Chapter Two: Key Aspects of Launching Entrepreneurial Business Ventures

Chapter Two
Key Aspects of Launching

Entrepreneurial Business Ventures
1 Entrepreneurship for Engineers 2018

Contents of the chapter
1. Marketing Research
2. Sales and Revenue Forecasting
3. Business Plan
4. Financing Options
5. Marketing
6. Human Resources
2
7. Legal Issues 2018
Entrepreneurship for Engineers
MARKETING RESEARCH
1.Marketing research is the systematic recording and

analysis of data about problems relating to marketing.
American Marketing Association
2.Marketing research is the application of scientific

method to the solution of marketing problems.
Luck,Wales,Taylor
It is important for any business to conduct it before established, ongoing
business and futurity….

THE BASIC RESEARCH PROCESS
 How is marketing research actually conducted?
 What are the general steps in completing a research project?
These questions are answered in the steps of the research

process.

STAGE 1: PROBLEM FORMULATION
 From the researcher’s point of view, problem formulation means
translating the management problem into a research problem.

Examples of Management Problems and Related Research Problems

STAGE 2: METHOD OF INQUIRY(investigation)
 Market researchers look to the scientific method as the source of
their investigative methods.
The Scientific Method

The scientific method is simple and consists of the following steps:
1. Observation. This is the problem-awareness phase, which involves
observing a set of significant factors that relate to the problem situation.
2. Formulation of hypotheses. In this stage, a hypothesis (i.e., a

generalization about reality that permit prediction) is formed that
postulates a connection between seemingly unrelated facts. In a sense,
the hypothesis suggests an explanation of what has been observed.
6 2018
Cont...
3. Prediction of the future. This stage uses the hypotheses to
predict what will happen.
4. Testing the hypotheses. This is the evidence collection and

evaluation stage.
 From a research project perspective this is the design and

implementation of the main study. Conclusions are stated based on
the data collected and evaluated.

Cont...
Example : Assume a researcher is performing a marketing research
project for a manufacturer of men’s shirts:
1. Observation: The researcher notices some competitors’ sales are
increasing and that many competitors have shifted to a new plastic
wrapping.
2. Formulation of hypotheses: The researcher assumes his
client’s products are of similar quality and that the plastic
wrapping is the sole cause of increased competitors’ sales.
3. Prediction of the future: The hypothesis predicts that sales will
increase if the manufacturer shifts to the new wrapping.
4. Testing the hypotheses: The client produces some shirts in the
new packaging and market-tests them.
STAGE 3: RESEARCH DESIGN
 Research design is defined as the specific methods and procedures
for acquiring the information needed.
 It is a plan or organizational framework for doing the study and
collecting the data.
 RESEARCH DESIGNS
 Exploratory Designs(qualitative in natures)
 Conclusive Designs(quantitative in natures)

STAGE 4: DATA COLLECTION TECHNIQUES
In general, data collection uses either communication or
observation.
 Communication involves asking questions and receiving
responses. This process can be done in person, by mail, by

telephone, by e-mail, and over the Internet.
 Observation include looking at secondary data such as
company records, reviewing studies published by external

sources, and examining physical traces such as erosion and
10
accretion. 2018
STAGE 5: SAMPLE DESIGN
 Concerned with selection of a sample from the entire population
In designing the sample, the researcher must specify three things:
1. Where the sample is to be selected
2. The process of selection
2. The size of the sample
NB:- Additional reading materials will be provided on sampling

STAGE 6: DATA COLLECTION
Data collection begins after the previous six stages of the research
process are complete.
STAGE 7: ANALYSIS AND INTERPRETATION
The data must be edited, coded, and tabulated before performing
formal analyses such as statistical tests.
STAGE 8:THE RESEARCH REPORT
It includes a clear, accurate, and honest description of everything
that has been done and the results, conclusions, and whenever
possible recommendations for courses of action.
RESOURCE PLANNING FOR YOUR STUDY
 When planning for your research, the resources necessary to
complete the study should also be identified.
 Resources include personnel, time and money.
 Resource plans range from very informal to very formal and
may include a list of all personnel who will be involved with the
project, the exact assignment of each person, the time to be
spent, and the pay for each.

