Entrepreneurship is a term that is used in many business disciplines. it essentially has the money making connotation as commonly understood by many. however, entrepreneurship is much more than that. it entails coming up with an idea that no one else has thought of and capitalizing on it to set up an enterprise. the chapter gives a broad description of the various forms of entrepreneurship and even the challenges the entrepreneur will go through in an attempt to make his dream come true.
- Entrepreneur: someone who devises a new production methodology and producing output (goods or service) based on the new concept
- Entrepreneurship: the process of coming up with new processes or ways of achieving some set objectives. it is the process of devising a new process that will make production more efficient.
- Self employment:this is a concept that arises when the entrepreneur relies on revenues from his business as a source of income
The concept of entrepreneurship
any given economy needs both the government and the private sector to grow. the needs of the country cannot be feasibly catered for by the state on its own. individuals also need to establish themselves as key components in any healthy economy. the role of the individual is what we are going to look at in the following sections.
Definition of Entrepreneurship
Entrepreneurship is the process of coming up with new processes or ways of achieving some set objectives. mostly it will involve the production of goods and services. it requires some ingenuity coupled with a lot of time and effort. there are risks involved in this process and they all have to be assumed. With the risks come rewards that are derived by the person who has come up with the new process.
Who is an entrepreneur?
an entrepreneur is someone who devises a new way of looking at things and producing output out of the new concept. Given an existing technology or some kind of invention, the entrepreneur will come up with a process that will utilize the available tools and technologies to produce a good or a service that will add value to the economy ad benefit both him and the society. He is one who will take the risk of the success or failure of the new venture and will also stand in to reap the rewards.an entrepreneur takes the chance that the new idea will work and he directs all his resources towards making the process a success. the fear of failing always looms but driven by ambition and the desire to succeed, the entrepreneur sees his project to completion.
The concept of communication
Communication is the process of exchanging ideas amongst two or more persons. Communication achieves its objective when the parties involved understand each other.
Communication can also be defined as giving, receiving or exchanging information, opinions or ideas by writing, speech or visual means, so that the material communicated is completely understood by everyone concerned.
Communication is the process by which information is passed between individuals by means of previously agreed symbols.
What is effective communication?
Effective Communication is simply the transmission of a message to another person in such a way that the recipient interprets it exactly as the sender intends and receives at the right time. this involves:
- Correct timing
- Logical thinking
- Fluent expression
- Carefully reading and listening
- sensitivity to the circumstances
- Choice of appropriate media, tone and style
- obtaining feedback to check the message has been understood
information may be the main focus of the communication. the communicator may want:
- to initiate some action
- to make his needs understood
- to share ideas, attitudes and beliefs perhaps persuading others to embrace them
- to establish and maintain links with other people, possibly to entertain them
Relationship between entrepreneurship and communication
Communication is a process in which information is shared and exchanged. it is a two-way interaction in which the entrepreneur, and whoever is being interacted with, is active participants in the attempt to solve a problem through the use of language as the proper channel of communication
in any business enterprise, the entrepreneur will need to be confident and develop a level of expertise in the skills of speaking, listening, and at times writing to customers workmates and supervisors. the entrepreneur also needs to be good in numbers such that he/she can prepare his financial statements and present them in a legible manner. He/she may also need to devise graphs and charts, using graphic illustrations to explain information. this might involve using computer-based and telecommunication equipment such as pCs, photocopiers, scanners, telephone systems, faxing equipment, etc. the entrepreneur will thus need to arm him/herself with the skills to use these tools to communicate with all the stake holders in his business.
in his/her venture the entrepreneur is likely to have employees working under him/her, as well as members working in other departments of the business. When conflicts arise, they need to be solved through conscious and effective communication. meetings are a normal feature of the workplace, and these are accomplished through communication.
self-employment is a concept that has arisen as a result of entrepreneurship. the process of entrepreneurship eventually brings self employment to the fore. the entrepreneur becomes self employed when he begins to derive his livelihood from his business venture. Given that the entrepreneur bears all the risks associated with the business, then it comes as given that he has the right to enjoy all the benefits that ensue from his business venture. This success can be trickled down, not just to himself, but also to the business and others who are job seekers. in this way, not only does the entrepreneur become a self employed person, he also does something positive for the community by employing others.
an entrepreneur can make huge gains if his business is a success. at the same time, should the business experience difficulties, financial or otherwise, then the entrepreneur stands to lose a lot of his investments. this may even lead to bankruptcy.
Ways in which an entrepreneur may mitigate against the risk of failure
- insuring his business against losses. Losses can be in the following forms
- Co – owning the business with a partner. this option will dilute the ownership therefore it is a step that should be taken with a lot of caution.
- investing in extra security in the event that the business deals in valuable products.
- securing the services of a risk assessment expert. this is a preventive measure and will highlight the areas of risk in the business that the entrepreneur needs to be aware of hence make vital decisions.
the entrepreneur puts himself in a safe position both for his business and himself if he does any one of the above. the list is not exhaustive; the entrepreneur can device other risk mitigating measures that are appropriate for his kind of business.
on the other hand the business venture can be a huge success if well managed. the entrepreneur can derive his livelihood from the profits of his venture. This becomes a success story especially in the current economy where many young people are losing out in the job industry even with the relevant qualifications. Self employment is so important in an economy that is still struggling to stabilize itself in a world economy that doesn’t take into account the plight of many young men with the skills required to work fruitfully in any given economy.
it is important to point out that the entrepreneur needs to be prudent when appropriating the rewards of his investments, for instance some of the profits should be ploughed back into the business. this basically means that the entrepreneur needs to re-invest some of the rewards that come to the business in form of profits
the business needs to grow and capture many opportunities in its industry. through proper planning and due diligence, the entrepreneur can device several ways through which he can plough back his interests in an attempt to multiply future rewards. some of the ways of re- investing among others are:
- opening up new branches in other locations
- implementing a new product design
- hiring professionals to manage various aspects of the venture
- Investing in office automation processes
1. Opening up new branches in other locations
depending on the location of the current set up, the entrepreneur can decide to open new outlets for his products in other regions where he has assessed sales will be high. this move also creates jobs for other people and in this way, the entrepreneur also thinks about the society his business serves.
2. Implementing new designs
This should come in when the entrepreneur is sure sees that his first project is doing well and there is room for more. With the resources generated from the first project, the entrepreneur can then start working on a new brand or improve the current brand. in this way he doesn’t sit back and let the business thrive on the success of the first project only.
3.Hiring of professionals
With growth of business, the operations also become rather complex in nature. a business that is constantly growing and re-investing its interests needs to ensure that the sensitive aspects of the venture such as finance and customer needs are well managed. The entrepreneur could therefore, think of employing the services of qualified professionals to help him run the business. here, he could hire accountants, it specialists, a sales and marketing team etc
4.Investing in Office Automation processes.
Addition of more capital is a sure way of expanding more so if the capital will lead to efficient ways of doing business. in the growing world of business, it has become as a necessity that a business arm itself with an iCt strategy that works. the entrepreneur can thus direct some of his expansion efforts in this area so as to keep up with the competitors
Ways of classifying entrepreneurs .
- Adviser: some entrepreneurs perform an advisory role and are paid for giving such advice. This is similar to the role played by lawyers, accountants, and financial advisers.
- Administrator/Organizer: these are entrepreneurs who get involved in organizing events for their clients. a fee is charged per event or based on the attendance of the event. an example is a wedding organizer whose main business is coordinating the various activities that go towards making a successful ceremony.
- Builders/Creators: artists, bakers, carpenters, and designers are examples of entrepreneurs driven to create something tangible where it did not exist before.
- Caretaker: these are people entrusted to care for someone or a piece of property on behalf of the principlal.
- Communicator/Trainer: these are people who can transmit information or communicate in different languages. They find demand in sales, marketing, writing, training or a variety of information services.
- Entertainer/Host: these are people who thrive on being with other people. they find entrepreneurial openings in the hospitality industry or service industries such as hairdressing. they may even be entertainers, actors, musicians, or singers. an example is a talk show personality in a t.V program.
- Investor/Owner: if one has money to invest he/she can put the capital to work for him/her by investing in stocks, real estate or businesses.
- Seller: this covers salespeople and brokers, from real estate to insurance to art. an example is a music promoter.
- Technologist/Engineer: these are people who have a talent in technical disciplines such as computers, autos and engines. as an entrepreneur, one may want to explore entrepreneurial opportunities areas such as software development, engineering or technology.
Traits of a Good entrepreneur
there are important traits that if an entrepreneur has and strives to acquire, will make him more successful in his business. these can be grouped into three categories;
- personal traits
- technical traits
- Business management traits
Being open minded. Listen to Others
trying new things whether it be a marketing strategy, a new business system, a piece of software or a new product/ service, can be good for the growth of the business. the entrepreneur should create a working atmosphere that nurtures and appreciates new ideas. if the staff feel as though their ideas are listened to, considered and possibly even implemented, the more likely the entrepreneur is to have some great ideas being generated!
Learning from mistakes
the entrepreneur should make a concerted effort to learn from his mistakes. he should assess why his ideas didn’t work or why he lost a particular customer etc. once he has made the mistake and is aware of the reason behind the failure, he should use it to his advantage and try a different strategy or modify the initial idea.
the entrepreneur should understand that great businesses take time to establish. he should persevere even if it appears that he is not making headway’s. he should persevere till he starts breaking even at least. this perseverance also translates into other aspects of business as well, whether it is a new marketing idea or a potential client or business lead.
Other personal attributes that will go towards making a good entrepreneur include;
- Being disciplined
- Being a risk taker
- Being persistent
- Being a visionary
this entails addressing the name of people in all business correspondences, keeping a business mindset when meeting with clients or talking to them over the phone. Clients don’t need to hear the intricate details of the entrepreneur’s personal life. Being professional also means checking emails for spelling errors, following-up on enquiries, being punctual when meeting with clients, responding to telephone calls promptly, sending out quotes on a timely basis. But by far the most important factor about being professional is being consistently professional.
Create systems and adapt them as necessary
As the company grows, it may become more difficult to manage and keep track of things. A useful way to deal with this problem is to create systems within the business for any specific task that requires multiple steps or procedures. This will help to create a smooth workflow and allow the entrepreneur to keep track of things a little easier. a web designer, for example, might create a checklist for new websites.
Other qualities that are important under this category include;
- Being a team player
- network building
- possessing good communication skills
Business Management traits:
There is nothing more frustrating than when businesses advertise in community flyers or on signboards and then never answer their phone calls (or return them) and don’t bother to respond to emails. Clients should be able to at least contact the business via email and a land line number. The entrepreneur should return calls as soon as possible. If he will not be in the office, to check email for most of the day, he should set an auto-responder that lets people know when he will be checking his email and possibly include his cell phone number as well.
Get an Email address, Email Signature and Website
there is simply no excuse not to have an email address! the entrepreneur can get free email addresses from gmail, Webmail and Yahoo. Although an email address that reflects his business domain name looks a lot more professional, any email address will do if you he is just starting out. if he doesn’t t have an email address it can seriously affect the way that people perceive him as a business person, some people just won’t take him seriously.
Planning and Research
the entrepreneur should do a thorough ground work before embarking on his venture. he should ensure he has done sufficient research and that this becomes a continuous process. Poorly planned businesses collapse before starting and lack of proper research kills the growth of the firm. Frequent consultations with other businessmen also help in generating ideas.
Protecting the Business
the entrepreneur should insure his equipment and computers as well as anything else that could be detrimental to his business if it were stolen, destroyed or lost. he should keep his warrantee slips on any new office purchases and make sure he does data back-ups regularly – to an external hard drive or a remote server. he should get trademarks and copyrights to protect any business ideas or concepts that are uniquely his.
Marketing the business wisely
although many businesses rely on word of mouth advertising, it is still a good idea to merge this with an actual marketing plan. if the entrepreneur’s budget allows, he should consult a professional marketing firm or start off with the basics and try to get his business as much exposure as possible through various platforms such as; a website, e-newsletter, business cards, a company brochure, vehicle branding and possibly an advert in an industry magazine.
Challenges of Entrepreneurship.
The challenges that entrepreneurs face may be looked at from five categories;
a ) External Factors
some events in the economy of a country may well be beyond the control of the entrepreneur. the cycles could adversely affect his business, to the extent of forcing him to close down. the economic cycles of recession, Boom, Depression and recovery may find the business in any stage of its own cycle. other external factors include;
- Fluctuating interest rates
- interruptions in supplies
- Labor market trends
- Government regulations e.g. tax laws
- natural catastrophes
b) Personal factors
an entrepreneur goes through a lot of hurdles to get the business going. the going may be tough such that he may even be tempted to close the business. there are a number of risks associated with being an entrepreneur;
The entrepreneur may places his entire savings into the venture with the firm belief that he will
earn something in return. if this does not happen, he risks losing a lot of money.
he may have chosen to give up employment to pursue his business. he may not have a fall back plan if the business collapses, hence loss of career
the entrepreneur may have to give up his social life for a while till the business stabilizes. this may adversely affect family and relations.
the collapse of the business could lead to psychological problems such as depression and/or low self esteem. the risk here is the probability of failure in the mind of the entrepreneur.
c) Lack of skills and experience
a business may start off well as a result of a favorable economic climate and availability of funds. An entrepreneur may well have identified a very good business opportunity and capitalize on it to generate lots of revenue. However, if the entrepreneur does not have sufficient skills to see the business through this success in a consistent manner, he stands to lead the business towards incurring loses and not meeting its obligations on time. it is advisable that the entrepreneur enrolls for courses that will sharpen his skills and help him manage the business better
The entrepreneur will often employ people to assist him manage the operations of the firm. However, if these people are not trustworthy, he stands to lose a lot of money through embezzlement or pilferage of stocks. the entrepreneur himself could also be the main culprit when he draws a lot of the business resources for personal use.
e) Poor Business Ethics
the lack of proper business grooming could lead to unfair business practices by the entrepreneur. This comes out of practice and peer pressure. The entrepreneur could find himself in conflict with the law and may get sued by his business associates. the risk here is the loss of business reputation and the possible closure of the business under directive from the relevant government authorities.
Entrepreneurs play a vital role in today’s economy. this is not withstanding the hurdles mentioned in the previous section. most of them get through the tough times and their businesses become success stories. the success or failure of a growing business depends largely on the entrepreneur himself. however, there are factors that may be beyond his control, but if he can get around these, one way or the other, he only has himself to convince that the business can actually develop.
a business opportunity is an outlet through which the entrepreneur expresses his new found knowledge or skill. it’s a chance that an entrepreneurs utilizes after a thorough research through which he can manifest his ideas. there are many types of business opportunities that range from simple straightforward ventures to very complex setups. there are advantages and disadvantages that come along with any kind of business opportunity. an entrepreneur needs to know how to identify a viable business opportunity if he sees one. this knowledge is crucial to the future of his business. an entrepreneur needs avenues where he can link up with relevant stakeholders in the industry he has chosen. this can be achieved through networking
KEY TERMS DEFINED
- Business Opportunity – a viable business potential to create something new, i.e. a product or a service establish new markets by engaging new technologies
- Franchise – a business arrangement where the inventor (franchisor) develops a plan for the provision of a product or service and another, the franchisee uses the plan to avail the product or service.
a business opportunity thus requires that the entrepreneur follows the following process;
- identify his strength
- assess his surrounding
- identify gaps that may be capitalized on.
