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DEBRE TABOR UNIVERSITY

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

Entrepreneurship & enterprise dev’t

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DEBRE TABOR, ETHIOPIA January, 2022

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CHAPTER 1: THE NATURE OF ENTREPRENEURSHIP

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Introduction

• The course, Entrepreneurship, has been offered to Ethiopian students of higher education in limited departments, such as management, Accounting, Agriculture and Engineering.
• However, as part of high education reform, it was decided the course, Entrepreneurship, to be one of the common courses for all freshman students.
• It aims to bring behavioral changes among students and support them develop self-employment mindset in their personal and professional lives.

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• The word ‘entrepreneur’ is widely used, both in everyday conversation and as a technical term in management and economics. Its origin from a French word, entreprender.
• where an entrepreneur was an individual commissioned to undertake a particular commercial project.
• The idea that the entrepreneur is someone who undertakes certain projects, offers an opening to developing an understanding of the nature of entrepreneurship.
• Entrepreneurship is then what the entrepreneur does. Entrepreneurial is an adjective describing how the entrepreneur undertakes what he or she does.

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1.3 Definitions of Entrepreneurship and Entrepreneur

• Here we will see some definitions of entrepreneurship and entrepreneur. Intuitively, it is know that entrepreneurship is the process and entrepreneur is the person undertaking entrepreneurial activity such as undertaking own business.

The common attributes of the definitions of entrepreneurship and entrepreneur

1. Entrepreneurship is the process of identifying opportunities in the market place, arranging the resources required to pursue these opportunities and investing the resources to exploit the opportunities for long term gains.

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2. . Entrepreneurship is the processes through which individuals become aware of business ownership, develop ideas for, and initiate a business.

3. Entrepreneurship can also be defined as the process of creating something different and better with value by devoting the necessary time and effort by assuming the accompanying financial, psychic and social risks and receiving the resulting monetary reward and personal satisfaction.

In general, the process of entrepreneurship includes five critical elements. These are:

1) The ability to perceive an opportunity.

2) The ability to commercialize the perceived opportunity i.e. innovation

3) The ability to pursue it on a sustainable basis.

4) The ability to pursue it through systematic means.

5) The acceptance of risk or failure

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Based on the above concepts of entrepreneurship, an entrepreneur can be defined as follows:

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1) An entrepreneur is any person who creates and develops a business idea and takes the risk of setting up an enterprise to produce a product or service which satisfies customer needs.

2) An entrepreneur can also be defined as a professional who discovers a business opportunity to produce improved or new goods and services and identifies a way in which resources required can be mobilized.

3. An entrepreneur is a person who: create the job not a job-seeker; has a dream, has a vision; willing to take the risk and makes something out of nothing.

Based on Other three perspectives the term entrepreneur can be defined as :-

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• To an economist an entrepreneur is one who brings resource, labor, materials, and other assets into combination that makes their value greater than before and one who introduces changes innovations.
• To a psychologist an entrepreneur is a person typically driven by certain forces need to obtain or attain something, to experiment, to accomplish or perhaps to escape the authority of others.
• For the capitalist philosopher an entrepreneur is one who creates wealth for others as well, who finds better way to utilize resources and reduce waste and who produce job others are glad to get.
• All entrepreneurs are business persons, but not all business persons are entrepreneurs.

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1.4 Types of Entrepreneurs

Entrepreneurship can take three different forms. They are:

1. The individual entrepreneur: An individual entrepreneur is someone who started; acquired or franchised his/her own independent organization.

2. Intrapreneur: An Intrapreneur is a person who does entrepreneurial work within large organization. The process by which an intrapreneur affects change is called Intrapreneurship.

3. The Entrepreneurial Organization: The entrepreneurial function need not be embodied in a physical person. Every social environment has its own way of filling the entrepreneurial function.

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1.5 Role of Entrepreneurs in Economic Development

Entrepreneurial development is the most important input in the economic development of any country. The following are basic roles of Entrepreneurs

1. Improvement in per capita Income/Wealth Generation: Entrepreneurs play a vital in the economic development of a region

2. Generation of Employment Opportunities: By creating a new business enterprise, entrepreneurs generate employment opportunities for others.

3 Inspire others Towards Entrepreneurship: The team created by an entrepreneur for his new undertaking often provides the opportunity for the employees to have a first-hand experience.

4. Balanced Regional Development: Entrepreneurs help to remove regional disparities in economic development.

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5.Provide Diversity in Firms: Entrepreneurial activity often results into creation of a variety of firms in a region. These firms operate into diverse activities & products.

6. Economic Independence: Entrepreneurship is essential for self-reliance for a country. This import substitution and export promotion results in more economic independence to the country.

7. Combine Economic factors: All the products bought and sold in an economy are a mix of three primary economic factors (the raw materials, nature offers up, the physical and mental labor people provide and capital (money

8. Provide Market efficiency: Efficient means resources are distributed with out wastage in an optimal way that is the satisfaction that people can gain from them is maximized

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9. Accepting Risk: Risk is the potential variation in terms of future outcomes . We do not know exactly what the future will bring. This lack of knowledge creates uncertainty. Here the primary function of the entrepreneur is to accept risk on behalf of other people.

