Entrepreneurship Lecture Note PDF

See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/326190494 Entrepreneurship lecture note Presentation · July 2018 CITATIONS READS 0...

See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/326190494 Entrepreneurship lecture note Presentation · July 2018 CITATIONS READS 0 132,154 1 author: Abdulnasir Abdulmelike Mohammed Madawalabu University 10 PUBLICATIONS 11 CITATIONS SEE PROFILE Some of the authors of this publication are also working on these related projects: Establishment of entrepreneurship Development Center View project All content following this page was uploaded by Abdulnasir Abdulmelike Mohammed on 04 July 2018. The user has requested enhancement of the downloaded file. ጅማ ዩኒቨርሲቲ www.ju.edu.et Entrepreneurship and Enterprise Development Lecture Note By: Abdulnasir A. 2018  Contents 1. Entrepreneurship and free enterprises 2. Small Businesses 3. Business planning 4. Product and Service concept 5. Marketing and New Venture Development 6. Organizing and Financing the New Venture 7. Managing Growth and Transaction  Chapter 1: Entrepreneurship and free enterprises Definition □ Entrepreneur/ship, just like management, has no single definition. An entrepreneur is a person who is action oriented, highly motivated, takes risks to achieve goals An entrepreneur is a person who establishes his own business with the intention of making profits An entrepreneur is a person who only provides capital without taking active part in the leading role in an enterprise. An entrepreneur is a one who innovates, raise money, assemble input, choose managers and set the organization growing.  Continued… □ To sum up in the light of the developments, there are four key elements of entrepreneurs. These are: Vision (identifying emerging opportunities) Innovation (creating new business or new ways of doing something) Risk bearing (taking risk and facing uncertainty) Organizing (collection and coordination of the necessary resources)  Entrepreneur & Entrepreneurship □ Entrepreneurship, like an entrepreneur, has no single definition. □ Entrepreneur is a person while entrepreneurship is a process. □ Entrepreneurship is aprocess under taken by an entrepreneur to create incremental value and wealth by discovering investment opportunities, organizing enterprises, undertaking risks andeconomic uncertainty and there by contributing to economic growth  Historical Perspective □ During the ancient period the word entrepreneur was used to refer to a person managing large commercial projects through the resources provided to him. □ In the 17th Century a person who has signed a contractual agreement with the government to provide stipulated products or to perform service was considered as entrepreneur. □ In the 18th Century the first theory of entrepreneur has been developed by Richard Cantillon. He said that an entrepreneur is a risk taker. If we consider the merchant, farmers and /or the professionals they all operate at risk. For example, the merchants buy products at a known price and sell it at unknown price and this shows that they are operating at risk.  Continued… □ The other development during the 18th Century is the differentiation of the entrepreneurial role from capital providing role. The later role is the base for today’s venture capitalist. □ In the late 19th and early 20th Century an entrepreneur was viewed from economic perspectives. The entrepreneur organizes and operates an enterprise for personal gain. □ In the middle of the 20th and early 21thCentury the notion of an entrepreneur as an inventor was established.  Role of entrepreneurs within the economy □ Capital formulations: - Entrepreneurs mobilize the idle saving of the public through the issue of industrial securities. □ Improvement in per capita income □ Generation of employment □ Improvement of the living standard □ Economic independence □ Balances regional development □ Innovation: the commercial application of invention □ Imitating role  Entrepreneurs, Invention and innovation □ Entrepreneurs □ Invention □ Innovation  Areas of Innovation □ New product □ New Services □ New Production Techniques □ New Way of Delivering the Product or Service to the Customer □ New Operating Practices □ New Means of Informing the Customer about the Product □ New Means of Managing Relationship within the Organization □ New Ways of Managing Relationships between Organizations  Chapter Two : Small Businesses □ Small business is a business which is independently owned and operated, not dominated in its field of operation and meets certain standard of number of employee and capital. □ In general there are two approaches to define a small business; measures of the size and economic/ control criteria  Size criteria □Some of the criteria’s to measure the size are Number of employees: - for example in Ethiopian case it is Less than 30 employees (6-30). Investment paid up capital: - for Ethiopia it is 100,001- 1,500,000 (industry), and 50,001-500,000 birr (service). Volume of sales, production and deposits are also used to measure the size of business If there is ambiguity in the definition between the usage of man power and capital, it is recommended to use the total paid up capital as a measurement criteria.  