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Jomo Kenyatta University of Jomo Kenyatta University of Agriculture and TechnologyAgriculture and Technology

Master of Business Master of Business AdministrationAdministration

HCEB 3111: Entrepreneurship HCEB 3111: Entrepreneurship and Small Business Managementand Small Business Management

Lecturer: Fred Mugambi MwirigiLecturer: Fred Mugambi Mwirigi

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Key DefinitionsKey Definitions Entrepreneur-Entrepreneur- this is a person who this is a person who

identifies an opportunity, marshals identifies an opportunity, marshals resources, and takes calculated risks resources, and takes calculated risks associated with starting a new associated with starting a new enterprise.enterprise.

Entrepreneurship-Entrepreneurship- this is a dynamic this is a dynamic process of creating incremental process of creating incremental wealth by providing unique value at a wealth by providing unique value at a profit (Robert Ronstadt)profit (Robert Ronstadt)

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IntroductionIntroduction The term ‘Entrepreneur was derived from the The term ‘Entrepreneur was derived from the

17th century French word 17th century French word entrepredreentrepredre which which referred to individuals who undertook the risk referred to individuals who undertook the risk of new enterprise. of new enterprise.

Mainly these were contractors who bore the Mainly these were contractors who bore the risk of profit and loss. The term entrepreneur risk of profit and loss. The term entrepreneur as we know it today was introduced by Richard as we know it today was introduced by Richard Cantillon in 1755 but the concept gained Cantillon in 1755 but the concept gained prominence in the 1800s due to the work of prominence in the 1800s due to the work of J.B. Say who used the term to describe J.B. Say who used the term to describe someone who shifts economic resources out of someone who shifts economic resources out of an area of lower productivity into one of higher an area of lower productivity into one of higher productivity and greater yield. productivity and greater yield.

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Introduction contd.Introduction contd. According to Cantillon an entrepreneur is a According to Cantillon an entrepreneur is a

person who pays a certain price for a product person who pays a certain price for a product and resells it at an uncertain price. According and resells it at an uncertain price. According to him entrepreneurs are opportunity seekers to him entrepreneurs are opportunity seekers and opportunity managers with a view of and opportunity managers with a view of making maximum returns from these making maximum returns from these opportunities. Classical economists such as opportunities. Classical economists such as Adam Smith ascribed various other meanings Adam Smith ascribed various other meanings to the concept of entrepreneurship. Adam to the concept of entrepreneurship. Adam Smith branded an entrepreneur an Smith branded an entrepreneur an industrialist who has the potential to foresee industrialist who has the potential to foresee hidden demand for goods and services. hidden demand for goods and services.

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Importance of Importance of EntrepreneurshipEntrepreneurship

Creates Employment.Creates Employment. Provides necessary Provides necessary

Goods and ServicesGoods and Services Provides opportunities Provides opportunities

for on-the-job training for on-the-job training Earns the country Earns the country

foreign exchangeforeign exchange Contributes to the Contributes to the

Gross Domestic Gross Domestic Production (GDP)Production (GDP)

Provides revenue to Provides revenue to the government the government through payment of through payment of taxes and leviestaxes and levies

Helps to decentralize Helps to decentralize economic activities and economic activities and therefore equitably therefore equitably redistribute wealthredistribute wealth

Utilizes and conserves Utilizes and conserves local resourceslocal resources

Promotes technology Promotes technology development and development and dissemination of dissemination of informationinformation

Serves as a launching Serves as a launching pad for large pad for large enterprisesenterprises

Improves general living Improves general living standards of the societystandards of the society

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Personal Characteristics of Personal Characteristics of Potential EntrepreneursPotential Entrepreneurs

1. Initiative/Risk Taker1. Initiative/Risk Taker Takes actions that go beyond job requirements Takes actions that go beyond job requirements

or the demand of the situation.or the demand of the situation. Does things before being asked or forced to by Does things before being asked or forced to by

events.events. Acts to extend the business into new areas, Acts to extend the business into new areas,

products or services.products or services. Sees and acts on opportunities.Sees and acts on opportunities. Looks for and takes action on opportunities.Looks for and takes action on opportunities. Sees and acts on new business opportunities.Sees and acts on new business opportunities. Seizes unusual opportunities to obtain financing, Seizes unusual opportunities to obtain financing,

equipment, land, workspace or assistance.equipment, land, workspace or assistance.

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Characteristics contd.Characteristics contd.2. Persistence and Patient2. Persistence and Patient Takes repeated action to overcome obstacles that get in the Takes repeated action to overcome obstacles that get in the

way of reaching goals.way of reaching goals. Takes repeated or different actions to overcome an Takes repeated or different actions to overcome an

obstacle.obstacle. Takes action in the fact of significant obstacle.Takes action in the fact of significant obstacle.

3. Information Seeking and Opportunity Seeking3. Information Seeking and Opportunity Seeking Takes action on own to get information to help reach Takes action on own to get information to help reach

business objectives or clarify business problems.business objectives or clarify business problems. Does personal research on how to provide a product or Does personal research on how to provide a product or

service.service. Consults experts for business or technical advice.Consults experts for business or technical advice. Seeks information or asks questions to clarify a client’s or a Seeks information or asks questions to clarify a client’s or a

supplier’s needs.supplier’s needs. Personally undertakes market research, analysis or Personally undertakes market research, analysis or

investigation.investigation. Uses contacts or information to obtain useful information.Uses contacts or information to obtain useful information.

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Characteristics contd.Characteristics contd.4. Concern for high quality work4. Concern for high quality work Acts to do things that meet or beat existing standards of Acts to do things that meet or beat existing standards of

excellence.excellence. States a desire to produce or sell a top or better quality States a desire to produce or sell a top or better quality

product or service.product or service. Compares own work or own company’s work favorably to Compares own work or own company’s work favorably to

that of others.that of others.

5. Commitment to Work Contract5. Commitment to Work Contract Places the highest priority on getting a job completed.Places the highest priority on getting a job completed. Makes a personal sacrifice or expends extraordinary Makes a personal sacrifice or expends extraordinary

effort to complete a job.effort to complete a job. Accepts full responsibility for problems in completing a Accepts full responsibility for problems in completing a

job for customers.job for customers. Pitches in with workers or works in their place to get the Pitches in with workers or works in their place to get the

job done.job done. Expresses concern for satisfying the customer.Expresses concern for satisfying the customer.

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Characteristics contd.Characteristics contd.

