3. Structure Alignment of your talent and assets

Signature of superior methods for doing your

4. Process
work

Product
5. Distinguishing features and functionality
Performance

Product
6. Complementary products and services
System

Support and enhancements that surround your

7. Service
offerings

How your offerings are delivered to customers and

8. Channel
users

9. Brand Representation of your offerings and business

Customer
10. Distinctive interactions you foster
Engagement

Innovation vs Invention
• In the Theory of Economic Development, Schumpeter distinguished between the
invention and innovation. The invention is the discovery of a new technical knowledge
and the innovation is its application to industry.
 • The innovation, in its broader sense, is the introduction of new technical methods, new
products, and new sources of supply and new forms of organization.
• Invention is used in order to define a fundamental technological change, the apparition of
which is usually depending on scientific changes which would affect our way of life.
• Innovation expresses the way that aims to derive anticipated benefits from change and
concerns new commercial uses that the decision-making unit perceives to be profitable in
economic terms.
• The innovation can be a new idea, new practice, method, or process, product, or market
opportunity.

Creativity, Innovation, and Invention

Concept Description

Creativity ability to develop something original, particularly an idea or a

representation of an idea, with an element of aesthetic flair

Innovation change that adds value to an existing product or service

Invention truly novel product, service, or process that, though based on ideas and
products that have come before, represents a leap, a creation truly novel and
different

Drucker’s Seven Sources of Innovation

Source Description

The unexpected Looking for new opportunities in the market; unexpected product
performance; unexpected new products as examples

The incongruity Discrepancies between what you think should be and what is reality
 Source Description

Process need Weaknesses in the organization, product, or service

Changes in New regulations; new technologies

industry/market

Demographics Understanding needs and wants of target markets

Changes in Changes in perceptions of life events and values

perceptions

New knowledge New technologies; advancements in thinking; new research

The Creative Process: The Five Stages of Creativity

Raw creativity and an affinity for lateral thinking may be innate, but creative people must refine
these skills in order to become masters in their respective fields. They practice in order to apply
their skills readily and consistently, and to integrate them with other thought processes and
emotions. Anyone can improve in creative efforts with practice. For our purposes, practice is a
model for applied creativity that is derived from an entrepreneurial approach. It requires:

1. Preparation (problem assessment)

2. Incubation (conscious and unconscious mental dynamic)
3. Insight (new idea conception)
4. Evaluation (new idea conception)
5. Elaboration (evaluation of idea/s).
Preparation

Preparation involves investigating a chosen field of interest, opening your mind, and becoming
immersed in materials, mindset, and meaning. If you have ever tried to produce something
creative without first absorbing relevant information and observing skilled practitioners at work,
then you understand how difficult it is. This base of knowledge and experience mixed with an
ability to integrate new thoughts and practices can help you sift through the ideas quicker.
However, relying too heavily on prior knowledge can restrict the creative process. When you
immerse yourself in a creative practice, you make use of the products or the materials of others’
creativity. For example, a video-game designer plays different types of video games on different
consoles, computers, and online in networks. They may play alone, with friends in collaboration,
or in competition. Consuming the products in a field gives you a sense of what is possible and
indicates boundaries that you may attempt to push with your own creative work. Preparation
broadens your mind and lets you study the products, practice, and culture in a field. It is also a
time for goal setting. Whether your chosen field is directly related to art and design, such as
publishing, or involves human-centric design, which includes all sorts of software and product
design efforts, you need a period of open-minded reception to ideas. Repetitive practice is also
part of the preparation stage, so that you can understand the current field of production and
become aware of best practices, whether or not you are currently capable of matching them.
During the preparation stage, you can begin to see how other creative people put meaning into
their products, and you can establish benchmarks against which to measure your own creative
work.

Incubation

Incubation refers to giving yourself, and your subconscious mind in particular, time to
incorporate what you learned and practiced in the preparation stage. Incubation involves the
absence of practice. It may look to an outsider as though you are at rest, but your mind is at
work. A change of environment is key to incubating ideas. A new environment allows you to
receive stimuli other than those directly associated with the creative problem you are working
on. It could be as simple as taking a walk or going to a new coffee shop to allow your mind to
wander and take in the information you gathered in the previous stage. Mozart stated, “When I
am, as it were, completely myself, entirely alone, and of good cheer—say, traveling in a carriage,
or walking after a good meal, or during the night when I cannot sleep; it is on such occasions that
my ideas flow best and most abundantly.” Incubation allows your mind to integrate your creative
problem with your stored memories and with other thoughts or emotions you might have. This
simply is not possible to do when you are consciously fixated on the creative problem and related
tasks and practice.

Incubation can take a short or a long time, and you can perform other activities while allowing
this process to take place. One theory about incubation is that it takes language out of the thought
process. If you are not working to apply words to your creative problems and interests, you can
free your mind to make associations that go deeper, so to speak, than language. Patiently waiting
for incubation to work is quite difficult. Many creative and innovative people develop hobbies
involving physical activity to keep their minds busy while they allow ideas to incubate.
Insight

Insight or “illumination” is a term for the “aha!” moment—when the solution to a creative
problem suddenly becomes readily accessible to your conscious mind. The “aha!” moment has
been observed in literature, in history, and in cognitive studies of creativity. Insights may come
all at once or in increments. They are not easily understood because, by their very nature, they
are difficult to isolate in research and experimental settings. For the creative entrepreneur,
however, insights are a delight. An insight is the fleeting time when your preparation, practice,
and period of incubation coalesce into a stroke of genius. Whether the illumination is the solution
to a seemingly impossible problem or the creation of a particularly clever melody or turn of
phrase, creative people often consider it a highlight in their lives. For an entrepreneur, an insight
holds the promise of success and the potential to help massive numbers of people overcome a
pain point or problem. Not every insight will have a global impact, but coming up with a solution
that your subconscious mind has been working on for some time is a real joy.