Economic/Control criteria □ Market share: has no significant influence on the price of national quantities of goods sold to any significant level. □ Independence: independence means that an owner has control of the business himself. □ Personalized management: It implies that the owner actively participates in all aspects of the management of the business and in major decision making process. □ Technology: small business is generally labor intensive □ Geographical area of operation: the area of operation of a small business is often local  Economic, social and political aspects of small business enterprises in Ethiopia □ Socialistic idea (the equality argument ) □ Less capital and more labor □ Removing regional imbalances (the decentralization arguments) □ Creating self-employment opportunities □ Ancillary functions □ Export promotion □ Supply of critical raw materials  Small business failure factors □ Management incompetence □ Poor financial control □ Lack of adequate capital □ Over investment in fixed asset □ Failure to plan current as well as future operation □ Failure to adopt proper inventory control system □ Improper Attitude (The entrepreneur may not respect time, employees and may have lazy lifestyle and dictatorial style of work) □ Inadequate marketing plan □ Incorrect market identification □ Poor distribution channel □ Weak marketing communication or promotion  How to avoid the pitfalls/difficulties of a small business □ Know your business in depth: □ Have a Good Relation with Stake Holders □ Prepare business plan □ Managing financial resources □ Understanding financial statement □ Learn to manage people effectively □ Keep in tune with yourself □ Take up short professional courses in management (entrepreneurship): □ Be sensitive to your customers  Setting up a small business □ The first and for most step in starting a small business is to find out a suitable business idea and give a practical shape to the idea. □ To think of a goal for the business in the long run rather than to look for the immediate tomorrow is called Basic Business Idea. □ The basic business idea is to meet the broadest needs of the customers and has a long life perhaps from 5-50 years. □ The basic business idea facilitates choice of product under an overall plan.  Continued… □ The product line consists of different families of products. □ The product range on the other hand includes different sizes of the product within the product line. □ In order to establish a business venture with an entrepreneurial system an entrepreneur needs to take the following steps 1. Search for business idea 2. Process the idea 3. Select the best idea  What a project an entrepreneur should have? □ The project an entrepreneur chooses should be based on SWOT analysis. Strength Opportunity Weakness Threat  Project classifications □ Quantifiable and Non-Quantifiable projects □ Sectorial projects :-under this the following projects can be mentioned Agricultural sector Power sector Industry and mining Social service sector Transport and communication  Continued… □ Techno-economic project Factor intensity oriented classification (labor vs capital intensive) Causation oriented classification Magnitude oriented classification □ Financial institution classification New project Expansion project Modernization project Diversification project  Characteristics of small scale industry □ Closely held □ Personal character □ Limited scale of operation □ Indigenous resources □ Labor intensive □ Local area of operation □ Simple organization  Chapter Three: Business planning □ A business plan is a written document prepared by the individual entrepreneur or partners that describes the goals and objectives of the business along with steps necessary to achieve those goals. □ Business plan is also defined as a written summary of the entrepreneur’s proposed venture, its operational and financial details, its marketing opportunities & strategy, and its manager’s skills and abilities.  Purpose When business plans are produced □ At star-up of new business □ Buyout stage/business purchase □ Ongoing review stage □ Major decision  Purpose Who is going to prepare business plans □ Managers: □ Owners: □ Lenders:  Purpose Why business plans □ Managers: - Clarifying ideas and finding strength, weakness, opportunity & threats. □ Owners:- Assessing feasibility & viability of business, setting objective & budgets: □ Lenders: - Evaluate risk us. Benefits, appraise quality of management  Scope of Business plan □ Business plan includes information on the following aspects: Economic/Market aspects: Economic justification like market size, market growth, market share. Technical aspects: Details on technology needed, equipment and match their sources Financial aspects: Total investment, cost of capital, ROI, source of capital, enterprise contribution Production aspects: product, its design, standard of quality, usage, production aspect like production process, schedule, technology. Managerial aspects: Qualification & experience, commitment & planning  Formats of a business plan □ Executive summary □ Company History □ Business Profile □ Business Strategy □ Description of the firm’s product □ marketing strategy □ Competitors Analysis □ Officers’ owners’ Resumes □ Plan of operation □ Financial data □ Loan Proposal  Common Mistakes in Business Plan Preparation □ Single-Purpose use □ One- person commitment □ Being neglect □ Unworkable document □ Unbalanced application □ Disillusionment □ Too- action Oriented □ No Performance Standard □ Poor progress Control □ Early consumption  Chapter Five: Marketing and New Venture Development □ Marketing Research: is the systematic gathering, recording and analyzing of data about problems related to the marketing of goods and services. □ It is the function which links the consumer [customer] and public to the marketer through information-information used to identify and define marketing opportunities and problems; generate, define, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process.  