6. Efficiency Orientation6. Efficiency Orientation Finds ways to do things faster or with fewer resources or Finds ways to do things faster or with fewer resources or

at lower cost.at lower cost. Looks for or finds ways to do things faster or at less cost.Looks for or finds ways to do things faster or at less cost. Uses information or business tools to improve efficiency.Uses information or business tools to improve efficiency. Express concern about cost vs benefits of some Express concern about cost vs benefits of some

improvement, change or cause of action.improvement, change or cause of action.7. Systematic Planning7. Systematic Planning Develops and uses logical, step-by-step plans to reach Develops and uses logical, step-by-step plans to reach

goals.goals. Plans by breaking a large task down into sub-task.Plans by breaking a large task down into sub-task. Develops plans that anticipate obstacles.Develops plans that anticipate obstacles. Evaluates alternatives.Evaluates alternatives. Takes a logical and systematic approach to activities.Takes a logical and systematic approach to activities. Identifies new and potentially unique ideas to reach goals.Identifies new and potentially unique ideas to reach goals. Switches to an alternative strategy to reach a goal.Switches to an alternative strategy to reach a goal. Generates new ideas or innovative solutions.Generates new ideas or innovative solutions.

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Characteristics contd.Characteristics contd.8. Self-Confidence8. Self-Confidence Has a strong belief in self and own abilities.Has a strong belief in self and own abilities. Expresses confidence in own ability to complete a task or meet Expresses confidence in own ability to complete a task or meet

a challenge.a challenge. Sticks with own judgement in the face of opposition or early Sticks with own judgement in the face of opposition or early

lack of success.lack of success. Does something that he says is risky.Does something that he says is risky. Confronts problems and issues with others directly.Confronts problems and issues with others directly. Confronts problems with others directly.Confronts problems with others directly. Reprimands or disciplines those failing to perform as expected.Reprimands or disciplines those failing to perform as expected.

9. Persuasion9. Persuasion Successfully persuades others.Successfully persuades others. Convinces someone to buy a product or service.Convinces someone to buy a product or service. Convinces someone to provide financing.Convinces someone to provide financing. Convinces someone to do something else that he would like Convinces someone to do something else that he would like

that person to do.that person to do. Asserts strong confidence in own company’s products or Asserts strong confidence in own company’s products or

services.services.

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Characteristics of Small Characteristics of Small BusinessBusiness

Small initial capital investment.Small initial capital investment. Mostly privately owned and organized as sole Mostly privately owned and organized as sole

proprietorship.proprietorship. Labor intensive – with tendency of utilizing Labor intensive – with tendency of utilizing

labor more than machinery.labor more than machinery. Proprietor and their family members form the Proprietor and their family members form the

biggest share of the work-force.biggest share of the work-force. Most of the money come from entrepreneurs Most of the money come from entrepreneurs

savings.savings. Weak financial discipline – rules and Weak financial discipline – rules and

regulations of financial management not regulations of financial management not strictly adhered to.strictly adhered to.

Organization and management are poor and Organization and management are poor and negligible in many cases.negligible in many cases.

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Characteristics Contd.Characteristics Contd. Short gestation period – short time between initial Short gestation period – short time between initial

investment and generation of returns.investment and generation of returns. Flexibility to adapt rapidly to changing demands and Flexibility to adapt rapidly to changing demands and

conditions.conditions. Exploitation of human resources – mostly offer poor Exploitation of human resources – mostly offer poor

pay, poor working conditions, few or no fringe pay, poor working conditions, few or no fringe benefits etc.benefits etc.

Use of cheap and easy technology.Use of cheap and easy technology. Short term planning.Short term planning. Poor book keeping practices.Poor book keeping practices. High rates of corruption, cheating etc – especially in High rates of corruption, cheating etc – especially in

financial presentations.financial presentations. High incident of infant mortality rate – few survive High incident of infant mortality rate – few survive

the teething problems.the teething problems.

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Strengths of Small BusinessStrengths of Small Business Low capital Low capital

investmentinvestment Highly liquidHighly liquid Credit worthiness Credit worthiness

from suppliersfrom suppliers Close contact with Close contact with

customerscustomers Efficient distribution Efficient distribution

channelschannels Human Resources Human Resources

flexibilities flexibilities

Motivated Motivated managers/workers managers/workers

Team workTeam work Availability of Availability of

materials- locally materials- locally available available

General FlexibilityGeneral Flexibility Commitment of Commitment of

executivesexecutives Speedy decision Speedy decision

making making

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Weaknesses of Small Weaknesses of Small BusinessBusiness

Little support from Little support from governmentgovernment

Poor access to fundsPoor access to funds Inefficient capital Inefficient capital

budgetingbudgeting Inadequate returnsInadequate returns High competitionHigh competition Low product varietyLow product variety Poor promotion Poor promotion

strategystrategy

Unskilled workforce Unskilled workforce High turnoverHigh turnover Obsolete technologyObsolete technology Poor quality productsPoor quality products Lack of enough raw Lack of enough raw

materialsmaterials Poor managementPoor management Poor planning and Poor planning and

control etccontrol etc

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Motivators for Going into BusinessMotivators for Going into Business

1.1. Need for independence- entrepreneurs are Need for independence- entrepreneurs are independent people who value their independent people who value their freedom. They are driven by the need to be freedom. They are driven by the need to be ‘their own boss’. ‘their own boss’.

Many find employment both restrictive in Many find employment both restrictive in thought and vision and identify business as thought and vision and identify business as an exit route from this predicament. an exit route from this predicament.

Sometimes, entrepreneurial individuals Sometimes, entrepreneurial individuals working in formal organizations will find working in formal organizations will find themselves slowed by bureaucracy and the themselves slowed by bureaucracy and the general speed of operation within the firm. general speed of operation within the firm.

This can be very frustrating and inhibitive of This can be very frustrating and inhibitive of entrepreneurial freedom. Most of the time entrepreneurial freedom. Most of the time the solution to this is to start one’s own the solution to this is to start one’s own enterprise.enterprise.

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Motivators contd.Motivators contd. 2. Need for personal and professional growth- 2. Need for personal and professional growth-

entrepreneurs have a very strong need to entrepreneurs have a very strong need to achieve. Employment falls short in trying to achieve. Employment falls short in trying to satisfy this need and entrepreneurs are left satisfy this need and entrepreneurs are left with no option but to turn to business in with no option but to turn to business in order to achieve this goal. order to achieve this goal.

Within their own firms entrepreneurs are not Within their own firms entrepreneurs are not only able to try out different options but they only able to try out different options but they also free themselves from the fear of also free themselves from the fear of ‘gambling with the employer’s resources’. ‘gambling with the employer’s resources’.

Entrepreneurs are naturally innovative Entrepreneurs are naturally innovative people and unless they operate in people and unless they operate in environments that allow them to nurture environments that allow them to nurture their innovativeness they are likely to loose their innovativeness they are likely to loose their entrepreneurial flair.their entrepreneurial flair.

