GST 3201 ENTERPRISE CREATION AND GROWTH

LECTURE I

CONCEPT OF BUSINESS

The concept ‘business’ has been defined in different ways by various authors. It has been

viewed as an economic system in which goods and services are exchanged for one another

for money, on the basis of their perceived worth. A business is also conceived as a legally

recognized organization. Therefore, a business is any undertaking that deals with the

production and distribution of goods and services that satisfy human needs and wants.

Businesses are created by the entrepreneur. However, once the businesses have been created

the entrepreneur has to organize all the factors of production to ensure that the business

survives. The purpose for which a business is established varies and by virtue of this we have

different types of businesses. For instance if a business is established for the purpose

of making a profit, it is called a profit making business, otherwise, it is called a not-for-profit

or non-profit making business. Also businesses could be classified as legal, when they

are established in compliance with the rules of the land, government or society. Illegal

businesses are those that do not follow established laws. Legal businesses can also be

referred to as wholesome businesses because they are beneficial to the society. On the

other hand, unwholesome businesses are illegal businesses that are inimical to the society.

For businesses to survive and achieve their set goals and objectives, they have to perform the

organic business functions. These are the basic functions every business has to perform:

production, marketing, finance and personnel. Once the entrepreneur has established the

business, managers have to run the business. Management is simply getting things done

through and with others. In order to get things done in the business/organization, managers

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among other things have to perform the managerial functions which are popularly known

with the acronym, POSDCORB. POSDCORB means: Planning, Organizing, Staffing,

Directing, Coordinating, Reporting and Budgeting. Businesses do not exist in isolation;

they exist within an environment which is referred to as the business environment and

managers have to manage the affairs of the business taking into cognizance the dynamic and

complex business environment.

The Concept of Environment

According to Kazmi environment literally means the surroundings, internal, intermediate

and external objects, influences or circumstances under which someone or something

exists. The environment of the business exhibits the following conditions and characteristics.

These are:

Stable Condition: This environment is highly predictable, thus permitting a great deal

of standardization (work process, skills and output) to take place within the organization.

Simple Condition: This environment is one where knowledge can be broken down

into easily comprehended components (Minzberg, 1979).

Dynamism: The business environment is not static. It is dynamic and as such changes

continuously. This is because of the interactions of the various factors that make up

the business environment.

Complexity: The business environment is not simple; it is complex by virtue of the various

components that comprise it and the interactions and interrelationships among these

factors.

Multifaceted: The business environment is many-sided. It can be viewed from many angles

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by the parties involved. Hence, an occurrence that is viewed as strength to an organization

may be perceived as a weakness by another.

Far-reaching impact: The happenings in the business environment can have enormous

impact on the organization. It could have the ripple effect. This is because the business

environment can be conceived as a system, specifically an open system made up of different

components that interact and interrelate with one another. Hence, once there is a problem

or development with one aspect/sector, it could have far-reaching impact on the other

aspects/sectors.

GROWTH THEORIES

Harrod-Domar growth model is a functional economic relationship in which the growth rate

of gross domestic product (GDP) depends directly on the national net savings rate (s) and

inversely on the national capital-output ratio (c). This can be express as follow:

∆Y/ Y =s/c.............................................(1)

Equation (1) states that the rate growth of GDP (∆Y/Y) is determined jointly by the net

national savings ratio, s, and the national capital-output ratio, c. Also, the equation is often

expressed in terms of gross savings, S G, and it is giving by:

∆Y/Y = S G/c - ........................................... (2)ẟ

Where is the rate of capital depreciation.ẟ

This means that to grow, economies must save and invest a certain proportion of their GDP.

The more they can save and invest, the faster they can grow.

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SOLOW’S MODEL

The Solow growth model is a neoclassical model developed by Professor Robert M.

Solow. The model is a simple growth model which shows how saving, population growth

and technical progress affect the level of a country’s GNP and growth overtime.

