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By
BYASSOCIATE EXAMINATION
GOSPEL U OSADEBE-08032557002
The concept of Investment, Entrepreneurship, and their relationships
The purpose of this lecture is to understand what is investment and
entrepreneurship and how an entrepreneur can effectively invest and
manage investment profitably
Investment and Entrepreneurship-: Investment is the commitment of
current funds, and other scarce resources-financial, material, human,
time, knowledge, spiritual and relationship, most efficiently and
effectively in short and long-term assets (Current and Capital projects
investments) in anticipation of an expected flow of benefits over a
series of days or years. Hence, it is the commitment and utilization of
funds and other scarce resources in a project with the expectation of
returns.
It refers to economic activities designed to increase, improve
orimprove or maintain the productive quality of the existing stock
of capital. Most investments are characterized by a large up
frontupfront costs, cash flows for a specific time period and a salvage
value at the end of its useful life.
Thus, investments can be classified as follows:
New project/entrepreneurship,
Diversification
Replacement,
Modernization,
Expansion,
Research and development,
Cost reduction and
Social responsibility
Investments can be categorized on a number of different dimensions
as follows:-
Prerequisite, 2. Complementary, 3. Independent 4. Mutually exclusive
Other dimensions include the ability of the project to generate
revenues or reduce costs. The decision rules that analyze revenue
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generating projects attempt to evaluate whether the earning s or cash
flows from the projects justify the investment needed to implement
them. And when it comes to cost reduction projects, the decision rules
examines whether the reduction in costs justify the upfront investment
needed for the project.
These investments could be in financial assets such as savings deposit,
certificate of deposits, shares, treasury bills, bonds etc and in real
assets such as tangibles like building, Machinery, motor vehicle and
intangibles such as technical know howknowhow, technological
collaborations, patents and copyrights, RD etc. Investment has a
strategic dimension in organizations and individuals since it is the
bases for the survival, growth and profitability profitabilityof an
enterprise. It can take place under three conditions:-
Inception or Initiation
-Acquisition of motivations to embark on entrepreneurial
activities and skills through structured training and institutions.-
• Invention and value creation- creativity, ideation and
conceptualization, R& D
• Innovation- Need identification, opportunity analysis,
product development skills, product launching
3
• Arbitrage, see-paging-Business research, scanning,
diagnosis and analysis agency linkages
• Intra-preneneurship- creativity and innovation, internal
competition, heuristic creative destruction, internal venturing,
product championship, organic growth, blue ocean strategies,
process and technological
• Exo-preneurship, Diversification and integration- product
Development/Business Development/ Activities linkages and
fitness
• Business Cooperation- Business Negotiation and
presentation, strategic Alliance, multi-country organization and
Global competition
• Business Internationalization- Diversity Entrepreneurship,
multi-country venturing, foreign alliances, Multi-country
organization and Global competition
• Change – strategy, Repositioning, Restructuring and Re-
engineering growth, wealth creation and change
( entrepreneurship leadership skills)
Both constitute the most vibrant, most irresistible force there is in the
universe. Idea is the crystallized and directed systems of related
thoughts, notions, impressions, imagination or convictions. Ideas rule
the world. The formation of ideas, from distinct thought process is
called Ideation. A concept is an organized system of ideas on a
particular field of knowledge or object. The process of forming
concepts is called conceptualization. Every value creation is the
outcome of thought, ideas and concepts.
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(iii) Consumers and potential consumer needs comments analysis
Personal Techniques
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Checklist method (SCAMMPER)-substitute, combine, adapt, magnify
,modify, put , eliminate, rearrange, reverse
Free-word association approach
Attribute listing techniques
Scientific technique
Big dream and thinking approach
Parameter analysis techniques
Matrix charting method (W4H)
Every worthwhile idea can be transformed from its intangible state into
a tangible material value. The steps are;
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Match your idea with present or potentials needs and
opportunities.
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• Liberty analysis of opportunity
Value Opportunity
Idea Creation
Decisio
n
Needs
(i) Apply the three crown auditing: Identify the three market
leaders in the industry you desire to operate or are presently
operating and identify three most powerful attributes that
endear customers to their products or services.
(ii) Research how you can marry all the three unique attributes
into one product or service. The value added to the new
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product or service must adequately address major problems
existing in previous products or services
Start-up planning
Defining business to embark upon by marching the market
needs (generic and strategic) with the value offer to exploit the
opportunity discovered while taking with into consideration the
threats and risks involved ( Business risks and environmental
threats)
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Defining business directions and objectives: - vision, mission,
business value and philosophy, critical success factors, key success
factors
And aligning self with the chosen business field. - This involves
discovering your purpose, strategic analysis, decisions and definitions.