- Select one of the gaps identified based on his strengths.
- identify the risks and constraints involved.
- Lay out an execution plan
- Identification of strengths
The entrepreneur needs to assess himself first before embarking on a business venture. This is important as it will enable him project how far he can carry on an idea that has been in his thought.
one major disappointment that befalls many entrepreneurs is the realization that an idea that once promised so much reward and fulfillment doesn’t bear the results that were expected. This happens because the entrepreneur did not look deep into his abilities before going forth with his plan.
a strength can be a talent that has been in a person since earlier days and has always manifested itself over time even in very subtle ways. one needs to identify these traits ad look at their business aspects.
- Assess his Surrounding
once the entrepreneur has assessed his abilities, he needs to look back at what is surrounding him. this entails learning the economic trends of his surrounding and trying to project the outcome of certain events.
the entrepreneur needs to study the economy very well. this is important since the result of his study will act as a personal bench mark for him to know how far he can go in an attempt to bring in some thing new. the study of the economy can be achieved by reading journals and articles written by experts, studying current economic events both in his country and the world at large. For a comprehensive analysis, the entrepreneur will need to go far back, may be five years. This of course, will depend on the nature of the economy and the growth rate. Certain events may have short term implications and some may have long term implications, so the entrepreneur needs to look at all these in perspective.
the entrepreneur will need to relate the various economic events to each other and identify a connection, if any. the world economic climate has an effect on the local economy and this will need to be studied in detail by the entrepreneur.
as part of his surrounding, the current political and social situation will also impact on the identification of a business opportunity. These form the foundation of a stable society that will support his business in future.
the entrepreneur should also assess his potential competitors. this involves analyzing the latest technologies that are in use in most businesses that he may find lucrative to engage in. He also needs to find out the availability of supplies for his business and whether these are likely to be reliable and if not, what other options exist.
- Identification of Gaps
The result of the study above will give the entrepreneur sufficient material to identify loopholes that need to be filled. This will happen as a result of serious study and analysis. What the entrepreneur needs to ask himself is ‘What role can I play to fill these loopholes?’
once he has a solution to this basic question, the entrepreneur is well on his way to coming up with a brilliant idea. many renowned entrepreneurs such as steve Wozniak of apple inc., who made computers suited for ordinary people, identified the need for the ordinary man to be computer literate. this of course among other outcomes made many people become more efficient and productive in their work places.
- Selection of Gaps to be filled
the loopholes may be very many but the entrepreneur needs to identify only those that bear a correlation with his strengths as identified earlier on. He will be able to relate what he is good at with what problems lie out there that need to be rectified. This will ensure that the entrepreneur does not engage in a venture that may take all his resources and be a disappointment as a result of poor correlation between his strengths and the gaps identified.
a mistake would be the entrepreneur taking his chances and trying to solve many problems at the same time. This will overwhelm him and will be a sign that the first stage of this process was not done thoroughly enough. the entrepreneur needs to take his time and select only those problems he finds himself capable of contributing towards finding a viable solution.
- Identification of Risks and Constraints
here, the entrepreneur will look at potential weaknesses that would exist in the business. any business venture has pitfalls which if not well planned for, can ruin it. the entrepreneur needs to come up with strategies that will enable the business to get through the potential risks and constraints that may include; change in legislation, natural disasters, burglary e.t.c. he may mitigate against these risks, for instance, by insuring the business against losses that may result from these events.
- Lay out an execution Plan
the Entrepreneur should put all his ideas and plans in writing. this involves coming up with a business plan that clearly sets out the objectives and strategies of the business. the business plan acts as a reference whenever he needs to communicate with thirds parties in convincing them, for instance to invest. the preparation of a business plan is explained in detail in Chapter Four
Types of Business Opportunity/ Ventures
Contrary to popular opinion, business opportunities are abound in all kinds of economies; you just have to know where to look for it. and sometimes, you should consider creating business opportunities instead of waiting for them to come knocking at your door.
there are various types of Business opportunity ventures:there are all sorts of business opportunities to explore which are already present in the market, but not all of them will make a perfect match for an entrepreneur. Careful choice of an opportunity is important. taking advantage of the wrong business opportunity can only cause the entrepreneur more financial burden
Self – Discovery
this entails creating a product for an unsatisfied need – There are a lot of unsatisfied needs in all types of markets and although taking advantage of these business opportunities promises a lot of rewards, the entrepreneur should keep in mind that they also represent greater risk. also, he should be sure that the product or service satisfy needs and not wants because the former is for keeps while the latter simply come and go.
Re – invention
if the entrepreneur notices a particular product or service that is obviously unable to fully satisfy its target market, that situation can be immediately transformed into a business opportunity if he has an idea on how to improve it, that is. these business opportunities represent lower risks and consequently lower rewards as well compared to those associated with creating a completely new product.
Use an Existing Product for an Untapped Market
sometimes, business opportunities are discovered not by creativity but rather because of resourcefulness. these business opportunities definitely exist, but the process of discovering them is almost akin to creating a new product to satisfy an unwanted need. the rewards, however, are just as great. one good example for this is how a philippine company was able to make use of coconut husks – which was once the least useful of all parts of the coconut tree – by grinding and turning them into a concrete mixing compound. it soon became not only a more affordable alternative but a more environmentally friendly one as well!
as they always say, two brains work better than one. and in the world of business, there are twice as many business opportunities available just as long as the entrepreneur opens his mind with others of like thinking.
this refers to an independent agent that has entered into an agreement to offer and sell the product of another but is not entitled to use the manufacturer’s trade name as part of its trade name. depending on the agreement, the distributor may be limited to selling only that company’s goods or it may have the freedom to market several different product lines or services from various firms
this involves the selling of another company’s products through a distribution system of racks in a variety of stores that are serviced by the rack jobber. typically, the agent or buyer enters into an agreement with the parent company to market their goods to various stores by means of strategically located store racks. the parent company obtains a number of locations in which the racks are placed on a consignment basis. it’s up to the agent to maintain the inventory, move the merchandise around to attract the customer, and do the bookkeeping. the agent presents the store manager with a copy of the inventory control sheet which indicates how much merchandise was sold, and then the distributor is paid by the store or location which has the rack-less the store’s commission.
Vending machine routes.
this is very similar to rack jobbing. the investment is usually greater for this type of business opportunity venture since the entrepreneur must buy the machines as well as the merchandise being vended, but here the situation is reversed in terms of the pay procedure. the vending machine operator must pay the location owner a percentage based on sales. the big secret to any route deal is to get locations in high-foot-traffic areas, and of course, as close to one another as possible. if the locations are spread far apart, you waste time and traveling expenses servicing them.in addition to the types of business opportunities listed above, there are four other categories we should be aware of:
this is quite similar to a distributor but while a distributor may sell to a number of dealers, a dealer will usually sell only to a retailer or the consumer.
under this type of arrangement, the licensee obtains the right to use the seller’s trade name as well as specific methods, equipment, technology or products. use of the trade name is purely optional.
this is a generic term that covers the realm of direct sales and multilevel marketing. as a network marketing agent, the entrepreneur will sell products through his own network of friends, neighbors, co-workers and so on. in some instances, he may gain additional commissions by recruiting other agents.
this business is similar to a licensee arrangement in which an existing business, such as a hotel or hardware store, can affiliate with a larger network of similar businesses, often for the sole purpose of advertising and promoting through a common identity.
Franchise Vs Business Opportunity ventures
A franchise is a venture where a sponsor identifies someone with an idea or a proposal and decides to fund his project and give it the financial boost it needs to start off. This takes the headache away from the sponsor as he is working with a venture that has already been thought of, such that his main role is fund provision and following up on the progress being made. the person sponsoring the franchise is called the franchisor and the one being sponsored is called the franchisee. the franchisor and franchisee could even be separate entities.
As a rule of thumb, apart from financial support, a franchisee receives more support from the parent company; he gets to use the trademark name, and is more stringently controlled by the franchisor. Business opportunity ventures, on the other hand, don’t receive as much support from the parent company, generally aren’t offered the use of a trademarked name, and are independent of the parent company’s operational guidelines.
as we’ve previously noted, there are numerous forms of business opportunity ventures. some are even turnkey operations similar to a lot of package-format franchises. these business opportunities provide everything one could possibly need to start a business. they help the entrepreneur select a location, they provide training, they offer support for the licensee’s marketing efforts, and they supply a complete start-up inventory.
unlike a package-format franchise, however, these types of business opportunity ventures aren’t trademarked outlets for the parent company. the company’s name, logo and how it’s legally operated are left solely to the licensee. many times the only binding requirement between the seller and the buyer is that inventory be purchased solely through the parent company. of course, all these stipulations are outlined in the disclosure statement and contract.
Buying a Franchise
a potential investor could simply buy off a company that he sees has potential for growth instead of opening a new one to rival it. this takes away from him the headache of establishing a new business opportunity all together. he only needs to have a good bargaining power to establish himself as a potential buyer. he may have the funds to see the business through but lacking in ideas. in this case the idea of acquiring the franchise makes up for the lack of innovation that may be crippling him
in the preceding section, we outlined numerous things an entrepreneur should do to ensure that he/she chooses a venture that will be appropriate for him/her personally, and will represent a sound investment. it’s quite important to cover all bases before signing a contract with the seller. the following are some strategies entrepreneurs should use to protect themselves from making wrong decisions on business opportunity ventures.
Guidelines for choosing a good business Opportunity
First is to make sure the business opportunity of choice complies with all business opportunity statutes. These vary from state to state. Next is to find out if the business opportunity of interest is open to buyers.
When choosing a business opportunity, an entrepreneur should keep in mind that if he buys an opportunity from a company with a sizable number of outlets that’s been in business for at least three years, he’ll pay more for this established concept than he would for a newer one. if he is considering a more recently established business opportunity, he should check out the parent company’s history to evaluate its success and longevity in its particular field of operation.
an entrepreneur could evaluate the ‘right’ business opportunity using the following guidelines. these guidelines cover situations where the business opportunity is the entrepreneur’s own idea and where it is an idea from a parent company under a franchise/ franchisee arrangement.
- Making an honest evaluation of one’s self and abilities.
here, the entrepreneur will assess his areas of interests and make a decision as to what exactly he would want to do with his talents. What drives him to want to go into business is something he will want to examine more keenly and make the first decision.
- Running the business enthusiastically.
if the entrepreneur is introducing something new into the market that is unknown to the general public, he should muster all his efforts to enthusiastically convince his potential customers of the need for the product or service he is bringing into the market. he should be able to generate excitement for the item through advertisement or other means.
- Having complete knowledge of the product or service
the entrepreneur should carry out a thorough research into the product or service he wishes to introduce. this will enable him convince his customers and potential investors. if the arrangement is a franchise, he should consider whether the parent company will give him little or no training in technical or management know-how, in which case he should be wary of the business opportunity. if the licensor-seller has organized all the operating knowledge into a standard operating manual, he should look with favor upon this business opportunity.
- Making a market evaluation of the product or service to be offered.
The entrepreneur should find out whether the time is right to introduce the product to the public. he should consider whether there is a need for this type of item, and what is its potential in relation to competition.
- Finding out how many entrepreneurs have been in the business successfully for a respectable period of time.
a legitimate kind of business opportunity will attract many entrepreneurs who feel they can be successful. the entrepreneur should carry out a research to see how many successful businessmen have made it in that line of business he has decided to undertake and how many have failed for various reasons. if it is a franchise arrangement, the parent company should provide him with phone numbers of other buyers, so that he can verify that they’re generally satisfied with the opportunity and that the seller is capable of fulfilling his or her promises.
- Checking the training and experience required to run the business properly.
if running a particular line of business requires training, the entrepreneur should consider attending a course that will enable him have the relevant skills required for the business he has chosen. Questions he should ask himself include; is there a suitable curriculum of training? What is the scope of training? Does my background fit its requirements?
- Financial strength and strong credit behind the business opportunity
Where the entrepreneur is running the business under a parent company, he should find out whether the licensor-seller will provide an escrow agreement to deliver a building, equipment, leasehold improvements, inventory, etc., as the unit is made ready for use. he should check out the bank references given by the licensor-seller and discuss the company’s financial strength with the appropriate managers.
- Visit the headquarters of the licensor-seller.
the entrepreneur should talk to the personnel and the training director of the parent company. he should visit the original prototype of the business being sold and evaluate other outlets. he should expose himself to the other outlets’ products and services to determine the quality dispensed.
- Have legal representation.
Where the entrepreneur is buying a license, he should make sure his lawyer is present. the lawyer will assist him when he is negotiating with the licensor-seller. at the very least, the lawyer should go over the contract to purchase the business opportunity and advise the entrepreneur as to whether or not he should sign it in its present condition. he or she should explain what each aspect of the contract means so that the entrepreneur understands what he is signing.
- Return on investment.
The entrepreneur should find out what the company’s profit ratio to sales is. He should relate this to time and service requirements and to the financial leverage requirements. In other words he should consider whether he can make more in another type of business. He should find out whether he can invest the same amount in another business opportunity yet operate a larger operation and get a better return on investment.
- Research the parent company’s history.
If the entrepreneur is taking on a franchise, he should find out whether the parent company is a new firm with little expertise and experience or whether it is an older firm whose regular products have satisfied customers for years.
Benefits of a well structured Business Opportunity
- Less Costly.
a well thought out business opportunity, be it the entrepreneur’s own brilliant idea, a franchise or a license to operate under a parent company’s name will prove less costly as the foundation will have been laid and room for backing out will be available before the entrepreneur commits himself entirely. any hidden cots will be made known in the process of laying out the overall plan.
- Reduced Risks of failure
A well thought out business opportunity provides the entrepreneur with a firm foundation on which to establish his enterprise. this follows a thoroughly executed research into the requirements of running the business, risks involved, personal strengths and weaknesses that the entrepreneur may have to deal with
- Ready Market
part of the ground work involves preparing the public for the product or service that is yet to be introduced into the market. the entrepreneur will be marketing himself following preliminary studies into the customer pattern; their likes and dislikes regarding the product.
- High level of competence
in any new business, a lot of time and money are consumed during the learning period. in a well prepared business opportunity, the entrepreneur will have taken steps to arm himself with the relevant knowledge for his line of business hence enhancing his competence.
- Better financing options.
a business plan will be the basis for a lucrative business opportunity. the entrepreneur will have prepared a business plan which he will use to secure funds from investors. in a situation where he is dealing with a parent company, he is assured of financial support in one way or another, inform of low interest loan, for instance.
- Professional advertising and promotion.
Most small businesspeople don’t spend sufficient money on advertising. When they do, their efforts are often poorly conceived and inconsistent. a proper way of promoting the products of a business is through advertising carried out extensively following a market analysis into the trends and consumer patterns. the entrepreneur will have this as his main strength as he attempts to make his product known
- Purchasing power.
many times, the parent company’s tremendous buying power and special buying techniques can bring products, equipment and outside services to the licensee at a much lower cost than an independent could ever get.