Solow in developing his model builds upon the Harrod–Domar model, but eliminated

the assumption of fixed proportions in the production function and rather postulates a

continuous production function linking output to the inputs of capita and labour which

according to him are substitutable. The Solow model expands on the work of Harrod-

Domar by adding Labour and Technology, to the growth equation. The model assumes that

economies will conditionally converge to the same level of income given that they have the

same rates of savings, depreciation, labour force growth, and productivity growth.

Solow began with a production function of the Cobb-Douglas type which is a standard

neoclassical function.

Y= Kα(A L) 1- α……………… (1)

where Y= Gross Domestic Product

K= Stock of Capital (which may include Human capital and Physical capital)

L= Labour and

A= The productivity of labour which grows at an exogenous rate and can also be

called technical progress.

α is a parameter measuring the output elasticity of capital , and it is less than 1 i.e. 0< α <

1 or α + (1- α) = 1 , indicating constant returns to scale.

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The Lucas Model: A Human Capital Approach

The model builds upon the idea that individual workers are more productive, regardless of

their skill level, if other workers have more human capital. Lucas used a growth model

developed by Uzawa and the model is based on investment in human capital. Lucas posited

that investment on education leads to the production of human capital which is the

key determinant in the growth process. He identified two types of human capital effects

and they are the external effects and the internal effects. According to him, the internal

effects has to do with a situation where the individual worker undergoing the training

becomes more productive and the external effects which is the spillover effect which

increases the productivity of capital of other workers in the economy. The representation of

the model in equation form is:

Yi = A (Ki) (Hi). He

Where

A = technical coefficient

Ki = inputs of physical capital

Hi = inputs of human capital

Yi = goods produced

H = economy’s average level of human capital

e = the strength of the external effects from human capital to each firms productivity.

The important implication of the external effect captured in the model presented by

Lucas is that under a purely competitive equilibrium its presence leads to an

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underinvestment in human capital because private agents do not take into account the

external benefits of human capital accumulation.

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LECTURE II

SOURCES OF FINANCE

There are several sources to consider when looking for finance for your business. Both

internal and external or formal and informal sources of finance are available to the

businesses.

INTERNAL SOURCES

a. Personal Savings. Capital accumulated can be used to finance your business. This is

more pronounced for sole proprietorship and partnership.

b. Reinvestment of profit. Undistributed profits of the company are often re-invested or

ploughed back into the business.

c. Equipment leasing. Firms lease out some of their equipments for money.

d. Sales of shares. A share is a unit in the capital of a company. Only joint stock

companies can issue shares. Two types of shares are identified: Ordinary shares and

Preference shares.

i. The ordinary shares bear no fixed rate of dividend for its holder. Ordinary

shares carry more risk and have more capital control over the business. Its

holder receives their return only after all other claims have been met.

ii. The preference shares carry fixed rate of returns and the holders are paid their

dividends in full before the ordinary shareholders.

EXTERNAL SOURCES

a. Borrowing. Borrowing from individuals and financial institutions constitute one of the

main sources of capital to the business. Commercial banks give out loans and

overdraft to their customers for their business activities.

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b. Bill of exchange. This is a document that is signed by the debtor’s bank, given to the

creditor. The creditor cashes the money with some discount.

c. Trade Credit. This involves buying raw materials from suppliers and deferring

payment till future date.

d. Angel investors. These are wealthy individuals with experience in building a business;

provide early stage financing called seed capital, for start-up. Business Angels can

provide as much as two to five times the capital in early stage ventures.

e. Government funding. This can be direct or indirect funding by the government or its

agencies. It may be through a special programme such as YOUWIN, mobile phone

support for farmers, etc.

ETHICS

Ethics involves learning what is right or wrong, and then doing the right thing. Many ethicists

assert that there is always a right thing to do based on moral principle, and others believe the

right thing to do depend on the situation. Doug Wallace and John Pekel consider ethics to be

the science of conduct. Philosophers have been discussing ethics for at least 2500 years, since

the time of Socrates and Plato.