SALES AND REVENUE PROJECTIONS
 Sales/Revenue projection is the forecasting/predicting of the
short-term or long-term future sales by using past sales

figures or based on potential customers.
 Reading assignment: Forecasting

BUSINESS PLAN
 A business plan is a formal statement of a set of business goals,
the reasons they are believed attainable, and the plan for reaching
those goals.
 A business plan would present your basic business idea and all
related operating, marketing, financial and managerial

considerations.
 A business plan is a comprehensive set of guidelines for a new
venture.
THE FORMAT OF A BUSINESS PLAN
1. Where are we now?
 An analysis of the current situations of the market place, the
competitions, the business concept and the people involved. It will
include any historical background relevant to the positions to date.
2. Where do we intend going?

 Qualitative expression of the objectives, quantifiable targets will
clarify and measure progress towards the intended goals.
3. How do we get there?

 Implementing of accepted aims is what all the parties to a plan are
interested in as a final result.
THE PURPOSE OF BUSINESS PLAN
1. It can help the owner/manager crystallize and focus his/her idea.
2. Although planning is a mental process, it must go beyond the realm of

thought.Thinking about a proposed business becomes more rigorous as
rough ideas must be crystallized and quantified on paper.
3. It can help the owner/manager set objectives and give him a yardstick
against which to monitor performance.
4. It can also use as a vehicle to attract any external finance needed by

the business. Eg. To get fund…

Cont…
5. It can convince investors that the owner/manager has identified
high growth opportunities.
6. It entails taking a long-term view of the business and its

environment.
7. It emphasizes the strengths and recognizes the weaknesses of the

proposed venture.
8. The plan can uncover weakness or alert the entrepreneur to

sources of possible danger
Financing Options
 Financial planning is the process of formulating policies and
strategies relating to the procurement, investment and administration
of funds for an enterprise.
 While formulating a financial plan, the entrepreneur has to answer

the following questions:
 How much money is needed?
 Where the money comes from?
 When should the money be available?
 These three questions are concerned respectively with the estimation

of financial needs, sources of finance, and the time of raising funds.

SOURCE OF FINANCE

A. Internal sources (Equity capital)
 Owners capital or owners equity represent the personal

investment of the owner or owners in a business, and it is
sometimes called risk capital because these investors assume
the primary risk of losing their funds if the business fails.
 It requires no repayment in the form of debt and much safer

for new ventures than debt financing.
 It also requires sharing the ownership and profits with the

funding sources.

Source of equity capital:
1. Personal savings
• The first place entrepreneurs should take for start up money is in

their own pockets or on their pool of personal savings.
• It is the least expensive source of funds available.
• As a general rules, entrepreneurs should expect to provide at

least half of the start up funds in the form of equity capital.
• If the entrepreneur is not willing to risk his own money potential

investors re not likely to risk their money in the business either.

2. Friends and relatives:
• Because of their relationships with the founder, these people

are most likely to invest. But having them invest can lead to
controversy if their participation is not clear to everyone.
• To avoid such problems, and entrepreneur must honestly

present the investment opportunity and the nature of risks
involved to avoid alienating friends and family members if
the business fails.

3. Angels
• These private investors (or angels) are wealthy individuals, often

entrepreneurs themselves, who invest in business start ups in
exchange for equity stakes in the companies.
• Due to the inherent risks in start up companies, may venture

capitalists have shifted their investment portfolios away form
startups toward more established firms.
• Angles will often finance the deals that no venture capitalists will
consider most angles have substantial business and financial
experience and prefer to invest in companies at the start up or
infant growth stage

4.Partners:
• Whenever an entrepreneur gives up equity in his/her

business (through what ever mechanisms), he/she runs the
risk of losing control over it.
• As the founder’s ownership is a company becomes

increasingly diluted, the probability of losing control of its
future directional and the entire decision making process
increases.

5. Venture capital companies
• Venture capital companies are private, for profit organizations that

purchases equity positions in young businesses they believe have
high growth and high profit potential.
• They provide start up (seed money) capital to new ventures,
• Development funds to businesses in their early growth stage, and
• Expansion funds to rapidly growing ventures that have the
potential to go public or that need capital for acquisitions.
• Two factors make a deal attractive to venture capitalists: high

returns and a convenient (and profitable) exit strategy.

