Lecture 1: Challenges of Entrepreneurship

Different types of risk

o Financial risk
o Psychic risk
o Family & social risk
o Career risk
Definitions arent important
Stress and the Entrepreneur
o Entrepreneurial stress
Discrepancies between a persons expectations and ability to
meet demands
Discrepancies between the individuals expectations and
personality
o Engage in constant communication activities interacting with
customers, suppliers, regulators, lawyers and accountants
o Entrepreneurs must bear the cost of their mistakes while playing a
multitude of roles Salesperson, recruiter, spokesperson and
negotiator
o Lack support from colleagues that may be available to managers in
a large corporation
o Require a large commitment of time and energy, often at the
expense of family and social activities
o Sources of stress:
Loneliness isolated from persons whom they can confide in
Immersion in Business most entrepreneurs are married to
the business
People problems successful entrepreneurs are to some
extent perfectionists and know or insist how they want things
done
Need to achieve Achievement brings satisfaction
o What kind of behaviour does an entrepreneur exhibit when
stressed?
o Stress can result from personality
Type A behaviour
Impatient, demanding and overstrung
Chronic and severe sense of urgency
Constant involvement in multiple projects to subject to
deadlines
Neglect all aspects of life except work
Tendency to take on excess responsibility
Tendency to speak faster than most people
o Dealing with stress
Networking, getting away from it all, communicating with
employees, finding satisfaction outside the company,
delegating, mental health check-up (or counselling), knowing
self and business/life partners

Lecture 2: Generation of Business Opportunities

Creativity and innovation

4 Steps of Creative Process
o Knowledge accumulation Mind incubation Idea
experience Evaluation and implementation
The Innovation process
Ideas, Innovation and Opportunities
Protecting business ideas
o Patents
Intellectual property granted to an inventor giving him/her
the exclusive rights to hold, transfer and license the
production and sale of the invention for a limited time period
(usually 20 years)
Process, machines, products, plants, composition of elements
(chemical compounds), and improvements on already
existing things can be patented
Often a waste of money
Only a small % of issued patents are commercially
valuable
Entrepreneurs waste money on protecting IP
Suits are very expensive
Better to use money for marketing and product
development
Better to roll out new products faster than people can
copy them
o Trademarks
Distinctive name, mark, symbol, or motto identified with a
companys product(s) or service(s)
Registered at the National Trademark Office of one residents
company
Lasts for 10 years. Renewable for further 10 years, for an
indefinite period.
o Copyrights
Right of a person to hold exclusive rights to protect his or her
work
Protection of literary or artistic work (including software)
Not possible to copyright an idea we copyright the way an
idea is expressed
Granted automatically
Owner of copyright may:
Reproduce the work
Prepare derivative works based on it
Distribute copies of the work by sale or otherwise
Perform the work publicly
Display the work publicly
Each of these rights, or a portion of each, also may be
transferred
Understanding copyright protection
Must be in a tangible form written or recorded
Must be authors own work

Formal registration is a requirement

Violators are liable for infringement
Normal remedy is recovery of actual damages plus any
profits the violator receives
Always use the copyright notice () although you are
automatically protected
Not necessary to register copyrights with Copyright
Office unless and until you want to sue somebody for
infringement

Lecture 3: Scanning the Business Environment

Testing the ideas

Understanding industry trends
Competitive advantage
o Exists when a firm offers a product or service that customers
perceive to be superior to those of its competitors
o Start-ups must have its own competitive advantage that
differentiate it from others in order to survive in the already
established market
o Areas where you could have a competitive advantage:
Strong research and development capabilities
Access to intellectual property trade names, trade secrets,
patents, copyrights, etc.
Excusive re-selling or distribution rights
Ownership of capital equipment (specialist machinery,
exploration equipment, delivery fleets, surplus capacity)
Superior product and/or customer support
Low cost (and perhaps high volume) production
Other economies of scale
Superior databases, management information and data
processing ability
Marketing skills related to specific customer types (e.g.
defense), market segments (teenagers), channels (retail,
telesales), etc.
Access to working capital
Other excellence in management, operations, administration,
etc.
Related concept of Barriers to Entry
Elements restricting entry of new entrants into an
industry
o Proprietary technology expensive to access
o Access to distribution channels limited or
closed to newcomers
o Access to raw materials and other inputs e.g.
skilled labour
o Cost advantages through experience
o Ability to better manage risk
Financial feasibility studies
Market research
Common characteristic of new & emerging industries?

