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TABLE OF CONTENTS
Contents
Assignments/self-tests ..................................................................................................................... 3
Examinations ................................................................................................................................... 3
Module Objectives .......................................................................................................................... 3
LESSON 1: INTRODUCTION .......................................................................................................... 4
LESSON 2: THE PROCESS ENTREPRENEURSHIP MYTHS ............................................................... 8
LESSON 4: WAYS OF GETTING INTO SELF EMPLOYMENT.......................................................... 15
LESSON 5: IDENTIFICATION OF A BUSINESS OPPORTUNITY...................................................... 23
LESSON 6: TYPES OF ENTREPRENEURS ...................................................................................... 26
LESSON 7: ENTREPRENEURIAL SKILLS........................................................................................ 29
LECTURE 8: THE ENTREPRENEURS TASKS ................................................................................. 32
LECTURE 9: ENTREPRENEURIAL MOTIVATION .......................................................................... 35
LECTURE 19: SOURCES AND TYPES OF BUSINESS FINANCE ...................................................... 38
LESSSON 10: THE ENTREPRENEUR AND RISK ............................................................................ 46
LECTURE 11: COPING WITH COMPETITION ............................................................................... 49
LESSON 12: BUSINESS INCUBATION .......................................................................................... 56
Public/Private Incubators ...................................................................................................... 59
LESSON 13: THEORIES OF ENTREPRENEURSHIP ........................................................................ 63
LESSONS 14 &15: THE BUSINESS PLAN ..................................................................................... 69
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LESSON 1: INTRODUCTION
1.1. Introduction
This will be the first lesson. The learner will be expected to know basic definitions
regarding entrepreneurship. The terminologies include entrepreneurship among others.
1.2: Lesson objectives
At the end of this lecture, you should be able to:
1) Define the term entrepreneur and other related terminologies
2) Highlight the advantages and disadvantages of self-employment
Introduction
Lesson objectives
Lesson outline
Definition of terms
Advantages of self-employment.
Disadvantages of self-employment.
Revision questions
Summary
Suggested reading
Terminologies
Self-employment
A person is said to be self-employed when he has identified a business opportunity,
started a business and is involved in running the business.
Entrepreneur
Self-employed people are commonly referred to as entrepreneurs. Entrepreneurs are
people who are able to identify business opportunities in a certain environment, gather
and put in place the necessary resources and start a business enterprise.
In this course, the terms entrepreneur and self-employment shall be taken to mean the
same thing.
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A business opportunity is any idea that an entrepreneur can exploit to make profit.
Entrepreneurial attributes: These are the characteristics that are often possessed by
successful entrepreneurs.
INTRAPRENEUR
SOCIAL ENTREPRENEURSHIP
Entrepreneurial competencies: Are some of the skills an entrepreneur an entrepreneur
requires to manage the business successfully, for example: financial skills, human
resource management skills etc.
Manufacturing: This is the process of transforming a raw material from its original form
to another one that is acceptable to the user for example a person in the Jua Kali sector
transforms metal into jikos, sufurias etc.
A carpenter transforms wood into furniture etc.
Service: This is the provision of intangible items. For example, a person who owns a
canteen, a hair dresser, a barber etc.
Wholesaling: This is the buying and selling of goods in bulk. For example, buying maize
from Kenya Cereals and Produce Board and then selling it to other buyers.
Retailing: This is the sale of goods to the final user or consumer. Supermarkets,
boutiques etc. are examples of retail businesses.
1.5 ADVANTAGES OF SELF EMPLOYMENT TO INDIVIDUALS
Independence
Independence: this means that you are be your own boss. You are able to make your own
decisions regarding your business.
Potential
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You are able to exploit your potential to full capacity and become more creative and
innovative by exploiting all your talents and abilities.
Employment creation
You are able to create employment: not only are you able to employ yourself, but as the
business grows and expands, you will be able to employ other people.
Income
The business provides you with a source of income from the profits derived from the
business.
Prestige
Successful entrepreneurs are admired in society and their opinions are sought by many
people.
Role model
You become a role model to young people who would also like to be entrepreneurs.
Ownership
Self-employment provides you with an opportunity to own a business enterprise
DISADVANTAGES
Risk of failure
Risk of failure can be very high especially for someone engaging in business for the first
time. This could be due to lack of experience among other factors.
Personal liability
Most start-ups are usually registered as sole proprietorships which means that the
entrepreneur is liable for any losses in the business.
Uncertain income
Frequently limited income especially before the business breaks even and starts to make
profit and grow
Stress due to long working
Owning and running a business requires a lot of commitment of time and effort
Loneliness
Owning and running a business means that the entrepreneur has to spend long hours in
the business most often at the expense of his social li
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Summary
In this lesson, you learned:
1) how to define entrepreneurship terminologies
2) advantages and disadvantages of self-employment
Suggested reading
Kuratco, D.F., & Hodgets, R.M. (2007). Entrepreneurship. Theory, Process, Practice.
