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ጅማ ዩኒቨርሲቲ www.ju.edu.et
Entrepreneurship and
Enterprise Development
Lecture Note
By:
Abdulnasir A.
2018
Contents
1. Entrepreneurship and free enterprises
2. Small Businesses
3. Business planning
4. Product and Service concept
5. Marketing and New Venture
Development
6. Organizing and Financing the New
Venture
7. Managing Growth and Transaction
Chapter 1: Entrepreneurship and
free enterprises
Definition
Entrepreneur/ship, just like management, has no single
definition.
An entrepreneur is a person who is action oriented, highly
motivated, takes risks to achieve goals
An entrepreneur is a person who establishes his own
business with the intention of making profits
An entrepreneur is a person who only provides capital
without taking active part in the leading role in an enterprise.
An entrepreneur is a one who innovates, raise money,
assemble input, choose managers and set the organization
growing.
Continued…
To sum up in the light of the developments, there are four
key elements of entrepreneurs. These are:
Vision (identifying emerging opportunities)
Innovation (creating new business or new ways of doing
something)
Risk bearing (taking risk and facing uncertainty)
Organizing (collection and coordination of the necessary
resources)
Entrepreneur &
Entrepreneurship
Entrepreneurship, like an entrepreneur, has no single
definition.
Entrepreneur is a person while entrepreneurship is a
process.
Entrepreneurship is aprocess under taken by an
entrepreneur to create incremental value and wealth by
discovering investment opportunities, organizing
enterprises, undertaking risks andeconomic uncertainty
and there by contributing to economic growth
Historical Perspective
During the ancient period the word entrepreneur was used to refer
to a person managing large commercial projects through the
resources provided to him.
In the 17th Century a person who has signed a contractual
agreement with the government to provide stipulated products or
to perform service was considered as entrepreneur.
In the 18th Century the first theory of entrepreneur has been
developed by Richard Cantillon. He said that an entrepreneur is a
risk taker. If we consider the merchant, farmers and /or the
professionals they all operate at risk. For example, the merchants
buy products at a known price and sell it at unknown price and this
shows that they are operating at risk.
Continued…
The other development during the 18th Century is the
differentiation of the entrepreneurial role from capital
providing role. The later role is the base for today’s venture
capitalist.
In the late 19th and early 20th Century an entrepreneur was
viewed from economic perspectives. The entrepreneur
organizes and operates an enterprise for personal gain.
In the middle of the 20th and early 21thCentury the notion of
an entrepreneur as an inventor was established.
Role of entrepreneurs within
the economy
Capital formulations: - Entrepreneurs mobilize the idle
saving of the public through the issue of industrial
securities.
Improvement in per capita income
Generation of employment
Improvement of the living standard
Economic independence
Balances regional development
Innovation: the commercial application of invention
Imitating role
Entrepreneurs, Invention and innovation
Entrepreneurs
Invention
Innovation
Areas of Innovation
New product
New Services
New Production Techniques
New Way of Delivering the Product or Service to the
Customer
New Operating Practices
New Means of Informing the Customer about the Product
New Means of Managing Relationship within the
Organization
New Ways of Managing Relationships between
Organizations
Chapter Two : Small Businesses
Small business is a business which is independently owned
and operated, not dominated in its field of operation and
meets certain standard of number of employee and
capital.
In general there are two approaches to define a small
business; measures of the size and economic/ control
criteria
Size criteria
Some of the criteria’s to measure the size are
Number of employees: - for example in Ethiopian case it is
Less than 30 employees (6-30).
Investment paid up capital: - for Ethiopia it is 100,001-
1,500,000 (industry), and 50,001-500,000 birr (service).
Volume of sales, production and deposits are also used to
measure the size of business
If there is ambiguity in the definition between the usage of
man power and capital, it is recommended to use the total
paid up capital as a measurement criteria.
Economic/Control criteria
Market share: has no significant influence on the price of
national quantities of goods sold to any significant level.
Independence: independence means that an owner has
control of the business himself.
Personalized management: It implies that the owner
actively participates in all aspects of the management of
the business and in major decision making process.