BUSINESS ETHICS

Business ethics take into consideration responsibilities not just inside the workplace, but also

within the environmental, cultural, and social structures of communities. The concept has

come to mean various things to various people, but generally knowing what is right or wrong;

and doing what’s right. This is in effects of products/services and in relationship with

stakeholders. Wallace and Pekel explain that attention to business ethics is critical during

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times of fundamental change. In times of fundamental change, values that were previously

taken for granted are now strongly questioned. Attention to ethics in the workplace sensitizes

managers and staff on how they should act. Perhaps most important, attention to ethics in the

workplaces helps ensure that when managers are struggling in times of crisis and confusion,

they retain a strong moral compass.

MANAGING ETHICS IN THE WORKPLACE

Organizations can manage ethics in their workplace by establishing an ethics management

programmes. Brian Schrag wrote “Typically, ethics programmes convey corporate values,

often using codes and policies to guide decisions and behaviour, and can include extensive

training and evaluating, depending on the organization. They provide guidance in ethical

dilemmas”. However, according to Stephen Brenner, “All organizations have ethics

programmes, but most do not know that they do”. Bob Dunn adds: Balancing competing

values and reconciling them is a basic purpose of an ethics management programme.

Business people need more practical tools and information to understand their values and

how to manage them”.

DEVELOPING CODES OF CONDUCT

If your organisation is large, you may want to develop an overall corporate code of ethics and

then a separate code to guide each department. However, codes should not be developed for a

particular department. Codes are insufficient if they are intended only to ensure that policies

are followed in a particular department. Also, all staff must see the ethics programme being

driven by top management.

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Note that codes of ethics and codes of conduct may be the same in some organizations,

depending on the organization’s culture and operations and on the ultimate level of

specificity in the codes.

CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is about taking personal responsibility for your actions and the

impacts that you have on society. It is about a corporation’s ability to respond to social

challenges. It starts with developing good relations with neighbours. Companies should a take

a strong commitment to education, worker rights, capacity building, and job security. It is

about making a leadership commitment to core values and recognizing local and cultural

differences when implementing global policies. Therefore, corporate social responsibility is a

concept whereby companies integrate social and environmental concerns in their business

operations and in their interactions with their stakeholders on a voluntary basis. Scholars such

as Carroll, Visser, Nkiko and Katamba have suggested that within corporate social

responsibility, profit-oriented entities embrace a conducive workplace atmosphere, relate well

in the marketplace, and contribute to the overall country’s development. But Friedman

stressed that companies’ only responsibility is to make profits. He maintained that companies

should leave social responsibilities to government and development agencies.

SOCIAL RESPONSIBILITIES FOR BUSINESS

i. Workplace- to treat employees fairly and equitably

ii. Ethics- operate ethically and with integrity

iii. Human rights- to respect basic human rights

iv. Environment- to sustain the environment for future generations

v. Community- to be a caring neighbour in their communities

vi. Marketplace- to care for customers and suppliers interest

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COMMON AREA FOR CORPORATE SOCIAL RESPONSIBILITY

i. Education- provides research grants, scholarships, educational infrastructure and

materials etc.

ii. Health- provision of hospitals and equipment, offsetting huge medical bills to

community, etc.

iii. Consumerism- ensuring good and quality products, avoid misleading advertising,

response to consumer complaints.

iv. Provision of infrastructure like road, water, electricity, etc.

v. Sponsoring sporting programmes and others.

vi. Conservation and Recreations- provision of parks, games reserves, children

centre, tree planting, etc.

vii. Pollution problem- avoiding air solid waste, and noise pollution.

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LECTURE III

Marketing involves buying and selling in a market. It entails promotion, distribution and

selling of a product or service.

MARKETING MIX

The marketing mix definition is simple. It is about putting the right product in the right

place, at the right time, and at the right price. The difficult part is doing this well, as you need

to know every aspect of your business plan. Before now, the marketing mix is associated with

the 4P’s of marketing, the 7P’s of service marketing.