Quebec, Canada: Thomson South western
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After the successful acquisition of resources, the entrepreneur must use them to start and
manage his business successfully. He needs to develop an appropriate management style,
understand the key variable for the success of the business, identify potential problems
and put in place control systems. Some entrepreneurs have difficulty managing and
growing their businesses.
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1.5 Summary
In this lecture you have learnt:
1) The process of entrepreneurship
2) The myths associated with entrepreneurship
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3.1
Introduction
Welcome to the third lesson on Entrepreneurship and Small Business Management. The
lecture is divided into two sections: section one is on the entrepreneurs contribution to
national development; section two deals with requirements for self-employment.
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a) Technical skills is the skill required to perform a specific task successfully e.g.
accounting skills, carpentry skills etc.
b) Management skills are the skills required for the daily running of the business
e.eg people management skills, money management skills etc.
Business premises
The business must be located somewhere. The entrepreneur needs to establish where the
business will be located, the size of the business premises. He needs to obtain the finance
to rent or purchase the premises.
Technology
This is the machinery, tools or equipment the entrepreneur will require in manufacturing
the goods or providing the services.
Market
These are the potential customers. Business cannot be started before establishing the
existence of potential customers.
3.6 Revision questions
1) outline five requirements of initial capital
2) explain five characteristics of a good business location
3.7 Summary
In this lecture you have learnt:
1) Definition of the main terms in entrepreneurship
2) Advantages of self-employment to an entrepreneur
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Welcome to the fourth lesson on Entrepreneurship and Small Business Management. The
lecture is on ways of getting into self-employment.
Lesson outline
This lesson is organised as follows:
4.1 introduction
4.2 lesson objectives
4.3 lesson outline
4.4 ways of getting into self-employment
4.5 advantages of buying an existing business
4.6 disadvantages of starting from scratch
4.6 franchising
4.7 advantages of franchising
4.8 disadvantages of franchising
4.4 The following are the ways people get into self-employment:
Buy an existing business
Starting from scratch
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Franchising arrangements
Inheriting a family business
4.5: Buying an existing business
Advantages
i.
ii.
iii.
iv.
v.
vi.
Reduces the need to spend time, money, energy for a thorough planning (initial)
hence profits come faster. Stress of starting from scratch
vii.
viii.
ix.
x.
Inherent equipment
xi.
4.6
Disadvantages
a) Chances of failure are high.
b) Unproven operations therefore running the business may be more difficult.
c) Possibility of improper/ inadequate planning.
d) No history to show suppliers or banks/ No history to fall on.
e) No knowledge of how competitors behave;
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f) Stressful
g) Expensive in terms of advertising etc.
4.7
Franchising
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may seem excessive after you have been in business for a while and you begin to feel
how they affect your bottom line.
Restriction of freedom and creativity
Most people open their businesses because they have a desire for independence but franchises
have policies and procedures that must be followed to maintain the franchise agreement. Also the
size of your market will be limited by territorial restrictions. Also, although you may feel that
some products, promotions or policies are not appropriate for your area, you will have little
recourse after the agreement has been signed
Overdependence on the franchisor
Franchisors do not always know what is best for every set of local conditions. The franchisee
must be willing and able to apply his own managerial decisions in running the business in a way
best suited to the local market and avoid being over dependent on the franchisor.
The franchisee might have very high expectation which might not be realized.
Bulk purchasing
A centralized purchasing of products and supplies allows the franchiser to take advantage
of volume discounts, since they are buying for all the franchise location.
Disadvantages to franchisor
1. Loss of control
Franchisees who do not maintain their business to the required standards reflect poorly
not only on other franchisees but also on the parent company, while the franchiser
controls the business to the extent of the franchise agreement.
Franchisees are still independent business people and franchiser must get permission on
them before any products are changed, added or eliminated.
2. Profit sharing with the franchisee.
3. Disputes may arise over issues such as payment of fees, termination of franchisee
agreement, method s of operation, etc.
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4.10 Summary
In this lecture you have learnt:
3) The various ways of getting into self-employment
4) Advantages of buying an existing business
5) Disadvantages of starting a business from scratch
6) Advantages and disadvantages of franchising
4.11Suggested reading
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2. Government Policy
The entrepreneur must keep up to date with the latest information including government
policies as these could offer business opportunities e.g. the laptop project.
3. Prior work experience
Working for someone else in your area of interest can help you avoid many errors and
begin to build competitive advantages. It gives you the chance to ask yourself: what
would I do differently if I was running this business?
5. Exploit your talents/hobbies
You could have certain talents that you could exploit to start a business.
6. A hobby is something that a person enjoys doing. This can also be exploited to start a
business.
7. Skills
You could have undergone some kind of training and acquired the relevant skills. This
could be exploited to start a business.
8. Exploit the change in technology.
Technology is dynamic and keeps changing. The changes in technology often provide
business opportunities.