Lecture 4: Importance of the Business Plan*

Markets and Competitive Analysis Customers, Competitors, Target

Customer Profile
Benefits of a Business Plan For investors
o Illustrates the ventures ability to service debt or provide an
adequate return on equity
o Provides details of the market potential and plans for securing a
share of that market
o Identifies critical risks and crucial events
Benefits and Purpose of Business Plan?
Elements of a Business Plan
1. Executive Summary
Overview of the complete business plan
2. Business Description
Name of idea and industry background in terms of current
status and future trends
Describes venture thoroughly and states competitive
advantages
3. Marketing
4 Ps: Product, Promotion, Place, Price
Research, design and development
Market niche, market share and market size
Carry out competitive analysis and determine marketing
strategy, pricing policy and advertising plan
4. Manufacturing & Operations
Find out about location, labour availability, wage rate,
proximity to suppliers, customers and community support,
local taxes, facilities (plant, warehouse, offices) and
equipment (machinery, computers and vehicles)
5. Management
Organizational structure
Management team and critical personnel
Experience and technical capabilities of personnel
Ownership structure and compensation agreements
Board of directors and external consultants and advisors
6. Financial
Potential viability of the venture
Pro forma balance sheet
Income statement
Cash-flow statement
7. Critical Risks*
Potential risks that could cripple the business
Potential risks that should be identified:
i. Effect of unfavourable trends in the industry
ii. Design or manufacturing costs that have gone over
estimates
iii. Difficulties of long lead times encountered when
purchasing parts or materials
iv. Unplanned New competition
v. Regulatory risks

vi. Weather-related physical risks

vii. Reputational risks
viii. What-ifs
1. What if the competition cuts prices?
2. What if the industry slumps?
3. What if the market projections are wrong?
4. What if the patents do not come through?
5. What if the management team breaks up?
Suggest alternative courses of actions
8. Harvest Strategy
Management succession and investor exit strategies
Capital cow, employee stock ownership plan, merger,
outright sale, public offerings
Think of harvesting as a vehicle to reduce risk and create
future entrepreneurial choices and options
9. Milestone Schedule
Provides investors with a timetable for the various activities
to be accomplished
10.
Appendix and/or Bibliography
Additional information not appropriate in the main parts of
the plan, i.e.
i. Diagrams, blueprints
ii. Operation manuals
iii. Resumes of management team
iv. Financial data
v. Evidence of market research activity* - Competitors
analysis, questionnaires and responses
vi. Marketing brochures

Lecture 5: Starting the Business

Entry strategies
Legal forms of business
Stages of business growth
Entrepreneurial management exit strategy
Business Structures
o Sole-proprietorship
Definition and ownership, legal status and liability, taxes
o Partnership
o Limited Liability Partnership (LLP)
o Company
Harvest Strategies
o Component of the business plan where an entrepreneur describes a
method by which investors can realise a tangible return on their
investment
o Keep harvest options open and think of harvesting as a vehicle for
reducing risk and creating future entrepreneurial choices and
options
o Ways to harvest a business
Capital Cow remove investment in the form of cash
Employee Stock Ownership Plan
Outright Sale
Public Offering
Withdrawal of owners investment in the form of cash,
instead of reinvesting the firms cash to grow the business
Employees own a share of the company they work for
Sell the business to another investor
Shares of the company are offered for sale in a public stock
exchange