Consequences of a poorly structured Business Opportunity
there will be consequences where the entrepreneur does not take his time in selecting a good business opportunity. he may come up with a brilliant idea but unless this good idea is effected through a worthy investment, it will remain a good idea. some of the effects of not having a well structured plan include;
- Lack of will power
if the entrepreneur is not convinced that his idea will sell, then no one will make the idea sell. he is the inventor who can make the business opportunity take off into a strong business
a sponsor of a business opportunity under a franchiser/franchisee arrangement may make huge losses if he doesn’t do a thorough ground work into the people he is entrusting his investments to
- Lack of financial support.
A business opportunity without a business plan is bound t fail for lack of financial support. The entrepreneur will convince banks and other lenders of funds to support his business if he has a well prepared business plan. Otherwise, he stands to miss out on all the finances from, investors.
- Exclusivity clauses.
the entrepreneur may be restricted to selling only the manufacturer’s merchandise. if this is the case and he deviates for any reason whatsoever, he runs the risk of the licensor canceling the agreement. if he does buy from other sources, it will be very hard to hide. most parent companies will require books to be opened for examination at pre-designated periods of time. any irregularities will be spotted at these times. most smart buyers of business opportunities will negotiate the point in the agreement stipulating sources of supply in case product quality is inconsistent.
- Parent-company bankruptcy.
another pitfall is the possibility of the parent company overextending itself and going bankrupt. While this is not as serious in a business opportunity as it would be in a franchise, the entrepreneur still runs the risk of losing the business because his property contracts may have been financed through the parent company.
the entrepreneur should carefully investigate any business opportunity he is considering. he should get a list of operators from the parent company and call them. he should have a lawyer look over any agreement drafted by the parent company and make sure he receives a disclosure statement. he should then carefully evaluate the licencor. he should not be hurried to sign the deal. the idea is to ensure a responsible company backs the business opportunity.
these exist where the entrepreneur makes use of his range of friends, acquaintances, and business associates to obtain resources and opportunities for his firm. This information helps the entrepreneur understand his environment better. it also helps him build a reputation and credibility for himself and his firm. The networks can be a source of sustainable competitive advantage as well as a means of procuring other resources that can be a source of competitive advantage.
these are more organized forms of associations where the entrepreneur establishes mutually beneficial relationships with other business people and potential clients. The aim is to exchange business ideas, information and support.
Motivations of Networking
here we shall look at what drives entrepreneurs to form networks for their businesses. the reasons are varied and each entrepreneur needs to find a partner who shares his vision, one who will compliment his business needs and objectives.
a cost cutting strategy may be reason enough to venture into networking whereby the production process avoids wasteful duplication of resources, utilizes by-products and processes, and may even allow the partners to share brands and distribution channels. another internal motivation is the need to share new intelligence and production methods. these relationships can help a firm emulate innovative managerial practices, superior management systems and improved communication patterns.
this motivation drives the formal network to come up with improved current strategic positions with respect to the industry in which they belong. For instance a set of firms is more likely to be able to influence the structure of the industry’s evolution than a single firm. A joint venture could also act to preempt the possible entry of new competitors thereby giving the partnership a lead that is less likely to be challenged in the industry. this will ensure customer loyalty as the venture expands its capacity to serve. another motivation here is the acquisition of resources at better terms from suppliers. Economies of scale play a major role in getting better deals.
Some forms of joint venture will exist not solely with the objective of deriving immediate benefits but for creative reasons, to exploit synergies, to develop new technologies or extend old ones. it could also be a room for a venture to set a toehold in a market that is not completely ready for the product or service in the offing, a product or service that needs long term credibility.
Here, firms network not for purely profit oriented reasons. The firms come together to promote their own values and social agendas. A lead firm will set precedence by setting a forum where other entrepreneurs who are committed to social changes through business come together. the network is a loose collection of entrepreneurs, social activists, corporate executives and philanthropists. the network brings individuals of common purpose together for the purpose of achieving a common social goal.
Types of Networks
This is an informal network that consists of all the direct face to face contacts that the entrepreneur has. they include friends, family, close business associates, former teachers at the university etc. in this kind of network, the entrepreneur can easily develop trust with the other parties since these are people who can vouch for him as a result of knowing him very well. trust enables the entrepreneur to forgo all the legal formalities that guard against opportunism when getting into a business arrangement with any of these people. trust can replace any contract that may need to be signed and save the need to incur unnecessary costs. people within a personal network have predictable behavior patterns since they know each other well. their consistent behavior enables the entrepreneur to have a mental map of the personal network – to know who will be where and when. this will help him navigate quickly through the personal network when resources and information are needed for business purposes. personal networks have strong ties. such ties are formed because the relationship may have a long history, there may be family relationships or people may share a common culture, common values or common associations. strong ties are especially important in the early stages of business formation particularly in financing and securing the initial resources for new venture creations. an example of this kind of networks is the pyramid scheme that was rampant in the country a few years ago.
These are formal firm to firm relationships. The entrepreneur engages other entrepreneurs, customers, vendors and other constituents in the operating environment in boundary spinning activities. Each of these parties has a role to play in the open system under which the entrepreneur runs his operations. Extended networks become more important as the firm moves beyond the initial foundation stage. these networks contain more diversity that personal networks and consequently, more information. there is little trust between the concerned parties hence the need for formalized agreements in form of contracts. there is also more uncertainty and less predictability in these relationships. there are weak ties since the customer of a customer or the supplier of a supplier may be included in the network. this forms many indirect associations but in the end only acts to make the extended network even larger. as a result it will contain more diverse information, people, resources and channels for the entrepreneur to use. Examples of relationships that exist in this category are the cartels of firms that combine resources to benefit from economies of scales, such as bookshops importing books in bulk from abroad.
an agglomerate network is a formal network that is constituted by a set of indirect relationships between firms that are competitors. It serves as an information network that enables the firms to secure information about capabilities and competencies that are regarded as necessary but not sufficient for success. It requires registration for membership and members are required to pay some fee. it is regulated by by-laws that control the activities. such a network can exist in highly fragmented and geographically dispersed environments that are populated by very small, homogeneous ventures, such as retailing and small scale farms. they are loosely coupled, voluntary and have a low task structure. no single member of the association can influence another member to do anything. Examples of this kind of network are firms that belong to an association that protects their interests, e.g. publishers belonging to the Kenya publishers association
this is an indirect relationship between non – competing organizations. the indirectness is not in terms of the individual entrepreneur who represents the firm but in terms of the business. these relationships are not task-oriented and may consist of strong ties linkages such as friends and close associates or weak ties links. Examples here include firms that come together for a common social purpose e,g to sponsor athletes to represent the country at the Olympics
in today’s economic environment, the survival of big corporations has been affected by how these firms have fared on throughout their lifetimes. The early stages of any business are very important. This is the period when the firm attempts to set its foot in the industry. many factors can be attributed to the success or failure of the business at this stage. the legal form the entrepreneur has in mind for the business also affects its future growth. there are advantages and disadvantages of various forms of business enterprises as we shall see. the role of the government in regulating the growth and supporting the upcoming businesses will also be a focus of this chapter. Finally, the various motivational theories as put forward by the renowned schools of thoughts will be discussed at length.
Enterprise: a well organized business set up that is constituted by a manager along with a team who work together to pursue a business goal,
Industry Cycle: the sequence of growth, maturity and decline of any industry that has an impact on the success or failure of a young firm
What is an enterprise?
an enterprise is a well organized business set up that is constituted by a manager along with a team who work together to pursue a business goal, which essentially is to improve the economic environment in the surrounding in addition to the major objective of making profit.
a successful enterprise requires a lot of effort and boldness at the initial set up. it has to convince all the stake holders involved that it is a project that is viable and will bring rewards
Importance of enterprise development
Enterprise development and job creation go hand in hand. they are programs that are dedicated to unlocking the enormous potential of enterprises to create decent, long-lasting jobs. decent work can only exist in competitive, productive, and economically viable firms. A good development program in any economy seeks to enhance the positive interaction that exists between the improved competencies of managers, basic workers’ rights and productivity.
small and medium sized enterprises and cooperatives are major contributors to job creation. an increase in their number can provide decent employment to the many people around the world now toiling under poor working conditions and trapped in poverty. this idea is further supported by the fact that most small business enterprises are labor-intensive and could use the large numbers of available cheap labor.
Young people after graduating from universities and colleges need an avenue to demonstrate their knowledge and skills in a productive manner. this requires that the environment for this is conducive for them to set up. the government should play a role in ensuring a stable political, social and economic environment that will ensure the smooth start of the enterprises. in addition, funds should be availed for viable projects that have passed through the relevant testing by experts before the proposals are presented for deliberation. this acts to ensure that resources are optimally utilized.
on their side, prospective entrepreneurs need to be creative and innovative enough to put on paper ideas that have a business angle, ideas that do not just lead to their own self fulfillment but also puts the needs of the society they serve into account.
small enterprises tend to be more effective in the utilization of local resources using simple and affordable technology. small enterprises play a fundamental role in utilizing and adding value to local resources. in addition, development of small enterprises facilitates distribution of economic activities within the economy and thus fosters equitable income distribution. Furthermore, small enterprises technologies are easier to acquire transfer and adopt. also, small enterprises are better positioned to satisfy limited demands brought about by small and localized markets due to their lower overheads and fixed costs. Moreover, the owners tend to show greater resilience in the face of recessions by holding on to their businesses, as they are prepared to temporarily accept lower compensation.
through business networks, partnerships and subcontracting relationships, small enterprises have great potential to complement large industries requirements. a strong and productive industrial structure can only be achieved where small enterprises and large enterprises not only coexist but also function in a symbiotic relationship
a business’s success is also often governed by the success of the industry in which the entrepreneur has decided that the business will settle. the economic trend affects industries in a dissimilar manner; some are worse hit than others and as the entrepreneur chooses a business opportunity, this is one thing he may be wise enough not to ignore.
as the entrepreneur plans for the future of the business, he needs to bear in mind that certain things may be beyond his control while others he may be in a position to control. to delve more into the life cycle of a business, we will begin by looking at the growth curve of an industry.
industries are born, just like people. they grow, mature and eventually die. the power of growth of an industry is very important to an entrepreneur since it has a lot of impact on the success of the business. some of the factors that may lead to the collapse of an industry may well be beyond the control of the entrepreneur. For instance, the entrepreneur has no control over the country’s currency and so if its value falls, this may have negative impact on the tourism sector. A firm in this industry may have tough times ahead.
Research shows that most firms do well in industries that are just starting. Many factors can be attributed to this;
Ease of entry
Because the number of entrepreneurs willing to invest in the less known industry is small, those that do, stand to settle in with relative ease if the market response is positive. Barriers that exist in established industries are fewer in an emerging industry and the firm is thus able to set its own bench marks as it tries to do what few have tried to do before.
Given the fact that there are few entrants in the industry, the entrepreneur has fewer headaches thinking more of the growth of his venture than what his would be competitors are doing.
High level of innovation
Because he wants to create a name for the business, the entrepreneur with a clear vision for his business is in a good position to try and invest more on research and development as he is convinced that what he is doing will yield good returns. he is well poised to come up with even better ways of carrying on the venture.
The phases in the growth of a firm
if not well managed, the growth of a business can have serious repercussions. an entrepreneur needs to assess his environment against the growth of his business and ensure that the growth of the firm is also taking into account external factors, which may well be beyond his control. Every entrepreneur wants to see his business grow. that is the short term and long term vision for every firm. The growth rate will also give an impression of how the firm’s product or service is meeting customers’ demands. a product’s life cycle from inception to eventual decline can tell how a firm will fair both in the short term and the long term. The growth of a firm is likely to take the following stages in its life;
Pre – Start Phase
this is the preliminary stage for the business. here, the entrepreneur does a lot of ground work to assess the viability of the venture he is about to get in to. he will carry out due diligence to ensure he has taken all important factors into account before setting off the business. he will incur expenses to execute some of these important activities. he may for instance require the services of a legal representative to acquire land. he may also hire the services of a surveyor if he wants to build his own premise. if he will hire personnel to assist in running the business, he should ensure that he has sufficient funds to pay them for at least 6 months. He may need to get a loan to do this.
Start – up Stage
at this stage, the entrepreneur has already set the business up. the business is operational despite the set backs that befall all businesses that start up at the initial stages. the entrepreneur realizes that he may need to make adjustments in order to survive. he may see the need to insure the property in case he hadn’t, he may also realize that he does not need an extra staff hence he may cut down on that, sales may be slow in picking up, so he may decide to come up with new marketing strategies, he may see the need to have proper records for tax purposes e.t.c
Early Growth Phase
during this phase, the business will experience rapid growth as customer needs become the main focus for the entrepreneur. it is at this stage that he will realize there is need to gain a competitive edge in order to make more sales. the entrepreneur at this stage may think seriously about automating his operations, hiring professionals like accountants, perhaps even expanding the business. the signs that these requirements are necessary will be felt by the growing need to meet the increasing and dynamic needs of the customers.
Later growth phase
this is the phase that determines whether the business has managed to meet its long term objectives and a period to assess how successful the short term objectives have been met. at this stage, the entrepreneur is more concerned about corporate governance issues and how this impacts on customer needs. he will also be concerned with the management of the business in various departments such as finance, sales and marketing e.t.c. The entrepreneur will have his sights on a higher level of competition with other firms that belong to a higher circle, hence he see the need of turning the business into a public limited company in order to compete as such levels
This model can be applied to the growth or otherwise of a firm. The entrepreneur thus needs to ensure that the business opportunity he has before him has a road map charted in advance and based on due diligence. This does not mean that every firm will follow the above model. the entrepreneur needs to be aware of the possible outcomes. What he needs to do to ensure that the growth of the business is well managed by a clearly defined strategy is what we shall be looking at in the next section;
We have already mentioned that the entrepreneur will need to assess the economy in which he intends to settle his business before embarking on anything serious. this entails doing a research into the economic variables that are likely to play a major role in the future of the firm. Over and above this, he will need to lay out a strategy for development of the firm.
a strategy follows the research and ground work and is based on the idea that has been determined to be the driver of the business venture. in developing a strategy, the entrepreneur will need to do the following;
Assess the likely demand for the product
this entails doing a survey in a particular targeted section of the market where very important variables can be collected. the entrepreneur will need to see whether there have been other products and services that have been or are still there in the industry
Identify a specific customer need that has been ignored
Even where similar products or services have existed in the industry, the entrepreneur may identify a specific need that has not been fully met. Here, the entrepreneur will assess whether by meeting this need, his firm will pull away customers from other firms
Consider the added value to the customer
the entrepreneur will also need to assess whether the customer will experience an added value by using the new product. this will come out as a result of a survey.assess the company image enhancement as a result of the new product
The entrepreneur will also be looking at the interest of the firm. Will the introduction of a new product likely to boost the image of the business and to what extent?
With this in mind the entrepreneur will come up with a clear chart of where he wants his business to be in future and how it will get there. the business strategy can be looked at in the following ways;
here, the entrepreneur is asking himself, ‘how can i take up a bigger share of the market?’ he will have to think of ways through which he can establish his presence and exert himself through his product or service. he may have the objective of controlling a certain percentage of the market. this in itself is a strategy and the entrepreneur will need to devise ways of achieving this. some of the means he could use to attain this objective are;
- investing on advertisement
- Encouraging customers to buy his products through customer incentives for instance special deal if a sale reaches a certain value, discounts e.t.c
- offering better customer care
all these may pay off if the results are tangible. this will be realized through increased revenues and a larger client base.
this strategy will be a result of a well thought out plan to introduce a product or a service to a wide region all at once and capture the entire market in one single attempt. the success or failure of this move will depend on how much due diligence the entrepreneur will have done. if the initial survey tells him that customers from diverse backgrounds and from different walks of life will respond positively to the new product or service then he has a good chance of succeeding.