Evaluation

Evaluation is the purposeful examination of ideas. You will want to compare your insights with
the products and ideas you encountered during preparation. You also will want to compare your
ideas and product prototypes to the goals you set out for yourself during the preparation phase.
Creative professionals will often invite others to critique their work at this stage. Because
evaluation is specific to the expectations, best practices, and existing product leaders in each
field, evaluation can take on many forms. You are looking for assurance that your standards for
evaluation are appropriate. Judge yourself fairly, even as you apply strict criteria and the well-
developed sense of taste you acquired during the preparation phase. For example, you might
choose to interview a few customers in your target demographics for your product or service.
The primary objective is to understand the customer perspective and the extent to which your
idea aligns with their position.

Elaboration

The last stage in the creative process is elaboration, that is, actual production. Elaboration can
involve the release of a minimum viable product (MVP). This version of your invention may
not be polished or complete, but it should function well enough that you can begin to market it
while still elaborating on it in an iterative development process. Elaboration also can involve the
development and launch of a prototype, the release of a software beta, or the production of some
piece of artistic work for sale. Many consumer-product companies, such as Johnson &
Johnson or Procter & Gamble, will establish a small test market to garner feedback and
evaluations of new products from actual customers. These insights can give the company
valuable information that can help make the product or service as successful as possible.

At this stage what matters most in the entrepreneurial creative process is that the work becomes
available to the public so that they have a chance to adopt it.
Innovation as More than Problem Solving

Innovative entrepreneurs are essentially problem solvers, but this level of innovation—
identifying a pain point and working to overcome it—is only one in a series of innovative steps.
In the influential business publication Forbes, the entrepreneur Larry Myler notes that problem
solving is inherently reactive.

That is, you have to wait for a problem to happen in order to recognize the need to solve the
problem. Solving problems is an important part of the practice of innovation, but to elevate the
practice and the field, innovators should anticipate problems and strive to prevent them. In many
cases, they create systems for continuous improvement, which Myler notes may involve
“breaking” previous systems that seem to function perfectly well. Striving for continuous
improvement helps innovators stay ahead of market changes. Thus, they have products ready for
emerging markets, rather than developing projects that chase change, which can occur constantly
in some tech-driven fields. One issue with building a system for constant improvement is that
you are in essence creating problems in order to solve them, which goes against established
culture in many firms. Innovators look for organizations that can handle purposeful innovation,
or they attempt to start them. Some innovators even have the goal of innovating far ahead into
the future, beyond current capacities. In order to do this, Myler suggests bringing people of
disparate experiential backgrounds with different expertise together. These relationships are not
guarantees of successful innovation, but such groups can generate ideas independent of
institutional inertia. Thus, innovators are problem solvers but also can work with forms of
problem creation and problem imagination. They tackle problems that have yet to exist in order
to solve them ahead of time.

Multilevel approach to innovation

 Characteristics of innovative products

Deep

Deep products are based on the logic of innovation that we’ve just established and anticipate
users’ needs before they have them. These types of innovations often have masterful designs that
are intuitive for new users while still being capable of completing complex tasks. Adobe is an
innovative corporation working in several fields, such as software, marketing, and artificial
intelligence. Adobe often creates software applications with basic functions that are easily
accessible to new users but that also enable experienced users to innovate on their own. Creating
a platform for innovation is a hallmark of deep, forward-thinking innovation.

Indulgent

Innovations with lasting power engage users in ways that make them feel special for having
purchased the product or for having found the service. Indulgence refers to a depth of quality that
does not come from being the fastest solution to a problem. Indulgence may even sound like a
negative trait. In humans, it certainly can be, but for someone using an innovative product,
feeling indulgent can relate to a richness of experience with the user interface (UI). The UI of a
product, particularly a software product, is what the user sees and interacts with. A feeling of
indulgence imbues your product with a sense of value and durability that reassures users and
encourages them to use your product confidently.

Complete

Kawasaki’s vision of a complete product includes the services wrapped around it and underlying
it such that users understand the product well enough to be comfortable using it. Information
about how it works and how it is meant to work is readily available. Thus, product innovation
must include marketing and other communication efforts. For Kawasaki, this builds the “total
user experience.” If you truly have solved a problem in the marketplace, users will understand
what that problem is and how your product and related services deliver.

Elegant

Elegance also is part of a product’s UI. It refers to intuitive design that immediately makes sense
to consumers. Elegance conveys more information with fewer words. Elegant design is not afraid
of negative space or of the occasional pause. Elegant innovations solve problems without
creating new ones. For Kawasaki, elegance is the difference between a pragmatic, good
innovation and something great.

Emotive

Emotive innovations evoke the intended emotion and demand to be admired and shared. In other
words, truly great innovations create fandoms, not just consumer bases. You can’t force people
to love your product, but you can give them experiences that create a sense of excitement and
anticipation of what you might come up with next.

Methods of protecting Innovation and creativity

Intellectual property rights:

 Branding.
 Trademarks.
 Patents.
 Copyrights.
 Registered design protection.
 Trade secrets (processes, techniques, confidential disclosure agreements).