No. 1 Marketing mix- PRODUCT

A product is an item that is built or produced to satisfy the needs of a certain group of people.

The product can be intangible or tangible as it can be in the form of services or goods. A

product has a certain life cycle that includes the growth phase, the maturity phase, and the

sales decline phase. It is important for marketers to reinvent their products to stimulate more

demand once it reaches the sales decline phase.

In developing the right product, you have to answer the following questions:

What does the client want from the service or product?

How will the customer use it?

Where will the client use it?

What features must the product have to meet the client’s needs?

Are there any necessary features that you missed out?

Are you creating features that are not needed by the client?

What’s the name of the product?

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Does it have a catchy name?

What are the sizes or colours available?

How is the product different from the products of your competitors?

What does the product look like?

No. 2 Marketing mix- PRICE

The price of the product is basically the amount that a customer pays for to enjoy it. Price is a

very important component of the marketing mix definition.

It is also a very important component of a marketing plan as it determines your firm’s profit

and survival. Adjusting the price of the product has a big impact on the entire marketing

strategy as well as greatly affecting the sales and demand of the product.

This is inherently a touchy area though. If a company is new to the market and has not made

a name for themselves yet, it is unlikely that your target market will be willing to pay a high

price.

When setting the product price, marketers should consider the perceived value that the

product offers. There are three major pricing strategies, and these are:

Market penetration pricing

Market skimming pricing

Neutral pricing

Here are some of the important questions that you should ask yourself when you are setting

the product price:

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How much did it cost you to produce the product?

What is the customers’ perceived product value?

Do you think that the slight price decrease could significantly increase your market

share?

Can the current price of the product keep up with the price of the product’s

competitors?

No. 3 Marketing Mix – PLACE

Placement or distribution is a very important part of the product mix definition. You have to

position and distribute the product in a place that is accessible to potential buyers.

This comes with a deep understanding of your target market. Understand them inside out and

you will discover the most efficient positioning and distribution channels that directly speak

with your market.

There are many distribution strategies, including:

Intensive distribution

Exclusive distribution

Selective distribution

Franchising

Here are some of the questions that you should answer in developing your distribution

strategy:

Where do your clients look for your service or product?

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What kind of stores do potential clients go to? Do they shop in a mall, in a regular

market, in the supermarket, or online?

How do you access the different distribution channels?

How is your distribution strategy different from your competitors?

Do you need a strong sales force?

Do you need to attend trade fairs?

Do you need to sell in an online store?

No. 4 Marketing Mix – PROMOTION

Promotion is a very important component of marketing as it can boost brand recognition and

sales. Promotion is comprised of various elements like:

Sales Organization

Public Relations

Advertising

Sales Promotion

Advertising typically covers communication methods that are paid for like television

advertisements, radio commercials, print media, and internet advertisements. In

contemporary times, there seems to be a shift in focus offline to the online world.

Public relations, on the other hand, are communications that are typically not paid for. This

includes press releases, exhibitions, sponsorship deals, seminars, conferences, and events.

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Word of mouth is also a type of product promotion. Word of mouth is an informal

communication about the benefits of the product by satisfied customers and ordinary

individuals. The sales staff plays a very important role in public relations and word of mouth.

In creating an effective product promotion strategy, you need to answer the following

questions:

How can you send marketing messages to your potential buyers?

When is the best time to promote your product?

Will you reach your potential audience and buyers through television ads?

Is it best to use the social media in promoting the product?

What is the promotion strategy of your competitors?

Your combination of promotional strategies and how you go about promotion will depend on

your budget, the message you want to communicate, and the target market you have defined

already in previous steps.

Marketing Mix 7P’s

The 7Ps model is a marketing model that modifies the 4Ps model. The 7Ps is generally used

in the service industries.