10. Maximize Investor’s Return: Entrepreneurs create and run organizations which maximize long-term profit on behalf of the investors which in turn generates overall economic efficiency.

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1.6.1 Who Becomes an Entrepreneur?

Anyone with the following characteristics can be an entrepreneur.

1) The Young Professional: Increasingly young highly educated people with experience of working for an established organization and moving directly to work on establishing their own ventures.

2) The Inventor: The inventor is someone who has developed an innovation and who has decided to make a career out of presenting that innovation to the market.

3. The Excluded: Some people turn to an entrepreneurial career because nothing is open to them. Displaced communities and ethnic and religious minorities have not been invited to join the wider economic community due to a variety of social, cultural and political and historical reasons.

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1.6.2 Qualities of an Entrepreneur

In order to be successful, an entrepreneur should have the following qualities:

• Opportunity-seeking,
• Persevering (concerted effort towards the successful completion of goal)
• Risk Taking
• Demanding for efficiency and quality
• Information-seeking
• Goal, objective Setting
• Planning
• Persuasion and networking
• Building self-confidence
• Listening to others
• Demonstrating leadership

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1.6.3 Entrepreneurial Skills

• A skill simply knowledge which is demonstrated by action. It is an ability to perform in a certain way. An entrepreneur is someone who has a good business idea and can turn that idea into reality.
• Types of skill: There are two types of skill. These are:
• General management skills : These are skills required to organize the physical and financial resources needed to run the venture.
• Strategy Skills – An ability to consider the business as a whole,
• Planning Skills – An ability to consider what the future might offer, how it will impact on the business and what needs to be done
• Marketing Skills – An ability to see past the firm’s offerings and their features, to be able to see how they satisfy the customer’s needs

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• Financial Skills – An ability to manage money; to and to monitor cash-flow, but also an ability to assess investments in terms of their potential and their risks.
• Project Management Skills – An ability to organize projects, to set specific objectives, to set schedules and to ensure that the necessary resources are in the right plat of the right time.
• Time Management Skills – An ability to use time productively, to be able to priorities important jobs and to get things done to schedule.

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2. People Management Skills: Businesses are made by people. A business can only be successful if the peoples who make it up are properly directed and are committed to make an effort on its behalf. Some of this important skills are:

• Communication Skills: An ability to use language to /change ideas and inform others.
• Leadership Skills – An ability to inspire people to work in a specific way and to undertake the tasks that are necessary for the success of the venture.
• Motivation Skills – An ability to enthuse people to use their full commitment to the tasks. Understanding what drives people and what they expect from their jobs.
• Delegation Skills – An ability to allocate tasks to different people. Effective delegation involves more than instructing.
• Negotiation Skills – An ability to understand what is wanted from a saturations', what motivating others in that situation

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1.6.4 The Entrepreneurial Tasks

A number of tasks have been associated with the entrepreneur. Some of the more important are:

1. Owning Organizations and Founding New Organizations
2. Bringing Innovations to Market
3. Identification of Market Opportunity
4. Application of Expertise
5. Provision of leadership

1.6.5 Wealth of the Entrepreneur : Reading assignment for students

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Entrepreneurship and Environment

Business environment may be healthy or unhealthy or it may be positive or negative environment.

• Healthy business environment/positive: means the conditions are favorable to the growth of business.
• whereas unhealthy environment/negative: implies conditions hostile or unfavorable to business operations.

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A study of business environment offers the following benefits:

1. It provides information about the environment
2. It opens up fresh ideas to the expansion of new entrepreneurial operations
3. changing environment enables businessmen to adopt a dynamic approach.
4. can make it hospitable to the growth of business and thereby earn popular support.

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Phases /Type of Business Environment

Business environment may be classified into two broad categories:

A) External Environment: An environment hardly to influence independently.

The following are the components of external environment:

1. Economic Environment
2. Legal Environment
3. Political Environment
4. Socio-Cultural Environment
5. Demographic Environment

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B) Internal Environment: The environment which is under the control of a given organization. Following are the components of internal environment of a business.

1. Raw Material 2. Production/Operation 3. Finance 4. Human Resource

Some of the environmental factors which hinder entrepreneurial growth are:

• Sudden changes in Government policy.
• Sudden /Outbreak of war or regional conflicts & Ideological conflicts.
• Political instability or hostile Government attitude towards industry.
• Unreliable supply of power, materials, finance, labor and other inputs.
• Rise in the cost of inputs &Unfavorable market fluctuations.
• Non-cooperative attitude of banks and financial institutions.

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1.7 Creativity, Innovation and Entrepreneurship

1.7.1 Creativity

. Creativity is defined as the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others.

• Creativity is the ability to come up with new idea and to identify new and different ways of looking at a problem and opportunities.