PURPOSE: - (purpose is the identified class of values that a thing,
person or organization is made and equipped to create and offer to
meet identified class of needs and consumers. It is your creator who
determines your purpose on earth. God determines the class of needs
you are to meet. It is your duty to discover it via 5P’s- person (self
value, self concept, self image=identity), Personality (character traits,
structure, value, orientation, role orientation= Difference), Passion
(love, joy, burden, soft pots, desire= attraction, devotion), Possession
(talents, disposition, tendencies, originality, creativity = intelligence,)
Possibilities (instincts, hunches, intuition, light signal = potentials)
. Any other pursuit outside your purpose is either a misuse or abuse of
life and you cannot excel or become a champion in another man’s
field),
SITUATION: - the strategic analysis of personal (SWOT) the external
conditions can be favorable or unfavorable. Favorable conditions are
called opportunities while the unfavorable are called threats , your
current abilities are categorized into strength and weakness to arrive
at identifying strategic priority issues such as context, competences,
character, intelligences, capacity and ksf/csf/esf,
• SIGHT- setting strategic directions (written framework of
where you going and written framework of yourself, your value,
your projects, character and progress that will deliver your
purpose
• ( vision- become, picture and perception ;
• Mission-do, actions and projects ; Value- how, photograph
and belief ; objectives-milestones and
SELECTION: decisions through purposeful priority planning and how
through strategy implantation, implementation and improvement. This
entails focusing on directions through desire, commitment and
discipline. Thus not allowing any pressure to distract him/her through
opinion and enticement, occupation of best fit that will be used as
platform for excellent value offer, crafting grand strategies and
evaluation: consolidation if O versus W= Develop strength,
Growth if O versus S = exploit opportunities,
Turnaround if T versus W=exit branch and
Stabilization if T versus S= reinforce strength and finally selecting
winning strategic options or option for implantation and
implementation plan
Business Model and Strategy: Business model describes how the
business will generate value while strategy describes how the business
will grow and continue to be a profitable venture through managing
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change situations, building competitive advantage and achieving
superior performance within the business environment.
Business Plans (project overview, corporate information,
introduction (description of industry and business), mgt team, market,
production, financial, operation, sensitivity analysis, conclusive
inference.
Strategic leadership by determining resources needed, existing
resources, identifying resources gaps and available suppliers; and
developing access to needed resources. Then, mobilizing support from
stakeholders, mobilizing support from competitor and alliances,
effective deployment of tangible resources (capacity) and processes
(capabilities), achieving organizational momentum and lead the
organization using inspirational leadership posture.
-Business planning
-Access to resources
-Final decisions
Early years/
-Market entry
In the commercialization phase, major investments are made to
achieve efficient, low-cost, full-scale production and for full-scale
market development. For some firms, the investment in manufacturing
plant and equipment can be many millions of Naira. The investment to
introduce the product or service to a wide set of potential customers,
such as spending for advertising or to build a national sales force, can
often be more than spending needed for manufacturing facilities. This
is especially true for service businesses or for computer software firms.
Hence, it is important to:-
Develop appropriate management style
Understand key variables for success-Superior and most attractive
value proposition and delivery in five areas (needs, opportunity,
change, advantage and sustainability)
Identify problems and potential problems – through synergy of co-
operation and co-option
Develop important control systems for resources deployed
Growth stage
Develop strategic orientations-six –eyed strategist using CARDSS
model (conditions, ability, result, destination, situation and strategy
Emphasis commitment to opportunity-DECOD
Commitment of resources-strategic entrepreneurship (innovation, intra
preneurship and strategy
Ways of controlling resources- via corporate integrity and social
responsibility
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Develop proper management structure-achieving distinctive and
monopolistic space advantage
-Firm management
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• Operating environment
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On the hand, investment involves the use of some part or whole saving
by entrepreneur (individual, corporate and Government) in exchange
for future benefits on real and financial assets that will increase wealth.
Real assets are required for productive purposes. They are in form of:-
- Tangible real assets- plant, machinery, office etc.
- Intangible real assets – Technical know, patents and copyright,
technological collaborations.
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by various businesses. The returns on these securities depend on
the profit performances of the issuer/firm. Investment in shares
is essentially a process of acquiring ownership interest in a
company. Shares are bought and sold on the floor of the Nigeria
n stock Exchange on a daily basis. This form of investment is
referred to as long term investment.
a. At period s of economic boom and rising profit performance,
common stocks attract windfall vice versa.
b. Shareholders have the right to share income on liquidation of the
company,
c. shareShare in the profits and control over the company through
their the voting rights.
d. Others are right to be consulted before dilution of ownership
interests,
e. right to transfer interests in the firm and;
f. theThe right to inspect the firm’s books.
• Hybrid securities – preference shares (participating) and
convertible debentures
These are securities that have features of fixed income and variable
income securities. It is fixed to the extent that holders received a
fixed amount of income based on the face value of the issue.
• In addition, derivatives, commonly called contingent claims such
as options forward and futures. They are tied to the performance
of its underlying asset. The value of a derivative security depend
directly on the value of the underlying assets-call and put
derived from common stock
Types of offers
Bond: is an instrument offered to the public with a specified interest
rate that is payable over a long period of time
Right Issue: when a company wants to raise more funds, it gives the
shareholder the opportunity to acquire more shares in proportion in the
number to the number of shares they own.
Bonus Issues: is an issue of shares by a company to his shareholders in
proportion to their holdings. It is made by capitalizing existing
reserves.