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Motivators contd.Motivators contd.

3. Need for security- employment is 3. Need for security- employment is just one source of financial security just one source of financial security and for many it is not enough. and for many it is not enough.

That is why a number of That is why a number of entrepreneurs will find it necessary entrepreneurs will find it necessary to turn to business as a second to turn to business as a second source of financial security. source of financial security.

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Reasons for the Emergence Reasons for the Emergence of MSMEsof MSMEs

1.1. Technological changes- changes in Technological changes- changes in technology have greatly altered the demand technology have greatly altered the demand and supply chain of various products. and supply chain of various products.

Technological change has also resulted in Technological change has also resulted in the development of new products, systems the development of new products, systems and processes of production and new and processes of production and new industries. industries.

In order to fill the market gap that these In order to fill the market gap that these changes occasion, entrepreneurs have had changes occasion, entrepreneurs have had to develop new enterprises. For example, in to develop new enterprises. For example, in the late 1990s and early 2000s high demand the late 1990s and early 2000s high demand for internet points in Kenya and other East for internet points in Kenya and other East African countries led to an upsurge in the African countries led to an upsurge in the number of MSMEs started to satisfy this number of MSMEs started to satisfy this demand. demand.

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Reasons contd.Reasons contd.

2. Structural changes in demand- individual 2. Structural changes in demand- individual customers are increasingly demanding customers are increasingly demanding individualized products. individualized products.

Also, customers are increasingly Also, customers are increasingly demanding variety and higher quality demanding variety and higher quality products. All this has led to a shift in the products. All this has led to a shift in the general structure of demand thereby general structure of demand thereby giving rise to a demand gap. giving rise to a demand gap.

In a bid to bridge this gap new enterprises In a bid to bridge this gap new enterprises have been developed in various industries.have been developed in various industries.

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Reasons contd.Reasons contd.

3. Unemployment of labor force- As a 3. Unemployment of labor force- As a result of organizational realignment result of organizational realignment many skilled individuals have found many skilled individuals have found themselves jobless. themselves jobless.

Many are, also, dissatisfied with their Many are, also, dissatisfied with their current jobs, thus they feel current jobs, thus they feel underemployed. underemployed.

Enterprise formation has worked well Enterprise formation has worked well as an exit avenue for the unemployed as an exit avenue for the unemployed and the underemployed. and the underemployed.

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Reasons contd.Reasons contd.4. Macro-economic conditions and economic 4. Macro-economic conditions and economic

development- these include factors such as development- these include factors such as inflation, currency fluctuations and other inflation, currency fluctuations and other economic factors that are beyond the control economic factors that are beyond the control of any single enterprise. For example of any single enterprise. For example increased value of local currency against increased value of local currency against major currencies would translate in to better major currencies would translate in to better returns for importers returns for importers

5. Governmental reasons- these include factors 5. Governmental reasons- these include factors that border on legislation and government that border on legislation and government policy. For example, when the government policy. For example, when the government directs resources to a certain directs resources to a certain

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Factors that Influence Factors that Influence Entrepreneurial PotentialEntrepreneurial Potential

1. Personal desirability- this is a combination of all 1. Personal desirability- this is a combination of all the needs and desires of individuals that propel the needs and desires of individuals that propel them to start businessesthem to start businesses

2. Perceived social norms- these are the perceptions 2. Perceived social norms- these are the perceptions of the society about various issues. For example if of the society about various issues. For example if the society perceives a certain business the society perceives a certain business undertaking as a preserve of a certain gender it is undertaking as a preserve of a certain gender it is likely to support that gender and not the other in likely to support that gender and not the other in that undertaking.that undertaking.

3. Perceived self-efficacy- self-efficacy has been 3. Perceived self-efficacy- self-efficacy has been described as a contextual judgment by individuals described as a contextual judgment by individuals about the appropriateness of their skills and about the appropriateness of their skills and abilities for achieving a given goal. abilities for achieving a given goal.

There is, thus, need for entrepreneurs to have the There is, thus, need for entrepreneurs to have the skills, experience, knowledge and resources skills, experience, knowledge and resources needed in order to start and run an enterprise needed in order to start and run an enterprise successfully. successfully.

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Are good entrepreneurs necessarily Are good entrepreneurs necessarily good managers???good managers???

EntrepreneurEntrepreneur Manages own resources to Manages own resources to

maximum profitsmaximum profits Have skills of a wide Have skills of a wide

scope- multi tasks.scope- multi tasks. Set their own goals and Set their own goals and

are passionate to achieve are passionate to achieve themthem

Exhibit a lot of creativityExhibit a lot of creativity Take highly risky decisionsTake highly risky decisions Full commitment to Full commitment to

enterprise, ie, towards enterprise, ie, towards goal achievementgoal achievement

Motivated by success of Motivated by success of their enterprisetheir enterprise

ManagerManager Manages others’ resourcesManages others’ resources Specific in their skills, eg, Specific in their skills, eg,

sales managerssales managers Concerned with efficiency Concerned with efficiency

of organization and stick of organization and stick to policiesto policies

Limited creativityLimited creativity Minimize risks in decision Minimize risks in decision

makingmaking Commitment depends on Commitment depends on

motivationmotivation Largely motivated by Largely motivated by

rewards.rewards.

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INTRAPRENEURSHIPINTRAPRENEURSHIP These are corporate entrepreneursThese are corporate entrepreneurs They are creative and innovative employees They are creative and innovative employees

in employment in employment Intrapreneurship operates in large Intrapreneurship operates in large

businesses or organizations which are businesses or organizations which are business minded. business minded.

Intrapreneurs seek to operate autonomously Intrapreneurs seek to operate autonomously for the well-fare of the organization.for the well-fare of the organization.

Intra-means within; therefore, Intra-means within; therefore, intrepreneurship is a process whereby an intrepreneurship is a process whereby an individual or group within a large individual or group within a large organization creates something new or organization creates something new or something different ready to maximize the something different ready to maximize the available opportunities to that organization.available opportunities to that organization.

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Intrapreneurship Contd.Intrapreneurship Contd. The bureaucracy of large organizations like The bureaucracy of large organizations like

government parastatals and some NGOs do government parastatals and some NGOs do not work well to accommodate not work well to accommodate entrepreneurship entrepreneurship

Intrapreneurs are innovative employees who Intrapreneurs are innovative employees who disrupt the company in constructive ways to disrupt the company in constructive ways to initiate new products or services.initiate new products or services.

These individuals often work independently These individuals often work independently or with some degree of autonomy. or with some degree of autonomy.