Lecture 6: Developing the Business

Marketing mix
Entrepreneurial Marketing plans
Globalization
Electronic commerce and operations
Strategic Alliance
o Collaboration leveraging the strengths of two or more organizations
to achieve strategic goals
o Involves long-term commitment
o Formal relationship, short of a merger or acquisition, between two
companies, formed for the purpose of gaining synergies
o Advantages:
Respond quickly to new challenges and opportunities
Combine core competencies
Gain financial leverage
Access new technologies combined effort in terms of R&D
Improve research and product development
Decrease time to market increased speed and efficiency
Enhance marketing and sales distribution wider sales
distribution channels
Reach new markets
o Disadvantages:
Lack of control
Managed through coordination and persuasion
A greater potential for risk and uncertainty
o Life cycle
1. Assess your needs gap analysis, corporate culture,
management support
2. Identify potential partners
3. Evaluate strategic fit core capabilities, alliance experience,
compatibility of corporate culture
4. Develop operational plan financial and staff resources
5. Negotiate contract be as specific as possible
6. Ensure operational integration teething problems,
communication, inputs and outputs
7. Measure results against set short-term and long-term goals
based on multiple criteria
8. Deliver value
9. Adapt relationship adapt to changes; consider
improvements or set new goals if alliance delivers value,
otherwise, consider exit strategies

Lecture 7: Financing the Business I (Types of Financing)

o

Equity Financing
Money invested in the venture with no legal obligation for
entrepreneurs to repay the principal amount of pay interest on it
But entrepreneurs will need to share ownership and profits with the
funding source
Sources of Equity Financing:
Personal savings
Informal investors
o Usually friends, families, colleagues or strangers
Public offerings
o Initial public offering (IPO) refers to a corporation rising
capital through the sale of securities on public markets
o Advantages:
Able to raise huge sums of capital in a short period
Public market provides liquidity for owners since
they can readily sell their shares
The marketplace puts a value on the companys
shares which in turn allows value to be placed on
the corporation.
The image of a publicly traded corporation is
stronger in the eyes of suppliers, financiers and
customers.
o Disadvantages:
Costs involved with a public offering are much
higher e.g. accounting fees, legal fees, prospectus
printing, costs of underwriting shares
Detailed disclosures of the companys affairs must
be made public
Paperwork involved with government regulations
drains a lot of time, energy and money
Pressure from shareholders could lead to short term
views of the company
Private placements
o Money invested by private investors
o May be possible to avoid issuing a prospectus (rules differ
from country to country)
o Suitable for an injection of capital to jump; to the next
level of growth
o Proven track record of profitability
Venture capitalists
o Professionals that provide a full range of financial services
for new or growing ventures, including:
Capital for start-ups and expansion
Market research and strategy
Management consulting functions
Contacts with prospective customers and suppliers
Assistance in negotiating technical agreements
Help in management and accounting controls
Help in employee recruitment
Help in risk management

Angel
o
o
o

Guidance with government regulation

Objectives:
Different from other investors
Venture capitalists will carefully measure both
product/service and management
Concerned with return on investment (ROI)
Returns are expected to be consistently high
Evaluate the venture capitalist
Does the venture capitalist understand the
proposal?
Is the individual familiar with the business?
Is this someone I can work with?
investors
An angel investor has already made their money and now
seeks out promising young ventures
Currently expecting lower valuations and more control
Types of angel investors:
Corporate angels
Senior managers laid off or retired with
generous pay-outs
Entrepreneurial angels
Own and operate successful businesses
Enthusiast angels
Independently wealthy from success in a
business they started
Micro-management angels
Attempt to impose their management style
Professional angels
Invest in companies with products or services
they know

Debt Financing
Involves borrowing money with an obligation to pay it back with
interest and usually to a deadline or timeline
Sources?
Commercial banks
o Major source of small business debt financing
o Loans are secured by fixed assets, receivables, inventories
or other assets
o Generally, require collateral and systematic payments
o Not interested in future prospects
Trade credit
o Credit given by suppliers who sell goods on account,
usually 30 to 90 days
o Many small, new businesses obtain this credit when no
other form of financing is available
o Suppliers typically offer this credit to attract new
customers
Accounts receivable financing
o Short-term financing that involves the pledge of
receivables as a collateral for a loan