New issue: is a stock or bond sold by a corporation for the first time
Shares; is a unit of equity ownership in a corporation
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existing shares are exchange by both the buyer and the seller. A
stockbroker buys on behalf of a client or sells on behalf of a client on
the floor.
Public offer:
Is an invitation to the members of the public to subscribe to the shares
of a company. It is designed essentially to enlarge the share capital of
a company. It also gives the opportunity to the company to raise
additional capital or funds. If a company intends to engage in
expansion, such company can approach fund. Once allocation is made
the investor so allotted becomes a part owner of a company and poses
the rights enumerated earlier
Right Issue
Right issue on the other hand is an invitation to a shareholder to take a
proportion of its present holding right. Thus a shareholder will be
required to p-ay for the shares due to them. Right issue is also
designed to raise additional funds for the company to finance its
operation or expansion. Usually right is sold at a lower price in relation
in relation to the market price.
Bonus Issue
Another way an individual can acquire more shares in a company is
through is through bonus shares. It is designed for the existing
shareholder. However, bonus issue differs from the right issue in that
payment is not required for acquiring it. Bonus shares are issues free
to existing shareholder in relation to their holding. It falls into the
category of returns to investor. Companies oftentimes issue bonus to
their shareholder at the financial year. Bonuses are paid out of the
retained earnings for that year or the existing reserve of the company.
Types of returns to an investor
Returns to shareholders are basically threefold:
Dividend
Bonus and
Price Appreciation
Dividend
This is the cash payment to the shareholder by the way of returns on a
yearly basis. Dividend payment is made out of the profit of the
company for the year. Once a company declared profit, it may decide
to declare a dividend for the year, in proportion to an investor’s
holding. Dividend payment has been on the increase for good
companies over time
Bonus
Bonus constitutes a return to a shareholder. It is that proportion of
shares allocated to an investor free of any payment. The bonus history
of some of the companies revealed the return profile of share
investment over time. E.g. an investment of N500 into Unilever 25
years ago will give about N3million now by way of bonus alone
Price Appreciation
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The forces of demand and supply drives, the prices of an equity either
by drop in price or gain in price. Although at either case, the maximum
movement does not exceed 5% in a given daily transaction. However,
investors are bound to be at advantage over a long period of time as
the case has been. E.g. an investor who bought Mobil shares at N3 in
1991 with a selling price of N184.00 at the prevailing price. So is
applicable with other viable shares
Determinants of viable shares
The following are to be under studied, before one can conveniently
identified a viable stock:
Companies Director’s structure,
Management structure,
Companies Liquidity,
Asset Base,
Profit History,
Dividend/ bonus history
Some viable recommended shares;
Banking sector
Oil and Gas
Health sector
Insurance
and Other growth stocks
How to overcome hindrances in investment plans and goals
It has been generally observed that people are good in excuses which
are linked to the following: education, background, environment,
talent, location and economy.
However, whether you succeed or fail, it is no one’s doing because the
main force is you as a person. A wealthy person works very hard once
and continually receives income even beyond his life existence. The
following are the recommended strategies of making money and
creating fortunes;
i. Trading in your time for money
ii. Leveraging yourselves to earn income
iii. Investing to earn income
iv. Developing the right attitude towards risk
v. Expanding your earning capacity
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improving corporate governance and incentives to seek information
about companies.
Capital market facilitates the transmission and implementation of
macroeconomic policies. It facilitates also the dispersion of business
ownership thus contributing to assets formation to the house hold
level.
Nigeria stock exchange
NSE was established in 1960 as the Lagos stock Exchange. In
December 1977, it became the Nigerian Stock Exchange with branches
in some major capital cities of the country. The head office was opened
in 1961 at Lagos. The branches of NSE have a trading floor and
transactions are done electronically.
The stock exchange is a place where listed securities such as Bond,
debenture, stock and shares are being bought and sold through the
dealing members (those that are licensed to operate in the floor of the
stock exchange)
The exchange started operation with 19 securities listed for trading.
Today we have well over 271 securities listed on the exchange, made
up of 17 government stock , 52 industrial loans stocks and 202 equity
ordinary shares with a total market capitalization of over N2.1 million
The operators of the NSE are stock brokerage firms issuing houses,
practicing corporate law firms, auditors and reporting accountants.
Trading system: The exchange has been operating an automated
trading system (ATS) since April27, 1999 with dealers trading through
a network of computers connected to a server. The ATS has facility for
remote trading and surveillance, many dealing member trade online
from their offices in Lagos, Abuja, Port Harcourt etc trading starts
10am and closes 12 noon
Pricing: prices of new issues are determined by issuing house/ stock
brokers while secondary market prices are made by stockbrokers only.
The market / quote process are published daily in the NSE daily official
list and newspapers.
Pricing and other direct control are determined by the regulatory
bodies, the security and exchange commission and the stock exchange
following the deregulation of the market in 1993.
CLEARING, DELIVERY AND SETTLEMENT
Clearing, settlement and deliver of transaction on the exchange are
done electronically by the central securities clearing system ltd. CSCS
is a subsidiary of the stock exchange. The CSCS ltd which is the
clearing house for all transaction was incorporated in 1992 as part of
the effort to make the Nigerian stock market more efficient and
investor friendly. The CSCS also offers custodian services. Transaction
cycle is T+3 (i.e., trading day+3 days for settlement)
REGULATION
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Transaction on the exchange is regulated by the NSE as a self
regulatory organization and the SEC administers the investment and
securities Act.