This definition has several key elements that are worth considering:

. Process: creativity is a process

. Ideas: creativity results in ideas that have potential value.

. Recombining: the creative process is one of putting things together in unexpected ways

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1.7.1.1 Steps in the Creative Process: The following are process:

Step1. Opportunity or problem Recognition

Step2: Immersion

Step 3: Incubation

Step 4: Insight

Step 5: Verification and Application

1.7.1.2 Barriers to Creativity: Reading assignment

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1.7. 2 Innovation

Innovation lies at the heart of the entrepreneurial process and is a means to the exploitation of opportunity. It is the implementation of new idea at the individual, group or organizational level.

There are four distinct types of innovation, these are as follows:

1. Invention - described as the creation of a new product, service or process
2. Extension - the expansion of a product, service or process
3. Duplication – replication of an already existing product, service or process
4. Synthesis - the combination of existing concepts and factors into a new formulation

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1.7.2.1 The Innovation Process

1. Analytical planning: carefully identifying the product or service features, design as well as the resources that will be needed.

2. Resources organization: materials, technology, human or capital resources

3. Implementation: applying the resources in order to accomplish the plans

4.Commercial application: the provision of values to customers, reward employees and satisfy the stakeholders.

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1.7.3 From Creativity to Entrepreneurship

Creativity is the ability to develop new ideas and to discover new ways of looking at problems and opportunities.

Innovation is the ability to apply creative solution to those problems and opportunities in order to enhance people’s lives or to enrich society.

Based on this

Creativity : Thinking new thing

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Innovation: Doing new thing

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Entrepreneurship: Creating value in the market place

Entrepreneurship = creativity + innovation

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CHAPTER 2: BUSINESS PLANNING

2.1 INTRODUCTION: This unit will help you to understand the concept of opportunity identification and evaluation, business idea development and how to prepare a business plan.

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Group assignment (30%)

• Prepare a business plan based on the business plan format on your module

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2.1 INTRODUCTION

• This unit will help you to understand:
• the concept of opportunity identification and evaluation
• business idea development and
• how to prepare a business plan

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• Lack of proper opportunity identification and evaluation, idea development process and business planning are the most often cited reasons for business failure.

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2.2 Opportunity Identification and Evaluation

• The opportunity identification and evaluation stage can be divided into five main steps :

1) Scanning the Environment/ Getting the Idea

• it may be provide you with idea and business opportunities
• Synonymous with “idea” are the terms :
• thought, intention, scheme, suggestion, proposal, initiative, brainwave, insight

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• Synonymous with opportunity are chance, opening and prospect.
• A business opportunity is a gap left in a market by those who currently serve it,
• giving a chance to others to add unrealized value by performing differently from and better than competitors in order to create new possibilities

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• opportunity is a favorable time or set of circumstances for doing something.
• An opportunity is that an opportunity is the possibility of occupying the market with a specific innovative product that will satisfy a real need and for which customers are willing to pay but idea is all about opinion about anything

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2) Opportunity Identification

• Opportunity identification is ability to see, to discover and exploit opportunities that others miss.
• It is the process of seeking out better ways of competing.

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3) Opportunity Development

• Opportunity development is the process of combining resources to pursue a market opportunity identified.
• involves systematic research to refine the idea to the most promising high potential opportunity that can be transformed into marketable items.

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4) Opportunity Evaluation

• Opportunity screening and evaluation is a critical element of the entrepreneurial process.
• it allows the entrepreneur to assess whether the specific product or service has the returns needed for the resources required.

It involves:

• looking at the creation and length of the opportunity
• its real and perceived value
• its risks and returns,
• its fit with the personal skills and goals of the entrepreneur,
• its differential advantage in its competitive environment.

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5) Assessment of the Entrepreneurial Team

• Helps to assess the strong skills of team

Team factors and questions:

• Focus: Is the founder really an entrepreneur?
• Selling: Does the team have the necessary selling and closing skills?
• Management: Who will work full time? Does the team have the necessary management and technical skills?
• Ownership: the critical decisions about ownership and equity

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2.3 Business Idea Development

• A business idea is a short and precise description of the basic operation of an intended business. There are three types of business ideas.
• Old Idea – Here an individual copies an existing business idea from someone.
• Old Idea with Modification – In this case the person accepts an old idea from someone and then modifies it in some way to fit a potential customer’s demand.
• A New Idea – This one involves the invention of something new for the first time

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2.4 Business Idea Identification

2.4.1 will Your Business Fulfill the Customers Need?

2.4.2 Good or Service will your Business Sell?

2.4.3 Identifies Potential Customer

2.4.4 Strategy for Selling Goods or Services

2.4.5 Relation between Business and Environment

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Relation b/n Business and Environment

• Your business can only be sustainable in the long run if it works in harmony with the social and natural environment.
• How much does your business depend on the environment?
• Does it rely on the weather, soil or other natural resources?
• Does it need the local community to support it?
• your business nurtures the natural environment and helps the local community?
• How would you minimize or reverse any negative effect that your business might have?