However, although they are given the However, although they are given the latitude to explore new ideas, there is no latitude to explore new ideas, there is no presumption of business ownership apart presumption of business ownership apart from the mother organizations.from the mother organizations.

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Intrapreneurship Contd.Intrapreneurship Contd. More often than not, entrepreneurial More often than not, entrepreneurial

employees find themselves at odds with employees find themselves at odds with their companies and leave to pursue their their companies and leave to pursue their ideas, ie, to venture into own businesses.ideas, ie, to venture into own businesses.

Corporate entities are increasingly Corporate entities are increasingly embracing intrapreneurship to raise embracing intrapreneurship to raise productivity and so increase profitabilityproductivity and so increase profitability

This also helps them to compete with This also helps them to compete with smaller more flexible firmssmaller more flexible firms

They are doing this by breaking down They are doing this by breaking down larger components into small business larger components into small business units that can be profitableunits that can be profitable

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End of Lesson OneEnd of Lesson One

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Theories of Theories of EntrepreneurshipEntrepreneurship

Several theories have been developed to Several theories have been developed to explain why entrepreneurs behave the explain why entrepreneurs behave the way they do. The common ones are as way they do. The common ones are as below. below.

EconomicEconomic PsychologicalPsychological SociologicalSociological

There has been a lot of debate as to There has been a lot of debate as to whether entrepreneurs are born or whether entrepreneurs are born or made. made.

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Economic TheoryEconomic Theory This theory believes that This theory believes that

entrepreneurial behavior is influenced entrepreneurial behavior is influenced by economic factors. by economic factors.

An entrepreneur is a person who brings An entrepreneur is a person who brings together the resources or factors of together the resources or factors of production into a combination that production into a combination that makes their value better than before. makes their value better than before.

Entrepreneurs are seen as innovators Entrepreneurs are seen as innovators who bring new production into a who bring new production into a production process.production process.

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According to Schumpeter According to Schumpeter entrepreneurs are innovators. He entrepreneurs are innovators. He says that entrepreneurs can says that entrepreneurs can introduce new services or products:introduce new services or products: By introducing new methodsBy introducing new methods By finding new sources of materials of By finding new sources of materials of

creating a new businesscreating a new business Opening new marketsOpening new markets By providing some kind of industrial re-By providing some kind of industrial re-

organizationorganization

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According to Cantillon entrepreneurs According to Cantillon entrepreneurs are seen as risk takers. They are seen are seen as risk takers. They are seen as the bearers or insurer of risk. as the bearers or insurer of risk.

He argues that an entrepreneur is a He argues that an entrepreneur is a combiner of factors of production – combiner of factors of production – resources. This way, wealth is created. resources. This way, wealth is created.

For one to succeed other support factors For one to succeed other support factors have to be in place. This includes an have to be in place. This includes an enabling environment in areas of enabling environment in areas of government policies, infrastructure etc.government policies, infrastructure etc.

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Psychological Theory Psychological Theory The theory argues that entrepreneurs The theory argues that entrepreneurs

have unique values, attitudes and have unique values, attitudes and needs which drive them. needs which drive them.

It is most concerned with personality It is most concerned with personality traits as the main determinants of traits as the main determinants of entrepreneurial behavior. entrepreneurial behavior.

People are likely to become People are likely to become entrepreneurs because of high liking entrepreneurs because of high liking of independence, attitude and having of independence, attitude and having unsatisfied needs. unsatisfied needs.

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According to D. McClelland high need According to D. McClelland high need for achievements is the main for achievements is the main determinant for entrepreneurial determinant for entrepreneurial behavior. behavior.

High need for achievement tends to High need for achievement tends to make them desire to take personal make them desire to take personal responsibility and calculated risks responsibility and calculated risks (moderate). (moderate).

They are people with little interest for They are people with little interest for routine activities and tend to work routine activities and tend to work hard and take challenge. hard and take challenge.

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N-ach is an inner concern that exists N-ach is an inner concern that exists within a person and creates within within a person and creates within that person a desire for success or that person a desire for success or accomplishment.accomplishment.

Standards for achievement set early Standards for achievement set early in life have a bearing on how much in life have a bearing on how much individuals actually achieve.individuals actually achieve.

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The Psychological theory has three The Psychological theory has three components:components:

Achievement Motivation Achievement Motivation (McClelland)(McClelland)

Locus of ControlLocus of Control Self ActualizationSelf Actualization

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Achievement Motivation (McClelland)Achievement Motivation (McClelland)

This theory has provided a lot of literature This theory has provided a lot of literature concerning entrepreneurial behavior. concerning entrepreneurial behavior.

Human beings are seen to be driven by 3 Human beings are seen to be driven by 3 basic factors seen to be basic factors seen to be environmentally acquired. These environmentally acquired. These motives are:motives are:

1. Need for achievement (N-ach)1. Need for achievement (N-ach) 2. Need for power (N-pw)2. Need for power (N-pw) 3. Need for affiliation (N-aff)3. Need for affiliation (N-aff)

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Locus of ControlLocus of Control Talks about the need to control or the Talks about the need to control or the

expectancy to make things happen. expectancy to make things happen. Proponents of the theory argue that Proponents of the theory argue that individuals always perceive the outcomes individuals always perceive the outcomes of an events.of an events.

When we have a strong internal locus of When we have a strong internal locus of control we see the outcome of an event as control we see the outcome of an event as a result of our behavior. a result of our behavior.

The external control is the belief that an The external control is the belief that an activity occurred due to others. People activity occurred due to others. People with strong internal locus control are with strong internal locus control are usually classy and with a self-concept. usually classy and with a self-concept. They tend to take or set goals and strive They tend to take or set goals and strive for their success.for their success.

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External locus of control occurs when an External locus of control occurs when an individual believes that the outcome of individual believes that the outcome of an activity is due to factors beyond them. an activity is due to factors beyond them.

While it is good to control your While it is good to control your environment, it is also good to be environment, it is also good to be prepared about the external prepared about the external environment. You should also not environment. You should also not underestimate external power. e.g. underestimate external power. e.g. Bankers or banks or financial institutions Bankers or banks or financial institutions could be the external powers and are could be the external powers and are vital in any business environment.vital in any business environment.

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Self ActualizationSelf Actualization

Was advanced by Abraham Maslow, who Was advanced by Abraham Maslow, who said that human needs are arranged in said that human needs are arranged in hierarchical needs, beginning from the hierarchical needs, beginning from the most basic.most basic.

1. Basic needs, e.g., food, clothing.1. Basic needs, e.g., food, clothing.

2. Safety and security.2. Safety and security.

3. Affiliation.3. Affiliation.

4. Esteem/recognition.4. Esteem/recognition.

5. Actualization – need for 5. Actualization – need for accomplishment.accomplishment.

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Self-actualization advocates Self-actualization advocates realization of one’s full potential. It realization of one’s full potential. It means that one’s behavior does not means that one’s behavior does not depend on others but a particular depend on others but a particular oneself. oneself.