Technology: small business is generally labor intensive
Geographical area of operation: the area of operation of
a small business is often local
Economic, social and political aspects of
small business enterprises in Ethiopia
Socialistic idea (the equality argument )
Less capital and more labor
Removing regional imbalances (the decentralization
arguments)
Creating self-employment opportunities
Ancillary functions
Export promotion
Supply of critical raw materials
Small business failure factors
Management incompetence
Poor financial control
Lack of adequate capital
Over investment in fixed asset
Failure to plan current as well as future operation
Failure to adopt proper inventory control system
Improper Attitude (The entrepreneur may not respect time,
employees and may have lazy lifestyle and dictatorial style of work)
Inadequate marketing plan
Incorrect market identification
Poor distribution channel
Weak marketing communication or promotion
How to avoid the pitfalls/difficulties of
a small business
Know your business in depth:
Have a Good Relation with Stake Holders
Prepare business plan
Managing financial resources
Understanding financial statement
Learn to manage people effectively
Keep in tune with yourself
Take up short professional courses in management
(entrepreneurship):
Be sensitive to your customers
Setting up a small business
The first and for most step in starting a small business is to
find out a suitable business idea and give a practical shape to
the idea.
To think of a goal for the business in the long run rather than
to look for the immediate tomorrow is called Basic Business
Idea.
The basic business idea is to meet the broadest needs of the
customers and has a long life perhaps from 5-50 years.
The basic business idea facilitates choice of product under an
overall plan.
Continued…
The product line consists of different families of products.
The product range on the other hand includes different
sizes of the product within the product line.
In order to establish a business venture with an
entrepreneurial system an entrepreneur needs to take the
following steps
1. Search for business idea
2. Process the idea
3. Select the best idea
What a project an
entrepreneur should have?
The project an entrepreneur chooses should be based on
SWOT analysis.
Strength
Opportunity
Weakness
Threat
Project classifications
Quantifiable and Non-Quantifiable projects
Sectorial projects :-under this the following projects can
be mentioned
Agricultural sector
Power sector
Industry and mining
Social service sector
Transport and communication
Continued…
Techno-economic project
Factor intensity oriented classification (labor vs capital
intensive)
Causation oriented classification
Magnitude oriented classification
Financial institution classification
New project
Expansion project
Modernization project
Diversification project
Characteristics of small scale
industry
Closely held
Personal character
Limited scale of operation
Indigenous resources
Labor intensive
Local area of operation
Simple organization
Chapter Three: Business planning
A business plan is a written document prepared by the
individual entrepreneur or partners that describes the
goals and objectives of the business along with steps
necessary to achieve those goals.
Business plan is also defined as a written summary of the
entrepreneurs proposed venture, its operational and
financial details, its marketing opportunities & strategy,
and its managers skills and abilities.
Purpose
At star-up of new business
Buyout stage/business purchase
Ongoing review stage
Major decision
When business plans are produced
Purpose
Managers:
Owners:
Lenders:
Who is going to prepare business plans
Purpose
Managers: - Clarifying ideas and finding strength,
weakness, opportunity & threats.
Owners:- Assessing feasibility & viability of business,
setting objective & budgets:
Lenders: - Evaluate risk us. Benefits, appraise quality of
management
Why business plans
Scope of Business plan
Business plan includes information on the following aspects:
Economic/Market aspects: Economic justification like market
size, market growth, market share.
Technical aspects: Details on technology needed, equipment
and match their sources
Financial aspects: Total investment, cost of capital, ROI,
source of capital, enterprise contribution
Production aspects: product, its design, standard of quality,
usage, production aspect like production process, schedule,
technology.
Managerial aspects: Qualification & experience, commitment
& planning
Formats of a business plan
Executive summary
Company History
Business Profile
Business Strategy
Description of the firm’s product
marketing strategy
Competitors Analysis
Officers’ owners’ Resumes
Plan of operation
Financial data
Loan Proposal
Common Mistakes in Business
Plan Preparation
Single-Purpose use
One- person commitment
Being neglect
Unworkable document
Unbalanced application
Disillusionment
Too- action Oriented
No Performance Standard
Poor progress Control
Early consumption
Chapter Five: Marketing and
New Venture Development
Marketing Research: is the systematic gathering,
recording and analyzing of data about problems related to
the marketing of goods and services.