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2.5 Methods for Generating Business Ideas

• Approaches to generating business ideas:
• Learn from successful business owners
• Draw From Experience (own &others)
• Survey Your Local Business Area
• Scanning Your Environment
• Brainstorming
• Structured Brainstorming
• Focus Group
• Problem Inventory Analysis

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2.6 Business Idea Screening

1) Macro screening: is aimed screening down ideas to 10.

• And the common criteria are:
• Are my own competencies?
• Can I finance it to a large extent with my own equity?
• Will people buy my product/service

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2) Micro Screening: is aimed screening down ideas into 3.

• The common criteria used for screening are:
• Solvent demand
• Availability of raw materials
• Availability of personal skills
• Availability of financial resources

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3. Scoring the Suitability of Business Idea:

• This approach is most appropriate when deciding on starting a business.
• When there are more than one possible business ideas and one needs to decided:

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To answer the above questions, there are four important groups you talk to:

• Potential customers
• Competitors, suppliers
• Financial institutions
• Key informants and opinion leaders

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2.7 Concept of Business Plan

• Planning is the first and the most crucial step for starting a business.
• A business plan is a road map for starting and running a business.
• A business plan is the blueprint of the step-by-step procedure that would be followed to convert a business idea into a successful business venture.

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2.8 Developing a Business Plan

• 2.8.1 Business Planning Process

Steps involved in business planning process

1. Preliminary Investigation
2. Opportunity Identification and Idea Generation
3. Environmental Scanning
4. Feasibility Analysis
5. Report Preparation

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2.8.2 Essential Components of Business Plan

1. Cover Sheet
2. Executive Summary
3. The Business
4. Funding Requirement
5. The Product or Services
6. The Plan
1. Marketing Plan
2. Operational Plan
3. Organizational Plan
4. Financial Plan

VII) Critical Risks

VIII) Exit Strategy

IX) Appendix

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CHAPTER 3: BUSINESS FORMATION

3.1 INTRODUCTION

• A business formation deals with the formalization and actual implementation of business ideas in to practice.
• In today’s economic development/transformation, small businesses are creating new jobs even as large businesses continue eliminating jobs
• they are more flexible than large ones in the products and services they offer.

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3.2 The Concept of Small Business Development

. Specifying size and standard to define small business is necessarily arbitrary, because people adopt different standards for different purposes Based on socio- economic conditions,

countries define small business differently.

But all may use size and economic criteria as a base to define small business.

Size criteria include number of employees and the startup capital.

Size does not always reflect the true nature of an enterprise;

in addition, qualitative characteristics are used to differentiate small business from other business.

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3.3 Forms of Business (A Short Explanation)

There are three basic legal forms of business formation with some variations:

1) Proprietorship,

2) Partnership, and

3) Corporation

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3.4 Definition of MSEs

Generally, small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales.

There are two approaches to define small business. They are: Size Criteria, and Economic/control criteria.

1. Size Criteria

• Even the criteria used to measure the size of businesses vary; size refers to the scale of operation.
• Some criteria are applicable to all industrial areas, while others are only to certain types of business.
• To provide a clearer image of the small firms, the following general criteria for defining a small business are suggested by Small Business Administration (SBA).

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2. Economic/Control Criteria.

• Size does not always reflect the true nature of an enterprise.
• Qualitative characteristics may be used to differentiate small business from other business.

The economic/control definition covers:

1. Independence: - Independence means that the owner has control of the business himself/herself.
2. Personalized Management: - It is the most characteristics factor of all. It implies that the owner actively participates in all aspects of the management of the business, and in all major decision-making process.
3. Geographical Area of Operation: - The area of operation of a small firm is often local.
4. Market share and Technology

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3.5 Role/Importance of MSEs in Developing Countries

Some of the contributions are here under:

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3.6 Classification of Micro and Small Enterprises

1. In Case of Manufacturing Enterprise (Manufacturing, Construction and Mining):

a) A Micro Enterprise is one in which the investment in plant and machinery (total asset) does not exceed birr 100, 000 and operates with 5 people including the owner.

b) Small Enterprises is one in which the investment in plant and machinery (a paid up capital of total asset) of birr 100, 000 (one hundred thousand) and not more than Birr 1.5 million; and operates with 6-30 persons.

2. In Case of Service Enterprise (Retailing, Transport, Hotel and Tourism, ICT and Maintenance):

a. A micro enterprise is one with the values of total asset is not exceeding Birr 50,000 (fifty thousands); and operates with 5 persons including the owner of the enterprise.

b. Small Enterprises is one in which the total asset value or a paid up capital of birr 100, 000 and not more than Birr 500,000 million; and operates with 6-30 persons.

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Priority Sectors and Sub-Sectors for MSEs Engagement In Ethiopia

1. Manufacturing Sector- This is the one which comprises textile and garment; leather and leather products; food processing and beverage; metal works and engineering wood works.

