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Chapter 1: Entrepreneurship as a concept :

1-entrepreneurship: Is the practice if starting a new organizations or revitalizing mature orgs, particularly new businesses generally in response to indentified opportunities. In other words it is The capacity and willingness to undertake conception, organisation, and management of a productive venture with all attendant risks, while seeking profit as a reward. 2-entrepreneur: Is a person who has possession of an enterprise, or venture, and assumes significant accountability for the inherent risks and the outcome. It is an ambitious leader who combines land; labor and the capital to create and market new goods or services. In other words an entrepreneur is a person who starts, organises and manages a business and assumes a risk for the sake of profit. There are many types of entrepreneurs that are: Political entrepreneur: Political entrepreneur may refer to any of the following: Someone (usually active in the field of either politics or business) who found a new political project, group or political party. A business man who seeks to gain profit through subsidies, protectionism, government contacts, or other such favourable arrangements with government(s) through political influence (also know as a rent seeker). A political actor (not necessary a politician) who seeks to further his or her own political career and popularity by pursuing the creation of policy that pleases the populace. Social entrepreneur: A social entrepreneur is someone who recognises a social problem and uses entrepreneurial principals to organise, create and manage venture to make social change. Where as a business entrepreneur typically measures performance in profit and return, a social entrepreneur assesses success in terms of the impact he has on society. The main aim if a social entrepreneurship as well as social enterprise is to further social and environmental goals. Knowledge entrepreneur: Knowledge entrepreneurship describes the ability to recognise or create an opportunity and take action aimed at realising the innovative knowledge practice or product (like doctors, dentists, advocate they are entrepreneurs that have knowledge in their field). Internet entrepreneur An internet entrepreneur is an entrepreneur that engages in business on the internet and helps to shape the future of business on the internet by being an innovator Intrapreneur: is the person who focuses on innovation and creativity and who transforms a dream or an idea into a profitable venture, by operating within the organizational environment. Thus, Intrapreneurs are inside entrepreneurs who follow the goal of the org.

3- Personality traits: Need for independence: Trait most cited by researchers Means different things to different people need to be own boss control own destiny

Need for achievement: Seen as the real driving force for entrepreneurship Money? Satisfaction of ones own work. Public recognition?


Live with uncertainty : Human beings, typically, do not like uncertainty Entrepreneurs do not as well, but they can live with it

Opportunistic : Exploit change for profit Often entrepreneurs see opportunities where others see problems Spotting opportunities: the entrepreneur must be able to spot an unmet need. Assessing opportunities: each opportunity should be assessed to, among others, determine its likelihood of success and the financial and human required execute upon it. Selecting opportunities: entrepreneurs should asses their potential opportunities and come to firm decision regarding which one to execute upon. Executing upon opportunities: the entrepreneur need to know what tasks must be accomplished and be the main driver in seeing that these tasks are completed in an appropriate manner.

Innovative : When faced with a challenge, Entrepreneurs would find innovative ways. They observe an opportunity They create new goods and services They improve existing products

Self-confident : Essential for facing uncertainty and growing the business Can be built by developing a business plan that adresses the issue of futur uncertainty

Proactive : Tend to be proactive rather than reactive Do not rely on luck Act quickly and decisively

Self motivated : Linked to the need for achievement There is seldom someone else to motivate entrepreneurs Linked also to uncertainty and risk

Willingness to take risks : Risk-taking refers to the tendency to engage in behaviors that have the potential to be harmful or dangerous, yet at the same time provide the opportunity for some kind of outcome that can be perceived as positive.

Chapter 2: Culture (look at notes) :

Chapter 5: Innovation (look at notes): Common innovation process stages

1. Sensing and observation: Looking for info to create an idea or developing an idea. Sometimes referred to as data gathering or customer interview or preparation. This step focuses on the deliberate gathering of insights from the world around us, including technology scouting, market reviews, future scenarios, customer visits, competitive analysis etcit must go beyond market research because it needs to be broader in scope and utilise teams gathered from various disciplines. 2. Strategic challenge: Often called opportunity finding, root cause analysis or problem definition. The intention of this step is to view the observation from the first step through a broad set of peoples perspectives so that they have a relevance and significance to your business. They are then filtered through your businesss strategy to yield the top challenges that need attention. 3. Idea and concept development Often referred to as idea generation and concept development. This is the fun step as it includes the brainstorming of new ideas. Brainstorming id just one component, however, of this mid-way point of our overall process, the fragmentary ideas generated in brainstorming must then be synthesized into coherent concepts. 4. Concept refinement Often referred to as rapid prototyping and/ or early concept screening. When performed correctly, this step helps twist, turn and shape new concepts so that they fully meet customer needs and reflect competencies and aspirations of the company. 5. Proposal development and transfer This step is the missing link between innovation team and development teams. Concepts are improved in this stage through multiple iteration if design improvement or data validation, each time including different constituents of the reviewing team.