9. Exploit the change in lifestyles, tastes and preferences.
10. Examine the weaknesses of existing businesses and exploit these weaknesses.
5. 5 Revision questions
List five business opportunities you have identified
5.6 Summary
In this lecture, you have learnt:
1. What a business opportunity is
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Suggested Reading
Kuratco & Hodgetts: Entrepreneurship theory, process and practice
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6.3 Outline
The lesson is organised according to the following outline:
6.1 introduction
6.2 lesson objectives
6.3 outline
6.4 types of entrepreneurs
6.5 revision questions
6.6 summary
6.7 suggested reading
6.4 Different sources have classified entrepreneurs using different criteria. In this
case entrepreneurs are classified as follows:
1. The Cantillon Entrepreneur (Named After the 18th Century French economist Richard
Cantillon)
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This is a classic type of entrepreneur who identifies an opportunity which has not been
exploited then innovates in order to exploit it. This entrepreneur brings people money and
materials together to bring entirely a new business.
7. Craft Entrepreneurs
Any entrepreneur who uses a particular knowledge or skill to start a business is called a
craft entrepreneur. Such entrepreneurs have the required technical job experience but they
usually lack managerial training. They have the following characteristics: they are usually
paternalistic they manage the business as his/her family; they are reluctant to delegate
authority; they start off and operate with limited capital. They usually employ family
members such business owners seek merely to make enough money to provide a steady
income for self and family.
8. Expansion Oriented Entrepreneur
Such entrepreneurs start off as craft entrepreneurs. However he takes the risk of
expanding his business and to face the challenge of changing their role from being a craft
operator to expanding craft production capacity and to grow.
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7.3 Outline
This lesson outlined as follows:
7.1 introduction
7.2 lesson objectives
7.3 outline
7.4 definition
7.5 general management skills
7.5 human resource management skills
7.6 revision questions
7.7 summary
7.8 suggested reading
7.4 Definition
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Strategy skills an ability to consider the business as a whole, to understand how it fits
within its market place, how it can organize itself to deliver value to its customers, and
the ways in which it does this better than the competition.
Planning skills an ability to consider what the future might offer, how it will impact on
the business and what needs to be done now to prepare it.
Marketing skills an ability to see past the firms offerings and their features, to be able
to see how they satisfy the customers needs and why the customer finds them attractive.
Financial skills an ability to manage money, to be able not only to keep track of
expenditure and to monitor cash flow, but also 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 place at the right
time.
Time management skills an ability to use time productively, to be able to prioritize
important jobs and get things done to schedule.
7.6
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Revision questions
1) Describe the types of entrepreneurs that exist within your locality
2) List the types of skills you believe they possess.
Summary
In this lecture, you learnt about:
1)the various types of entrepreneurs
2) the skills required by entrepreneurs for success of a business
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8.3 outline
This lesson is organised as follows:
8.1 introduction
8.2 lesson objectives
8.3 outline
8.4 entrepreneurial tasks
8.5 revision questions
8.6 summary
8.7 suggested reading
iii)
Innovation
Innovation is a crucial part of the entrepreneur process. Entrepreneurs must do
something new or there would be no point in their entering the market. (Peter
Drucker & J. A Schumpeter). However, innovation in a business sense can mean
a lot more than merely developing a new product or technology. The idea of
innovation encompasses any new way of doing something so that value is created.
Innovation can mean a new product/ service but it can also include a new way of
delivering an existing product/ service so that its cheaper/ more convenient to use
etc.
iv)
v)
Application of expertise
It has been said that entrepreneurs are characterized by the way that they bring
some sort of expertise to their jobs. This expertise may lie in their ability to
innovate or to spot new opportunities. However, they also have a special ability
in deciding how to allocate scarce resources in the situations where information is
limited.
vi)
Provision of leadership
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Entrepreneurs need the support of other people both from within the business and
outside e.g. investors, customers, suppliers, credit controllers etc. If all these
people are to pull in the same direction, to be focused on the task at hand and to
be motivated, then they must be supported and directed by the entrepreneur.
8.6 Summary
In this lecture, you learned about the tasks performed by an entrepreneur
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9.3 Outline
This lesson is organised as follows
9.1 introduction
9.2 lesson objectives
9.3 outline
9.4 internal motivating factors
9.5 revision questions
9.6 summary
9.7 suggested reading
9.4 Motivation
Motivation can be internal (intrinsic) or external (extrinsic).
Entrepreneurial motivation can be internal and/or external. This section looks at the
internal motivators to an entrepreneur.
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9.6 Summary
In this chapter, you learnt about the internal factors that motivate entrepreneurs
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9.3 Outline
This lesson is organised as follows:
9.1 introduction
9.2 lesson objectives
9.3 outline
9.4 definition
9.5 Sources of business finance
9.6 criteria for evaluating sources of business finance
9.7 types of business finance
9.8 conditions for borrowing
9.9 revision questions
9.10 summary
9.11 suggested reading
Note that the source and type a business finance you are likely to choose will influence
the nature of business enterprise you intend to start.