Characteristics of a marketing research □ Marketing research should be systematic □ Marketing research is a process □ Data may be available from difference sources □ Marketing research may be applied to any aspect of marketing that requires information to aid decision making. □ Research findings and their implementation must be communicated to the appropriate decision matter. In conducting marketing research, scientific methods should be followed. The scientific method requires objectivity, accuracy, and thoroughness.  The Scope of Marketing Research □ Market Research □ Sales analysis/Research □ Consumer Research □ Advertising Research  The Marketing Research Process □ Problem definition □ Examination of primary & secondary data □ Analysis of data □ Making Recommendation □ Implementation of findings  Marketing Intelligence □ Marketing intelligence is the systematic collection and analysis of publicly available information about competitors and developments in the marketplace. □ Techniques range from quizzing the company’s own employees and benchmarking competitors’ products to researching internet, lurking around industry tradeshows, and even routing through rivals’ trash bins.  Competitive Analysis □ Competitive analysis is a widely used approach for developing strategies in many industries. □ According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces: 1. Rivalry among competing firms 2. Potential entry of new competitors 3. Potential development of substitute products 4. Bargaining power of suppliers 5. Bargaining power of consumers  Marketing Strategies □ Marketing strategy refers to the marketing logic by which the company hopes to create customer value and achieve profitable relationships. □ Companies know that they cannot profitably serve all consumers in a given market. □ Thus, each company must divide up the total market, choose the best segment, and design strategies for profitably serving chosen segments. This process involves market segmentation, target marketing, differentiation (actually differentiating the market offering to create superior customer value), and positioning.  Diversification Strategies □ In search of growth, a firm has four options: 1. Market Penetration: the firm can stay with its base product or service, and its existing market 2. Product Development: the firm can develop related or new products for its existing market. 3. Market Development: the firm can develop related or new markets for its existing products. 4. Entry in to new Market: the firm might try to move into related or new markets with related or new products.  International Markets □ International marketing is important because of the economic theory of comparative advantage. □ This theory states that each country has natural advantages over others in the production of certain goods, and therefore specialization and the trading of surpluses will benefit everybody.  Reasons for Internationalization □ Small or saturated domestic markets □ Economies of scale □ International production □ Customer relationships □ Market diversification □ International competitiveness  Chapter 6: Organizing and Financing the New Venture When establishing an entrepreneurial team people should look for □ Those who share the same values and vision for the company □ Those who have complementary skills □ Those who have integrity □ Those who can manage the risks of a small business  Continued… The following are common errors in team building □ Not considering experience and qualification of each member □ Putting together a team whose members have different goals □ Using only insiders in the board of directors □ Using family members as attorney and accountant □ Giving the management team all stock in lieu of salary  Sources of Finance  Debt financing (short term) □Trade credit (Open-book credit & Promissory notes) □Loans (Secured Loans & Unsecured Loans) □Commercial paper  Debt as Long-term financing □Long-term loans □Lease □Bonds  Sources of Finance  Equity Financing □Stock (Preferred & Common stock) □Retained earnings □Sale of assets  Venture capital Venture capitalists may be investment bankers when they invest capital, make loans, and give management advice intended to assist the company to achieve significant growth. Many companies financed by venture capitalists convert from closely held corporations to public corporations during the course of their growth.  Government program □In USA Small Business Administration loans are available to smaller businesses.  Chapter 7: Managing Growth and Transaction Preparing for the Launch of the Venture □ Hiring New Employees □ Creating Awareness of the New Venture Managing Early Growth of Venture □ Motivating and leading the team □ Financial Control □ Managing Cash Flow □ Managing Assets □ Managing Costs and Profits □ Taxes  New Venture Expansion Strategies □ Mergers & acquisitions □ Licensing □ Franchising View publication stats