One has to realize his full potentials One has to realize his full potentials and then strive to realize them. and then strive to realize them.

To be able to achieve this level, one To be able to achieve this level, one has to know his or her strengths and has to know his or her strengths and exploit them effectively.exploit them effectively.

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Sociological TheorySociological Theory It maintains that environmental factors such It maintains that environmental factors such

as beliefs, culture, social structures of as beliefs, culture, social structures of organizations are the main determinants of organizations are the main determinants of entrepreneurial behavior. entrepreneurial behavior.

This is according to Welser (1904). For This is according to Welser (1904). For example, within the Asian community, one who example, within the Asian community, one who succeeds in business is respected and seen as succeeds in business is respected and seen as leader.leader.

According to Kent (1981) for one to succeed as According to Kent (1981) for one to succeed as an entrepreneur he needs to develop an an entrepreneur he needs to develop an association or relationship with another person association or relationship with another person who then mentors him. This linkage provides who then mentors him. This linkage provides social support, which is important in business.social support, which is important in business.

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End of lesson TwoEnd of lesson Two

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Regulating Small FirmsRegulating Small Firms Enterprise regulation is important Enterprise regulation is important

since it helps to:since it helps to:1.1. Plan for enterprises in an economy Plan for enterprises in an economy

(in terms of service provision)(in terms of service provision)2.2. Mitigate deterrents to enterprise Mitigate deterrents to enterprise

and industry growthand industry growth3.3. Ensure free and fair competition Ensure free and fair competition

among firmsamong firms4.4. Gauge and forecast contribution of Gauge and forecast contribution of

firms to economic development firms to economic development

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Defining small firmsDefining small firms Categorization of firms by size is Categorization of firms by size is

important since it helps to plan to serve important since it helps to plan to serve them at their levelsthem at their levels

Different regulation agencies in different Different regulation agencies in different countries use different bases to countries use different bases to categorize businesses by sizecategorize businesses by size

Some of these bases have been criticized Some of these bases have been criticized for their inadequacy for their inadequacy

The best approach to categorizing firms The best approach to categorizing firms is to combine several bases rather than is to combine several bases rather than use one baseuse one base

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Bases for categorizing firms Bases for categorizing firms by sizeby size

1. Total number of employees in the enterprise. The 1. Total number of employees in the enterprise. The following is the definition adopted by the following is the definition adopted by the government of Kenya:government of Kenya:

Micro-enterprises 1-9 employeesMicro-enterprises 1-9 employees Small enterprises 10-49 employees.Small enterprises 10-49 employees. Medium enterprises 50-99 employees.Medium enterprises 50-99 employees. Large enterprises 100+ employees.Large enterprises 100+ employees.

2. Total investment or capital resources employed2. Total investment or capital resources employed3. Sales turnover.3. Sales turnover.4. Number of plants or branches operated by one 4. Number of plants or branches operated by one

business concern business concern 5. Technology in use 5. Technology in use 6. Industry factors6. Industry factors7 Energy usage7 Energy usageNature of businessNature of business

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Regulation Agencies Regulation Agencies Central Government Central Government Local authoritiesLocal authorities Environment management agenciesEnvironment management agencies Standardization agencies Standardization agencies Trade-specific regulators (e.g. East Trade-specific regulators (e.g. East

African Tea Trade Association for African Tea Trade Association for tea-based traders)tea-based traders)

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Tools of Regulation Tools of Regulation Licenses Licenses Compliance documents/ certificates (e.g. Compliance documents/ certificates (e.g.

certificate of good health for hotel staff)certificate of good health for hotel staff) Inspection reportsInspection reports Memberships in business associationsMemberships in business associations Indirect tools (e.g. monitoring of deposits Indirect tools (e.g. monitoring of deposits

and withdrawals by commercial banks on and withdrawals by commercial banks on behalf of the Central Bank of Kenya)behalf of the Central Bank of Kenya)

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Challenges of regulation to Challenges of regulation to small firms in Kenyasmall firms in Kenya

Excessive regulation- many Excessive regulation- many regulators regulating same business regulators regulating same business firm in different areasfirm in different areas

Uncoordinated regulationUncoordinated regulation Corruption in regulationCorruption in regulation Costly regulation (in terms of time Costly regulation (in terms of time

and money)and money) Selective regulationSelective regulation

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Target benefits for enterprise Target benefits for enterprise regulationregulation

Higher taxes to government Higher taxes to government Fast-tracked growth of the MSE sector and the Fast-tracked growth of the MSE sector and the

economyeconomy planned growth of the sectorplanned growth of the sector Provision of necessary services to industry Provision of necessary services to industry

playersplayers Attraction of FDIAttraction of FDI Provision of welfare, including jobs and incomeProvision of welfare, including jobs and income Growth od MSEs to large firmsGrowth od MSEs to large firms Creation of more and better intra and inter-Creation of more and better intra and inter-

sector linkagessector linkages

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End of lesson threeEnd of lesson three

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Choice of Business/ Choice of Business/ Business IdeaBusiness Idea

Creativity and Innovation Creativity and Innovation are the hallmarks of entrepreneurship and the most important characteristics of an entrepreneur.

Business ideas are developed and nurtured through a creative process

Success in business is largely determined by the level of creativity and innovation on the part of the entrepreneur

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Creativity and InnovationCreativity and InnovationThe creative and innovative process The creative and innovative process 1.1. Idea germinationIdea germination -- this stage is also called this stage is also called

the seeding stage. In this stage the idea the seeding stage. In this stage the idea begins with interest or curiosity in a given begins with interest or curiosity in a given area. The mind needs to be fertile enough to area. The mind needs to be fertile enough to conceive and nurture the business idea.conceive and nurture the business idea.

2.2. PreparationPreparation- this stage is also called the - this stage is also called the rationalization stage. At this stage the once rationalization stage. At this stage the once the said curiosity has germinated into a the said curiosity has germinated into a focused idea the entrepreneur then embarks focused idea the entrepreneur then embarks on a conscious search for knowledge with on a conscious search for knowledge with regard to idea in question. This is a rational regard to idea in question. This is a rational process that seeks to find answers to and process that seeks to find answers to and therefore shed some light regarding the gray therefore shed some light regarding the gray areas that may be surrounding the idea.areas that may be surrounding the idea.

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Creativity and Innovation Creativity and Innovation contd.contd.