FOREIGN INVESTMENT
The federal government in 1995 internationalized the capital market
with the abrogation of laws that constrained foreign participation in the
Nigerian capital market
ROLES OF THE PARTICIPATING BODIES ON THE NIGERIAN STOCK
EXCHANGE:
STOCK BROKERS: they are firms or authorized dealing persons who
buys and sells securities on behalf of investors for a commission called
brokerage fee.
ISSUING HOUSE: it is a dealing member that helps to prepare
prospectus, to sell new securities offered to the public by companies
and government
SEC: security and Exchange commission administers the investment
and securities act on the floor of Nigerian Stock Exchange. They act as
a regulatory institution of capital market.
• They determined the amount and time at which securities of a
company are to be sold to the public through public offer etc
• They supervise the stock market to ensure orderly fair and
equitable dealing in the stock exchange
• Auditing the account of companies and institutions that are
involved in the stock business
NSE:
• It is a central meeting place for members to buy and sell stock
and shares
• They place offer for subscriptions for dealing members
• They protect the interest of the investing public
INVESTORS; an investors is somebody that buys or sells stock. It is
equally a person or an institution that uses his savings to buy
securities
REGISTRAR: Is a keeper of records in respect of quoted stock
Conclusion
The returns on investment in shares are considerable higher than the
money market investment. To be able to invest in shares, a high
degree of discipline is required. It is a careful way of making money
work for you. Therefore, creating wealth is a deliberate act of any
individual to actualize certain level of wealth during his and her active
years.
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b. Real investments: investments on short and fixed assets that
produce goods or services which when exchanged for value help in the
attainment of the business objectives. These include inventory,
machinery, building, patent etc. The common features include-:
Large initial outlay
Long term benefits and uncertainty about the benefits
f. Entrepreneurship; investment in this area of investment makes
the investor business .it may in form of : Micro-scale, medium,
and large –scale
It must be noted that all business is conceived in the mind of a person
along with a business plan ,while working towards retirement are
designed to enable one engage in business. The usual drawback and
complaints is capital
The following sources of capital are as follows; personal savings, love
money (relations and friends), soft loans (business angels and venture
capitalist), partnerships equity and banks
Investment process:
Due to the increasing complexities and changing environmental factors
facing individuals and business organizations, all investment decisions
processes are normally taken in the context of individual goals and
organization’s corporate strategy. This approach provides the
entrepreneur or organizations with a big picture to keep in mind at all
times as a guideline for effectively allocating corporate financial
resources. It will also sharpen the focus of the entrepreneur in terms of
improved quality of decision making.
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• Projects critical utility in the production of main products,
strategic importance of capturing the new products first and
adapting to the changing market environments.
• Technological developments, government’s policies, concessions
and organization’s internal environment affect investment
decisions.
• The strategic investment priorities of a firm such as production
equipments, expansion in existing lines where market potentials
are proven., investment in new projects while investment on the
other issues such as buildings, furniture, cars ,office etc are done
on the basis of availability of funds and immediate needs.
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preferences, etc. Hence opportunities emerge independent of
entrepreneurial actions. It usually consists of the following:-
1. New idea or invention that may or may not lead to the
achievement of one or more economic ends that becomes
possible through ideas or inventions.
2. Beliefs about things favourable to the achievement of those ends
; and
3. Actions that implement those ends through specific or imagined
economic artifacts; e.g. goods and services, entities such as
firms, markets or institutions.
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However, care should be taken to account only the relevant costs
and avoid irrelevant costs, which do not effect the decision to
accept or reject a project e.g. sunk costs.
Decision Criteria
A. Payback Period
The payback period is defined as the number of years required to
recover a project's cost. The payback period provides an indication of a
project's risk and liquidity, because it shows how long the invested
capital will be "at risk." Payback period is more of a technique than a
specific formula. The payback period is the calculated as the number
of years required to "payback" the cost of the project.
Cash Flows
0 1 2 3
Conventional - + + +
invest.
Loan type of + - - -
flows
Non - + + -
conventional
invest
“ + - - +
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the total is equal to the original outlay. However the decision must set
maximum payback period and reject all investment prospects for
which the payback period is greater than this maximum.
Decision Rule:
• Accept project if payback period < maximum acceptable
payback period.
• Reject project if payback period > maximum acceptable payback
period.
The cost of the project is N10, 000. The payback period is the number
of years it takes for the project's cash flows (positive) to payback the
cost of the project. After year one, the project has paid back N5000 of
the N10000 cost. After year two, the project has paid back N7000 of
the N10000 cost. After year three, the project has paid a total of
N11000. The project's payback period lies between 2 to 3 years. To
payback the N10000 we only need N3000 of the N4000 that the
project is expected to generate in year three. If we assume that the
cash flows are paid evenly over the period, the payback period is 2.75
years (payback = year before full recovery + unrecovered cost at start
of year/cash flow for year = 2 + 3000/4000). The project should be
accepted since its payback period is less than the maximum
acceptable payback period.