Chapter 7 & 8: Strategy (look at notes):


Chapters of Finance:
BALANCE SHEET : The balance sheet is a snapshot at a point in time that shows Where the money in a business is invested Where this money came from Distribution of assets, liabilities, and ownership (net worth or equity)

Because it is a snapshot, a balance sheet refers to a specific time. The conventional way of expressing this is by the expression balance sheet for (the business name) as at (date). By definition, a balance sheet must balance; the total of funds employed in the business must equal the total value of the items that they are used to fund. As a business accumulates a trading history, it generates historical profits or losses that become in effect the balancing figure on the balance sheet. Financial drivers : 1. Cash : It is vital to monitor cash Cash may have to be monitored daily in a new business Actual balances need to be compared to forecasts

2. Sales Sign of activity Should be compared to forecasts Sales too low: problematic Sales too high: also problematic Sales drive cash flow and profitability

3. Profit margins Business need to set profit targets These cab be achieved only if: Sales volume targets are met At the appropriate prices And cost are controlled

4. Margin of safety a measure of how far sales are above break-even, expressed as a percentage of total sales (total sales breakeven sales)x100/total sales The higher the margin of safety, the safer the business in terms of maintaining its profitability should sales suddenly decline

5. Productivity : For most firms, the largest expense is their wage costs. Needs to be carefully monitored and controlled Wages are best measured in relation to the productivity that they generate. Is the business over-staffed or under-staffed?

6. Debtor or stock turnover Firms will have one important current asset on their balance sheet that represent over 50% of their total assets. For a service business it will be debtors. For a retail business it will be stocks. For a manufacturing it could be both. Debtor turn over: sales/debtors Stock turnover: sales/stocks

Cash flow statements: your cash balance and monthly cash flow patterns for at least 12 to 18 months, it is the lifeblood of a business The aim is to show that your business will have enough working capital is to survive so make sure you have considered the key factors such as the timing of sales and salaries, as the business will have a negative cash flow before debts are collected and income exceeds expenditure. Cashflow and death valley : Death Valley needs to be mapped out to see what cash is needed to take the business to positive cash flow Death Valley can be longer and deeper than you expect so prepare well The way to chart a path through Death Valley is by preparing a cash flow forecast In a cash flow statement, cash flow is added or subtracted to show the bank balance at the end of the period

The flow of money :

ESTIMATING FIXED COSTS: Do we really need them? Do we need to buy them? Do we need to buy them now? Could we finance them separately?

EXPECTING THE UNEXPECTED: Forecast based on flawed data Sales build-up is slower than expected Customers take longer to pay than expected Bad debts Repeat orders take longer to come in thann expected Too much stock Late deliveries Suppliers will not give credit Missed or wrong costs

The P&L Statement A profit and loss statement is a record of the accumulated historical transactions income and costsof a business Profit and loss statements or forecasts relate a specific accounting period: e.g. a financial year, a quarter or a month for past or future periods. A P&L statement does not reflect cash transactions payments or receipts- but reports formal accounting transactions as defined by invoice date or tax point. Profit does not reflect cash flows: it is possible to make a large profit in a period but to be forced into liquidation. Profit and loss forecast: a statement of the trading position of the business, the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads. Marketing PlanProduct RangeSales forecasts Operations planVariable costsCost forecasts Operations plansFixed costsCost forecasts HRMPayrollCost forecasts FundingInterestCost forecasts Depreciation policyDepreciationCost forecasts Net profitProfit forecasts Taxation planTaxationProfit forecasts Retained profitProfit forecasts

Constructing the P&L Projections : 1. 2. 3. 4. 5. 6. Develop a rough estimate sales forecast Identify and research the variable costs Enter calculations for the variable costs Identify and research the fixed costs Calculate interest payments Refine estimates

Depreciation : Depreciation is a notional way of accounting for the purchases and use of an asset over a number of accounting periods. This has a number of purposes: It provides a means of allocation of a reasonable proportion of the cost of an asset to an accounting period deeming it to be used up over that period It therefore provides a means of calculating a declining value of the asset during the course of its life: the net book value By charging this notional cost to the P&L account (but not the cash flow statement), cash reserves may be accumulated to allow for the eventual replacement of the asset.