Business finance is the amount of money you need to start your business. It enables you
either to buy the machinery and equipment, build your business premises, hire labour or
meet daily obligations of your business. Finance needed to start your business is
commonly known as capital.
As an entrepreneur the primary types of capital you are likely to arrange for included
start-up capital, working capital and expansion capital. Start -up capital is the capital you
will require to begin a business while working capital is the amount of money you will
need to meet the day to day activities of the business. Expansion capital is the capital you
require to help your business grow.
9.5 The source of business finance
The source of business finance refers to where the capacity you need for starting your
business come from. Such sources may include personal savings, inheritance, borrowing
from friends, banks, Co-operatives, government organizations, non-government
organizations, among others.
9.6 Criteria for evaluating sources of business finance selection
One of your most important decisions is to select the right source of financing. The
choice affects the future of your business activities. The key decision that you will be
forced to make is to determine which is appropriate source of financing for your current
needs.
Receiving a short term bank loan, when a long term loan is required, can soon create
crisis for your business. Selling part of your business to raise capital that could have
been borrowed may be extremely costly.
When you select the right source of finance, the capital obtained is free from unnecessary costs, risks and possibilities of losing control of your own business.
Primary evaluation factors
To determine the most suitable source of raising capital for your business, you may
consider the following factors.
a) Costs
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Which source exposes your business to the lowest degree of risk? The cost of your capital
source is measured by its impact on your earnings and not the increased expenses
incurred by the business. Consider a company that is deciding between a Shs. 20,000
loans at 10% interest or selling 25% of the shares in the business in order to raise Shs.
20,000. The business expects to pay interest on the loan of Shs. 200 per year which
would reduce its net profit by Shs. 2,000 before taxes. If the business expects to earn Shs.
30,000 interest expense would reduce it to Shs. 28,000. In the equity alternative, the net
income would be Shs. 30,000 since there would be no interest expense. However, only
Shs. 22,500 would be applicable to the present owners since Shs. 7,500(30,000x25%)
would represent the participation of the new shareholders. Therefore the income of the
business under the equity alternative would be higher, but the participation of the present
owners would be less.
You should be able to know that each capital source has its own cost. Internal sources
such as the sale or the liquidation of assets could lead to loss of revenue following
inventory disposal or added operation costs if machinery were sold to generate costs. If
you use trade credit, discount is forfeited. In reaching a decision, it is important that you
consider all relevant costs for each source.
b) Risk
You take general risks when raising capital. Use of trade credit could lead to supplier
dissatisfaction and possible damage to your credit worthiness.
Because borrowed money must be repaid with interest, debt capital imposes obligations
upon the cash flow of your business which must be paid to avoid default. A default could
cause you a number of actions such as forfeiture of collateral or forced bankruptcy. The
only money source that frees your business from the risk is equality capital because the
equity investor is the risk taker but not the business.
c) Flexibility
If you rely upon asset management to meet your capital needs then deny your business
credit extensions or inventory purchases which leads to lost sales.
Use of trade credit as a major capital source makes your business depend on a few
suppliers which denies you the chance to buy from other suppliers who charge low
prices.
Loans carry conditions that prevent your business from securing additional debts because
the assets are tied as security.
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d) Control
The use of internal financing and trade credit, is unlikely to have an impact upon the
control of the business exercised by you. If you are an equity investor you are entitled to
some degree of control in the company operations. Shares issued to your partners usually
carry voting rights in proportion to the number of shares purchased.
Lenders do not ordinarily participate in the affairs of the business but are legally entitled
to a vote in corporate matters as are common shareholders. However, major loans from
banks, insurance companies, or others may require that the lenders interest in keeping
abreast of corporate affairs could affect your control of the business.
e) Availability
Your business may be restricted in its abilities to raise capital due to non-availability of
preferred resources. Regardless of the source considered most feasible, your business
only has access to whatever is available.
9.7 Types of business Finance.
Being an entrepreneur exposes you to many types of business finance. Some of these
include:
a) Short term funds
These are funds from external sources used in your business but are repayable within a
year. Such funds include trade credit, bank overdraft, bank loan, borrowing from private
sources e.g. family, friends, relatives etc.
b) Medium term funds
These are external funds used in your business and are repayable within a period of five
years. For example you may use bank loans and loans from non-banking institutions such
as small enterprise finance company(SEFCO), Industrial commercial development
corporation(ICDC), Agricultural Finance Corporation(AFC), Industrial development
bank(IDB), Kenya Industrial Estates(KIE), Rural development fund(RDF) and many
others.
c) Long term funds
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Funds from external sources used in your business and are repayable for a period
exceeding five years are called long term funds. They may include bank loan and loans
from non-bank financial institutions such as ICDC, IDB, KIE, AFC, etc..