Product/ Service diversification
this strategy will mitigate against the risk of losing market share when the product reaches the final stage of its life cycle. As we saw earlier, the lifecycle of a business will necessarily follow that of the product if there is no backup plan. Through product diversification, the entrepreneur will ensure that even though the product is squeezed out of the market as a result of fierce competition, others will still come up to replace it in terms of market share.
the entrepreneur should be careful not to diversify into unrelated products or services. he should choose a product or a service that can be used instead of the mainstream product or service. at the end of it all, he should not do away with the original product all together
Unfavorable legal and regulatory framework
the absence of policies governing the growth of small enterprises could hamper the growth of small enterprises. This would mean that the small firms are not protected in the harsh markets and the law does not complement their activities. it thus becomes very hard for an entrepreneur to set his toehold in the economy. the high cost of compliance to regulations may discourage potential entrepreneurs from formally setting up their businesses, while driving some existing enterprises out of business and those working for them into unemployment
this could be a drawback in the sense that the entrepreneur may not have access to facilities that will enable him pursue the objectives of his business on a larger scale. most institutions are cautious to lend money to small businesses because of the risks involved. at the same time some of these institutions may require the businesses to pay high interest rates for loans acquired
Poor business development services
Lack of training may be a setback in the industry for the small businesses. most nGos that come up with the plans lack support from the government and mostly operate on good will from the potential investors. the entrepreneurs lacking in skills need to be imparted with knowledge that will set them at par with the other accomplished businesses, giving them a chance to provide healthy competition
Poor entrepreneurial Culture
it has become a trend for most school leavers to look for employment. While it serves as the most convenient route to earn a living, most young people have shied away from engaging in entrepreneurial initiatives because of the high risks involved in setting a business. most of these young people find it a big struggle that is laden with disappointments.
Lack of Skills and competence
most entrepreneurs lack the relevant skills to engage in meaningful business enterprises. those that manage get the support of strategic investors and managers who mobilize resources on their behalf. On his own a potential entrepreneur will find he is limited if he has not undergone some basic entrepreneurial training.
the Government has a huge role to play in creating a conducive environment for the growth and development of enterprises. there are things that the entrepreneur will not be able to accomplish without the support of the government. on this note, it is imperative that supportive institutions and structures are set up for this. We shall look at the government’s role through the following salient headings.
the Government through an act of parliament stands in a very strategic position in directing the growth of small businesses. policies that will enhance the creation and establishment of small businesses need to be set and discussed at length in parliament. this should be done while putting the interest of the small business owners first. Policy documents that address various areas and even geographical locations should be designed with the objective of ensuring equitable chances to all stake holders.
in recent years, the country has witnessed the mushrooming of non- Government organizations that are doing a commendable job in promoting entrepreneurial initiatives. most of the NGOs are mainly involved in credit delivery, business training, providing general consultancy, and providing short term loans. however, most of the institutions supporting small businesses are rather weak, fragmented, concentrated in urban areas and uncoordinated. this calls for the need to strengthen the institutions supporting small and medium enterprises. this is where the government comes in with its wealth of influence.
Establishing Linkages/ Networks
networks are so important for the entrepreneur who is just starting out. he needs all the support he can get from other entrepreneurs and strategic investors looking for franchises. the business linkages are also critical because networking is crucial in the business world. this is clearly demonstrated by the chain of supply of goods and services between firms in an industry and even between industries. the government can establish organs that will specialize in bringing entrepreneurs with good proposals and strategic investors together in a common forum. Entrepreneurs also benefit through access to information on financial assistance, materials and suppliers, pricing, training, workshops sub-contracting opportunities and potential joint venture.
ideally a world where the politics of the government do not interfere with the economic climate would be the best for any kind of business to establish itself. unfortunately this is not the case and any change doesn’t seem forthcoming. there is always bound to be political interference where the business environment is concerned raising questions as to the main issue that needs to be addressed. the government can ally fears of political interference in small enterprise development by setting aside an organ that will strictly concern itself with these matters, while ensuring little or no political interference in small enterprise development
The government can regulate the economic down turns in the country through the fiscal policies that are enacted and revised from time to time. these can cushion the small businesses against the adverse effects of economic cycles
Starting a business
an entrepreneur needs to be well conversant with the law of the land, at least to the extent to which his firm will be affected. Ignorance of the law can be very detrimental to the survival of the firm and could prove costly in the end. When starting up a business, there are some important legal matters that the entrepreneur will have to deal with, no matter how much he would love to just dive in and get started. If he neglects these legal steps, he will find that maintaining the business down the road becomes much more difficult, and in some cases, impossible. It’s in his best interest to take these legal aspects seriously and get them sorted out as soon as possible when starting a business. the emphasis on this section is to bring out the salient legal aspects that affect the running of a business and what the entrepreneur needs to know. the legal aspects the entrepreneur needs to be aware of are;
- Laws that can affect the business
By looking at the legal documents which are usually available for all to see, the entrepreneur will be in a position to assess the effect of each law that is relevant to his kind of business venture. one important thing that he should be interested in, for instance is the issue of taxes. the entrepreneur should assess how the Government will tax him and his business under the various forms of business ownership. on the same note, he may also be interested in knowing the tax incentives available for his type of business. it may work in his favor in subsequent periods
- Laws concerning capitalization
The firm cannot survive as a business without proper capitalization, and this will include both matters of equity and debt. Equity is gained through sales of business ownership interest, such as stock shares while debt is acquired through financial loans from lending institutions. Before the entrepreneur even thinks about starting the business, he’ll need to have a good relationship with his bank or an established financial institution. If he doesn’t have adequate capital, the business will fail, regardless of how thorough his business plan was.
- Law concerning the various forms of businesses
this will determine whether the entrepreneur can be sued for issues arising between the business and his customers. it is extremely important, and often neglected when starting a business, but this can actually make or break the entrepreneur during those crucial first years when the business is trying to be established and grow. the entrepreneur would not want to be left with liability issues, debt problems, or unnecessary obligations. the kind of legal entity will also determine the tax strategy that the government applies to the business. the entrepreneur should protect himself from liability issues, and he should ensure that he is not personally held responsible for any unfortunate happenings.
- The nature of business contracts
a business contract is a legally binding agreement between two parties for an exchange of services that are of value. For a contract to be valid, an offer must be made and accepted. using a contract in business dealings helps ensure an agreement is acted on, insofar as a broken contract could result in a lawsuit or out-of-court settlement and the payment of damages caused by the breach. the best way the entrepreneur can avoid a dispute or potential litigation, however, is to prepare a solid agreement in which he is confident he has negotiated the best terms for his business.
Sources of Finance
Businesses can acquire finances from various sources. These include;
this is often the only source of capital available for the sole trader starting in business. the same often applies with partnerships, but in this case there are more people involved, so there should be more capital available. this type of capital though, when invested is often quickly turned into long term, fixed assets, which cannot be readily converted into cash. If there is a shortfall on a Cash Flow Forecast, the business owners could invest more money in the business. For many small businesses the owner may already have all his or her capital invested, or may not be willing to risk further investment, so this may not be the most likely source of funding for cash flow problems.
Ploughed back profits
Firms make profit by selling a product for more than it costs to produce. This is the most basic source of funds for any company and hopefully the method that brings in the most money.
Like individuals, companies can borrow money. this can be done privately through bank loans, or it can be done publicly through a debt issue. the drawback of borrowing money is the interest that must be paid to the lender.
Issue of Shares
a company can generate money by selling part of itself in the form of shares to investors, which is known as equity funding. The benefit of this is that investors do not require interest payments like bondholders do. The drawback is that further profits are divided among all the shareholders
this is a form of loan from a bank. a business becomes overdrawn when it withdraws more money out of its account than there is in it. this leaves a negative balance on the account. this is often a cheap way of borrowing money as once an overdraft has been agreed with the bank the business can use as much as it needs at any time, up to the agreed overdraft limit. But, the bank will of course, charge interest on the amount overdrawn, and will only allow an overdraft if they believe the business is credit worthy i.e. is very likely to pay the money back. a bank can demand the repayment of an overdraft at any time. many businesses have been forced to cease trading because of the withdrawal of overdraft facilities by a bank. Even so for short term borrowing, an overdraft is often the ideal solution, and many businesses often have a rolling (on going) overdraft agreement with the bank. this then is often the ideal solution for overcoming short term cash flow problems, e.g. funding purchase of raw materials, whilst waiting payment on goods produced.
This is lending by a bank to a business. A fixed amount is lent e.g. Kshs.10,000 for a fixed period of time, e.g. 3 years. the bank will charge interest on this, and the interest plus part of the capital, (the amount borrowed), will have to be paid back each month. again the bank will only lend if the business is credit worthy, and it may require security. if security is required, this means the loan is secured against an asset of the borrower, e.g. his house if a sole trader, or an asset of the business. if the loan is not repaid, then the bank can take possession of the asset and sell the asset to get its money back. Loans are normally made for capital investment, so they are unlikely to be used to solve short-term cash flow problems. But if a loan is obtained, then this frees up other capital held by the business, which can then be used for other purposes.
With leasing a business has the use of an asset, but pays a monthly fee for its use and will never own it. think, of, someone setting up business as a parcel delivery service, he could lease the van he needs from a leasing company. he will have to pay a monthly leasing fee, say Kshs.50,000, which is very useful if he does not wish to spend Ksh.800,000 on buying a van. this will free up capital, which can now be used for other purposes. a business looking to purchase equipment may decide to lease if it wishes to improve its immediate cash flow. In the example above, if the van had been purchased, the flow of cash out of the business would have been Ksh 800,000, but by leasing the flow out of the business over the first year would be Ksh 600,000, leaving a possible Ksh 200,000 for other assets and investment in the business. Leasing also allows equipment to be updated on a regular basis, but it does cost more than outright purchase in the long run
in an ideal world, a company would bring in all of its cash simply by selling goods and services for a profit. At some point the company may need to invest in big investment that will yield returns in the near future. For this reason, a time will eventually come when the company will need to acquire funds from any of the above mentioned.
When evaluating companies, it is most important to look at the balance of the major sources of funding. For example, too much debt can get a company into trouble. on the other hand, a company might be missing growth prospects if it doesn’t use money that it can borrow.
if a person is considering starting a small business, he may be trying to sort out the different types of businesses and wondering which type is best for him/ her. Each type is best for a specific purpose or situation, relating to taxes, liability, and the ability to control the profits and losses of the business. the various forms of business ownership are sole proprietorship, partnership and corporation. Each of these is discussed in further detail below;
this is a business owned by one person. it needs no charter, has few costs, and that person gets to keep all the money to his/her self. the problem is, of course, that a one-person business can’t make as much money as a large business, the owner will have to work very hard, and if the business loses money, the loss translates directly to the owner
a sole proprietorship is generally the simplest way to set up a business. a sole proprietor is fully responsible for all debts and obligations related to his or her business. a creditor with a claim against a sole proprietor would normally have a right against all of his or her assets, whether business or personal. this is known as unlimited liability.
a partnership is a relationship that exists between two or more persons carrying on a business common with a view to making profit.it is an agreement in which two or more persons combine their resources in a business with a view to making a profit. In order to establish the terms of the business and to protect partners in the event of disagreement or dissolution of the business, a partnership agreement should be drawn up, usually with the assistance of a lawyer. Partners share in the profits according to the terms of the agreement. Where two or more persons wish to form a partnership, then it is recommended that they agree on the terms upon which the partnership will be run and the relationship between each other. this is done in writing and signed off as agreed by all the partners and therefore it becomes a partnership deed or agreement.
Contents of partnership agreement
- Name(s) and address(s) of both the firm and the partners
- Capital to be contributed by each partner
- The profit sharing ratios that may be expressed as a fraction or as a percentage.
- salaries to be paid to any partners who will be involved in the active management of the business
- any interest to be charged on drawings made by the partners.
- interests to be given to the partners on their capital balances.
- procedures to be taken on the retirement or admission of a partner
Types of Partnership
all members share the management of the business and each is personally liable for all the debts and obligations of the business. this means that each partner is responsible for and must assume the consequences of the actions of the other partner(s).
some members are general partners who control and manage the business and may be entitled to a greater share of the profits, while other partners are limited and contribute only capital, take no part in control or management and are liable for debts to a specified extent only. A legal document, setting out specific requirements, must be drawn up for a limited partnership.
Reasons for partnership
- Additional capital in case a sole trader or one person is not able to raise sufficient capital
- incase there is need for skills or expertise in certain areas of the business.
- to involve more persons in the business especially for a family.
A partnership has minimum membership of two (2) and a maximum of fifty (50) except for professional firms (e.g.) lawyers, doctors, accountants etc. whose maximum membership is twenty (20) persons.
a corporation is a legal entity that is separate from its owners, the shareholders. no shareholder of a corporation is personally liable for the debts, obligations or acts of the corporation. directors, officers and insiders can bear some liability for their involvement with the corporation.
A corporation is identified by the terms “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”, or “Corp.”. Whatever the term, it must appear with the corporate name on all documents, stationery, and so on, as it appears on the incorporation document.
a corporation has legal rights and obligations of its own which are distinct from those of the individuals who either constitute its membership or management. this attribute of legal personality has received considerable judicial exposition in relation to registered companies and the overall practical effects of the decided cases may be summarized as follows:
(i) Limited Liability
the debts of the corporation are its own and a member of manager of the corporation cannot be sued on order to recover the debts. if a corporation such as a registered company is unable to pay its debts it may be wound-up and during the winding-up its members will be asked to
‘contribute’ what is required to pay the debts but a member cannot be asked to pay more than the amount, if any, that is unpaid on the shares held by him (or the amount he guaranteed if it is a company limited by guarantee).
(ii) Perpetual Succession
the death of a member or members of the corporation does not result in the death of the corporation. members come and go and are merely succeeded by other persons who become new members. the corporation ‘dies’ only when its legal life is brought to an end by a legal process known as liquidation.
(iii) Owning of Property
the property of a body corporate such as a registered cooperative society or a registered company does not belong to its members. Consequently, a member cannot insure the property since he does not have insurable interest therein. . a person cannot, generally speaking, have insurable interest in the property of another person. the law regards a corporation and its member as separate persons for this purpose.
(iv) Suing or being sued
Because of the legal separation between a corporation and its members, it follows that a wrong to, or by, the corporation is not a wrong to, or by, its members.
Formation of Corporations
a corporation may be brought into existence by
Types of Corporations
there are four types of corporation which are recognized by the Kenya Law.
(a) Corporation Sole
This is a legal office that is occupied by one human being only at any one time. If the person ceases to occupy the office, he is succeeded by another person who will then discharge the duties and exercise the powers of the office. It is a legal person with perpetual succession capacity to sue or be sued. Example are owning of property and limited liability.