3. 3. Incubation-Incubation- this stage is also referred to as this stage is also referred to as the fantasizing stage. At this stage the fantasizing stage. At this stage entrepreneur should simply allow the idea entrepreneur should simply allow the idea time to mature without any intentional effort. time to mature without any intentional effort. This allows the subconscious mind to This allows the subconscious mind to assimilate the information so far collected assimilate the information so far collected and therefore take control of the creative and therefore take control of the creative process.process.

4. 4. Illumination-Illumination- this stage is also known as the this stage is also known as the realization stage. Illumination occurs when realization stage. Illumination occurs when the idea resurfaces as a realistic outfit. the idea resurfaces as a realistic outfit. Reaching the illumination stage separates Reaching the illumination stage separates daydreams from creative realistic and daydreams from creative realistic and practical ideas.practical ideas.

5. 5. VerificationVerification

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Diffusion of Innovations Diffusion of Innovations (DOI) and New Product (DOI) and New Product

AdoptionAdoption This approach was popularized by This approach was popularized by

Everett Rogers in his work ‘Diffusion Everett Rogers in his work ‘Diffusion of Innovations’ in the 1980s. of Innovations’ in the 1980s.

Rogers argues that new ideas or Rogers argues that new ideas or products do not just sink into the products do not just sink into the markets mindset but do so through a markets mindset but do so through a process and at different levels of process and at different levels of adoption. adoption.

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The Diffusion Process The Diffusion Process The diffusion process explains how innovations The diffusion process explains how innovations

spread and get adopted by the market over a spread and get adopted by the market over a period of time. period of time.

Diffusion is aided by a competent Diffusion is aided by a competent communication process. The four basic communication process. The four basic components of the diffusion process are:components of the diffusion process are:

the innovation- there must be an improvement that gives the innovation- there must be an improvement that gives rise to a new product, process or even idearise to a new product, process or even idea

channels of communication- either interpersonal or channels of communication- either interpersonal or impersonal impersonal

the social system- the social setting involving people and the social system- the social setting involving people and their relations within which diffusion takes placetheir relations within which diffusion takes place

diffusion time- includes: i. the amount of adoption timediffusion time- includes: i. the amount of adoption time

ii. the amount of purchase time ii. the amount of purchase time

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Product Adoption Product Adoption ProcessProcess A prospective product user goes through six A prospective product user goes through six

stages in the product adoption process before he stages in the product adoption process before he makes a final decision on whether or not to makes a final decision on whether or not to purchase. These stages are:purchase. These stages are:1. awareness- the individual is exposed to the innovation 1. awareness- the individual is exposed to the innovation

and so becomes a prospective buyerand so becomes a prospective buyer2. interest- prospect gets interested enough to seek more 2. interest- prospect gets interested enough to seek more

information about the productinformation about the product3. evaluation- the process of judging the advantages and 3. evaluation- the process of judging the advantages and

disadvantages of the productdisadvantages of the product4. trial- the product is adopted on a limited basis. For 4. trial- the product is adopted on a limited basis. For

instance, the buyer buys only a small amount of the instance, the buyer buys only a small amount of the product to test itproduct to test it

5. adoption- after initial trial the prospect decides whether 5. adoption- after initial trial the prospect decides whether or not to use the product on a full scaleor not to use the product on a full scale

6. confirmation- after adopting the innovation the prospect 6. confirmation- after adopting the innovation the prospect becomes a full scale user and starts a process of seeking becomes a full scale user and starts a process of seeking assurance that the purchase decision was rightassurance that the purchase decision was right

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Product Adopter Product Adopter Categories Categories

1.1. Innovators:Innovators: these are venturesome individuals these are venturesome individuals who are the first to adopt and display who are the first to adopt and display behaviour that demonstrates their willingness behaviour that demonstrates their willingness to start using products. These people are to start using products. These people are usually very eager to try new ideas regardless usually very eager to try new ideas regardless of the risks involved. They are generally very of the risks involved. They are generally very social and are, in many cases, opinion leaders. social and are, in many cases, opinion leaders. They comprise about 2.5% of all adopters.They comprise about 2.5% of all adopters.

2.2. Early adopters:Early adopters: these are social individuals these are social individuals who are respected and well integrated in their who are respected and well integrated in their social systems. They are quick adopters but social systems. They are quick adopters but they only adopt after they have done a they only adopt after they have done a thorough verification. Most people within this thorough verification. Most people within this category are opinion leaders and role models in category are opinion leaders and role models in society. They comprise about 13.5% of all society. They comprise about 13.5% of all adopters.adopters.

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Adopter Categories contd.Adopter Categories contd.3. 3. Early majority:Early majority: early majority adopt new products early majority adopt new products

just before average adoption time. They, however, first just before average adoption time. They, however, first watch how the product works with the first two watch how the product works with the first two categories before they can decide to adopt it. If the categories before they can decide to adopt it. If the product works well then there is a surge of mass product works well then there is a surge of mass purchases. They comprise about 34%. purchases. They comprise about 34%.

4. 4. Late majority:Late majority: these are skeptical highly self these are skeptical highly self conscious people who adopt new products just after conscious people who adopt new products just after average time. They adopt new products more as a average time. They adopt new products more as a result of economic necessity and peer pressure. They result of economic necessity and peer pressure. They comprise about 34%comprise about 34%

5. 5. Laggards:Laggards: these people tend to prefer holding on to these people tend to prefer holding on to the status quo. They are traditional in nature and the status quo. They are traditional in nature and difficult to sell any change to. They adopt new difficult to sell any change to. They adopt new products after everyone else, in many cases because products after everyone else, in many cases because what they have been using has gone out of production. what they have been using has gone out of production. They form about 16% of all product adopters. They form about 16% of all product adopters.

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Factors that help create a Climate Factors that help create a Climate that Stimulates Creativity and that Stimulates Creativity and

InnovationInnovation1.1. Tolerance of risk- employees should be Tolerance of risk- employees should be

encouraged to experiment without fear of encouraged to experiment without fear of failure. failure.

2.2. Low external control- rules and regulations Low external control- rules and regulations should be kept to a minimumshould be kept to a minimum

3.3. Acceptance of ambiguity- too much emphasis Acceptance of ambiguity- too much emphasis on objectivity and specificity could constrain on objectivity and specificity could constrain creativity and innovationcreativity and innovation

4.4. Tolerance of conflict- diversity of opinions Tolerance of conflict- diversity of opinions should be encouraged. Harmony and should be encouraged. Harmony and agreement between individuals should not be agreement between individuals should not be assumed to be evidence of high performanceassumed to be evidence of high performance

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5. Tolerance of the impractical- individuals who 5. Tolerance of the impractical- individuals who offer impractical, even foolish proposals should offer impractical, even foolish proposals should not be shunned. An idea that seems impractical not be shunned. An idea that seems impractical at first could lead to an innovative solution to at first could lead to an innovative solution to the same or other problemthe same or other problem

6. Focus on ends other than means- goals should 6. Focus on ends other than means- goals should be made clear and individuals should be be made clear and individuals should be encouraged to consider alternative routes encouraged to consider alternative routes towards their achievement.towards their achievement.