9.8 Factors in selecting types of business finance
Your ability as entrepreneur to obtain the finance needed is necessary for the operation of
your business. Some of these factors which may assist you in deciding the types of
finance to use are as the amount of money required.
When you set out to borrow money for your firm it is important to know the amount of
money you need from a bank or any lending institution. For huge sums of money you can
borrow from banks and non-bank financial institutions. However, for little funds you can
borrow from traders, friends, relatives, etc.
The purpose of money
In financing your new business it is necessary to determine what you need the money for.
There are many costs and expenses to consider. Some of these may include
a) Start-up costs
These are expenses which occur once when beginning your business. Some examples of
start-up costs are costs on fixtures and equipment, starting inventory, deposits for rent
and utilities, business license and permits, legal fees, and advertising for the grand
opening.
If you were opening a restaurant, you would have many start-up costs. You would have
to buy tables and chairs, for your customers to sit on, ovens and fryers to cook food,
plates, knives, spoons and forks. You would also have to buy or lease a building, pay for
a business license and restaurant permit and get your menu printed.
b) Operating expenses
These are expenses incurred daily to make the business operational/functional e.g.
payments for inventory, advertising, wage/salary, insurance, repairs to equipment,
monthly rents and other utilities.
Once your restaurant is open you will have to incur regular operating expenses. For
example you will continually have to buy food pay the cooks and the waitresses, pay
sales tax (VAT), monthly rents, replace stock, etc.
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c) Personal expenses
These are the costs that are necessary for you to live. Although the money you need to
start and operate the business is important, do not overlook the money you need for
personal of living expenses, some examples include food, transportation, clothing
insurance cover, utilities, medical bills and entertainments.
Some businesses take between 1-3 years to be able to generate profits. Hence there will
be very little for personal expenses. You must plan for these expenses when thinking
about your money needs. Sometimes people will start a new business while working on
another job or they have a spouse who earns money from an outside job. This helps to
limit the money needed to finance the business.
Conditions of borrowing
When you want to borrow money from banks or other lending institutions certain
conditions and terms may be put to you so as to protect the financiers against unnecessary risk and poor management practices by borrowers.
Some limitations which you will encounter when you borrow money are
a) Repayment terms should the money be repaid monthly or yearly, in large sum or
by instalments
b) Security requirements
c) Periodic reporting of business progress
Collateral
Sometimes your signature is the only security the bank needs when requesting for a loan.
At times, the bank requires additional assurance that you will repay the money. The kind
and amount of security depends on the bank and on your situation.
If your financial statements cannot justify the amount of loan you need then the bank may
require you to produce any of the following security types:
a)
b)
c)
d)
e)
f)
Title deed
Share certificate
Insurance policies
Fixed bank deposits
Log book
Jewellery and precious stones
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9.10 Summary
In this chapter, you learnt about the sources and types of business financing to an
entrepreneur.
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10.3 Outline
This lesson is organised as follows:
10.1 introduction
10.2 lesson objectives
10.3 outline
10.4 definition
10.5 types of risk takers
10.6 revision questions
10.7 summary
10 8 suggested reading
10.4 Definition
Risk taking is undertaking to do something without knowing what the outcome will be.
When you start a business, you are taking a risk since the business could succeed or fail.
Your success in the business will depend on your ability to identify the risk, calculate the
risk, minimise it and take it.
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In order to do this, you need to start by knowing the types of risk taker you are. You can
be one of the following risk takers:
10.5 Types of risk takers
Low risk taker: you will be a low risk taker if you are afraid to take any type of risk at
all. You are involved in doing routine things in the business because you are afraid of the
outcome should you take any business risk.
Moderate risk taker: you will be considered a moderate risk taker when you take some
measure of risk. You will take risks in order to be innovative and make modifications in
procedures and functions.
High risk taker: you are a high risk taker when you are highly creative, innovative and
willing to accept change. You need to try various alternatives and develop innovations for
products and services in new areas of business.
However, before you take any risk, you first of all need to evaluate it and minimise it .
Some of the questions you can yourself before taking a risk involve:
Is the goal worth the risk involved?
How can the risk be minimised?
What preparations do I need to make before taking the risk?
What are the most likely obstacles in achieving the goal?
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10.7 Summary
In this lesson, you learnt about:
1) The different types of risk takers
.
10. Suggested reading
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11.3 Outline
This lesson is organised as follows:
11.1 introduction
11.2 lesson objectives
11.3 outline
11.4 definition
11.5 types of competition
11.6 strengths and weaknesses
11.7 reaction patterns
11.8 customer value analysis
11.9 Classes of competitors
11.10 revision questions
11.11 summary
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11.4 Definition
Competition is where a group of firms offer a product or class of products that are close
substitutes of each other.
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Each competitor has a certain way of doing business regarding the actions of the
competition and they fall into the following categories
The laid back competitor
It does not react quickly or strongly to the rivals move
Reasons
It may tell their customers are loyal
They may be milking the business
May be slow in noticing the move by the competitor
May lack funds to react
Rivals must access the reasons for this behaviour and exploit it.