It is the function which links the consumer [customer] and
public to the marketer through information-information
used to identify and define marketing opportunities and
problems; generate, define, and evaluate marketing
actions; monitor marketing performance; and improve
understanding of marketing as a process.
Characteristics of a marketing research
Marketing research should be systematic
Marketing research is a process
Data may be available from difference sources
Marketing research may be applied to any aspect of
marketing that requires information to aid decision
making.
Research findings and their implementation must be
communicated to the appropriate decision matter.
In conducting marketing research, scientific methods should
be followed. The scientific method requires objectivity,
accuracy, and thoroughness.
The Scope of Marketing Research
Market Research
Sales analysis/Research
Consumer Research
Advertising Research
The Marketing Research Process
Problem definition
Examination of primary & secondary data
Analysis of data
Making Recommendation
Implementation of findings
Marketing Intelligence
Marketing intelligence is the systematic collection and
analysis of publicly available information about
competitors and developments in the marketplace.
Techniques range from quizzing the company’s own
employees and benchmarking competitors’ products to
researching internet, lurking around industry tradeshows,
and even routing through rivals’ trash bins.
Competitive Analysis
Competitive analysis is a widely used approach for
developing strategies in many industries.
According to Porter, the nature of competitiveness in a
given industry can be viewed as a composite of five forces:
1. Rivalry among competing firms
2. Potential entry of new competitors
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
Marketing Strategies
Marketing strategy refers to the marketing logic by which
the company hopes to create customer value and achieve
profitable relationships.
Companies know that they cannot profitably serve all
consumers in a given market.
Thus, each company must divide up the total market,
choose the best segment, and design strategies for
profitably serving chosen segments. This process involves
market segmentation, target marketing, differentiation
(actually differentiating the market offering to create
superior customer value), and positioning.
Diversification Strategies
In search of growth, a firm has four options:
1. Market Penetration: the firm can stay with its base
product or service, and its existing market
2. Product Development: the firm can develop related or
new products for its existing market.
3. Market Development: the firm can develop related or
new markets for its existing products.
4. Entry in to new Market: the firm might try to move into
related or new markets with related or new products.
International Markets
International marketing is important because of the
economic theory of comparative advantage.
This theory states that each country has natural
advantages over others in the production of certain goods,
and therefore specialization and the trading of surpluses
will benefit everybody.
Reasons for Internationalization
Small or saturated domestic markets
Economies of scale
International production
Customer relationships
Market diversification
International competitiveness
Chapter 6: Organizing and Financing
the New Venture
When establishing an entrepreneurial team people should
look for
Those who share the same values and vision for the
company
Those who have complementary skills
Those who have integrity
Those who can manage the risks of a small business
Continued…
The following are common errors in team building
Not considering experience and qualification of each
member
Putting together a team whose members have different
goals
Using only insiders in the board of directors
Using family members as attorney and accountant
Giving the management team all stock in lieu of salary
Sources of Finance
Debt financing (short term)
Trade credit (Open-book credit & Promissory
notes)
Loans (Secured Loans & Unsecured Loans)
Commercial paper
Debt as Long-term financing
Long-term loans
Lease
Bonds
Sources of Finance
Equity Financing
Stock (Preferred & Common stock)
Retained earnings
Sale of assets
Venture capital
Venture capitalists may be investment bankers
when they invest capital, make loans, and give
management advice intended to assist the
company to achieve significant growth.
Many companies financed by venture capitalists
convert from closely held corporations to public
corporations during the course of their growth.
Government program
In USA Small Business Administration loans are
available to smaller businesses.
Chapter 7: Managing Growth and
Transaction
Preparing for the Launch of the Venture
Hiring New Employees
Creating Awareness of the New Venture
Managing Early Growth of Venture
Motivating and leading the team
Financial Control
Managing Cash Flow
Managing Assets
Managing Costs and Profits
Taxes
New Venture Expansion Strategies
Mergers & acquisitions
Licensing
Franchising