2. Construction Sectors- This is the one which comprises sub-contracting; building materials; traditional mining works; cobble stone; infrastructure sub-contract; and prestigious goods

3. Trade Sectors- This is the one which comprises whole sale of domestic products; retail sale of domestic products and raw materials supply.

4. Service Sectors- This is the one which comprises small and rural transport service; café and restaurants; store service; tourism service; canning/packing service; management service; municipality service, maintenance service; beauty salon; and electronics software development; decoration and internet café.

5. Agriculture Sector (Urban Agriculture) - This is the one which comprises modern livestock raring; bee production; poultry; modern forest development; vegetables and fruits; modern irrigation; and animal food processing.

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Levels of MSEs in Ethiopia

1. Start-up:- incorporate people and begins production and service under legal framework or legal entity.

2. Growth Level: - An enterprise is said to be at growth level when an enterprise become competent in price, quality and supply and profitable using the support provided and use book keeping system.

3. Maturity Level: - Maturity level means when an enterprise able to be profitable and invest further by fulfilling the definition given to the sector and using the support provided.

4. Growth- Medium Level:- An enterprise is said to be transformed from small to medium level of growth is when it enabled to be competent in price, quality and supply using the support given to the level.

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3.7 Setting up Small Scale Business: Steps for Setting up the Entrepreneurial Venture �The entrepreneurial process of launching a new venture can be divided into three key stages of: Discovery; Evaluation; and Implementation. These can be further sub divided into seven steps as shown below:

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3.8 Small Business Failure and Success Factors

3.8.1 Small Business Failure Factors

• What Is Business Failure?  A business failure as a business that closes as a result of:

(1) actions such as bankruptcy, foreclosure, or voluntary withdrawal from the business with a financial loss to a creditor; or

(2) a court action such as receivership (taken over involuntarily) or reorganization (receiving protection from creditors).

• Causes of Business Failure

The causes of business failure are many and complex; however, the most common causes are

• inadequate management Neglect occurs whenever an owner does not pay a due attention to the enterprise and fraud involves intentional misrepresentation or deception.
• Inadequate financing.
• Disaster refers to some unforeseen happening

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Business Termination versus Failure�

• There is a difference between a business termination and a business failure.
• A termination occurs when a business no longer exists for any reason. A failure occurs when a business closes with a financial loss to a creditor.
• Reasons for a termination abound:
• Selling business to healthy profit
• To move on to a new business or to retire
• Lost interest in the business
• Product become saturated
• Businesses may change form

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3.8. 2 Small Business Success Factors

Small business success factors can be seen the same as the efforts exerted in reversing the factors of failure.

So, by understanding why business fail, the success factors are categorized as:

1. Conducive Environment: Political, economic, technological and socio-cultural factors to generate much of the needs required for their existence.

2. Adequate Credit Assistance: great majority of micro and small business activities have come about because of special financing programs offered to them. These are lower interest rates than the prevailing commercial rates; less collateral requirements and lower equity ratio etc

3. Markets and Marketing Support.

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3.9 Organizational Structure and Entrepreneurial Team Formation

3.9.1 Designing the Organization/Organizational structure: The design of the organization will be the entrepreneur’s formal and explicit indication to the members of the organization as to what is expected of them. These are:

. Organization structure, Planning, measurement, and evaluation schemes Rewards, Training, and Selection criteria

Roles of an entrepreneur/manager:

• To adapt to changes in the environment and seek new ideas.
• To respond to pressures from concerned bodies.
• Role allocator of resources.
• Negotiator role.

3.9.2 Building the Management Team: the entrepreneur will need to assemble the right mix of people or team to assume the responsibilities outlined in the organization structure. But before assembling and building the management team the team must be able to accomplish three functions:- Execute the business plan; Identify fundamental changes in the business as they occur and Make adjustments to the plan based on changes

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3.9.3 Successful Organization Culture

The following important considerations and strategies are basic points in recruiting and assembling successful/effective team and effective or positive organization culture.

• First, the entrepreneur’s desired culture must match the business strategy outlined
• Second, the leader of the organization must create a workplace where employees are motivated and rewarded for good work.
• Third, the entrepreneur should be flexible enough to try different things
• Fourth, it is necessary to spend extra time in the hiring process
• Five the entrepreneur needs to understand the significance of leadership in the organization

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CHAPTER 4: PRODUCT/SERVICE DEVELOPMENT

4.1 The Concept of Product

Definition of product

• A product is any thing which can be delivered to the market
• Product refers to a physical good, a service or an idea which a consumer needs and for which they are ready to pay.
• Physical products include tangible goods and Services are intangible products which are offered and purchased by consumers.

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General idea of product

• Organization's success is dependent on customer satisfaction and delight/happiness
• Customer satisfaction is achieved through the development of good and service, which have all attributes required by the customer.
• A success product/ services do not only have an attractive package design but should be also able to provide robust/strong performance.