The selective competitor
Reacts only to certain types of attacks e.g. he might respond to price reduction by the
competitor but not to increased advertising by the competitor
The tiger competitor
Reacts swiftly and strongly to any assault
The stochastic competitor
This is a competitor that doesnt exhibit a predicable reaction pattern. There is nothing in
his history or economic situation to give an indication of his reaction pattern, many SBE
fall into this categories, reacting only on miscellaneous when they can afford.
Selecting competitors to attack and avoid
With good competitive intelligence, managers will find it easier to formulate their
competitive strategies.
Step one
Identify the major attributes that customers value in a product e.g. customers are asked
what attributes and performance level they look for when choosing a product.
Step two
Assess the quantitative importance of the different attributes e.g. customer are asked to
rate the importance of the different attributes.
Step three
Assess the companys and the competitors performance on the different customer values
against their rated importance customers are asked to describe where they see the
companys and the competitors performance on each of the attributes.
Step four
Examine how customers in a specific segment rate the companys performance against a
specific major competitor on an attribute by attribute basis. If the companys attribute
exceeds the competitors on all fronts the company can charge a higher price thereby
earning higher profits or it can charge the same price and gain a large market share.
Step five
Monitor customer values over time
The company must carry out this analysis periodically as the business environment is
constantly changing.
with the best because even strong companies have their weaknesses which can be
exploited.
Close versus distant competitors
Most companies compete with firms resembling the most.
Good versus Bad competitors
Every industry contains these two. A company should support its good companies and
attack the bad ones. Good competitors play by the rules of the industry. They make
realistic assumptions about the industry growth potential. They set prices in reasonable
relationship to cost.
They limit themselves to a portion or segment of the industries.
They motivate others to lower cost or improve differentiation and they accept the general
level of their share and profit.
Bad competitors try to buy market share rather than earn it.
They take large risks.
They invest in over capacity.
They upset industrial equilibrium.
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11.11 Summary
In this chapter, you learnt:
1) The various types of competition
2) Reaction patterns of firms
3) Customer value analysis
4) Classes of competitors
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12.3 Outline
This lesson follows the following order
12.1 Introduction
12.2 lesson objectives
12.3 Outline
12.4 definition
12.5 introduction
12.6 service offered by incubation companies
12.7 factors considered by incubators
12.8 factors to consider when selecting incubators
12.9 benefits of incubation
12.10 summary
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The following are the common services offered by most incubation facilities:
Coaching and mentoring
Intellectual property
Marketing assistance
High-speed Internet access/infrastructure
Help with accounting/financial management
Access to bank loans, loan funds and guarantee programs
Help with presentation skills
. Law, regulations and policy
Provision of a business premise
Referrals/networking
Financing
Comprehensive business training programs
Advisory boards and mentors
Management team identification
Help with business etiquette
Technology commercialization assistance
Help with regulatory compliance
Intellectual property management
Entrepreneurs who wish to join a business incubation program must apply for admission.
Acceptance criteria vary from program to program, but in general only those with
feasible business ideas and a workable business plan are admitted. It is this factor that
makes it difficult to compare the success rates of incubated companies against general
business survival statistics.
Although most incubators offer their clients office space and shared administrative
services, the heart of a true business incubation program is the services it provides to
start-up companies. The amount of time a company spends in an incubation program can
vary widely depending on a number of factors, including the type of business and the
entrepreneur's level of business expertise. Life science and other firms with long research
and development cycles require more time in an incubation program than manufacturing
or service companies that can immediately produce and bring a product or service to
market.
12.7 Types of Business Incubators
Classical Incubator/Business Centers
They are more like a nursery, start-up unit or a community workshop. They provide
start-up businesses with premises and a variety of services that are necessary at
the early stage of development.
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Industrial Estates
These offer a more dynamic approach to regional economic development agencies.
EPZ (Export Processing Zones)
They help to develop exports and foreign trade potential given that they have linkages to
foreign economies. The aim of EPZs is to attract foreign direct investments,
provide access to infrastructure and tax incentives.
Science and Technology Incubators
They provide a creative environment for attracting and promoting research
commercialization and technology based enterprises.
Virtual/Internet Business Incubators
They provide/make services available through a virtual media. They help to provide
networks by allowing enterprises to interact with partners, suppliers, customers,
etc. This is done through the internet or electronic data interchange.
Public Incubators/Publicly Sponsored Incubators (Non-profit)
They are mostly sponsored by government and other economic departments. Their main
objective is job creation and economic development rather than profit.
Non-governmental Incubators
These are sponsored by NGOs and other charitable organizations simply to provide
development in a given area.
Privately Sponsored Incubators
These are mostly owned by organized groups of private investors who put them up as an
Investment with a hope of getting a return on the investment. They charge a higher for
their services compared to those which are government sponsored.