Calculating the payback period is easy if the positive cash flows are
annuities. The payback period in this case is simply the cost divided
by the annual cash flow. For example , if the cost of a project is
N52,125 and the project is expected to generate annual cash flows of
N12,000 per year for eight years, the payback period is 4.34 years
(Payback period = 52125/12000).
Advantages:
• Easy to calculate and understand
• Provides andan indication of a project's risk and liquidity
Disadvantages:
• Ignores time value of money - to correct for this disadvantage
the discounted payback period can be used. The discounted
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payback period is an improvement over the regular payback
method because the present value (discounted) of the project's
cash flows is used to calculate the payback period. The
discounted payback method considers the time value of money.
• Does not consider cash flows occurring after the payback period
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The first is that there can be no default risk. Essentially, this rules out
any security issued by a private firm, since even the largest and safest
firms have some measure of default risk. The only securities that have
a chance of being risk free are government securities, not because
governments are better run than corporations, but because they
control the printing of currency. At least in nominal terms, they should
be able to fulfill their promises. Even this assumption, does not always
hold up, especially when governments refuse to honor claims made by
previous regimes and when they borrow in currencies other than their
own.
There is a second condition is that for an investment to have an actual
return equal to its expected return, there can be no reinvestment risk.
A six-month Treasury bill rate, while default free, will not be risk free:
there is the reinvestment risk of not knowing what the Treasury bill
rate will be in six months. Even a 5-year treasury bond is not risk free,
since the coupons on the bond will be reinvested at rates that cannot
be predicted today. The risk free rate for a five-year time horizon has
to be the expected return on a default-free (government) five-year
zero coupon bond. In summary, an investment can be risk free only if it
is issued by an entity with no default risk, and the specific instrument
used to derive the risk free rate will vary depending upon the period
over which you want the return to be guaranteed.
B is the measure of systematic risk (the ratio of covariance between
market return and the project‘s return to the market return variance,
given as:
Bj = Covarj, m/α²m
The assessment of risk is an important aspect of investment
evaluation. Four most important contributors of investment risk are
selling price, product demand, technological changes and government
policies. Other techniques used in the risk assessment include
sensitivity analysis, .risk adjusted rate, certainty equivalent Etc.
Again all projects evaluated based on the strategic need and
profitability should be ranked and subjected to organization’s priorities
for allocating resources since resources are not unlimited. Hence
appropriation of funds should be based on capital budget which has lay
down rules of authorization.
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24. Entrepreneurship – Meaning and scope
Entrepreneurship refers to the ability of a person to identify an
investment opportunity (tangible or intangible) that satisfied or fulfilled
an identified need in the market and risk resources (time, money,
intellect etc) to establish and operate the enterprise profitably. It
involves the process of using private initiative to transform a business
concept into a venture or to grow and diversify an existing venture or
enterprise with high growth potential.
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Inception or Initiation
-Acquisition of motivations to embark on entrepreneurial activities and
skills through structured training and institutions on the following -
• Invention and value creation- creativity, ideation and
conceptualization, R&D
• Innovation- Need identification, opportunity analysis,
product development skills, product launching
• Arbitrage, see-paging-Business research, scanning,
diagnosis and analysis agency linkages
• Intra-preneneurship- creativity and innovation, internal
competition, heuristic creative destruction, internal
venturing, product championship, organic growth, blue
ocean strategies, process and technological
• Exo-preneurship, Diversification and integration- product
Development/Business Development/ Activities linkages
and fitness
• Business Cooperation- Business Negotiation and
presentation, strategic Alliance, multi-country organization
and Global competition
• Business Internationalization- Diversity Entrepreneurship,
multi-country venturing, foreign alliances, Multi-country
organization and Global competition
• Change – strategy, Repositioning, Restructuring and Re-
engineering growth, wealth creation and change
( entrepreneurship leadership skills)
28
SOURCES OF NEW BUSINESS IDEAS/VALUE CREATION INSIGHTS
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• Don’t listen to dogma or what other people thought or think
about your idea
• Don’t be discouraged that others don’t see what you see
• Guide each idea jealously, discussing it only with your selected
‘Success Alliance’
• Understand, Refine and conceptualize your idea.
Every worthwhile idea can be transformed from its intangible state into
a tangible material value. The steps are;
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o Life and business improvement or convenience induced needs
(air – conditioners, means of transportation, ICT)
o Scarce resources of life savings induced needs (life jackets,
Japanese cars)
IDENTIFICATION AND ANALYSIS OF OPPORTUNITIES
An opportunity is a conjunction of circumstances which provide an
opening for success or convenient time for making certain decisions or
taking actions possible and appropriate, with probability of success,
advantage or gratification.
Value
Idea Creation
Decisio Opportunity
n
Need
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COMPETITIVE VALUE CREATION PROCESS
Creating values that will exploit success opportunities and build
competitive advantage over others in this value surplus economy,
involve the following process;
(v) Apply the three crown auditing: Identify the three market
leaders in the industry you desire to operate or are presently
operating and identify three most powerful attributes that
endear customers to their products or services.