Contribution: Contribution: Net sales revenue Direct costs In order to be able to compare commercial activities, it is often useful to relativise this figure by expressing it as a porportion of sales revenue: Gross Margin = (Sales direct costs/sales)x100 = contribution/sales x100

Chapters of sources of finance:

Lenders vs. Investors : The expectations of lenders and investors Lenders Risk Averse Interest paid on outstanding loan Investors Risk takers No dividends paid, unless profits warrant it; frequently not even then Capital returned with substantial growth by new shareholders Security comes from belief in people and their business vision

Capital repaid either at the end of term or sooner if they have concerns Security given either from assets or from personal guarantees

SOURCES OF FUNDING : EQUITY : Savings Other shareholders funds Business angels Venture capital Retained earnings

Borrowed funds : Private borrowings (family and friends) Bank loans Bank overdrafts Other external borrowings

Other sources : Grants: (government or other funds) Trade credit (suppliers) Debtors (credit factoring and invoice discounting) Hire purchase/leasing

Bank funding: Loans vs. Overdrafts Loans Are mutual commitments not payable on demand Are appropriate for the funding of investment not cash flow Should be arranged over a term relating to the asset being funded

Overdrafts Are intended to fund short term cash flow fluctuations Are repayable on demand are deceptively attractive as short term commitments Interest rates are often higher for overdrafts, and may be changed without notice for the bank

The five Cs of credit analysis: Character: bankers lend money to borrowers who appear honest and who have a good credit history Capacity: this is a prediction of the borrowers ability to repay the loan. For a new business, bankers look at the business plan. For an existing business, bankers consider the businesss financial statements and general industry trends. Collateral: Bankers generally want a borrower to pledge an asset that can be sold, if necessary, to pay off the loan if the borrowers lacks funds. Capital: bankers scrutinize a borrowers net worth, which is the amount by which assets exceed debts. Conditions: whether bankers give a loan or not can be influenced by the current economic climate as well as the amount of money required.

Venture capital Venture capital providers are investing other peoples money, often from pension fund, in businesses, they acquire an agreed proportion of the share capital (equity) of the company in return for providing the requisite funding. It is a medium- to long-term investment of not just money but time and effort. Their aim is to enable growth companies to develop into the major businesses of tomorrow.


Before investing, the venture capital firm will examine in every detail the business activity, the owners, directors, past financial performance and the business plan, and would expect their investment to have paid off within seven years. The investment decision may take several months before being approved. Venture capital providers will want to exit from their investment at some stage, and their exit route will be planned before they even start investing in a business. Business Angels : Individuals who invest their own funds, at their own risk, They will put money in return for a share in the business, They are more likely to invest in the early stage of the business. Usually they have knowledge of the industry, They operate in networks of business angels to help raise large funds, They make their investment decisions quickly compared to venture capitalists, Their confidence in the owner-manager is a vital part of their decision.

Chapter of support for entrepreneurship:

State intervention : The importance of new firms to job and wealth creation and economic regeneration, as new and small firms are an important component of the economic activity, for example; in the UK, startup and micro businesses create one third of all new jobs. Economic analysts suggests that state intervention in economic activity is justified only in cases of market failures,i.e. where the free market mechanism fails to provide an efficient allocation of resources within society. Given that start-ups and small businesses are organisations aiming, in most cases, to generate profits for the owners of the business, any intervention financed by the taxpayer would need to be justified in terms of the wider benefits accruing to society. MARKET FAILURES : 1. Monopoly : If markets are dominated by one or a small number of businesses, then prices may be higher and output lower than the ideal free market equilibrium. It may be justified to provide support to small businesses in order that they can compete with monopolistic larger businesses.