Public/Private Incubators
These are owned by joint efforts of the government and other private organizations. Here
the government provides the funding while the private bodies provide the
expertise.
Academic related/research or scientific incubators
They are established as academic research projects with the objective of translating their
research findings into practice.
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12. 12 Summary
In this chapter, you learned about:
1) The different types of incubators
2) Factors considered by incubation companies in selecting businesses to incubate
3) Factors considered by potential entrepreneurs looking for incubators
4) Benefits of incubation
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Outline
This lesson is structured as follows:
13.1 introduction
13.2 lesson objectives
13.5 outline
13.4 The psychological approach
13.5 Joseph Schumpeters theory of entrepreneurship
13.6 revision questions
13.7 summary
13.8 Suggested reading
The following are some entrepreneurship theories
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Entrepreneurs are usually clear regarding what they want to gain from a situation and are
not shy to express their wishes. This does not mean being aggressive, nor does it mean
adopting a situation and refusing to budge. It means being committed to outcomes, not
means. True assertiveness relies on mutual understanding and is founded on good
communication skills.
Information seeking
Entrepreneurs are not, on the average, more intelligent than other people. They are,
however, characterised by inquisitiveness. They are never satisfied by the information at
any one time and constantly seek more. Good entrepreneurs tend to ask more questions
than making statements during communication.
Seeking feedback
Effective entrepreneurs are often described as quick learners. Unlike many people,
however, they also have a strong desire to know how well they are doing and how they
might improve their performance. Hence, they actively seek out and use feedback.
Feedback is also central to their learning from their mistakes and setbacks.
Attuned to opportunity
Successful entrepreneurs are constantly scanning the environment to identify gaps left
there by various players, including themselves. They are never really satisfied with the
way things are at any moment in time.
Good at networking
It has been established that businesses need to establish networks if they are to become
more competitive. Networking is the process of creating alliances with people and
alliances beyond the immediate boundaries of the venture. It is the process of linking up
with the right people to get things done and the success of a business depends, to a certain
extent, in knowing the right people in the right places.
Integrity and reliability
These two are a key factor to successful entrepreneurship. It is what makes successful
personal and business relationships to endure. Investors, partners, and creditors and
customers value them highly. They help build and sustain trust and confidence in the
enterprise.
Commitment, determination and perseverance
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More than any other, total dedication to success as an entrepreneur can overcome
obstacles and setbacks. Sheer determination and an unwavering commitment to succeed
often win out against odds that many people would consider insurmountable. They can
also compensate for personal shortcomings.
Persistent problem solving
Entrepreneurs are not intimidated by difficult situations. Yet they are neither relentless
nor foolhardy in their relentless attack on a business problem or an obstacle that is
impeding business operations. Simple problems bore them; unsolvable ones do not
warrant their time. However, they are realistic in recognising what they can or cannot do
and where they can get help in difficult but unavoidable problems.
13.5 Joseph Schumpeters Theory of Economic Development
According to Schumpeter, economic development consists of coming up with
innovation. He argues that entrepreneurship is the process of creating innovative and
evolutionary processes to create successful business undertakings. The essence of
entrepreneurship, therefore, lies not simply in putting together business activities in their
original formations but in establishing new innovative business combinations in terms of
supplies, products, markets processes or organization. This, according to Schumpeter, is
important because it brings forth a force that disrupts market equilibrium thereby creating
change, which results to new opportunities.
The theory accorded the entrepreneur the role of an innovator. The entrepreneur is not
merely a manager, but comes with something new. Schumpeter identified five types of
innovation. These include:
i) The introduction of a new product;
ii) The introduction of a new method of production;
iii) The opening up of new markets;
iv) The conquest of a source of raw materials or semi manufactured goods and
v) The creation of a new type of industrial organization such as the creation of a
monopoly.
However it is the introduction of a new product and its continued improvement that leads
to economic development. The entrepreneur is motivated by the following factors: i) the
desire to build his own business empire; ii) the desire to conquer and prove his
superiority, and iii) the joy of creating something entirely new and proving his ingenuity.
The nature and activities of the entrepreneur depend on his socio-cultural activities. In
order to perform his economic function, the entrepreneur requires two things: i) technical
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knowledge to make new products; ii) finance from banking institutions. Once the new
innovation becomes successful and profitable, other entrepreneurs want to copy it and
benefit from it. The theory continues by stating that innovation in one field may result in
a wave of innovations in other related fields; for example, the emergence of a motor
vehicle industry may stimulate a wave of new investments in the construction of
highways, tyres petroleum products and more.
Thus, Schumpeter, saw entrepreneurs not so much as the lubricant that oiled the wheels
of an economy, but as self-interested individuals who sought short term monopolies
based on some innovation. Once an entrepreneurial monopoly was established, as earlier
mentioned, a new generation of entrepreneurs came along with more innovations that
aimed to supersede that monopoly in a process Schumpeter called creative destruction.