Accounts receivable bank loans are made on a discounted

value of receivables pledged
o Made by commercial banks
o Notification or non-notification plan
Factoring
o Sale of a businesss account receivables to a factoring
company
o Usually the factor will buy the clients receivables outright,
without recourse, as soon as the client creates them by
shipment of goods to customers
o Common in industries such as textiles, clothing
manufacturing, toys, shoes, furniture manufacturing and
plastics
Hire purchase
o Extended payment scheme entered into between the
entrepreneur/hirer and owner (equipment manufacturer or
financial institution)
o Hirer only needs to pay a small deposit up front and then
make regular instalment payments
o Only on final instalment does the hirer acquire ownership
Finance companies
o Asset-based lenders that lend money against assets such
as receivables, inventory and equipment
o Often make loans that banks do not
o Interest higher than banks, because they assume higher
risks
o

How will different finance options will affect profitability or cash flow?
Equity Financing
Advantages
Disadvantages
Can provide a
Capital is usually
large injection of
only available in
capital
very large
amounts
No interest
It means selling
payments
a part of your
business
No obligation to
repay capital

Venture
capitalists expect
high returns on
their investments
(at least 25% pa)
Investors may
require you to buy
them out at a
future point

Debt Financing
Advantages
Disadvantages
Amount borrowed It creates a debt
can vary
obligation
according to your
needs
As long as it is
Interest will be
repaid, it will not
charged
affect your
affecting
ownership of the
profitability
Collateral is
company
usually required
and banks will
value your assets
conservatively
If you borrow from
friends or
relatives, it can
sour relations if
the business fails

Lecture 8: Financing the Business II

Importance of cash flow

Start-up costs
Capital and operating budgeting
Basic financial ratios
Break-even Analysis
o Used to assess expected product profitability
o Helps determine the number of units that must be sold in order to
break even at a particular selling price
o Contribution Margin
Difference between the unit selling price and the variable
cost per unit
Amount per unit that is contributed to cover all other costs
o Entrepreneur will be able to decide whether to add or drop a
product line how to price a product or service, and how to structure
sales commissions or bonuses.
o Contribution Margin Approach
Since the break-even point occurs when income equals
expenses, the formula is:
0 = (Contribution Margin X Sales in units) Fixed
Costs
or Sales in units = Fixed Costs / Contribution Margin
Ratio Analysis
o Liquidity Ratios
Used to measure short-term solvency (Current Ratio, Quick
Ratio)
o Leverage Ratios
Analyse firms capital structure
Debt Ratio assesses ability to meet obligations
Debt-to-Equity Ratio assesses the firms debt load
o Profitability Ratios
Indicate firms ability to translate sales into profits (Gross
Profit Margin & Net Profit Margin)
Indicate firms ability to manage total investment in assets
(ROI)
o Activity Ratios
Measure efficiency of venture in managing and selling its
inventory (Average Collection Period, Inventory Turnover)
o Ratios for Owners
Return on Investment (ROI)
Measures return on owners capital
Tells you how well the company is doing for an
investment
Return on Assets (ROA)
Measures how well assets have been employed by
management
Tells you how well management has employed
company assets. Does it pay to borrow?
o Ratios for Managers
Net Profit Margin*

Measures operating efficiency; the ability to create

sufficient profits from operating activities
Are the profits high enough, given the level of sales?
Asset Turnover
Measures relative efficiency in using total resources to
produce output
Tells you how well assets are being used to generate
sales revenue
Return on Assets*
Measures earning power on all assets, ROA ratio
broken down into its logical parts: turnover and margin
Tells you how well management has employed
company assets
Average Collection Period
Inventory Turnover
Measures liquidity or inventory, the no. of times it turns
over per year
Tells you if there is too much cash tied up in
inventories
Average Age of Payables
Working Capital
Measures short-term debt-paying ability
Is there sufficient cash or other liquid assets to cover
its short-term obligations?
Current Ratio*
Measures short-term debt-paying ability without regard
to the liquidity of current assets
Is there sufficient cash or other liquid assets to cover
its short-term obligations?
Quick Ratio*
Measures short-term debt-paying ability without having
to reply on inventory sales
Ratios for Long-term Creditors
Debt-to-Equity Ratio*
Measures amount of assets creditors provide for each
dollar of assets the owners provide
Is the companys debt load excessive?
Times interest earned
Cash flow to liabilities