No. 5 Marketing Mix – PEOPLE

Of both target market and people directly related to the business. Thorough research is

important to discover whether there are enough people in your target market that is in

demand for certain types of products and services. The company’s employees are important

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in marketing because they are the ones who deliver the service. It is important to hire and

train the right people to deliver superior service to the clients, whether they run a support

desk, customer service, copywriters, programmers, etc.

When a business finds people who genuinely believe in the products or services that the

particular business creates, it’s is highly likely that the employees will perform the best they

can.

No. 6 Marketing mix - PROCESS

The systems and processes of the organization affect the execution of the service. So, you

have to make sure that you have a well-tailored process in place to minimize costs. It could

be your entire sales funnel, a pay system, distribution system and other systematic procedures

and steps to ensure a working business that is running effectively.

No. 7 Marketing Mix – PHYSICAL EVIDENCE

In the service industries, there should be physical evidence that the service was delivered.

Additionally, physical evidence pertains also to how a business and it’s products are

perceived in the marketplace. A concept of this is branding. For example, when you think of

sports, the names Nike and Adidas come to mind. You immediately know exactly what their

presence is in the marketplace, as they are generally market leaders and have established a

physical evidence as well as psychological evidence in their marketing.

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LECTURE IV

NEW OPPORTUNITIES FOR EXPANSION

E-COMMERCE

E-commerce (electronic commerce) is the buying and selling of goods and services, or the

transmitting of funds or data, over an electronic network, primarily the internet. These

business transactions occur either as business-to-business, business-to-consumer, consumer-

to-consumer or consumer-to-business. The terms e-commerce and e-business are often used

interchangeably.

History of e-commerce

The beginnings of e-commerce can be traced to the 1960s, when businesses started

using Electronic Data Interchange (EDI) to share business documents with other companies.

In 1979, the American National Standards Institute developed ASC X12 as a universal

standard for businesses to share documents through electronic networks. After the number of

individual users sharing electronic documents with each other grew in the 1980s, in the 1990s

the rise of eBay and Amazon revolutionized the e-commerce industry. Consumers can now

purchase endless amounts of items online.

E-COMMERCE APPLICATIONS

E-commerce is conducted using a variety of applications, such as email, online catalogs and

shopping carts, EDI, File Transfer Protocol, and web services. This includes business-to-

business activities and outreach such as using email for unsolicited ads (usually viewed as

spam) to consumers and other business prospects, as well as to send out e-newsletters to

subscribers. More companies now try to entice consumers directly online, using tools such as

digital coupons, social media marketing and targeted advertisements.

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The benefits of e-commerce include its around-the-clock availability, the speed of access, the

wide availability of goods and services for the consumer, easy accessibility, and international

reach. It’s perceived disadvantages include sometimes-limited customer service, consumers

not being able to see or touch a product prior to purchase, and the necessitated wait time for

product shipping. The rise of e-commerce forces IT personnel to move beyond infrastructure

design and maintenance and consider numerous customer-facing aspects such as

consumer data privacy and security. When developing IT systems and applications to

accommodate e-commerce activities, data governance related regulatory

compliance mandates, personally identifiable information privacy rules and information

protection protocols must be considered.

CLASSIFICATION OF E-COMMERCE

The two parameters of classifying e-commerce businesses are:

1. type of goods sold

2. nature of participants

Classifying Ecommerce Business Based on Type of Goods Sold

E-commerce businesses sell:

Physical goods, e.g., books, gadgets, furniture, appliances, and the like

Digital goods, e.g., software, ebooks, music, text, images, video and the like

Services, e.g., tickets, insurance, and the like.

The reason such classification is important is that it gives the analyst an insight into the

business model and financial model of the business. For instance, the logistics of delivering

the physical goods can be a huge challenge for some businesses. Sellers of digital goods do

not face that problem. When it comes to selling tickets, there are many parameters that need

to be evaluated in real time, e.g., in the case of air tickets: availability, the location of seats,

meal preferences, refundable vs. non refundable tickets, and much more.