Where the ordinary person (static man) sees nothing but routine, the entrepreneur (action
man), knows that there exists a nearly endless number of new relationships to move the
business forward. Schumpeter argues that an entrepreneurial economy is an
amalgamation of innovative combinations that defy the centrality of economic
equilibrium.
13.7 Summary
In this lesson, you learnt about theories of entrepreneurship
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14.3 Outline
The lesson is structured as follows:
14.1 introduction
14.2 Lesson objectives
14.3 The business plan
To obtain financing.
Each prospective business owner/manager writes a business plan for the business
he/she wants to open.
A support agency may assist in writing certain areas of the business plan.
Cover page
Table of contents
Executive summary
Business description
Marketing Plan
Organizational Plan
Operational/production Plan
Financial Plan
Appendices
TOP PAGE
Student details
COVER PAGE
Name of business:
Logo
Mission
Vision
Prepared by:
Signature of owner
Name of owner:
Date
Contact details
TABLE OF CONTENTS
CHAPTER ONE
EXECUTIVE SUMMARY
Summarized statement on:
Business description
Target market
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Competitive advantage
Management team
Financial plan
CHAPTER TWO
BUSINESS DESCRIPTION
(a) Owner Details
Name:
Age:
Address:
Occupation:
Education/Professional Qualifications:
Business Experience:
NB: In a partnership, this information should be provided for all the partners
(b) The Business Venture
Name of business:
Location of business:
Principal customers:
Location of customers:
Amount to be borrowed:
Name of product/service:
Features of product/service:
Weakness of competition:
Pricing plan:
f) The industry
Describe the industry under which your proposed business will fall
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What is the basic capital requirement for entry into the industry?
Are there any seasonal factors that are experienced in the industry?
CHAPTER THREE
THE MARKETING PLAN
(a) Potential Customers
(b) Competition
(c) Pricing
Factors which will influence your price setting, e.g. competitors prices:
Discounts to be allowed:
Media to be used:
Frequency of advertisements:
(f) Distribution
Channels to be utilized:
CHAPTER FOUR
ORGANIZATION PLAN
(a) Organizational Structure
Draw the organizational chart of the business
(b) Key Personnel
Number of positions:
Title of positions:
Duties of positions:
Remuneration level:
Incentive package:
Numbers required:
Remuneration:
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Incentive package:
Banking:
Bookkeeping:
Legal:
Postal:
Management advice:
Other:
CHAPTER FIVE
OPERATIONAL PLAN
(a) Draw the ground plan of the proposed workshop/ business premises
(b) Production facilities
Their cost
The source
Give a detailed description of how the goods will be produced/ how the
service(s) will be provided.
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TYPE OF COST
Source of materials
Materials required
Transportation
Workers/labour
Overhead expenses
MONTHLY COST
TOTAL COST
Licences
Taxes
Other approvals
COST
TOTAL COST
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CHAPTER SIX
FINANCIAL PLAN
(a) Pre-operational Costs
ITEM
COST
Transport
Market research
Plan properties
Meeting people
Photocopying
Installations
TOTAL COST
b) Working Capital
ITEM
AMOUNT
Work in progress
Debtors
Cash
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AMOUNT
Sales:
Gross profit
Wages
Rent
Water
Telephone
Electricity
Advertising
Stationery
Postage
Transport
Expenses:
Repairs
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AMOUNT
Current Assets:
Cash
Debtors
Stock of finished goods
Stock of raw materials
LIABILITIES
Current Liabilities:
Creditors
Other (specify) liabilities
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Long-term Liabilities
Bank loan
Other (specify)
Owners Equity
TOTAL LIABILITIES AND EQUITY
Beginning
balance
Add cash
sales
Accounts
receivable
Others
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CASH
RECEIPTS
TOTAL CASH
AVAILABLE
TOTAL CASH
PAYMENT
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ENDING CASH
BALANCE
Fixed costs
=Sh.
Contribution margin %
(v) Break-even revenue:
Total sales
Less cost of sales
Contribution
Contribution Ratio (%) = Contribution x 100 = Sh.
Total sales
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Fixed cost
= Sh.
Contribution margin %
Fixed costs
g) Desired Financing
ITEM
AMOUNT
Pre-operational costs
Working capital
Fixed assets
h) Capitalization
ITEM
AMOUNT
Total investment
Owners contribution
Borrowed funds
i) Profitability
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Return on equity
x 100 = Sh.
x 100 = Sh.
Total investment (
x 100 = Sh.
CHAPTER SEVEN
Potential risks
Problem
Solutions
14.5
1) Write a business plan
14.6 Summary
In these lessons, you learned how to write a business plan
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IMPORTANT
TYPING INSTRUCTIONS
THE BUSINESS PLAN WILL NOT BE ACCEPTED IF IT DOES NOT ADHERE
TO THE FOLLOWING INSTRUCTIONS:
Font size 12
Margins: standard
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