(vi) Research how you can marry all the three unique attributes
into one product or service. The value added to the new
product or service must adequately address major problems
existing in previous products or services
32
has the ability to implement a plan that can address a wider, possibly
national market.
Start-up planning
Defining business to embark upon by marching the market needs
(generic and strategic) with the value offer to exploit the
opportunity discovered while taking with into consideration the
threats and risks involved ( Business risks and environmental
threats)
Defining business directions and objectives: - vision, mission,
business value and philosophy, critical success factors, key success
factors
And aligning self with the chosen business field. - This involves
discovering your purpose, strategic analysis, decisions and
definitions.
PURPOSE: - (purpose is the identified class of values that a thing,
person or organization is made and equipped to create and offer to
meet identified class of needs and consumers. It is your creator who
determines your purpose on earth. God determines the class of needs
you are to meet. It is your duty to discover it via 5P’s- person (self
value, self concept, self image=identity), Personality (character traits,
structure, value, orientation, role orientation= Difference), Passion
(love, joy, burden, soft pots, desire= attraction, devotion), Possession
(talents, disposition, tendencies, originality, creativity = intelligence,)
Possibilities (instincts, hunches, intuition, light signal = potentials)
Any other pursuit outside your purpose is either a misuse or abuse of
life and you cannot excel or become a champion in another man’s
field),
SITUATION: - the strategic analysis of personal (SWOT) the external
conditions can be favorable or unfavorable. Favorable conditions are
called opportunities while the unfavorable are called threats , your
current abilities are categorized into strength and weakness to arrive
at identifying strategic priority issues such as context, competences,
character, intelligences, capacity and KSF/CSF/ESF,
SELECTION: decisions through purposeful priority planning and how
through strategy implantation, implementation and improvement. This
entails focusing on directions through desire, commitment and
discipline. Thus not allowing any pressure to distract him/her through
opinion and enticement, occupation of best fit that will be used as
platform for excellent value offer, crafting grand strategies and
evaluation: consolidation if O versus W= Develop strength,
Growth if O versus S = exploit opportunities,
Turnaround if T versus W=exit branch and
Stabilization if T versus S= reinforce strength and finally selecting
winning strategic options or option for implantation and
implementation plan
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Business Model and Strategy: Business model describes how the
business will generate value while strategy describes how the
business will grow and continue to be a profitable venture through
managing change situations, building competitive advantage and
achieving superior performance within the business environment.
Business Plans (project overview, corporate information,
introduction (description of industry and business), mgt team,
market, production, financial, operation, sensitivity analysis,
conclusive inference.
Strategic leadership by determining resources needed, existing
resources, identifying resources gaps and available suppliers; and
developing access to needed resources. Then, mobilizing support
from stakeholders, mobilizing support from competitor and
alliances, effective deployment of tangible resources (capacity) and
processes (capabilities), achieving organizational momentum and
lead the organization using inspirational leadership posture.
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While loss occurs when an entrepreneur has made a poor estimate of
future selling prices and revenues, which if driven out of
entrepreneurial role altogether returns to the job of wage/salary
earner. Thus we can say that losses are the indication that the
entrepreneur allocated factors of production where they were
overvalued as compared to the consumer’s desire for their products.
Whereas, profit indicate allocation of factors where they had been
undervalued as compared to the consumers desires.
In general, every entrepreneur invests in a process because of
expectation of profit. This is because he/she believes that the market
has under priced and undercapitalized factors of production in relation
to their future rent .Therefore, entrepreneurial size of investments is
no guarantee of a large/small profit or against grievous losses because
market is on respecter of past laurels, however successful. However
the factors that are responsible for high failure of organizations in
Nigeria are:
• Lack of competence- skills, knowledge and character
• Wrong staffing
• Poor leadership
Operating environment
•
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• Propensity for change and growth – They are generally anti-
equilibrium, anti-status quo and have transformation instinct.
• Indulge in Intrapreneurship- seeks value innovations, internal
competition and creative destruction, self induced
entrepreneurial behaviour
• Establishing new business ventures- Always engage in turning
opportunities into business.
• Engage in Strategic alliances and networking events.
Dramatic changes are the global environment shows suggests that
successful entrepreneurs are those who are able to find a real niche in
the market that offers enough of margin to meet their needs and
aspirations.
Most successful entrepreneurs carefully assess their idea to make
certain that it has an adequate market and enough profit margins
before they even launch their venture. Again, they must be able to
master three strategies:
Develop a clear vision
Manage cash creatively
Be able to persuade others to commit to the venture using social skills
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Human relation and communication
Marketing management,
Financial management,
Organization and management andmanagement and
ICT management
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• Encourage the development of indigenous technology through
innovations and inventions.