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Classifying Ecommerce Business Based on Nature of Participants

The two most common participants in e-commerce are businesses and consumers.

Based on this we can come up with four primary e-commerce types:

1. Business to Business E-commerce (B2B E-commerce)

In this type of e-commerce, both participants are businesses. As a result, the volume

and value of B2B e-commerce can be huge. An example of business to business e-

commerce could be a manufacturer of gadgets sourcing components online.

2. Business to Consumer Ecommerce (B2C Ecommerce)

When we hear the term e-commerce, most people think of B2C e-commerce. That is

why a name like Amazon.com comes up in most discussions about e-commerce.

Elimination of the need for physical stores is the biggest rationale for business to

consumer e-commerce. But the complexity and cost of logistics can be a barrier to

B2C e-commerce growth.

3. Consumer to Business Ecommerce (C2B Ecommerce)

On the face of it, C2B e-commerce seems lop-sided. But online commerce has

empowered consumers to originate requirements that businesses fulfil. An example of

this could be a job board where a consumer places her requirements and multiple

companies bid for winning the project. Another example would be a consumer

posting his requirements of a holiday package, and various tour operators making

offers.

4. Consumer to Consumer Ecommerce (C2C E-commerce)

The moment you think of C2C e-commerce eBay.com comes to mind. That is because

it is the most popular platform that enables consumers to sell to other consumers.

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Since eBay.com is a business, this form of e-commerce could also be called C2B2C e-

commerce (consumer to business to consumer e-commerce).

That is not all. Employees can be regarded as a special type of consumer. That would give

rise to a new type of e-commerce: B2E (Business to Employee e-commerce). Likewise if we

consider Government to be separate entity, as also Citizens, we can come up with many more

types of e-commerce: B2G (Business to Government), G2B (Government to Business), G2E

(Government to Employee), G2G (Government to Government), G2C (Government to

Citizen), C2G (Citizen to Government).

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LECTURE V

FEASIBILITY STUDIES AND ITS IMPORTANCE

Feasibility studies comprise comprehensive, detailed information about ones’ business

structure, the products and services, the market, logistics of how one will actually deliver a

product or service, the resources one needs to make the business run effectively, as well as

other information about the business. A Business Feasibility Study can also be defined

as a controlled process for identifying problems and opportunities, determining

objectives, describing situations, defining successful outcomes, and assessing the range

of costs and benefits associated with several alternatives for solving a problem.

The importance of Feasibility Studies; according to Women in Business (2010)

include:

1.It serves as the standard or yardstick for assessing performance of envisaged

business.

2.It helps us to list in detail all the things we need to make the business work

3. Enables us to identify logistical and other business-related problems and solutions

4. Helps us to develop marketing strategies to convince a bank or investor that our

business is worth considering as an investment

5. Serves as a solid foundation for developing our business plan.

6. Provides important information necessary for accurate decision making in relation to

proposed project.

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COMPONENTS OF THE BUSINESS ENVIRONMENT – AN OVERVIEW

Internal Environmental Factors: The internal environmental factors refer to those

factors over which the entrepreneur has control, at least in the short run; this is why it is also

called the controllable environment of the business. The internal environment of the business

is made up of all those physical and socials factors within the boundaries of the

business, which impart strengths or cause weaknesses of a strategic nature and are taken

directly into consideration in the decision-making behaviour of the business. Strengths

are inherent capacities, which a business can use to gain strategic advantage over its

competitors; they are the internal strong points of the business such as: its core skills,

competencies and expertise. While weaknesses are inherent limitations or constraints, which

create strategic disadvantages, they are the internal factors that are lacking in the

business. A successful entrepreneur will find ways of overcoming the weaknesses and

convert them into strengths. The internal environment of the business is made up of

micro-environmental factors such as: organizational goals and objectives, specific

technologies utilized by component units of the organization, the size, types and quality of

personnel, its administrative units, and the nature of the organization’s product/service. The

nature of a business’ internal environment is also determined by the organizational

resources, organizational behaviour, strengths, weaknesses, synergistic relationships and

distinctive competence. Organizational behaviour is the manifestation of the various

forces and influences operating in the internal environment of an organization.