(i) The Public Trustee
the public trustee act, s.27(1) states that ‘the public trustee shall be a corporation sole by the name of public trustee’.
(ii) the permanent secretary to the treasury of Kenya.
section 2(1) of the permanent secretary to the treasury (incorporation) act states that “the officer for the time being discharging the duties of the Permanent Secretary to the Treasury of Kenya and his successors in office shall be a body corporate”. It should be noted that the Constitution of Kenya which created the office of the President of Kenya does not have a provision that the office of President shall be a body corporate.
(b) Corporation Aggregate
this is a legal entity formed by at least two people and whose membership at any one time legally consists of at least two people. Examples are private and public companies registered under the Companies act, and co-operative societies registered under the co-operative societies act 1966 (cap.490). it has a legal personality with perpetual succession, capacity to contract, own property and sue or be sued.the company acquires legal personality from the date of its registration by the registrar of companies. the Companies act, s. 16 (2) provides that “from the date of incorporation … the subscribers to the memorandum … shall be a body corporate by the name contained in the memorandum”. S.28 of the Co-operative Societies Act provides that “a society, on registration, shall be a body corporate”.
(c) Statutory Corporation
this is created by an act of parliament and comes into existence from the date of commencement of the Act. An example of a statutory corporation is the Agricultural Finance Corporation”.
Section 3(1) of the Act states that “there is hereby established a corporation to be known as the Agricultural Finance Corporation”.Section 3(3) of the Act states that “the corporation shall be a body corporate with perpetual succession and a common seal”.
(d) Chartered Corporation
a chartered corporation may be created under section 14 of the universities act, 1985. section 12 of the act empowers the president of Kenya to grant a charter to any private university intended to be set up in Kenya if, in his opinion, the grant of the charter to the institution concerned may be f benefit to the future development of university education in Kenya.the advantages and disadvantages of the various forms of businesses discussed above can be summarized as shown below;
[table id=4 /]
Other Legal Aspects of forming a business
Licenses, labor laws, Workman Compensation Act, Factory Act, health and safety rules
For any business to operate in the country, the owner has to seek a license to operate the business from the local authorities. this license mandates the entrepreneur to operate the line of business for which he has registered; any other line of business would not be covered by the license agreement.
the labor laws enacted by acts of parliament include among others; the Workman’s Compensation, and the Factory act. there are health and safety rules that govern the work environment. the entrepreneur should familiarize himself with these rules since he will have people working under him, whose welfare he will have to protect. He should seek a certificate from the certifying bureau that assures to all employees and stake holders that the interests of the workers are well taken care of and given high priority. this should be placed in a public place in the workstations. the entrepreneur may find himself in legal battles with should he not protect the interests of the workers, especially where the workers have registered under a trade union.
Business contracts and tendering procedures
a business contract is a legally binding agreement between two parties for an exchange of goods or services that are of value. For a contract to be valid, an offer must be made and accepted. By using a contract in business dealings the entrepreneur will ensure that all terms of trade are adhered to. the contract protects the interests of both parties privy to it. the entrepreneur should be careful when signing contracts insofar as a broken contract could result in a lawsuit or out-of-court settlement and the payment of damages caused by the breach. the best way the entrepreneur can avoid a dispute or potential litigation, however, is to prepare a solid agreement in which he is confident he has negotiated the best terms for his business.
The tendering Process
the tendering process refers to the procedure followed in procuring services from parties external to the business in a transparent manner. services to be procured will most often be outsourced services for which the entrepreneur does not find it worthwhile to allocate most of the business resources. these will be non – core activities such as security, transport, provision of stationery, catering e.t.c.The process of tendering for these services will normally be given to the purchasing officer of the company. The entrepreneur from time to time will find himself doing this if the business has not grown large enough to warrant such an office. The procedure to be used in tendering for services includes;
Step 1: Identifying the need for the service
The need for the service will be triggered by one of the employees of the firm or by the entrepreneur himself. The justification should follow due process to avoid wastage of resources for services that are not needed.
Step 2: Short listing of possible service providers
Based on the need, the purchasing office or the entrepreneur will identify the possible third party firms that can provide these services and get their quotations
Step 3: Selection
Based on pricing and other considerations such as efficiency of service, terms of payment, quality of products e.t.c, the entrepreneur will select the quote from successful supplier and communicate to him that he has been selected to supply the services or good.
Step 4: Communication with unsuccessful applicants
it is good practice for the entrepreneur to communicate with the unsuccessful applicants the fact of their non selection and the reasons for the same.
Business amalgamation refers to the process where, by mutual agreement, the owners of two or more business combine resources to operate as one legal entity. this can take any of the following forms.
- take over
These are explained briefly as follows;
in a merger, two companies cease to exist as separate entities and register a single entity where both share a common stake. The managers of the two firms sign an agreement stipulating the terms and conditions of the merger and depending on which firm was larger before the merger, considerations such as lines of reporting are realigned. A new legal name will be identified that takes into account the identity of the previous entities.
in an acquisition, two companies combine resources to run as a single entity but in this case, the company that is usually larger than the other in terms of financial resources and experience, will in essence take over the operations and management of the new entity.
In a takeover, the entrepreneur of a business will relinquish ownership of his firm to another, usually larger company in exchange for a financial consideration.
In a franchise, a sponsor identifies someone with an idea or a proposal and decides to fund his project and give it the financial boost it needs to start off. In this case, the entrepreneur is the franchisee who operates under the franchiser’s name.
there are various theories that have been put forward by various scholars regarding entrepreneurship development. discussing these theories will help us understand better the nature of entrepreneurship.
the emergence of entrepreneurship has brought with it immense insights that we need to appreciate. this has led to a diversity of theories that we need to examine, by looking at the schools of thought that divide entrepreneurship into specific activities these activities may be looked at from a ‘macro’ or a ‘micro’ view.
The Macro view Entrepreneurial Thought
this point of view presents a number of schools of thought which suggest that a range of external factors are the forces behind the entrepreneurial process. often these factors are beyond the control of the individual entrepreneur;
- Environmental school of thought
- Financial/Capital school of though
- displacement school of thought
- Environmental School of thought-Support
the proponents of this school of thought argue that entrepreneurial desires are molded by external factors (which may be positive or negative) that affect a potential entrepreneur’s lifestyle. they further argue that institutions and societal values grouped together form an environmental framework that strongly influences the development of entrepreneurs. Freedom and support in the work environment can also foster a manager’s desire to pursue an entrepreneurial career. in addition, the social group a person belongs to often may affect the potential development of an entrepreneur
- Financial/Capital School of Thought- Capital
this school presents the view that the desire to become an entrepreneur is based on the capital seeking process; that the entrepreneurial process is about making decisions involving finances at every major point in the venture process i.e.
- a) startup or acquisition venture stage:
in the beginning, the entrepreneur’s main concern is deciding on the major sources of funds to give him a head start on the venture. he may either take up a loan or decide to save up his. the success or failure of this decision making process will lead him further to make a decision as to whether to proceed or abandon the project.
- b) ongoing venture stage:
The financial consideration here is how to manage cash, make investments, undertake financial analysis, and evaluate the financial position of the venture. The decision to be made here is whether to increase, maintain or reduce size of the business.
- c) decline or succession stage:
The entrepreneur will be forced at some point to investigate the future profitability of the venture. Following this analysis, he may then consider options such as corporate buyout, dissolution or succession. This decision of course, has a financial consideration
- Displacement School of thought
this view suggests that individuals will not pursue a venture unless they are prevented or displaced from doing other activities. Factors that may force one from pursuing other ends in life include:
- i) political factors; these may include riots, wars t.c and may force one to move from station to another.
- ii) Cultural factors e.g. family backgrounds
iii) Economic factors; this could be, for instance, as a result of loss of current employment
The Micro view Entrepreneurial Thought
this view presents factors that are specific to an entrepreneur who has the ability or control to direct or adjust the outcome of each major influence. The following schools of thought comprise this view point.
- the Entrepreneurial trait school of thought
- the Venture opportunity school of thought
- the strategic Formulation school of thought
- The Entrepreneurial Trait School of thought- Traits
Following a study of successful people, it was found that they exhibited similar characteristics. those behind this school of thought, therefore. suggest that if certain traits associated with successful entrepreneurs are established and supported early in life, this will lead eventually to entrepreneurial success. the four traits usually exhibited by successful entrepreneurs include:
- i) Creativity,
- ii) determination, iii) achievement,
- iv) technical knowledge.
Family development and education are also important traits which contribute to the success of an entrepreneur
- The Venture Opportunity School of thought
this school of thought suggests that the ability to become an entrepreneur lies in being able to search for idea sources, develop concepts, and implement venture opportunities. the proponents further argue that creativity, market awareness, developing the right idea, at the right time, for the right market niche are the essential ingredients to entrepreneurial success. Opportunity identification is thus the key force behind becoming an entrepreneur
- The Strategic Formulation School of thought- Strategy
this approach to entrepreneurial theory emphasizes that the planning process is vital for successful venture development. the argument is that through strategic planning and formulation an individual is able to develop an effective venture. this because he will be able to identify and make use of unique markets, unique people, unique products, and unique resources
Incentive for aspiring Entrepreneurs
Entrepreneurs would really do with a bit of encouragement for them to succeed in their businesses. this comes in the form of incentives from the local and the central authorities. the incentives could come in a form that enables them to carry on their businesses with little interference. Globally, there are some forms of incentives that can help the entrepreneur also keep up with other businesses in other countries. the incentives can come in any of the following ways.
Few barriers to entry
This will encourage the upcoming entrepreneurs to penetrate a specific industry with ease. Competition may be there but with few barriers that could’ve been set up by the already existing businesses, it becomes possible for the small firms to compete in a fair environment.
Businesses that are operating in certain areas or industries could do with some exemptions in the tax on inputs. this will mean that they will not collect output tax on their products but the incentive in itself will mean less administrative work
To control the growth of small firms, the government can regulate the issuing of licenses or require stringent requirements for one to get a license. this will act as an incentive for the new entrants and will create a conducive environment for healthy competition
the Government through the ministry of Finance can set up forums where investors can meet with the upcoming entrepreneurs and discuss business prospects where both parties can benefit from each other. this can be organized in form of seminars and trainings or workshops organized by the ministry concerned.
Low interest rates on loans
The Government could set up loan schemes through micro finance institutions where entrepreneurs with a good business prospects can get boosts for their growing ventures in the form of low interest loans. the interest subsides will be the government investment for the upcoming business that will eventually contribute to national growth
BUSINESS PLAN DEVELOPMENT
the preparation of a good business plan is essential to a business. a well prepared business plan is what sells the business not only to interested stake holders outside the business, but also to internal stakeholders including the entrepreneur himself. a business plan summarizes what the firm sets out to achieve both in the short run and in the long run. The entrepreneur should convince himself that he is in the right business. By putting this in writing, he can refer to these plans every so often as the business grows, updating it as and when the need arises. the level of importance given to business plan preparation is more important than the attention given to the actual operations of the business.
Business plan: a detailed account of how the owners of a business plan to convert ideas and vision into a real, functioning profit center. It is a document that outlines all the steps that the business intends to follow to achieve the objectives or goals that have been set.
Importance of a business plan
Fast forward: A business plan records the reason for existence of the business.
to be successful, every business will need to have a business plan. to communicate with other stakeholders, the entrepreneur will definitely need a business plan. This will enable him share his ideas with the people who will have an influence in his business. The entrepreneur has to be personally involved in this process. he has to own it and not delegate the process to some one else. he is the one who has a vision for the business, so it only makes sense that he be the architect of the business plan. It doesn’t matter if he is using the business plan to seek financial resources or to evaluate future growth, define a mission, or provide guidance for running the business; he is the one who knows the most about the business. Consultants can be hired to assist in the process of formulating a business plan, but in reality, the entrepreneur must do a majority of the work. Only he can come up with the financial data, the purpose of his business, the key employees, and management styles to mention a few items. he may still choose to use a consultant, but realize that he will still need to do most of the work. if he needs further help in one area, then he may seek the assistance of the consultant.
it takes time to come up with a business plan and psychologically, it can either inspire the entrepreneur to go ahead with his plans or to bring it to a premature close. the importance of planning should never be overlooked. For a business to be successful and profitable, the entrepreneur must have a clear understanding of the business’ customers, strengths and competition. he must also have the foresight to plan for future expansion. Whether it is a new business or an existing business in the process of expanding, money is often an issue. taking time to create an extensive business plan provides him with insight into his business. this document can serve as a powerful financing proposal.
Better understanding of the business
a business plan helps the entrepreneur appreciate the business needs of his venture beforehand. through a well prepared business plan, the entrepreneur will be able to see clearly the problems he had not thought of earlier, so he becomes well prepared psychologically to deal with them. the business plan will help in strategy and policy formulation. Without a business plan, it becomes difficult for the entrepreneur to have a clear sense of direction. This is important because he will need to convince many people that the venture will in fact work. in addition to the well laid out strategies, the entrepreneur will also highlight the means he has prepared to achieve these objectives. the plan could be short term or long term. in summary, the process of putting a business plan together forces the entrepreneur to look at the business in an objective and critical manner.
Financing from financial institutions
an entrepreneur will need to secure funds for his business. most lenders will require that he comes up with a business plan before they can consider him for financing. This has become the main reasons why most business prepare business plan. it comes as later requirement when the business needs additional cash to continue its operations. Without a business plan, an entrepreneur will find it very hard to acquire business loans
A tool for management
as we have seen, it is in the business plan that the entrepreneur sets out the objectives for the business. he lays out in writing what his vision for the business is. the strategies will be both short term and long term. they need to be achievable as unachievable targets may make the business plan lose credibility. subsequently, from time to time, the entrepreneur will be referring to the business plan to check whether the growth of the business is in line with the plan he had envisaged earlier on. If not, then he will have sufficient basis to manage the growth of the business to direct it towards the right direction
A tool for planning and guidance
a business plan in itself is a planning tool. the big plans are laid out and the small ones that make up the major plans are also followed up closely. the entrepreneur has set out what he needs to achieve within a give time frame so he will set out all these in the business plan. it may happen that the people he works with are unclear about the main objectives of the business. a business plan will act as a learning tool for them. they can thus contribute to the success of the business along with the entrepreneur. the business plan thus also acts as a source of guidance where the way forwards seems unclear. planning is very important if a business is to survive. By taking an objective look at the business the entrepreneur can identify areas of weakness and strength. he will realize needs that may have been overlooked, spot problems and nip them before they escalate, and establish plans to meet his business goals.
the business plan is only useful if used well. Ninety percent of new businesses fail in the first two years. Failure is often attributed to a lack of planning. to enhance success, the plan should we well utilized. a comprehensive, well constructed business plan can prevent a business from a downward spiral as failure to plan can mean plan to fail
Highlight risks involved
the risks involved in the business are perhaps something that the entrepreneur may not want to dwell upon too much. however, for the plan to gain more credibility, the entrepreneur will have to incorporate what risks his type of business is likely to encounter. These could be financial, operational or control risks. the entrepreneur should also highlight the measures he has in place to manage the risks that he fore sees. once an informed reader looks at the plan with all these risks highlighted, he may find it a more realistic proposal and be willing to invest.
a business plan is a strong communication tool for the business. It defines the purpose, the competition, management and personnel. It clearly identifies the vision and mission of the business to all the stake holders. the roles and responsibilities of the operational and management staff will also be clearly defined. The process of constructing a business plan can be a strong reality check if the pertinent details are not well articulated.
a well prepared business plan offers a benchmark against which actual performance can be measured and reviewed. as has been mentioned, a business plan will tell the entrepreneur when the trend in performance tends to deviate from the laid out plan. the plan provides an ideal setup. it may need to be changed, especially when changes in the economy or in the industry warrant it. at all times the entrepreneur should keep his business at par with his targets as well as with what the competitors are aiming at and even further.