6. Public stock sale (going public)
• This is an effective method of raising large amounts of

capital, but it can be an expensive and time-
consuming process filled with regulatory nightmares

B. External source (Debt capital)
• Borrowed capital or debt capital is the external financing that a

small business owner has borrowed and must repay with
interest.
• Small enterprises have few choices than large firm for obtaining
debt financing.
• Although borrowed capital allows entrepreneurs to maintain

complete ownership of their business, it must be carried as a
liability on the balance sheet as well as be repaid with interest at
some point in the future or with in the time stipulated in the
contractEntrepreneurship for Engineers
28 2018
1.Commercial banks
In most cases commercial banks give
• Short-term loan (repayable with in one year or less) and
• Medium term loan (maturing in above one year but less than five
years) as a working capital.
• Long term loans (maturing in more than five years) for the
purchase of property or equipment or as a project loan, with the
purchased asset or the project itself serving as collaterals.

unsecured and secured loans
 An unsecured loan is a loan in which collateral is not requested.
 That is the loan is granted against personal guarantee or corporate

customers of the bank.
 Unsecured loans will have high interest charges but this may not
be necessarily applicable by all banks

 To secure a bank loan, an entrepreneur typically will have to answer
a number of question, together with descriptive commentaries
 What do you plan to do with the money (credit facility)?

 How much do you need?
 When do they need it?.
 How long will you need it?
 How will you repay the loan?

Bank lending decision
 Most bankers refer to the five Cs of credit in making lending

decision. The five Cs are
• Capital
• Capacity
• Collateral
• Character and
• Conditions

2.Trade credit
• It is credit given by suppliers who sell goods on account.
• This credit is reflected on the entrepreneur’s balance sheet as

account payable and in most cases it must be paid in 30 to 90
or more days interest free because of its ready availability
• Getting suppliers to extend credit in the form of delayed

payments usually is much easier for a small business than
obtaining bank financing.

3.Equipment suppliers
• Most equipment vendors encourage business owners to purchase

their equipment by offering to finance the purchase
• In some cases, the vendors will repurchase equipment for salvage

value at he end of its useful life and offer the business owner
another credit agreement on new equipment.

5. Accounts receivable financing
• Short term financing that involves either the pledge of

receivables as collateral for a loan or the sale of receivables
(factoring).
• Account receivable bank loans are made on a discounted

value of the receivables pledged.

6. Credit Unions:
7. Insurance Companies:
8. Bonds
9. Treasury bill
 How to prepare financial statement accounting ….read

Marketing
 Marketing is the process of communicating the value of a product
to customers, for the purpose of selling that product (goods or

services.
 Another simple definition of "marketing" is "managing profitable
customer relationships".
 Marketing can be looked at as an organizational function and a set of
processes for creating, delivering and communicating value to customers,

and customer relationship management that also benefits the organization.

Response of Entrepreneurs for consumer
market change
 Need to monitor and be ready for changes in consumer behavior
 Need to modify or refine their marketing policies and procedures
 Need to know Predicting changes in the market is an important but
difficult task
 Market information must be collected and analyzed continually

Five W Questions
1. Who are my customers?
 Education level, age, marital status
 Population size, composition, trend
 Family structure
 Economic status, i.e., income level, ownership
2. What do they want? Product/ service?- Market survey,
observation
3. When do they buy? Daily, at pay day, special events

Cont.
4. Where do they buy?
Open markets,
Commercial centers,
How to go there; transportation,
Suitable site (personal factors),
Community interest
5. Why do they buy?
Purchasing power of population,
 Purchasing habits and trends,
To replace used goods,
To get latest technology or mode
THE MARKETING MIX
 A marketing organization has to concentrate on four important aspects
known as the 4P’s of marketing.
 The marketing manager has to combine these 4 P’s (PRODUCT, PRICE,
PROMOTION and PLACE.) in such a way that the combination provides

satisfaction to the customer and profit to the manufacturer.
 When these elements (4 P’s) are combined together they are called as
“The Marketing Mix”.

1.The product mix: Includes: 3. Place mix (Physical
 Product planning and development distribution mix):
 Branding Packaging Labeling •Channels of distribution
•Transportation
2.The price mix: Includes •Warehousing
 Price polices
4. Promotion mix: Includes
 Skimming pricing (Pricing above the market)
•Advertising
 Penetration pricing (Pricing below the market)
•Personal selling
 Premium pricing (Pricing with the market) •Sales promotion
 Discounts •Publicity
 Quantity discount Seasonal discount
 Trade discount Cash discount
 Credits

I. THE PRODUCT MIX
 Product: Is any commodity that satisfies the needs & wants of customer.
1.Product planning and development
Product planning includes three major types of decisions:

 Development and introduction of new products
 Modifications of existing products in keeping with the changing tastes and
preferences of the target customers and

 Elimination of unprofitable or obsolete products

2. Branding
• Brand name: the part of a brand, which consists of word, letters
and/or numbers, which can be vocalized. Eg. OMO, Coke
 Brand mark: the part of a brand that can be recognized but is not utter
able. It can appear in the form of symbol, design, distinctive coloring or
lettering.
 Trademark: a brand or part of a brand that has been given legal

protection so that the owner has exclusive rights to its use. After
companies identify their trademark, they entail a term “™” or “®”
 Trade Name: Trade name is the name of the business organization.