•
6. Types of entrepreneurship
Individual Entrepreneurship involves attempt at new venture
creation or expansion of existing business by an individual, team
organizational. These include:
a. a. Marginal firms or artisans
b. that directly provide products or services in the market to earn
income. These businesses do not require much capital outlay and
do not return much income, subsistence nature, owned and
managed by single individuals with little or no education but
sometimes due to unemployment to complement their incomes
,e.g. : block molding, barbing, tailoring, bakery .
c. b. Professional ventures or managers
d. that adopt a more structured approach to building an organization
on the lines of a little big business. These businesses are usually
small; require more capital outlay but large amount of professional
knowledge. They are owned and managed by highly educated
professionals with high social awareness and acceptance. These are
medical clinics, accounting firms, management consultancies and
law firms.
e. c. Mass producers or promoters, who deal, often, start, grow and
sell several different businesses in pursuit of personal wealth. They
do not necessarily produce complex products or services. They take
advantage of the high economies of scale involved in large
production in the establishment and operation of the venture. This
type of enterprises usually established by the bold, educated and
socially aware personality located at a place or may be
geographically decentralized. These are soft drink producers,
breweries, banks, Insurance, High technology firms, Diversifiers,
speculators, etc
Thus, individual entrepreneurship comprises of individual venturing
and individual intra-preneurship. And intrapreneurshipIntrapreneurship
is entrepreneurship within an existing individual organization or
government by promoting internal creativity and innovation, internal
competition, internal entrepreneurial environment, strategic
behaviourbehavior and establishing strategic business units.
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1. Corporate innovation – Innovation is a continuous process
and not a singular event. Therefore , to maximize the
benefit therefromthere from , there must be :
Cross functional integration
Strategic Project and team
Horizontal organizational
Shared values and vision
Effective communication system
Effective budgeting and strategic allocation of resources
According to Institute of Strategic management ,Nigeria “ Innovation is
the entrepreneurial process of creating new resources and capability or
adding value to existing ones and positioning the outcome for strategic
competitiveness and financial success” This can be in form of product,
service, process, organizational, management , production, technology
and commercial /market innovations. Hence , the degrees of
innovation includes; invention, creative value addition, adaptive
imitation and pure imitation .Thus , every innovation involves :
Response to identified need or opportunity
A creative effort that results novelty
The need for further changes or improvement
Corporate intra-preneurship – This is the integrated process of
implanting entrepreneurship inside an existing organization, through:
Promoting an entrepreneurial environment and culture- It will be
recalled that the traditional corporate environment and culture usually
have guiding directives such as: adhere to policies and instructions
given, do not make any mistakes nor fail, do not take the initiative but
wait for instructions , stay within your turf and protect your backside,
and so on. More so, traditional companies are hierarchical, with
established procedures, reporting systems, lines of decisions, authority
and responsibility, defined instructions and control mechanisms. This
restrictive environment does not promote creativity, flexibility and
independence or risk taking. Conversely , an
intrapreneurshipIntrapreneurship environment culture is guided by the
following principles: develop visions, goals and plans; reward
suggestion, trial and error, experiment; create and develop new things
regardless of area; long term horizon volunteer program encouraged
and taking responsibility and ownership. Again, an
intrapreneurialentrepreneurial climate has a horizontal / flat
organizational structure; tasks are viewed as fun and there are
networking teamwork, sponsors and mentors, established atmosphere
of trust and counseling.
Creative obsolescence or destroying- This a process whereby the firm’s
corporate strategy ,support internal evaluation of existing products
and processes, ad creatively destroying or obsolescing and replacing
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them with new ones for the purpose of discovering and exploiting new
opportunities.
Autonomous strategic behaviourbehavior- This a bottom-up process in
which product champions( an organizational member with
entrepreneurial vision of a new product, and who seek to create
support for its commercialization) pursue new ideas, by means of
which they develop and co-ordinate the commercialization of a product
until it achieves success in the market place.
Induced strategic behaviourbehavior- This is top-down process
whereby the firm’s current strategy and structure, foster product
innovation that are also associated closely with that strategy and
structure.
In addition, corporate venturing- This is the means whereby
established organizations grow and expand by creating new
businesses in response to identified market needs and opportunities.
Thus, the development of new business takes the form of:
independent venturing (identifying market needs and opportunities
and independently developing businesses to meet and exploit them)
buying innovation( invest in the buying of proprietary rights, including
patents rights of various kinds of innovations) ;
And strategic alliances (these are partnership between firms whereby
their capacities, capabilities and competencies are combined to pursue
common strategic objectives) It normally takes form of merger,
acquisition, networking, joint venturing, venture capital etc..... Firms
that encourage intrapreneurshipIntrapreneurship are:-
risk takersrisk takers,
committedCommitted to innovation,
proactivepProactive in creating opportunities rather than waiting to
respond to opportunities created by others.
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3. Development and execution of a business model.
4. The management of these tasks throughout the process.
Business development connotes evaluating a business and realizing its full potential using
such tools as marketing, sales, information management and customer care. Business
development is a broad term applied to the process of strengthening ties with existing
clients as well as cultivating customers in other sectors of the consumer market. In order
to accomplish this goal, business development normally crosses the traditional barriers
between sales, marketing, customer care, operations and management in order to promote
this process of expansion on more than one level. It focuses on identifying business
opportunities in the marketplace. The goal is to generate profit by creating businesses to
exploit market and business opportunities. It comprises a number of techiniques designed
to create and grow economic enterprises. These includes but not limited to concept and
brand development, assessment of market and target markets, developing access to
needed resources, intelligence gathering on customers and competitors , generating leads
for possible sales, follow up sales activity, formal proposal writing and business model
designs.