Even after preparing a business plan, the entrepreneur may find that it is necessary to review it from time to time due to changing circumstances that come to light with time. this enhances the planning process and improves the business plan. some aspects of the business plan may become obsolete with time and may thus require updating. this may be done even once the business is up and running.
there is no standard approach in preparing a business plan. there are many variations on the theme of what exactly goes into a successful business plan. all the variations however have the same basic elements. these are;
- a brief description of the business background and purpose
- objectives; these should be both long term and short term
- products and services that will be offered
- Competition market analysis and marketing strategy development and production plan/ operations Management and staffing
Financial Plan; This includes current and projected financial statements
other aspects of a business plan that may be necessary for a successful write up are;
- Executive summary
- attachments/ supporting documentation
Following is a detailed description of each element that goes into making a business plan;
History and Background
the entrepreneur must have had a ‘moment of inspiration’ that led him to start the business. an idea must have been triggered by the need to fill a gap that he had identified. In this section, the entrepreneur should communicate to the readers of the business plan how the idea was born. This will also give a first impression to the investors or lenders who can then either give it thumbs up or tread cautiously.
the business plan should clearly explain how the idea will be translated into profits. This is what will give the investors a clearer understanding of the overall picture of the proposed business. if the entrepreneur succeeds in winning the attention of the investor at this stage, he stands a high chance of getting the funds he urgently needs. If this section flops, then no matter how well written the other sections of the plan are, chances are high the reader will not be motivated to read ahead.
The entrepreneur needs to be specific as to what exactly he targets to achieve through the business plan. most of the times, a business plan will be used to raise start up capital. at times, the plan may be prepared to get additional finance. The objective has to be very clear to whoever is intended to be the final reader.
annual plans are used to manage a business. Business plans are used to attract capital. But there are exceptions, and often the difference between annual plans and business plans becomes muddled. Banks and other lenders or investors may require a copy of each year’s annual plan. and management may use the start-up business plan as a basis for operating the business.
the most important thing for the entrepreneur to bear in mind is keeping the primary objective of and the primary audience for the plan clear. as a rule of thumb, if the plan will be used to attract investors or lenders, this is the primary objective and outsiders are the primary audience. if the plan will help manage the business, this is the primary objective and insiders are the primary audience.
The Product or Service
it is important for the reader of the business plan to thoroughly understand the product or the service that is going to be provided. however, it is important to explain this section in layman’s terms to avoid confusion. the entrepreneur should not overwhelm the reader with technical explanations or industry jargon that he or she will not be familiar with.
it is important to discuss the competitive advantage the product or service has over the competition. if the product is new, the entrepreneur should explain what new thing it is going to add to the present market
if appropriate, the entrepreneur should discuss any patents, copyrights and trademarks the business currently owns or has recently applied for and discuss any confidential and non- disclosure protection the business has secured.
any barriers that that the entrepreneur has faced in bringing the product to market, such as government regulations, competing products, high product development costs, the need for manufacturing materials, etc. should be discussed
areas that should be covered in this section include:
- is the product or service already on the market or is it still in the research and development stage?
- if still being developed, when is the expected date of the launch?
- What makes the product or service unique? What competitive advantage does the product or service have over its competition?
- Can the product or service be priced competitively and still maintain a healthy profit margin?
to the entrepreneur, understanding his competition’s strengths and weaknesses is critical for establishing his product’s or services competitive advantage. If he finds a competitor is struggling, he needs to know why, so he doesn’t make the same mistake. if his competitors are highly successful, he’ll want to identify why. he will also want to assess the need for another competitor offering the same product or service in the market.
Specific areas to address in this section are:
- identify the closest competitors. Where are they located? What are their revenues? how long have they been in business?
- Define their target market.
- What percentage of the market do they currently have?
- how do the entrepreneur’s operations differ from his competition? What do they do well? Where is there room for improvement?
- in what ways is the business superior to the competition?
- how is their business doing? is it growing? is it scaling back?
- how are their operations similar to his and how do they differ?
- are there certain areas of the business where the competition surpasses him? if so, what are those areas and how do you plan on compensating?
analyzing competitors should be an ongoing practice. Knowing the competition will allow the entrepreneur to become more motivated to succeed, efficient and effective in the marketplace.The entrepreneur will also need to do a competitive analysis. in this section he will need to do an in-depth analysis of the competitive advantages and weaknesses of his firm. When exploring weaknesses he should include information that will help allay any concerns that may arise as to their ability to significantly hinder his success.
this section is important, especially if the company is a start-up, because the entrepreneur will, typically, be competing with established companies that have inherent advantages such as financial strength, name recognition, and established distribution channels. Through this competitive analysis, the entrepreneur will be better prepared to counter competitor moves or strengthen his own position in the market.
investors look for management teams with a thorough knowledge of their target market. if a new product is being launched, the entrepreneur should include his marketing research data. if he has existing customers, he should provide an analysis of who his customers are, their purchasing habits, their buying cycle.
this section of the plan is extremely important, because if there is no need or desire for the product or service there won’t be any customers. if a business has no customers, there is no business.this section of the plan should include:
- a general description of the market
- the function that the entrepreneur is planning to capitalizing on and why
- the size of the niche market. include supporting documentation.
- a statement and supporting documentation as to why the entrepreneur believes there is a need for the product or service in the market.
- a projection of the percentage of the market that will be captured.
- What is the growth potential of the market? include supporting documentation
- Will the firm’s share of the market increase or decrease as the market grows?
- How will the growth of the market be satisfied?
- how will the goods or services be priced in the growing competitive market?
The Marketing Strategy
Once the entrepreneur has identified who his market is, he’ll need to explain his strategy for reaching the market and distributing his product or service. potential investors will look at this section carefully to make sure there is a viable method to reach the target market identified at a price point that makes sense.
the entrepreneur should analyze his competitors’ marketing strategies to learn how they reach the market. if their strategy is working, he should consider adopting a similar plan. if there is room for improvement he should work on creating an innovative plan that will ensure his product or service leaves a mark in the minds of his potential customers. the most effective marketing strategies typically integrate multiple mediums or promotional strategies to reach the market.
Advertising and promotion
the entrepreneur should give a break-out of what methods and media he intends to use and why. if he has developed an advertising slogan or unique selling proposition he may mention it, but it isn’t strictly necessary.he should outline the proposed mix of his advertising media, use of publicity, and/or other promotional programs.The entrepreneur should explain how his choice of marketing vehicles will allow him to reach his target market. he should also explain how they will enable him to best convey his product features and benefits.
he should be sure that his advertising, publicity, and promotional programs sound realistic, based upon his proposed marketing budget. Effective advertising, generally, relies on message repetition in order to motivate consumers to make a purchase. if he is on a limited budget, it is better to reach fewer, more likely prospects, more often, than too many people occasionally.
his sales strategy needs to be in harmony with his business strategy, marketing strategy, and his company’s strengths and weaknesses. For example, if his start-up company is planning on selling products to other businesses in a highly competitive marketplace, his market entry will be easier if he relies on wholesalers or commissioned sales representatives who already have an established presence and reputation in the marketplace. if his business will be selling high-tech products with a range of customized options, his sales force needs to be extremely knowledgeable and personable.
the following are some promotional media options to consider:
- direct mail
- trade shows
- public relations
- promotional materials
- telephone sales
- one-on-one sales
- strategic alliances.
developing an innovative marketing plan is critical to his company’s success. investors look favorably upon creative strategies that will put the product or service in front of potential customers.
Once the entrepreneur has identified how he will reach the market, he should discuss in detail his strategy for distributing the product or service to his customers. Will he use mail order, do personal delivery, hire sales reps, contract with distributors or resellers, etc.?
Production Plan / Operations
once the entrepreneur has had an opportunity to really sell his idea and get the attention of potential investors, the next question on his mind should be how he will implement the idea. What resources and processes are necessary to get the product to market? this section of the plan should describe the manufacturing, research and development, purchasing, staffing, equipment and facilities required for his business.the entrepreneur will want to provide a roll out strategy as to when these requirements need to be purchased and implemented. His financials should reflect his roll out plan.
in addition, he should describe the vendors he will need to build the business. does he have current relationships or does he need to establish new ones? Who will you choose and why?
operations is a catch-all term used to describe any important aspects of the business not described elsewhere. if the start-up is a manufacturing concern for instance, the entrepreneur should discuss critical elements of the manufacturing process. For retail businesses, discuss store operations. Wholesalers should discuss warehouse operations.
In addition to discussing areas that are critical to operations, the entrepreneur should briefly summarize how major business functions will be carried out, and how certain functions may run more effectively than those of his competitors. he should not get into long descriptions of any business or operation practices that will not sell his business plan to financiers.
Management and staffing
For most investors the experience and quality of the management team is the most important aspect they evaluate when investing in a company. Investors must feel confident that the management team knows its market, product and has the ability to implement the plan. in essence, the entrepreneur’s plan must communicate management’s capabilities in obtaining the objectives outlined in the plan. If this area is lacking, his chances for obtaining financing are bleak.
if his team lacks in a critical area, he should identify how he plans on compensating for the void. Whether it is additional training required or additional management staff needed, he should show that he knows the problem exists, and provide his options for solutions.
When preparing this section of the business plan he should address the following five areas:
1. P ersonal history of the principals:
a. Business background of the principals
b. P ast experience — tracking successes, responsibilities and capabilities
c. Educational background (formal and informal)
d. P ersonal data: age, current address, past addresses, interests, education, special
abilities, reasons for entering into a business
e. Personal financial statement with supporting documentation
2. Work experience:
a. D irect operational and managerial experience in this type of business
b. I ndirect managerial experiences
3. D uties and responsibilities:
a. Who will do what and why
b. O rganizational chart with chain of command and listing of duties
c. Who is responsible for the final decisions?
4. Salaries and benefits:
a. A simple statement of what management will be paid by position
b. Listing of bonuses in realistic terms
c. Benefits (medical, life insurance, disability…)
5. R esources available to his business:
a. I nsurance broker(s)
c. A ccountant
d. Consulting group(s)
e. S mall Business Association
f. Local business information centers
g. Chambers of Commerce
h. Local colleges and universities
i. Board of Directors
j. World Wide Web (various search engines)
The success of a business can often be measured by its employees. Seventy percent of consumers
will go elsewhere if they don’t receive prompt and courteous service. The entrepreneur must
therefore, carefully consider the following questions in completing this section of the business
1. What are his current personnel needs (full or part-time)? How many employees does
the firm envisions in the near future and then in the next three to five years?
2. What skills must employees have? What will their job descriptions be?
3. A re the people needed readily available and how will he attract them?
4. Will they be paid salaries or hourly wages?
5. Will there be benefits? If so, what will they be and at what cost?
6. Will he pay overtime?
At the heart of any business operation is the accounting system. It is important to have a certified public accountant establish accounting system before the start of business. at times there is a tendency for the entrepreneur to do it himself. an incredible number of businesses fail due to managerial inefficiencies. Leave it to the trained professional to help in the area of accounting and legal matters. if the business can’t afford a public accountant to establish the books, then it is under capitalized. the entrepreneur needs to secure additional resources before starting.
One of the first steps to having a profitable business is to establish a bookkeeping system which
provides data in the following four areas:
- Balance sheet/ statement of Financial position – indicates what the owner’s equity is at a given point (the balance sheet will show assets, liabilities and retained earnings).
- income statement/ statement of Comprehensive income – also called the profit and loss statement is used to indicate how well the company is managing its cash, by subtracting disbursements from receipts.
- statement of Cash Flows – this projects all cash receipts and disbursements. Cash flowis critical to the survival of any business.
- Break-Even analysis – is based on the income statement and cash flow. All businesses should perform this analysis without exceptions. a break-even analysis shows the volume of revenue from sales that are needed to balance the fixed and variable expenses.
if the goal of the business plan is to obtain financing, the entrepreneur will be required to generate financial forecasts. The forecasts demonstrate the need for funds and the future value of equity investment or debt repayments. this exercise is critical in obtaining capital for the business. to obtain capital from lending institutions he must demonstrate the need for the funding and his ability to repay the loan.
The forecast generated should cover a three to five-year period. This is a period in which realistic goals can be established and attained without much speculation. Forecasts should be broken down in monthly increments.
Projections and forecasts are an integral part of the financial portfolio. The entrepreneur should carefully and accurately state his assumptions. honesty is the best policy! over-optimism and over-inflation can lead to failure.
Other relevant Information
Executive summaries should be short and concise—one page is ideal. it should cover the following points:
- strategy overview. the entrepreneur should start with a brief overview of his business strategy. if his business will be based, at least initially, on a particular product or service, he should describe this in the introductory paragraph.
- strategy logic. in the next paragraph or two, he should explain why his strategy makes sense or why his product or service has promise. is he entering a fast- growing market or providing a unique product or service that distinguishes his business from existing businesses?
- Business development. next, he should describe the stage his business is in.
- is it already generating sales?
- has he done test marketing?
- is a prototype developed?
- has market research been performed?
- Staffing. The entrepreneur should name the key people in his organization and describe, briefly, what special talents, expertise, or connections they will bring to the business.
- Financial objectives. if his plan is being developed to raise capital, he should be clear about the amount of capital he is seeking and how he plans to use investor or lender funding.
- Business organization. he should describe the form of business organization he will take and where the company will be located.
The entrepreneur should ensure to keep his summary short and easy to understand. he should avoid technical jargon and details. he should not try to summarize all of the different major elements of his plan. he should focus on the key elements that he think will be of most interest to his audience.
the entrepreneur must include any documents that lend support to statements made in the body of his company’s business plan. the following is a list of some items for his consideration. note that this list is not complete and may vary depending on the stage of development of his business.
- Credit information
- Quotes or Estimates
- Letters of intent from prospective customers
- Letters of support from credible people who know you
- Leases or Buy/sell agreements
- Legal documents relevant to the business
- Census/demographic data
EMERGING TRENDS IN ENTREPRENEURSHIP
an ethical approach to doing business has proved to play a vital role in shaping the growth of a business and to building the profile of the entrepreneur. The public needs to know that their interests are being addressed by the entrepreneur as he also strives to ensure that the business is making profits. The entrepreneur cannot ignore this noble call from the public, who constitute parties with a stake in the business. new ways of doing business are coming up. the entrepreneur should keep abreast with technology that is being used by fellow entrepreneur in other parts of the world. he should appreciate how globalization has made it possible for the business community worldwide to share ideas and various approaches to doing business.
Ethics: a study of the moral issues and values that form the basis of human behavior in society.
Code of Ethics: a prescribed set of rules that a person or an organization associates with in all circumstances on ethical matters. it is the minimum level of ethical behavior that is the person/ organization attests to
Social Responsibility: duty owed to society for any activity carried out within its precincts.