Intermediate Environmental Factors

Intermediate determinants of entrepreneurship ideally represent issues or factors in the

borderlines between strictly internal and external factors affecting entrepreneurship.

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Generally they include the customers and the suppliers who are the links between the

organization and the purely external environmental factors. They also include various

support systems, both private and public e.g. legal firms and public relations agencies.

External Environmental Factors

The external environmental factors refer to those factors over which the entrepreneur has no

control but have tremendous impact on the survival of the business; this is why it is also

called the uncontrollable environment of the business. Within the external environment of the

business are all the factors which provide opportunities or pose threats to it.

Opportunities are favourable conditions in the business’ environment, which enable it

to consolidate and strengthen its position. They are the likely benefits to the business

resulting from changes in the external environment while threats are unfavourable conditions

in the business’ environment, which create a risk for, or cause damage to, the business; they

are the possible pitfalls or dangers resulting from changes in the external environment.

A successful entrepreneur will grab opportunities as they emerge and avoid threats or even

look for ways of converting threats into opportunities.

The major external environmental factors are:

Demographic factors: These include the market i.e. consumer populations. It deals

with their composition in terms of sex, age, income, marital status, educational levels etc.

Political/Legal Factors: this is made up of laws, government agencies and pressure groups

that affect the business.

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Technological Factors: This deals with knowledge of how to accomplish tasks and goals,

and innovations.

Natural Environment: This deals with all the gifts of nature or natural resources of

the nation that serve as input for the business.

Socio-Cultural Factors: These deal with the people, their norms, values and beliefs as they

affect the business.

Economic Factors: These deal with the Macro level factors relating to means of production

and wealth distribution. It also includes the forces of supply and demand, buying

power, willingness to spend, consumer expenditure levels, and the intensity of

competitive behaviour.

Competitive Environment: These are those firms that market products that are similar to,

or can be substituted for, a business’ product(s) in the same geographical area. The

four general types of competitive structure are monopoly, oligopoly, monopolistic

competition, and perfect competition.

Other Factors: The other factors making up the external business environment are:

(1) Suppliers, which are other firms and individuals that provide the input resources needed

by the organization to produce goods and/or services.

(2) Intermediaries, who are independent businesses that perform all the activities necessary to

direct the flow of goods and services from manufacturers/marketers to ultimate

consumers/customers. They include wholesalers, retailers, agents and distributors.

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(3) Customers who constitute a portion of the target market of the business; they are the ones

the business strives to satisfy.

AN OVERVIEW OF SWOT ANALYSIS

SWOT entails the objective analysis of a business’s Strengths and Weaknesses and its

Opportunities and Threats. In order to identify its strengths, weaknesses, opportunities and

threats, an organization has to carry out internal and external evaluation and also

opportunities/threats analysis and strengths/weaknesses analysis.

The Internal Evaluation starts with: The identification of the profit contribution of each area,

followed by allocation of resource, determination of risks involved, variety reduction,

realistic allocation of costs and the assessment of company resources. External evaluation

starts with the determination of market stranding, determination of competitors’ strengths

and weaknesses, assessment of the vulnerability of the business’ main products to

substitutes, assessment of the effects of economic changes on the business, inter firm

comparisons and Stock Market Valuation in terms of an assessment of the company’s

vulnerability to takeover.

Strengths/Weaknesses Analysis

This involves scanning the internal environment of the business in order to identify

its strengths and weaknesses. The entrepreneur needs to evaluate the strengths and

weaknesses of the business periodically. Also, the entrepreneur can assess the internal

environment of the business by critically looking at the internal factors in terms of the 5s,

namely: Skills, Strategy, Staff, Structure, Systems and Shared Values.