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• Thus, product design must be practical enough for production and powerful enough to provide a competitive advantage.
• The essence of product design is to satisfy customer and maximizes the value for the customer at minimum cost.
• The merchandise or service should also be able to meet primary needs and desire of the customer.
• A successful startup depends on its distinctive and compelling/convincing proposition.
• This is how merchandise or services stand out from the competition and are compelling to the young company‘s customers.
• successful business continuously and rapidly develop new or improved versions of existing products (Palgrave, 2019.)

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4.2 Product/Service Development Process

Product development is the process through which companies react to market signals, respond to changes in customer demand, adopt new technologies, foray into new areas, and ensure continuous growth.

stages of new product development process

1. New Idea Generation: searching for new ideas. fruitful sources of ideas for entrepreneurs include:
1. Consumers
2. Existing products and services
3. Distribution channels
4. The federal government, and
5. Research and development

2. Idea Screening: lessen the number of ideas to few vital/valuable ideas.

• Categorize ideas into three groups: Promising Ideas, Marginal Ideas, and Rejected ideas.

3. Concept Development and Testing: Any product idea can be turned into several product concepts. The questions asked probably include:-

• Who will use the product?
• What benefits should the product provide?
• When will people consume the produced?

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• Concept Testing: - calls for testing product concepts with an appropriate group of target consumers/customers, and then getting the consumers’ reactions.
• At this stage, the concepts can be in words or picture description.

4. Marketing Strategy Development

After testing the new product the concerned body must develop a preliminary marketing strategy plan for introducing the new product into the market.

The marketing strategy plan consists of three parts:

1. Market size, structure, behavior ;
2. Planned price, distribution strategy, and marketing budget of the 1st year;
3. Long run sales and profit goals, marketing mix strategy (4p’s: product, price, promotion, place)

5. Business Analysis: evaluate the proposals’ business attractiveness through preparing sales, cost and profit projections to determine whether they satisfy the company's objective or not.

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6. Product Development

• If product concept passes the business test, it moves to R&D or engineering to be developed to one or more physical version of the product concept.
• Its goal is to find a proto type that the consumers/customers see as embodying the key attribute described in the product concept.

7. Market Testing : The goals are to test the new product is more authentic/reliable/genuine consumer settings and to learn how large the market is and how consumers/customers and dealers react to handling, using and repurchasing the actual product.

8. Commercialization: Realizing the product to the market in full capacity.

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Conditions to be considered

1. Timing : First entry, Late entry and parallel entry

2. Geographical strategy

3. Target market prospect

4.3 Legal and Regulatory Frameworks for Entrepreneurs

It is necessary to understand all the advantages and disadvantages of each regarding such issues as:

• liability- state of being legally responsible
• taxes
• continuity
• transferability of interest
• costs of setting up and
• attractiveness for raising capital

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• Legal advice for these agreements is necessary to ensure that the most appropriate decisions have been made.

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4.3.1 What is Intellectual Property?

• Intellectual property is a legal definition of ideas, inventions, artistic works and other commercially viable products created out of one's own mental processes.
• Intellectual Property which includes patents, trademarks, copyrights, and trade secrets represents important assets to the entrepreneur.

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• 4.3.2 Patent: patent is a legal protection given for the invention or when the existing product is improved.
• A patent provides the owner with exclusive rights to hold, transfer, and license the production and sale of a product/process.

It includes

• Utility Patent: A utility patent protects any new invention or functional improvements on existing inventions.
• Design Patent: This patent protects the appearance of an object and covers new, original, ornamental, and unobvious designs for articles of manufacture.

What Can Be Patented Then?

• Processes
• Machines: Products, instruments, physical objects.
• Manufactures: Combinations of physical matter not naturally found.
• Composition of matter: Chemical compounds, medicines, etc.

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4.3.3 Trade marks: A trademark may be a word, symbol, design, or some combination of such, or it could be a slogan or even a particular sound that identifies the source or sponsorship of certain goods or services.

4.3.4 Copy right : Copyright is a right given to prevent others from printing, copying, or publishing any original works of authorship

• It protects original works of authorship. Usually copyrights are valid for the life of the inventor plus a few decades.

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CHAPTER 5: MARKETING

5.1 Meaning and Definitions of Marketing

• Marketing is a social and managerial process by which an individual or group obtain what they need and want through creating, offering and exchanging of product of values with others (Philip Kotler,2012).
• Marketing is the effort to identify and satisfy customers’ needs and wants.
• It involves finding out who your customers are
• what they need and want, the prices
• the level of competition
• It involves the knowledge and all the processes you undertake to sell your product.

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�5.2 Core Concepts of Marketing�

Need: Human Need is a state of deprivation of some basic satisfaction.

Wants: Wants are desires for specific satisfiers of needs.

Demands: Demands are wants for specific products that are backed by ability and willingness to buy them.

Product: is anything that can be offered to satisfy a need or want.

Value: is the consumer’s estimate of the products overall capacity to satisfy needs.

Exchange: is the act of obtaining a desired product from someone by offering something in return.

Transaction: - is the trade of values between two parties.