7. Open communication- communication should 7. Open communication- communication should flow laterally as well as vertically. Free flow of flow laterally as well as vertically. Free flow of communication facilitates cross-fertilization of communication facilitates cross-fertilization of ideasideas

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Creative means of Creative means of generating business ideasgenerating business ideas

BrainstormingBrainstorming Capitalizing on personal hobbies and interestsCapitalizing on personal hobbies and interests Listening and participating in general Listening and participating in general

conversations conversations Attribute listing- this is the act of identifying Attribute listing- this is the act of identifying

and listing one’s strengths and characteristics and listing one’s strengths and characteristics with the hope that some of these strengths with the hope that some of these strengths and characteristics could be employed to and characteristics could be employed to actualize business ideas. Some strengths can actualize business ideas. Some strengths can in themselves be actualized in business. A in themselves be actualized in business. A good voice is, for example, a characteristic good voice is, for example, a characteristic that could be used profitably in singingthat could be used profitably in singing

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Contd. Contd. Research- a good entrepreneur is very inquisitive. Research- a good entrepreneur is very inquisitive.

He is always searching for more information that He is always searching for more information that could benefit his enterprise. Research should, could benefit his enterprise. Research should, therefore, remain an important concern for any therefore, remain an important concern for any serious entrepreneurserious entrepreneur

Copying successful entrepreneurs- copying has been Copying successful entrepreneurs- copying has been demonized in the past but it is not necessarily bad. demonized in the past but it is not necessarily bad.

Daydreaming- this is allowing the mind to wonder Daydreaming- this is allowing the mind to wonder freely. It is the freewheeling of the mind. Some of freely. It is the freewheeling of the mind. Some of the most successful business ideas are known to the most successful business ideas are known to have resulted from pure daydreaming. At the have resulted from pure daydreaming. At the beginning an idea generated this way may seem beginning an idea generated this way may seem very unreasonable but once you give some thought very unreasonable but once you give some thought you might discover that after all it is viable. you might discover that after all it is viable.

Discouragement and disenchantment- sometimes Discouragement and disenchantment- sometimes work related discouragement or disenchantment work related discouragement or disenchantment can propel one to think of a business as an exit can propel one to think of a business as an exit route from their situation. route from their situation.

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End of lesson fourEnd of lesson four

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Entry into BusinessEntry into Business Entry into business can be a complicated Entry into business can be a complicated

process depending on the type of process depending on the type of business engaged in and the business engaged in and the circumstances surrounding the decision circumstances surrounding the decision

People get into business for various People get into business for various reasons (make quick profits, create an reasons (make quick profits, create an empire, get busy, for consumption empire, get busy, for consumption purposes, etc) purposes, etc)

The higher the The higher the barriers of entry barriers of entry the the higher higher the barriers of exit the barriers of exit and vice versaand vice versa

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Modes of entryModes of entry

1. Starting an enterprise from scratch1. Starting an enterprise from scratch

2. Buying an existing enterprise2. Buying an existing enterprise

3. Merging with a competitor3. Merging with a competitor

4. Franchise contracts4. Franchise contracts

5. Strategic alliances 5. Strategic alliances

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Considerations for Considerations for Choosing the Mode of EntryChoosing the Mode of Entry Cost of the mode of entryCost of the mode of entry Existing or potential benefit that Existing or potential benefit that

may accrue from the modemay accrue from the mode Capacity of the mode to effectively Capacity of the mode to effectively

bridge the demand gap within a bridge the demand gap within a short timeshort time

Competition Competition Nature of business Nature of business

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Roles of an Entrepreneur in Roles of an Entrepreneur in Business Before and at Business Before and at

Start-upStart-up Business planningBusiness planning FinancingFinancing Personnel/Human Resource Personnel/Human Resource

managementmanagement Creation and management of new Creation and management of new

recordsrecords Inventory managementInventory management Market creation and managementMarket creation and management Business leadershipBusiness leadership

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Issues to Consider When Issues to Consider When Selecting a New VentureSelecting a New Venture

Market- it should be a high value, sustainable marketMarket- it should be a high value, sustainable market Market structure- this includes the number of Market structure- this includes the number of

competitors, alternative products in the market, competitors, alternative products in the market, conditions of entry and exit, market size and the conditions of entry and exit, market size and the sensitivity of demand, among otherssensitivity of demand, among others

Market size- this refers to the number of potential Market size- this refers to the number of potential customers as well as the geographical distribution of this customers as well as the geographical distribution of this marketmarket

Current and potential growth rate of the marketCurrent and potential growth rate of the market Cost structure of the new opportunity- one needs to Cost structure of the new opportunity- one needs to

consider the cost-benefit potential of the business should consider the cost-benefit potential of the business should the new idea be implemented. It is also necessary to take the new idea be implemented. It is also necessary to take into consideration the structure of that cost. For into consideration the structure of that cost. For instance one needs to establish whether the cost will instance one needs to establish whether the cost will constitute long term or short-term debt.constitute long term or short-term debt.

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Issues contd.Issues contd. Capital requirements by the new Capital requirements by the new

ventureventure Time based potential for growth for Time based potential for growth for

the new venturethe new venture Socio-economic and politico-legal Socio-economic and politico-legal

influences on the performance of the influences on the performance of the new venturenew venture

Entry and exit barriersEntry and exit barriers The opportunity cost of the starting The opportunity cost of the starting

the enterprisethe enterprise

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Reasons for Early Business Reasons for Early Business FailureFailure1.1. Lack of business experience by the Lack of business experience by the

entrepreneur entrepreneur 2.2. Mismanagement of resources by for example Mismanagement of resources by for example

over investing in nonproductive venturesover investing in nonproductive ventures3.3. Lack of necessary business knowledge and Lack of necessary business knowledge and

information information 4.4. Poor inventory controlPoor inventory control5.5. Confused business philosophy- the Confused business philosophy- the

entrepreneurs personal goals may for entrepreneurs personal goals may for instance get entangled with those of the instance get entangled with those of the business thereby resulting in lost focusbusiness thereby resulting in lost focus

6.6. Lack of or poor business planning Lack of or poor business planning 7.7. Inadequate financesInadequate finances8.8. Unfavorable micro and macro-economic Unfavorable micro and macro-economic

conditions e.g. Inflationconditions e.g. Inflation9.9. Weak market linkagesWeak market linkages

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Financing small firms Financing small firms Key things to consider:Key things to consider:

1.1. Reason for financing Reason for financing

2.2. Source of financingSource of financing

3.3. Cost of financing Cost of financing

4.4. Competing finance alternativesCompeting finance alternatives

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Sources of Business Finance Sources of Business Finance for MSEsfor MSEs

These may be categorized as:These may be categorized as:1.1. Internal- examples: profit plough-back, sale Internal- examples: profit plough-back, sale

of personal and business assets, etc.of personal and business assets, etc.2.2. External- examples: commercial borrowing, External- examples: commercial borrowing,

non-commercial borrowing, venture capital, non-commercial borrowing, venture capital, etc.etc.