E-commerce: the process of conducting business electronically.
Globalization: the process by which local, regional or national phenomena become integrated on a global scale.
Code of Ethics
a code of ethic outlines the protocol that should be followed in an organization on ethical matters. it’s is a guideline to all the employees on how they should handle and report matters on moral issues, especially where the customers are concerned. it is the minimum level of ethical behavior that is demanded by the organization. an individual may of course have his own code of ethics. this needs to be in line with that of the business.
Businesses, large and small are faced with every type of ethical questions that range from simple to very complicated ones. the entrepreneur will need to study this area critically. he should research on what organizations in his industry have as their code of ethics, or if at all they value this aspect of business management. once he has done this, he should consult experts in the field who may advice him on the minimum requirement for his type of business, as far as ethical matters are concerned. Consequently, the entrepreneur will need to devise a code that he believes will serve the interests of his business well. He should also find proper channels of communicating this to his employees, both new and old. it is something that he may consider placing in the organization’s permanent file that may be accessed by all stake holders.
The Value of Ethics in Business
Business and ethics have always been considered as two separate and unrelated things. this however, is not the case. this view has changed dramatically over the years. Businesses have now realized that it pays to act ethically.
it has been felt that for a business man to be successful, then acting honestly may not be the wisest thing to do. An entrepreneur should simply concentrate on making profits and ensuring his business grows steadily. The view is that acting ethically may hurt the profits.
research shows that acting ethically actually does increase revenues. acting ethically attracts clients due to the confidence they have in a company’s products and services. Suppliers will also be more willing to transact with a business that has high moral values.
Honesty is also reflected in the branding of products. Consumers will be willing to buy from a business that places all the relevant information on the product label so that the customer knows exactly what he is consuming. repeat customers are created by well manufactured and branded products. the entrepreneur will want to establish an ethical workplace for several reasons;
- he wants to do the right thing and he wants to inspire his employees to do the same.
- he wants to serve as a role model
- he wants to be proud of the way he conducts himself and he wants others to be proud of his business.
- Ethical behavior is good for business because it gains the trust of customers
- Employees are more likely to act ethically if they see the business owner acting in an ethical manner.
- acting ethically reduces the possibility of being sued
a business can encourage employees to adhere to a company’s code of ethics in the following ways
- reviewing the relevant laws and regulations pertaining to the business.
- reviewing which values produce highly ethical and successful people or products.
- Identifying the top five to ten ethical values that are high priorities within the organization.
- Composing a code of ethics for the business. Within the code, an attempt should be made to associate two example behaviors with each value
- including wording that indicates that all employees are expected to conform to the values stated in the code of ethics.
- making sure there are no double standards and that management sets a good example by following the same code of conduct the employees must follow.
Fast forward: the entrepreneur, just like anyone else in the society has a role to play. he should embrace the challenge to meet his obligations to all stake holders concerned.
in his business, the entrepreneur is not a single player. he needs to interact with other parties for there to be any meaningful business. these are the stake holders in his business and the manner in which he treats them has a lot of impact on the success or failure of the business. the entrepreneur has a responsibility to his customers, suppliers, investors, creditors, the government and the community at large. he should ensure that the business as an entity meets its end of the bargain when it comes to fulfilling the promises and objectives it set out to achieve. this is what is commonly referred to as social responsibility. it is an aspect of business management that should not be ignored by the entrepreneur.
Many firms have seen the importance of taking this aspect of business management seriously in recent years. It is a new and difficult area of consulting, one which addresses fundamental business concepts and purposes and the increasingly complex relationships of business firms with their environment. it is an area that is value-laden and controversial, where businesses have to face diverse and even conflicting interests, requirements, recommendations and pressures. it is an area the importance of which has grown considerably over the last two decades and will continue to grow in future years. Firms that accept that the landscape for the social role of business is changing confront a difficult series of operational challenges. They must make up for the deficiency in existing knowledge, competency, and systems around social responsibility management and begin to develop their capabilities. they are keen to get reliable and balanced guidelines on how to act. they increasingly appreciate help from consultants in facing both policy and operational issues related to their social roles, functions and relationships, especially if consultants demonstrate their ability to help in preventing conflicts and crises. Part of the consultants’ role is to convince clients that social responsibility is becoming more and more an important part of business fundamentals. Consultants are called to help their clients define the most appropriate manner in which their business should relate to stakeholders, and take into account issues that are typically the province of the public and civil sectors. Both facets require consultants to first persuade, and then guide their clients into unmapped territory and nontraditional roles. Consultants have no less of an agenda than to redefine the concept of “business as usual”. Who then should the entrepreneur be responsible to? the following section examines the various stakeholders;
Responsibility to Customers
the entrepreneur’s attention should be focused on his customers at all times. these are the stake holders whose influence on the business is most crucial. The entrepreneur can ensure that his customers’ interests are well taken care of by;
Treating them with respect
this is important from the moment the customer walks into his shop or makes a call to the moment the transaction is completed
the entrepreneur should not always put the interests of the business way ahead of everything else even to the point of being dishonest. the customer deserves to know the truth at all times regarding the product or service been provided. he should help the customer make the right purchasing choice. he can do this by providing all pertinent information regarding the use of the product, the entrepreneur should ensure that this information is available to the customer, either as a label or a separate brochure. this is a legal requirement, in case there are dangers in using the product in a particular way.
Be objective about the product’s success
the entrepreneur should not exaggerate about the good points of the product or service. Customers notice this and may not come back if what the entrepreneurs tells them about the product does not meet their expectations.
Be fair in handling disputes
Customer complaints will always be there in any kind of business. What the entrepreneur needs to do to achieve amicable relationship with his clients is to be as cool headed as possible when it comes to dispute handling. he should listen to all sides of the issue before deciding on his course of action. if he handles the situation badly, he risks losing a customer.
Responsibility to Suppliers
the entrepreneur needs his suppliers so he can get a continuous supply of commodities for his customers. he therefore needs to establish good relations with the supplier at all times
Treat them with respect
the entrepreneurs should established good relations with the supplier and train all his employees to do the same. Each supplier is a stake holder in the firm no matter what value their supplies are in any given trade period. if they are treated with respect, they in turn will treat the entrepreneur and his business with respect. this applies whether it is a simple phone call or an actual visit to or from their premises.
Refuse to participate in dishonest schemes
it is the entrepreneur’s duty to act honestly in all dealings with the suppliers. this means that he should not initiate deals that involve the concealment of information either to the authorities or to any other third party. at the same time, the entrepreneur should not engage in unfair business practices as proposed by a supplier. this will enable him create a good reputation and his business associate will feel comfortable dealing with his business.
Give them time to fill their order
the entrepreneur should give the supplier time between making an order and having the same delivered. he should not make last minute orders and expect the supplier to deliver in record time. this is good business practice and shows respect for the suppliers’ system of delivery. orders should be made in good time and if there are possibilities of the need for emergency supplies, this should be pre arranged between the entrepreneur and the supplier.
Handle disputes fairly
in cases of disputes, the entrepreneur should calmly listen to the supplier’s side of the story. a consensus meeting should be arranged where the two parties, plus a mediator, if the need arises can sit and iron out the differences amicably. the possibility of losing business on either party should be the overriding concern and an arrangement not to stifle trade should be worked out between the concerned parties.
Let the current supplier know the reason for change to another
it may turn out that a supplier for one reason or another is unable to meet the demands of the entrepreneur. should this happen, the entrepreneur’s main concern should be that his business operations are not adversely hampered by this. he may be forced to look for another supplier who can meet his demand. once a decision is reached, it is good business practice to inform the current supplier of this in writing. this letter will be preceded, of course with prior communication on the dissatisfaction of the entrepreneur with respect to services delivered by the supplier, in which case the supplier will be given ample time to improve his quality of service.
Do not return back goods damaged in your care
the entrepreneur should ensure that all good being returned to suppliers for credit due to damage or not meeting his order are bona fide returns. This means that they are valid returns and not part of his old stock
Responsibility to Creditors
Honor Credit Policy
the riskiest business for lenders of funds is the inability of the borrower to meet his end of the obligation. Lenders will expect the entrepreneur to adhere to the credit period as outlined in the credit policy. this document will normally be sent to the entrepreneur and he will be required to sign it before accepting the funds or the credit facility. the entrepreneur should strive to stick to the terms as much as possible and if there is a possibility of departing from the arrangement, proper communication should be done and in good time.
Acknowledge all correspondence
it is good business practice to acknowledge communications with creditors, whether in writing or email. these will normally be reminders to meet obligations or notices of lapse in credit period that was extended. the entrepreneur may not be in a position to act on the communication at a given moment. proper communication as to his inability to do the same is a sign of courtesy.
Responsibility to Investors
Return on Investment
the entrepreneur is a steward/ agent of the investors. he has been entrusted with funds and given the task of using them to yield the expected returns by investing properly. he therefore needs to constantly update the investors on how the business is doing. this will assist them make a decision as to whether to invest more or give the business more time to grow.
The entrepreneur has the duty of informing the shareholders about the financial position of the business. This he can achieve by preparing financial statements (Statement of comprehensive income and statement of financial position). The entrepreneur should free himself from any bias in the preparation of the financial statements. The shareholders and any potential investor would need the financial statements so as to make informed investing decisions.
Fast forward: the physical environment around which the business operates should be as much a concern to the entrepreneur as the physical premise of his operation.
major business corporations have been on the war path with environmental lobby groups, mostly non – Governmental bodies, over the issue of environment conservation. this has sparked debates as to whether most entrepreneurs and executives give due importance to issues concerning the physical environment in which their businesses operate or whether their main motive is wealth maximization at the expense of a sound environment. most executives in large firms are concerned in cutting down on their internal costs of production. This in turn has resulted in external costs increasing as a result of waste management strategies that attempt to pass on the cost hurdle to other parties. In the end, it is the environment that bears the brunt of profit maximization objectives of the business. this may not apply to all corporations but more often than not, all players in the business world have something to do with this.
one main cause of the disparity between the two warring groups mentioned above is the timescales that forms the basis of their respective objectives. While most businesses want to record high profits within a relatively short period of time, the environmentalists have long term plans for the environment. the environment conservation measures have long term implications and this does not go very well with the profit maximization objectives of a growing firm.
To resolve the conflicts, there has to be some consensus between the environment support groups and the business community. the entrepreneur is a stake holder in these deliberations and should take an active role in resolving the conflicts. The N.G.Os with help from the government can facilitate dialog in the following ways;
- Encourage upcoming businesses to take social responsibility seriously and even have this as part and parcel of their short term and long term business objectives.
- Encouraging top management in the corporations to have environment conservation as one of the important matters under their social responsibility objective. this ensures that policy formulation regarding this matter will be given the importance it deserves.
- involving all individuals in the business community in the environment conservation exercises that are organized from time to time. this also includes the top management and directors of major companies. once they lead by examples, their employees and budding entrepreneurs will borrow a leaf from their involvement.
- Clarify roles and responsibilities regarding environmental protection by developing an organized structure to deal with environmental protection matters, defining environment- related procedures, etc.
- strive to alleviate burden on the environment in all aspects of business activities – from product research and development and design to procurement of raw materials, manufacture, transport, usage, servicing and disposal – through pollution prevention, conservation of resources, energy saving, waste reduction, reuse and recycling.
- strive to develop and provide advanced, highly reliable, wholly proprietary technologies and products that will contribute to solving environmental and energy problem
- strive continuously to improve and enhance environmental protection activities not only by fully complying with environmental laws and regulations but also, when necessary, by establishing, implementing and evaluating independent standards and setting environmental goals and targets.
- in the performance of business activities overseas and exportation of products, pay full heed to impact on the local natural and social environments and strive to protect those environments; also, become actively involved in technological cooperation overseas in matters of environmental protection.
- as part of the annual report to shareholders, registered companies should be required to give a report on its social responsibility activities and include a report on measures taken to prevent environment pollution in addition to the pro active measures taken toconserve the same.
this forum can be organized by the n.G.os or by the government through the relevant ministry that is in charge of environment conservation.
In any business, the motto often goes something like “We strongly believe that the customer comes first and that we are obligated to be an innovative partner to society.”- A business should thus believe and have as its primary purpose to contribute to society through its research and development, manufacturing and other business activities. accordingly, in the performance of its business activities the company should embrace the awareness that it is an integral member of society and, in all aspects of its business activities, it will strive to reduce burden on the environment and shall devote its comprehensive technological capabilities to the development of technologies and products that will protect the environment, as its way of contributing to the development of a sustainable society.
Fast forward: the entrepreneur should keep himself up to date with the current trends affecting businesses in general and assess the extent to which his business is likely to be affected.
E – Commerce also known as Electronic Commerce consists of the buying and selling of products or services over electronic systems such as the internet and other computer networks. the amount of trade conducted electronically has grown extraordinarily with widespread internet usage. the use of the internet in conducting trade in this manner is spurring and drawing on innovations in electronic funds transfer, supply chain management, internet marketing, online transaction processing, electronic data interchange (Edi), inventory management systems, and automated data collection systems. modern electronic commerce typically uses the World Wide Web at least at some point in the transaction’s lifecycle, although it can encompass a wider range of technologies such as e-mail as well.The entrepreneur, in considering whether this is the path he wants to take, should arm himself with all the pertinent facts about E-Commerce. he should carry out extensive research into the trends in external markets and assess how this pattern is taking effect in the local economy.
E – Commerce has grown tremendously in the last few years, with retailers offering on line shopping tripling in 1998 alone. the internet has offered merchants a method of reaching new markets and new customers, and customers have found E – Commerce an effective way of researching and purchasing goods without the hassles of crowds, parking and checkout lines. one fact that cannot be argued against is that things are constantly changing and will continue to do so into the foreseeable future. Change has become the one constant rule in E – Commerce and probably will be for some time to come.
a large percentage of electronic commerce is conducted entirely electronically for virtual items, i.e. products that do not have a physical aspect attached to them, such as shares in the stock market. however, most electronic commerce involves the transportation of physical items in some way. online retailers are sometimes known as e-tailers and online retail is sometimes known as e-tail. almost all big retailers have electronic commerce presence on the World Wide Web.
Electronic commerce that is conducted between businesses is referred to as business-to- business or B2B. B2B can be open to all interested parties (e.g.. commodity exchange) or limited to specific, pre-qualified participants (private electronic market). Electronic commerce that is conducted between businesses and consumers, on the other hand, is referred to as business- to-consumer or B2C. this is the type of electronic commerce conducted by companies such as amazon.com. this model could be useful to an entrepreneur who wants to open an on line bookshop.
Electronic commerce is generally considered to be the sales aspect of e-business. it also consists of the exchange of data to facilitate the financing and payment aspects of the business transactions.
E-commerce software ranges from affordable, off the shelf packages designed for small business owners, to fully customizable software for larger firms. E-commerce software typically offers user design tools, integrated with other utilities such as inventory control, accounting, sales and purchasing, web-based reporting and robust security features to ensure secure financial transactions and customer privacy
off the shelf software seem to work for the small business owner or entrepreneur. this software provides an affordable way to open an on line sales channel. Web-based user design tools, shopping cart templates and built-in support for secure transactions make it possible to get a business up and running in a matter of days.