Market: consists of all the potential customers sharing a particular need or want

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Importance of Marketing

• Then potential buyers must be informed about the products existence and the benefits it offers through various forms of promotion.
• The kinds of utility that marketing provides in the process are as follows:

1. Form Utility: is associated primarily with production- the physical or chemical changes that make a product more valuable.

2. Place Utility: exists when a product is readily accessible to potential customers.

3. Time Utility: Time utility means having a product available when you want it

4. Information Utility: Information utility is created by informing prospective buyers that a product exists.

5. Possession Utility: Possession utility is created when a customer buys the product-that is, ownership is transferred to the buyer.

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5.3 Marketing Philosophies

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5.4 Marketing Information Systems

• Every firm must organize the flow of information to its marketing managers. Companies are studying their manager’s information needs and designing marketing information system to meet these needs.
• A marketing information system consists of people, equipment and procedure to gather, sort, analyze, evaluate and distribute needed timely and accurate information to marketing decision makers.
• The marketing managers carry-out : analysis, planning, implementation and control responsibilities, they need information about development in the marketing environment.
• Design the needed information is developed through: internal company records, marketing intelligence activities, marketing research, and marketing decision support analysis.

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5.5 Marketing Research

Marketing research is the systematic and objective identification, collection, analysis, and dissemination of information for the purpose of assisting management in decision making.

The Role (Significance) Of Marketing Research In Decision Making

There are three Functional Roles of Marketing Research. These are:

• Descriptive Function - the gathering and presentation of statements of fact.
• Diagnostic (analytical) Function - The explanation of data.
• Predictive Function - Specification of how to use the descriptive and diagnostic research to predict the result of a planned marketing decision.

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Marketing Research Components: Marketing researchers deal with many aspects of a market including the following:

• Market size: this deals with the number or value of units sold to a market in a given period.
• Market Share: this one is about a specific corporation’s share of the market size out of the whole market of a product or products of the same purpose.
• Market penetration: this is a marketing strategy which is used to know when a company enters/penetrates a market.

. Brand equity research – this research is conducted to know how favorably consumers view the brand.

• Buyer decision processes research – this part of marketing research activity is used to determine what motivates people to buy and what decision-making process they use.

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Customer Satisfaction Research

In this type of research there are different types of research that are used to assess about customers.

• Distribution channel audits
• Marketing effectiveness and analytics
• Building models and measuring result .
• Mystery Consumer or Mystery shopping: researcher acts as a shopper used for quality control or for researching competitors' products.
• Positioning research : mostly conducted to answer questions like
• How does the target market see the brand relative to competitors?
• What does the brand stand for?
• Price elasticity testing: research is to determine how sensitive customers are to price changes
• Sales forecasting
• Segmentation research: to determine the demographic, psychographic, and behavioral characteristics of potential buyers.
• Test marketing: to determine the likely acceptance of the product when it is introduced into a wider market.

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Marketing Research Process

In a logical and systematic manner marketing research consists of the following related phases:

Step 1: Define the research purpose or objectives

Step 2: Research Design Formulation

Step 3: Gather at this stage secondary data

Step 4.Gather Primary Data

Step 5: Data Processing and Analysis

Step 6: Report Preparations and Presentation

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5.6 Marketing Intelligence

Market intelligence is the systematic process of gathering, analyzing, supplying and applying information (both qualitative and quantitative) about the external market environment. Marketing intelligence is used to determine:

• Current and future market needs,
• Changes in the business environment that may affect the size and nature of the market in the future.
• Environment that may affect the size and nature of the market in the future.

5.7 Competitive Analysis

• Competitive analysis refers to determining the strengths and weaknesses of competitors and designing ways to take opportunities or tackle threats posed by competitors.

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5.8 The Marketing Mix and Marketing Strategies

5.8.1 The 4 P’s Of Marketing/The Marketing Mix

The 4 P,s include product, pricing, place (channel) and promotion.

1. Product: Some important questions you need to ask yourself include:

• What products/services do I sell?
• Why did I decide to sell these products?
• Do I have the products customers want?
• Do any of my products not sell well?

2. Pricing: refers to the process of setting a price for a product/service. To set your price you need to:

• Know your costs.
• Know how much customers are willing to pay.
• Know your competitors price.
• Know how to make your prices more attractive

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3. Place: means the different ways of getting your products or services to your customers. You can distribute your products to your customers through:

• Selling directly to the consumers of the products.

• Retail distribution and wholesale distribution.

4. Promotion: Refers informing your customers of your products and services and attracting them to buy them.

• Promotion includes advertising, sales promotion, publicity (non-paid promotion) and personal selling.
• Use advertising to make customers more interested in buying your products or services.

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5.9 What Is Marketing Strategy?

A marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage.

A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe.

1. Pricing Strategy : Price is often the only element the marketer can change quickly in response to demand shifts.

It relates directly to total revenue

. TR = Price * Quantity

. Profit = TR – TC Where, TR=Total Revenue, TC=Total Cost

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The following are of pricing strategies mostly applicable in the real world scenario.