Finance may also be:Finance may also be:1.1. Short term- examples: Overdrafts, trade Short term- examples: Overdrafts, trade

credits, credits, 2.2. Medium term- example: medium term Medium term- example: medium term

commercial and non-commercial loanscommercial and non-commercial loans3.3. Long term-examples: long term loans, Hire Long term-examples: long term loans, Hire

purchase arrangementspurchase arrangements

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Sources contd.Sources contd.Generally the following are the Generally the following are the

sources of finance for start-ups:sources of finance for start-ups: Personal savingsPersonal savings Borrowing from friends and relativesBorrowing from friends and relatives Equity financing- though this is very Equity financing- though this is very

rare for start-upsrare for start-ups Debt financingDebt financing Venture financingVenture financing

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Key Financiers for MSMEs Key Financiers for MSMEs in Kenya in Kenya Commercial banksCommercial banks

Development Finance Institutions Development Finance Institutions (DFIs)(DFIs)

Microfinance Institutions (MFIs)Microfinance Institutions (MFIs) Government programs (e.g. the Youth Government programs (e.g. the Youth

Enterprise Fund)Enterprise Fund) NGOsNGOs Venture financiersVenture financiers Trade creditorsTrade creditors Shylocks (not legalized) Shylocks (not legalized)

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Financiers contd.Financiers contd.

These financiers offer:These financiers offer:

1.1. Integrated financial packages- finance Integrated financial packages- finance coupled with Business Development coupled with Business Development Services (BDS) such as training, Services (BDS) such as training, technical support, marketing technical support, marketing exposure, management support, etcexposure, management support, etc

2.2. Non-integrated (singular) financial Non-integrated (singular) financial products- financial products with no products- financial products with no non-financial attachment. non-financial attachment.

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Financiers contd.Financiers contd. Integrated finance packages tend Integrated finance packages tend

to be more expensive than non-to be more expensive than non-integrated financial products but integrated financial products but they are more beneficial to both they are more beneficial to both the financier and the enterprise in the financier and the enterprise in the long run because:the long run because:

They ensure faster enterprise growthThey ensure faster enterprise growth They facilitate quick graduation of They facilitate quick graduation of

enterprises to higher loan levels enterprises to higher loan levels They act as a safety valve to prevent They act as a safety valve to prevent

misuse of enterprise financesmisuse of enterprise finances

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Selecting Financing Selecting Financing PackagesPackages Identify all the facts of your intended business venture. Identify all the facts of your intended business venture.

Study the various finance sources and identify their pros Study the various finance sources and identify their pros and cons and cons

Prepare the formal financing request if you have Prepare the formal financing request if you have resolved to approach a formal financier. resolved to approach a formal financier.

During the negotiations, ensure that you project an During the negotiations, ensure that you project an image of honesty, of purpose and of desire for success. image of honesty, of purpose and of desire for success. The financing institutions chosen by you should perceive The financing institutions chosen by you should perceive a knowledgeable and dedicated entrepreneur assisted by a knowledgeable and dedicated entrepreneur assisted by a management team well organized to meet the a management team well organized to meet the challenging tasks ahead. Particularly you will need to challenging tasks ahead. Particularly you will need to convince the financier that your proposed venture will be convince the financier that your proposed venture will be able to repay the finance within the agreed termsable to repay the finance within the agreed terms

Ensure you have read the fine print of the financing Ensure you have read the fine print of the financing contract to avoid binding the enterprise with terms that contract to avoid binding the enterprise with terms that may not be feasible within prevailing enterprise may not be feasible within prevailing enterprise circumstancescircumstances

Avoid misdirecting or mismanaging finance intended for Avoid misdirecting or mismanaging finance intended for the businessthe business

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Key Considerations when Key Considerations when Selecting and Using Selecting and Using

Finance ProductsFinance Products Cost of the finance e.g. interest ratesCost of the finance e.g. interest rates Financing Process (length and structure) Financing Process (length and structure)

e.g. documentation, transaction period e.g. documentation, transaction period and other non-monetary hindrancesand other non-monetary hindrances

The enterprise’s financing policiesThe enterprise’s financing policies Economic fundamentals affecting various Economic fundamentals affecting various

financial products and financiers financial products and financiers The stage of the enterprise in its business The stage of the enterprise in its business

lifecyclelifecycle Availability of various financing productsAvailability of various financing products

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End of Lesson five End of Lesson five

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Business Planning Business Planning

To be covered through a To be covered through a handout and discussion handout and discussion

groupsgroups

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End of Lesson six End of Lesson six

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Environmental Analysis for Environmental Analysis for Business Start-upBusiness Start-up

Every enterprise needs to conduct an Every enterprise needs to conduct an external in-depth analysis in two crucial external in-depth analysis in two crucial areas namely: a) the industry, and b) its areas namely: a) the industry, and b) its immediate competition. Such analysis would immediate competition. Such analysis would then be used to position the business and its then be used to position the business and its products competitively in the market. products competitively in the market.

The business’ management needs to ask The business’ management needs to ask these four questions:these four questions: What are the boundaries of the industry?What are the boundaries of the industry? What is the structure of the industry?What is the structure of the industry? Which firms are our competitors?Which firms are our competitors? What are the major determinants of competition?What are the major determinants of competition?

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Environmental analysis Environmental analysis contd.contd.

Industry and competitive analysis are Industry and competitive analysis are crucial in strategy formulation. crucial in strategy formulation.

Industry analysis is the process of surveying Industry analysis is the process of surveying the industry within which a business exists the industry within which a business exists with the aim of better understanding it. with the aim of better understanding it.

Competitive analysis is closely linked to Competitive analysis is closely linked to industry analysis in that one of the key industry analysis in that one of the key reasons for surveying the industry is to reasons for surveying the industry is to understand the type and intensity of understand the type and intensity of competition in the industry in order to plan competition in the industry in order to plan for it accordingly for it accordingly

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