A trade name may also be used as a brand name. In such a case it
performs a dual function. It gives identification to the product as
44
well as the manufacturer
Entrepreneurship for Engineers 2018
Importance of a brand
 The brand makes it easier for the seller to process orders and track down problems.
 The seller’s brand name and trademark provide legal protection of unique product
features.
 Branding gives the seller the opportunity to attract a loyal profitable set of
customers and helps to increase the control and share of the market.
 Branding helps the seller to segment markets and expand the product mix.
 Good brand help to build the corporate image because it advertises the quality and
size of the company.
 Brands make it easy for customers to identify products or services.

Requirements of a good brand
 Be easy to pronounce, recognize and remember
 Be distinctive.
 Suggest something about the product’s benefits or characteristics
 Suggest about the product qualities such as action or use.
 Be large enough to be applicable to new products that may be added to the

product line.
 Have a possibility of registration and legal protection.

3.Packaging
 Packaging is a marketing process concerned with the design and
production of the container or wrapper for a product.
 The container or wrapper or covering is called the package.
Importance of packaging
1. Packaging serves several safety

2. Packaging may implement a company’s marketing program.
3. Well-packaged products may increase profit possibilities in that it
stimulates customers to pay more just to get the special package.

4.Labeling
1. Brand label: simply the brand alone applied to the product or
to the package.
2. Grade label: a label, which identifies the quality with, a letter,
number or word.
3. Descriptive label: it gives objective information about the
use, construction, care, performance or other features of the

product. Sometimes it is called informative label.
Eg. medicines
II.THE PRICE MIX
WHAT IS PRICE?
 Is the amount of money consumers have to pay to obtain the
product.
 Price has operated as the major determinant of user choice
traditionally.
 Although non-price factors have become more important in
recent decades price still remains one of the most important

49 elementEntrepreneurship
determining market share and profitability.
for Engineers 2018
METHODS OF PRICING
1.Cost plus pricing/ Mark Up pricing/
2. Skimming pricing
The following conditions should be satisfied
1.A sufficient number of buyers have a high current demand.
2.The high initial prices do not attract more competition to the market.
3.The high price communicates the image of a superior product.
3.Penetration pricing: below market price
4. Premium pricing: with market

The major objectives of pricing are:
 Achievement of target return
 Maximization of profit
 Increase of sales volume
 Maintenance or increase of market share
 Stabilization of prices &
 Meeting competition

III. PLACE MIX
 Place: Includes company activities that make the product available
to target consumers.
 Physical distribution includes:

• Channels of distribution
• Transportation
• Warehousing/ storing goods/
DEFINITION OF MARKETING CHANNELS
The marketing (or distribution) channels refer to the activities, parties

and channel structure required to transfer a product from its point of
52 production to its point of consumption by the end customer
Entrepreneurship for Engineers 2018
Direct channel
1.Door-to-door selling
2.Manufacturers’ sales branches
3.Direct mail
Indirect channel
1. Merchant Middlemen:-
• Whole seller:- Eg. Petram PLC and East Africa Trading are
wholesalers of consumer products.
• Retailer:- Eg. Shewa supermarket, and several Kiosks are found
closer to sell the items to residential houses.
2. Agent Middlemen
 Commission agent, Brokers, Selling agents,
 Eg. -Sony Glorious, is an agent to Sony Electronics products,
53 -Equatorialforbusiness
Entrepreneurship Engineers is agent to Samsung. 2018
Channel levels
Zero-level One-level Two-level Three-level

Manufacturer Manufacturer Manufacturer Manufacturer
Agent
Wholesaler
Wholesaler
Retailer Retailer Retailer
Consumer Consumer Consumer Consumer

IV. PROMOTION MIX
 Is sometimes known as marketing communication.
 Means activities that communicate the merits of the product &
persuade target customers to buy it.
 Promotional objectives:
 Informing the product
 Increasing sales
 Stabilizing sales / profit
 Positioning the product

The promotional mix consists of four major tools
 Advertising: such as informative Ad, Persuasive Ad and Reminder Ad
 Personal selling – Oral presentation in conversation with one / more

consumers for the purpose of making sale
 Sales promotion – Includes: gifts, games, sampling, coupons, and
window displays.
 Publicity – Any information about the organization, its personnel or
its products that appears in any medium on a non - paid basis.