1. Price skimming: charging the highest possible price that buyers who most desire the product will pay
2. Price penetration: prices of products are reduced compared to competitors’ price for the same product to penetrate into markets and to increase sales.
3. Cost-plus pricing: Any amount that is above unit cost may be considered.
4. Mark up pricing : A certain percentage of the selling price is added to unit cost.
5. Competition pricing: Considers competitors prices primarily; but the market type matters.
6. Odd – even pricing: This is Psychological pricing method based on the belief that certain price ranges are more appealing to buyers. Eg 999

2. Promotion Strategies : An organization’s promotional strategy can consists advertising, sales promotion, publicity (non-paid promotion) and personal selling.

3. Distribution Strategies: It indicates addressing products to customers using different channels. Channels may be direct or indirect distribution channel.

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Problems regarding to distribution that researchers identified include

• Unwillingness to establish different distribution channels for different products,
• Fear of utilizing multiple channels
• Failure to periodically re-visit
• Lack of creativity, and
• Resistance to change.

The following factors should be considered to select the best channel:

• Company Factors: financial, human and technological capabilities
• Market Characteristics: Geography, market density, market size, target market
• Product Attributes: Perish ability , value and sophistication of the product
• Environmental Forces: like competition, technology and culture.

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CHAPTER 6: BUSINESS FINANCING

6.1 INTRODUCTION

• Sourcing money may be done for a variety of reasons:
• Need for capital asset acquisition- new machinery or the construction of a new building.
• The development of new products.
• Such developments are financed internally, whereas capital for the acquisition of machinery may come from external sources.

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6.2 Financial Requirements

1) Permanent Capital

• The permanent capital base of a small firm usually comes from equity investment in shares in a limited company or share company, or personal loans to form partners or to invest in sole proprietorship.

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• It is used to finance the start - up costs of an enterprise, or
• major developments and expansions in its life - cycle.
• It may be required for a significant innovation, such as a new product development.

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• Equity from private investors may also be sought to take a small firm into the medium or large size category
• investment in equity is rewarded by dividends from profits, or a capital gain when shares are sold.

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2) Working Capital

• It is short-term finance.
• Most small firms need working capital to bridge the gap between when they get paid, and when they have to pay their suppliers and their overhead costs.
• Overhead cost include: Rent, Utilities, Insurance, Office equipment such as computers or telephones, Office supplies
• Requirements for this kind of short-term finance will vary considerably by business type.

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3) Asset Finance

• It is medium to long term finance.
• The purchase of tangible assets is usually financed on a longer-term basis, from 3 to 10 years, or more depending on the useful life of the asset.
• Plant, machinery, equipment, fixtures, and fittings, company vehicles and buildings may all be financed by medium or long-term loans from a variety of lending bodies.

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6.3 Sources of Financing

6.3.1 Internal Sources (Equity capital)

• Owner’s capital or owner’s equity represents the personal investment of the owner(s) in a business,
• it is sometimes called risk capital because these investors assume the primary risk of losing their funds if the business fails.
• However, if the venture succeeds, they also share in the benefit.

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Sources of Equity Capital

1. Personal saving

2. Friends and relatives

3. Partners

4. Public stock sale

5. Angels: These are private investors who are wealthy individuals, often entrepreneurs, who invest in the startup business in exchange for equity stake

6. Venture capital companies: Are private, for profit organizations that purchase equity positions in young business expecting high return and high growth potential opportunity.

• They provide start -up capital, development funds or expansion funds

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6.3.2 External Sources (Debt capital)

• Borrowed capital or debt capital is the external financing that small business owner has borrowed and must repay with interest.

I) Commercial banks

Bank Lending Decision:

• Most bankers refer to the five C’s of credit in making lending decision.

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1. Capital: A small business must have a stable capital base before a bank will grant a loan.

2. Capacity: The bank must be convinced of the firm’s ability to meet its regular financial obligations and to repay the bank loan.

3. Collateral: The collateral includes any assets the owner pledges to the bank as security for repayment of the loan.

4. Character: Before approving a loan to a small business, the banker must be satisfied with the owner’s character. The evaluation of character frequently is based on intangible factors such as honesty, competence, willingness to negotiate with the bank.

5. Conditions: The conditions surrounding a loan request also affect the owner’s chance of receiving funds.

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II) Micro Finances

III) Trade Credit: It is credit given by suppliers who sell goods on account.

IV) Equipment Suppliers: Most equipment vendors encourage business owners to purchase their equipment by offering to finance the purchase.

V) Account receivable financing: It is a short term financing that involves either the pledge of receivables as collateral for a loan.

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• VI) Credit unions: Credit unions are non-profit cooperatives that promote savings and provide credit to their members.
• But credit unions do not make loans to just any one; to qualify for a loan an entrepreneur must be a member.
• VII)Bonds: A bond is a long term contract in which the issuer, who is the borrower, agrees to make principal and interest payments on specific date to the holder of the bond.
• VIII) Traditional Sources of Finance: “Idir”, “equib”

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