Processes are as follows:-
Establish market development aims and targets ( objectives and goals)
Identify target markets, sectors and niches
assess existing sales orgg:
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customer requirement,
competitive factors that must met,
regulations/industry standards in the business,
Resource required implementing competitive strategy and technical
requirement to build competitive position.
- Aligning self and the chosen business field - Focusing on the business
in which your have the competence.
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6. Effective strategic leadership – This involves the following:
* Mobilizing support from stakeholders
* Mobilizing support from competitors (co-option)
* Effective deployment of capacity and capabilities
* Achieving organizational momentum
* Inspirational leadership
8. Business Planning
Meaning and role of a business plan.
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• Explain the business to others in other to inform, motivate
and involve.
• Identify critical resources and strategies.
• Gain deeper understanding of business operation.
• Ascertain the funding needs and attract fund suppliers.
• Provide benchmark against which to compare and monitor
performance.
• Stimulate change and become building block for next plan.
Capital Assets
Tangible fixed xx
Intangible fixed xx
Working capital xx
Total xx
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Liabilties
Equity xx
Total xx
Sales
Operation
Financial performance
SWOT Analysis.T
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The following are the reasons why it fails to achieve its goals and
objectives.
• Exclusion of successful companies in the competitive analysis
• Over-emphasis on partnership with well -known companies
• Focusing too much on the future without equivalent tactical
plan to achieve objectives
• Not tailoring management team biographies to the venture
development phases
• Asking the investors to sign no disclosure agreement thereby
indicating that there is no entry barrier
• Indiscriminate incorporating investor’s feedback into the
business plan
• Stressing first mover advantage in the market
• Focusing too much on the venture’s proprietary technology
• Presenting large, generic market size
• Making financial projection too impressive, that differs
significantly from the regular accounting designs.
•
•
9. Negotiating Skills
Negotiation drives all human interactions. It comes up almost all the
time in our business and personal relationships. It is the management
of conflicts of interests. It is a situation where to a considerable each
side is unaware of the other side’s position. They may guess
intelligently but precise details are not known. Hence negotiating skills
enable one to avoid and reduce conflicts and achieve ones objectives
using a win win solution strategies. It is a two –way affair.
The pressure is always on the either of the parties to compromise.
Winning is a perception and by constantly servicing that, the other
party is convinced that he has won without having to make any
concession.
Win win solution is a creative way of winning at the negotiation while
leaving the other party with the feeling of winning as well.
Some of the ways of creating that perception includes;
a. Not jumping at the first offer
b. Asking for more than you expect to get
c. Flinching at the other side’s proposal
d. Avoid confrontation
e. playing reluctant buyer or seller game
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h. Never offering to split the difference
I. Setting aside impasse issue
l. Always asking for a trade off
k. Positioning the other side for easy acceptance.
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10. Innovation and Product Development
Invention is the act of creating or developing a new product or process
or bringing something new into being. Thus, technical criteria are used
to determine the success of an invention.
Innovation is the process of creating a commercial product from an
invention or bringing something into use. Thus, commercial criteria are
used to determine the success of an innovation
Imitation is the adoption of an innovation by smaller firms. Products
based on imitation often are offered at lower prices but with features.
Consequently, an innovation is any good ,good, service, or idea that is
perceived by someone as new. It may have a long history but as long
as a person who sees it as new. The five characteristics of innovation
are-
- Relative advantage-the degree to which the innovation appears
superior to existing products
- Compatibility- the degree to which the innovation matches the
values and experiences of the adopters
- Complexity – the degree to which the innovation is relatively
difficult to understand or use
- Divisibility- the degree to which the innovation can be tried on a
limited basis.
- Communicability – the degree to which the beneficial results of
use are observable or describable to others
A product idea is a possible product a company might offer to the
market but a product concept is an elaborated version of the idea
expressed in consumer terms. Thus, customers buy product concepts.
This relates to the following questions:
• Who will use the products?
• What primary benefit should the product provide?
• When will people consume the product?
Product concept defines its competition in the market and has to turn
into brand concept to become distinctive. The product is presented
symbolically or physically to the target market or consumers and
getting their reactions. A new product does not have to be a high
technology breakthrough to be successful but it must provide customer
satisfaction.
Following a successful concept test, a strategic plan will be developed
for the introducing the product into the market. The plan will consist of
three parts:
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• Description of the target market’s size, structure, and
behaviour; the planned product positioning; and sales, market
share and profit goals desired
• The planned price, distribution strategy and marketing budget
for the first year.
• The long –run sales and profit goals and marketing strategy
over time.
This is followed by the evaluation of the business attractiveness.
This involves preparation of sales, cost and profit projections to
determine whether the product will satisfy company objectives.
The next stage is the product development, which involves product
designs, process designs, packaging designs and decisions to make or
purchase various products components. This also includes product
specification, which describes what the product will do rather how it
should be designed, based on customer test results.
The final stage is market testing and subsequent commercialization. In
commercializing the product, market entry timing is critical. A decision
must be made either to be first entry, parallel entry or late entry.
Thank you
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