MARKET SEGMENTATION
 Market segment is a group of individuals or organizations within a

market that share one or more common characteristics.
 The process of dividing a market in to segments is called market

segmentation.
Bases for market segmentation

1.Geographic segmentation:- Region Urban, Suburban, Rural, Market density,
Climate,Terrain (land, topography), City size, Country size, State size
2.Demographic segmentation:- Age, Gender, Race, Ethnicity, Income, Education,

Occupation, Family size, Family life cycle, Religion, Social class
3.Psycho graphic segmentation:- Personality, Attributes, Motives, Lifestyles
4.Behavioral segmentation:-Volume usage, End use, Benefit, Expectations,

Brand loyalty, Price sensitivity
Human Resource
Human resource are man power used to run a business
Human resource organization
Organization involves the following interrelated steps
1. Consideration of objectives:
 The first step in organizing is to know the objectives of the enterprise.
 Objectives determine resources and the various activities which need to be
performed and the type of organization which needs to be built for this
purpose.
2. Identification and grouping of activities:
 Each job should be properly classified and grouped.
 This will enable the people to know what is expected of them as members
of the group and will help in avoiding duplication of efforts.
For example, the total activities of an enterprise may be divided into major functions
like production, purchasing, marketing, finance etc.,
Cont…
3. Assignment of duties: Each individual should be given a specific job
to do according to his ability and made responsible for that.
4. Delegation of authority: Authority without responsibility is
dangerous and responsibility without authority is an empty vessel.
Hence, corresponding to the responsibility authority is delegated to the
subordinates for enabling them to show work performance

Chapter Two: Key Aspects of Launching Entrepreneurial Business Ventures

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Chapter Two

Key Aspects of Launching

1 Entrepreneurship for Engineers 2018

2. Sales and Revenue Forecasting

1.Marketing research is the systematic recording and

2.Marketing research is the application of scientific

3 Entrepreneurship for Engineers 2018

 How is marketing research actually conducted?

 What are the general steps in completing a research project?

These questions are answered in the steps of the research

4 Entrepreneurship for Engineers 2018

translating the management problem into a research problem.

5 Entrepreneurship for Engineers 2018

their investigative methods.

The Scientific Method

2. Formulation of hypotheses. In this stage, a hypothesis (i.e., a

4. Testing the hypotheses. This is the evidence collection and

 From a research project perspective this is the design and

7 Entrepreneurship for Engineers 2018

for acquiring the information needed.

 It is a plan or organizational framework for doing the study and

collecting the data.

 Exploratory Designs(qualitative in natures)

 Conclusive Designs(quantitative in natures)

9 Entrepreneurship for Engineers 2018

 Communication involves asking questions and receiving

responses. This process can be done in person, by mail, by

 Observation include looking at secondary data such as

company records, reviewing studies published by external

In designing the sample, the researcher must specify three things:

1. Where the sample is to be selected

2. The process of selection

2. The size of the sample

NB:- Additional reading materials will be provided on sampling

11 Entrepreneurship for Engineers 2018

complete the study should also be identified.

 Resources include personnel, time and money.

 Resource plans range from very informal to very formal and

13 Entrepreneurship for Engineers 2018

short-term or long-term future sales by using past sales

 Reading assignment: Forecasting

14 Entrepreneurship for Engineers 2018

related operating, marketing, financial and managerial

 A business plan is a comprehensive set of guidelines for a new

2. Where do we intend going?

3. How do we get there?

2. Although planning is a mental process, it must go beyond the realm of

4. It can also use as a vehicle to attract any external finance needed by

17 Entrepreneurship for Engineers 2018

6. It entails taking a long-term view of the business and its

7. It emphasizes the strengths and recognizes the weaknesses of the

8. The plan can uncover weakness or alert the entrepreneur to

 While formulating a financial plan, the entrepreneur has to answer

 These three questions are concerned respectively with the estimation

19 Entrepreneurship for Engineers 2018

20 Entrepreneurship for Engineers 2018

 Owners capital or owners equity represent the personal

 It requires no repayment in the form of debt and much safer

 It also requires sharing the ownership and profits with the

21 Entrepreneurship for Engineers 2018

• The first place entrepreneurs should take for start up money is in

• It is the least expensive source of funds available.

• As a general rules, entrepreneurs should expect to provide at