2. Imperfect information : Small businesses tend to find it more difficult and expensive to locate and utilise the relevant information. There is a case for the state to provide specific assistance to small and new businesses in the form of free information and the provision of advisory services. 3. Risk and uncertainty : Established firms tend to be better able to absorb risk and uncertainty. If start-ups are discouraged from taking risks (introduction of a new product for example) then there may be a disbenefit to society. 4. Finance : New firms find it relatively difficult to obtain finance. This finance gap may justify state intervention to provide subsidised finance or loan guarantees. 5. Externalities : Externalities are those activities by one economic actor which may have consequences for society positive or negative- beyond the individual firm or its employees (state intervention to curb pollution). This can justify support for new and small firms as they are important sources of new jobs, economic development, innovation and competitiveness, and state support should result in wider benefits to society in the form of low unemployment, low crime rates and other beneficial consequences.

Approaches to policy : 1. Social policies : Support for small business-and in particular support for new business formation by unemployed people. 2. Equity : There are a number of reasons to believe that new and small firms are at a disadvantage in relation to larger businesses in certain areas, mainly finance and regulation. Loan guarantee schemes :The objective is to lower the risk associated to lending to new and small firms, and thus put them on a similar footing to larger ones in relation to banks. 3. Economic growth and competitiveness : new firms are an important source of economic growth and competitiveness. More common nowadays as the other approaches were not always successful.
Other types of intervention: Monetary policy (interest rates), Fiscal policy (taxes), Regulatory policy, Sectorial policies, R&D grants, Training, Public spending. 12

Chapter of failure:
What is failure?

The term failure tends to be used rather loosely and may describe any of the following conditions or circumstances: Financial distress Voluntary closure due to inadequate returns Cessation of trading Company deregistration Personal bankruptcy Insolvency liquidation

Closure and failure: exit routes :

Cessation of trade: where a business just winds up without creditors being owed any money Failure: involves liquidation of insolvent companies and personal bankruptcy Harvest: involves selling the business

Factors in Business failures :

Age of business: young firms are more likely to fail than older firms Size of business: the smaller the firm, the greater the risk of failure Past growth: firms that grow are less likely to fail Sector: failure rates are higher in some sectors (construction, retail) Management: the character and skills of the entrepreneur as well as the team they draw around them Economic conditions:new and small firms are more vulnerable to changes in economic activity Type of firm: franchises have lower chance of failure;limited companies are more likely to fail Location: distance from customers/suppliers, competences in the area

Common causes of failure : 1. 2. Market : Market decline (or over-optimism) Increase in competition Loss of competitiveness Operational : Business location Over-ambitious startup Over-optimistic cost estimates

3. 4.

Financial : Overtrading (single big project) Under-capitalisation Inadequate cash management Inadequate controls Excessive drawings Human : Inadequacy in areas of management Loss of interest or drive by owner manager Loss of leadership and direction Inadequate/inappropriate recruitment

The ingredients of failure :

5. Entrepreneurial character : Certain character traits of entrepreneurs can have very negative effects Strong internal locus of control control freak behaviour(inability to delegate, mistrust) Strong need for public achievement (unwise overspending) Strong self-confidence (excessive optimism, unwillingness to listen)

6. Business decisions : Bad business decisions often stem from a lack of reliable information or unwillingness or inability to understand it. Inability to identify target market or customers No planning Inability to delegate Belief that the problem is somebody elses fault and a loan would solve everything 7. Company weaknesses Weaknesses stem from bad decisions in the past Poor financial control Overdependence on small number of customers Very narrow product line

8. external environment : New firmms are particularly vulnerable to macroeconomic variables Economic recessions Changes in overall consumer demand The degree of competition within the industry


Predicting failure : Financial indicators

Most involuntary closures are caused by cash insufficiency; then financial data and ratios can be used to predict the risk of failure (gearing, profitability, and performance ratios) Financial data suffers from unavailability, inaccuracy or lateness.
Non-financial indicators

Redundancies Delay of submission of accounts Changes in legal form Reduction in stock level Changes in management structure

Harvest :

The most attractive option is to find a trade buyer, another company in the industry that understands the business. Another option is management buy out _managers in the firm buying it from the founder Management buy in- a team of managers, often with experience in the industry buying the business
Company valuation : Two ways of valuing a business:

Market value of assets: businesses that are asset rich are often valued in this way Multiple of profits: firms with few tangible assets, are valued based upon some multiple of annual profit. Different industry sectors tend to have different multiples that reflect the risk they are perceived as facing.