Why should an entrepreneur be concerned about E-Commerce? the following section
examines the benefits he is likely to receive;
- More exposure, more profit.
marketing a product or a service via the internet provides direct company exposure 24 hours a day, 365 days a year all over the world. this gives the company a better chance to earn more profit by providing the means to reach more customers.
- reduces company expenses
setting up and maintaining an e-commerce web site is more economical than setting up a retail outlet or maintaining a large office. The company no longer needs to spend so much on promotional materials or installation of expensive equipment to be used for customer service, nor does it need to hire more personnel to do the inventory duties. an online database keeps the purchasing history of the company and the customers. a single person can retrieve the database to check purchasing histories easily. it can also reduce operations cost, as the employees can electronically share and access data, preventing the need for multiple printings.
- information sharing between business partners and other businesses
E-commerce provides an effective way to exchange business information with partners, as it is internet-based. E-commerce also allows companies to buy the goods and services presented by other online companies (suppliers) – known as business-to-business (B2B). an entrepreneur’s customers are also likely to benefit from E-Commerce in the following ways;
- Convenient and time-saving shopping
the e-market is open 24 hours, every day. there is no need for the customers to travel, wait in long lines or even carry an item back home. a click on the product and your credit card information (for Electronic Fund transfer) are all it takes to purchase an item and have it delivered. aside from credit cards, customers can also choose from a variety of convenient payment.
- Better choices.
aside from the opportunity to visit a wide variety of on-line shops, e-commerce allows customers to check complete information about a certain product. in addition to that, there are no sales persons pressuring the customer into buying a product.
- Cheaper prices.
Going on-line reduces company expenses. as a result, customers can buy items from many on-line companies at lower prices than offered by traditional stores.
- Customer satisfaction.
the internet provides real-time, interactive communication. the company utilizes these features of the internet to quickly respond to customer queries, thus providing better customer service and greater customer satisfaction.
The Entrepreneur’s interest
the entrepreneur thinking about trading through E – Commerce should carry out a feasibility study to see whether the project can generate a return on investment. it is important that the entrepreneur is not carried away with the hype of technology. the need for this technology should translate into positive returns after a while.
the entrepreneur is likely to increase sales as he will be running parallel systems for a while before going full scale into e-commerce, should he decide to do this. he will need to get an internet service provider (isp) to host the e-commerce site. the isp will facilitate the creation of an internet presence of the business. this may be one of the set up costs the entrepreneur should be prepared to incur. the entrepreneur should also bear in mind the security issues as he goes into e-commerce. E-Commerce exposes the business to the internet where all sorts of data traverse. Some of this data may pose a threat to the business in the sense that confidential information may be picked up by a third party and used maliciously for personal gain.
outsourcing is one of the emerging business opportunities that have arisen in the recent past. it involves an organization taking out of its hands functions and processes that are not core to its mainstream activities or reason for existence and entrusting these tasks and operations to an entity that has the capabilities and expertise to carry them out more efficiently.
outsourcing can also be defined at the process of subcontracting a process, such as product design or manufacturing, to a third-party company. the decision to outsource is often made in the interest of lowering cost or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources.
Business process outsourcing (Bpo) is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific non – core business functions (or processes) to a third-party service provider. the main motive for Business process outsourcing is to allow the company to invest more time, money and human resources into core activities and building strategies, which fuel company growth.
the entrepreneur, in fact, doesn’t need to justify outsourcing. they might even have to justify work done internally, that could easily be outsourced.
the global market today is highly competitive and ever-changing. a business must focus on improving productivity and yet, cut down costs. therefore, a lot of tasks that use up precious time, resources and energy, are being outsourced. Bpos, or the units to which work is being outsourced, often are flexible, quicker, cheaper and very efficient.
Business process outsourcing helps free up a firm’s capital and reduce costs. The functions or processes being outsourced range from manufacturing to customer service to software development and much more
BPO is typically categorized into back office outsourcing – which includes internal business functions such as human resources or finance and accounting, and front office outsourcing – which includes customer-related services such as contact center services.
Bpo that is contracted outside a company’s country is called offshore outsourcing. Bpo that is contracted to a company’s neighboring (or nearby) country is called nearshore out
Globalization refers to the process by which local, regional or national phenomena become integrated on a global scale. the term ‘Globalization’ is often used to refer to economic integration of countries. In this, national economies are unified into the international economy through trade, foreign investments, capital flows, migration, and the spread of technology. this process is usually recognized as being driven by a combination of economic, technological, socio – cultural, political and biological factors. the term can also refer to the transnational dissemination of ideas, languages, or popular culture.
a united nations organ, EsCWa has written that globalization “is a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labour…although considerable barriers remain to the flow of labour…Globalization is not a new phenomenon. it began in the late nineteenth century, but its spread slowed during the period from the start of the First World War until the third quarter of the twentieth century. this slowdown can be attributed to the inward looking policies pursued by a number of countries in order to protect their respective industries.. however, the pace of globalization picked up rapidly during the fourth quarter of the twentieth century
The entrepreneur can use this emerging trend to his benefit and for the future profitability of the business. By analyzing what other businesses are doing and how they are managing the effects of economic cycles in various countries, he can put himself in context and see to what extent the world economic reality is impacting on his business operation.
after the second World War, nations realized the need to unite in the major areas that affect economic growth. these were countries in Europe that had seen the adverse effects of the World War. The consequences of disagreements among nations can lead to very catastrophic financial distressed as witnessed after the war. this could have been avoided had there been mechanisms to address differences in economic realities in the affected countries. as a means towards unification, several institutions were established to manage and control the flow of economic goods between countries. these institutions include the international Bank for reconstruction and development (the World Bank), and the international monetary Fund.
Globalization has also since been facilitated by advances in technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of the General agreement on tariffs and trade (Gatt), which led to a series of agreements to remove restrictions on free trade.
since World War ii, barriers to international trade have been considerably lowered through international agreements – Gatt. particular initiatives carried out as a result of Gatt and the World trade organization (Wto), for which Gatt is the foundation were aimed at promoting free trade and include:
- Elimination of tariffs; creation of free trade zones with small or no tariffs
- reduced transportation costs, especially resulting from development of containerization for ocean shipping.
- reduction or elimination of capital controls
- reduction, elimination, or harmonization of subsidies for local businesses
- Creation of subsidies for global corporations
- harmonization of intellectual property laws across the majority of states, with more restriction
- international recognition of intellectual property restrictions (e.g. patents granted byChina would be recognized in the united states)
Cultural globalization, driven by communication technology and the worldwide marketing of Western cultural industries, was understood at first as a process of homogenization, as the global domination of american culture at the expense of traditional diversity. however, a contrasting trend soon became evident in the emergence of movements protesting against globalization and giving new momentum to the defense of local uniqueness, individuality, and identity, but largely without success
Economic globalization can be measured in different ways. these ways center on the four main economic flows that characterize globalization:
- Goods and services, e.g. exports plus imports as a proportion of national income or per capita of population
- Labor/people, e.g. net migration rates; inward or outward migration flows, weighted bypopulation
- Capital, e.g. inward or outward direct investment as a proportion of national income or per head of population
- technology, e.g. international research & development flows; proportion of populations
(and rates of change thereof) using particular inventions (especially ‘factor-neutral’ technological advances such as the telephone, motorcar, broadband)
as globalization is not only an economic phenomenon, a multivariate approach to measuring globalization is the recent performance index . the index measures the three main dimensions of globalization: economic, social, and political. in addition to three indices measuring these dimensions, an overall index of globalization and sub-indices referring to actual economic flows, economic restrictions, data on personal contact, data on information flows, and data on cultural proximity is calculated. information on these studies can help the entrepreneur better understand his customers and predict their consumer patterns. the entrepreneur can use the indices to project how globalization will impact on sales given that what happens in other countries have an indirect impact on his business.
Effects of globalization
Globalization has various aspects which affect the world in several different ways such as:
- industrial – emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. particularly movement of material and goods between and within national boundaries.this acts to expand the entrepreneur’s scale of trade accross the boundary.
- Financial – emergence of worldwide financial markets and better access to external financing for borrowers. As these worldwide structures grew more quickly than any transnational regulatory regime, the instability of the global financial infrastructure dramatically increased, as evidenced by the financial crises of late 2008. An entrepreneur running a multinational company would have been worst hit by this phenome
- Economic – realization of a global common market, based on the freedom of exchange of goods and capital. the interconnectedness of these markets, however means that an economic collapse in any one given country could not be contained.
- Political – some use “globalization” to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. politically, the united states has enjoyed a position of power among the world powers; in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States’ own economy, the people’s republic of China has experienced some tremendous growth within the past decade. if China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the united states for the position of leading world power. a lot of supplies from China will prove cheaper for a local entrepreneur and this trend may be of interest to him/her.
- Informational – increase in information flows between geographically remote locations.Arguably this is a technological change with the advent of fiber optic communications,satellites, and increased availability of telephone and internet.
▪ Language – the most popular language is English.
▪ about 35% of the world’s mail, telexes, and cables are in English.
▪ approximately 40% of the world’s radio programs are in English.
▪ about 50% of all internet traffic uses English.
Competition – survival in the new global business market calls for improved productivity and increased competition. due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition.
- Ecological – the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalism and free trade may increase pollution. on the other hand, economic development historically required a “dirty” industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living.
- Cultural – growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one’s standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a “world culture”. Some bemoan the resulting consumerism and lossof languages
- spreading of multiculturalism, and better individual access to cultural diversity(e.g. through the export of hollywood and Bollywood movies). some consider such “imported” culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. others consider multiculturalism to promote peace and understanding between peoples.
- Greater international travel and tourism. Who estimates that up to 500,000 people are on planes at any time.]
- Greater immigration, including illegal immigration
- spread of local consumer products (e.g. food) to other countries (often adapted to their culture).
- Worldwide fads and pop culture such as pokémon, sudoku, numa numa, origami,idol series, Youtube, orkut, Facebook, and myspace. accessible to those who have internet or television, leaving out a substantial segment of the Earth’s population.
▪ Worldwide sporting events such as FiFa World Cup and the olympic Games.
▪ incorporation of multinational corporations in to new media. as the sponsors of the all-Blacks rugby team, adidas had created a parallel website with a downloadable interactive rugby game for its fans to play and compete.
- social – development of the system of non-governmental organizations as main agents of global public policy, including humanitarian aid and developmental efforts.
- development of a global telecommunications infrastructure and greater trans border data flow, using such technologies as the internet§, communication satellites, submarine fiber optic cable, and wireless telephones
- increase in the number of standards applied globally; e.g.. Copyright laws, patents and world trade agreements.
- the creation of the international criminal court and international justice movements.
- Crime importation cooperation.and raising awareness of global crime-fighting efforts and
- the emergence of Global administrative law.
it is too easy to look at the positive aspects of Globalization and the great benefits that are apparent everywhere, without acknowledging several negative aspects. they are often the result of globalized corporations and the delocalization of economies that were once self-sustaining.
Globalization has indeed played an important role in creating an enabling environment for growing businesses. the increasing pace at which international economies are being integrated over the last couple of years has given rise to a lot of optimism for upcoming entrepreneurs. Countries such as China and India which were very poor not more than 20 years ago have benefited a lot from Globalization.
however, pundits are not so quick to give this phenomenon a green bill of health without looking at the adverse effects that globalization has had in certain areas. these are among the focus of their arguments;
Sidelining of local industries
agriculture and industries in developed and even developing countries have been sidelined in the interest of keeping a breast with what is happening elsewhere. Competitive advantage no longer plays a major role in deciding what an economy should focus on. this has affected areas such as the midwest united states
it can be said that globalization is the door that opens up an otherwise resource poor country to the international market. Where a country or nation has little material or physical product harvested or mined from its own soil, an opportunity is seen by large corporations to take advantage of the “export poverty” of such a nation. Where the majority of the earliest occurrences of economic globalization are recorded as being the expansion of businesses and corporate growth, in many poorer nations globalization is actually the result of the foreign businesses investing in the country to take advantage of the lower wage rate: even though investing, by increasing the capital stock of the country, increases their wage rate. an example of this is the oil exploration activities that have been taking place in Kenya.
the internet breaks down cultural boundaries across the world by enabling easy, near- instantaneous communication between people anywhere in a variety of digital forms and media. the internet is associated with the process of cultural globalization because it allows interaction and communication between people with very different lifestyles and from very different cultures. photo sharing websites allow interaction even where language would otherwise be a barrier. the internet has however brought with it a wave of new culture that has not gone very well with the more conservative communities. through the internet, young people have adopted a lifestyle that likens to that of their peers in the western countries, jeopardizing the importance given to traditional / cultural values. this clash has led pundits to discourage the use of the internet beyond what they consider necessary.
Globalization has been seen to favor the western countries more than their counterparts in developing countries. The opening up of markets abroad has seen an inflow and outflow of economic, political and cultural values between nations. however, developing countries have found themselves on the receiving ends of most of these values, somehow creating a demand for more. the end analysis is that most developing countries have taken it upon themselves to solve most of their problems by copying what is done outside and in most cases this has had a financial implication
a trade fair is an exhibition organized so that companies in a specific industry§ can showcase and demonstrate their latest products, service, study activities of rivals and examine recent trends and opportunities. some trade fairs are open to the public, while others can only be attended by company representatives (members of the trade) and members of the press, therefore trade shows are classified as either “Public” or “Trade only”. They are held on a continuing basis in virtually all markets and normally attract companies from around the industry. the entrepreneur will find that attending these events give him many ideas on how to improve his business. He will meet other entrepreneurs in the same industry who share a lot in common with him. trade fairs also act as avenues to establish business networks and linkages that is so important to a growing industry
trade fairs often involve a considerable marketing investment by participating companies. Costs include space rental, design and construction of trade show displays, telecommunications and networking, travel, accommodations, and promotional literature and items to give to attendees. in addition, costs are incurred at the show for services such as electrical, booth cleaning, internet services, and drayage (also known as material handling). the entrepreneur should thus carry out a cost benefit analysis of attending such events, in as much as they are of value to his business.
Consequently, local authorities often promote trade shows as a means of economic development through the promotion of the jua kali sector
Exhibitors attending the event are required to use an exhibitor manual to order their required services and complete any necessary paperwork such as health and safety declarations.
an increasing number of trade fairs in many other countries are happening online, and these events are called virtual tradeshows. they are increasing in popularity due to their relatively low cost and because there is no need to travel whether you are attending or exhibiting.
- Ethics refers to the knowledge of right and wrong. the entrepreneur should observe a code of ethics in his business and encourage his staff to do the same. this is a written set of rules on what is morally acceptable and what is not, in the work environment. all employees should be familiar with this code and put it into practice.
- the entrepreneur owes a duty of responsibility to all parties who have a direct impact on his business. these include his staff, customers, suppliers, the government etc. he should undertake his obligation at all times without passing on the responsibility to third parties.
- We have seen that the entrepreneur should not operate as sole business man, without regard to what is happening in his surroundings. this comes in the wake or the tremendous growth in world economies that seem to affect all nations at the same time.
- the emerging trends in industries have affected the manner in which business is carried out. technology and business models that have been devised and applied successfully in developed countries have given a boost to businesses in developing countries to keep pace.