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Opportunities and Threats Analysis

This involves scanning the external environment of the business in order to identify

the Opportunities and Threats. The entrepreneur can assess the external environment of

the business by critically looking at the opportunities and threats emanating from

changes in the major external environmental factors. For instance opportunities in the

technological environment could be availability of advanced technology, developments

in Information Technology like the advent of the GSM; opportunities in the

Political/Legal environment could be favorable government policies, tax holidays;

opportunity in the Demographic environment could be great market demand;

opportunities in the Economic environment could be growing export market increased

consumer spending and growing industry. Positive seasonal influences are an opportunity

in the natural environment; opportunities in the other environment could be change in

consumers taste in favour of your product and Intermediaries’ cooperation. Examples of

threats in some external environmental factors can come from direct competitors, indirect

competitors, consumers, substitute products or services and suppliers, customers brand

switching and innovations by competitors.

BUSINESS PLAN AND ITS IMPORTANCE

The term “business plan” has different meanings to different people. Venture capitalists

see them as investment proposals, purely fund raising documents. Corporate managers

think of them in terms of departmental budgets and financial forecasts. According to

Kuratko and Hodgetts (1998), the business plan describes to investors and financial

sources all of the events that are likely to affect the proposed venture. Details are required for

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various projected actions of the venture, with associated revenues and costs outlined. A

Business Plan describes a business opportunity.

Importance of Business Plan

According to Cagan (2006), the importance of business plan include the following:

1.It enables you to launch a new business.

2.It shows that your business has grown substantially.

3.It helps to expand your existing business into new markets.

4.It enables us to add a new product or product line.

5.It is important when thinking about buying a business.

Principles of Planning in Feasibility Studies and Business Plan

A plan must be:

(a)Explicit: All steps completely spelled out.

(b)Intelligible: Capable of being understood by those who will carry it out.

(c)Flexible: Capable of accepting change.

(d)Written: Committed to writing in a clear and concise manner.

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Components of a written plan

A written Business Plan should contain the following:

1. The Business Idea: An outline and description of the product or service and background

on the industry.

2. The Entrepreneurs: A history of the founders of the business including their skills, abilities

and proposed ownership structure.

3. Business Objectives:

* What the business intends to achieve including long range goals

*The advantage of the product or service over existing competitors

*The image and character of the business to be developed.

ROLES OF ENTREPRENEURS

In order to perform their functions effectively and operate a successful business,

entrepreneurs have to perform certain roles. These roles are the same as the basic

managerial roles which are identified by Henry Mintzberg in 1973. They are as follows:

Figure Head Role: The entrepreneur has to act as figure head in the organization, as such;

he/she has to perform ceremonial duties. This is done by representing the organization in

formal and informal functions.

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Leader Role: The entrepreneur has to act as a leader because the entrepreneur is the one

who brings other people together in order to create the business. Thus, he/she has to lead the

people in the organization by hiring, firing, training and motivating them.

Liaison Role: The entrepreneur has to act as the link between the business and the parties

outside the business.

Monitor Role: The entrepreneur acts as a monitor; he monitors both the internal and the

external environment of the business constantly.

Information Disseminator Role: The entrepreneur has to act as the organizational

representative and transmit information both within and outside the business.

Spokesman Role: The manager has to act as the spokesman of the business; he/she is the

person for the business both inside and outside.

Entrepreneurial Role: This is the basic role of the entrepreneur; he/she launches new ideas

for the business and bears the risk.

Disturbance Handler: The entrepreneur also acts as arbitrator in situations of conflict so as

to maintain organizational harmony.

Resource Allocator: The entrepreneur decides on how the scarce resources of the business

are allocated among its competing ends so as to achieve organizational goals and objectives.

Negotiator Role: The entrepreneur has to negotiate on behalf of the business both with the

other categories of labour and other outside sources. The specific entrepreneurial roles noted

earlier on have a number of activities in each role.

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