DEFINITIONS AND MYTHS

• The word “entrepreneur” originates from French connection

during the 17th century amongst businessmen
• Coined by Richard Cantillon in the 17thC, “entreprendre”
meaning “to undertake”
• Entrepreneurs were individuals who were assigned to undertake a
particular commercial project by someone with money to invest.
• Projects were overseas, risky, for both investors and navigating
entrepreneurs.
• The entire process had to end up with a project which could add
substantial value to the society (mostly wealth creation!)
ENTREPRENEURS VS SMALL BUSINESS OWNERS
• Entrepreneurs are innovative, profit-oriented and growth ridden
individuals. They can even go as far as selling their businesses if
there’s a potential for large capital gains! (Risk takers!)

• SBOs own and operate small businesses independently. Not

dominant in their fields and usually do not engage in many or new
innovative practices. They may never grow large and owners may
prefer a more stable and less aggressive approach to running
businesses
PERSONAL TRAITS OF ENTREPRENEURS
• Creativity: the spark that drives the development of new products or services or ways to do
business. It is the push for innovation and improvement. It is continuous learning, questioning,
and thinking outside of prescribed formulas.

• Dedication: what motivates the entrepreneur to work hard, 12 hours a day or more, even seven
days a week, especially in the beginning, to get the endeavour off the ground. Planning and
ideas must be joined by hard work to succeed. Dedication makes it happen.

• Determination: the extremely strong desire to achieve success. It includes persistence and the
ability to bounce back after rough times. It persuades the entrepreneur to make the 10th phone
call, after nine have yielded nothing. For the true entrepreneur, money is not the motivation.
Success is the motivator; money is the reward.

• Flexibility: the ability to move quickly in response to changing market needs. It is being true to a
dream while also being mindful of market realities.
 PERSONAL TRAITS OF ENTREPRENEURS
• Leadership: the ability to create rules and to set goals. It is the capacity to follow through to see
that rules are followed and goals are accomplished.
• Passion: what gets entrepreneurs started and keeps them there. It gives entrepreneurs the ability
to convince others to believe in their vision. It can’t substitute for planning, but it will help them
to stay focused and to get others to look at their plans.
• Self-confidence: thorough planning which reduces uncertainty and the level of risk. It also
comes from expertise. Self-confidence gives the entrepreneur the ability to listen without being
easily swayed or intimidated.
• “Smarts”: consists of common sense joined with knowledge or experience in a related business
or endeavour. The former gives a person good instincts, the latter, expertise. Many people have
smarts they don’t recognize. A person who successfully keeps a household on a budget has
organizational and financial skills. Employment, education, and life experiences all contribute to
smarts.
ENTREPRENEURSHIP
• Simply defined as what an entrepreneur does!

• Defines characteristics of seeking opportunities, taking risks beyond

security and having the tenacity to push an idea through to reality.

• It is also a mind-set that have revolutionized the way businesses are

conducted at every level in every country.

• Can be taught and learnt unlike many myths contrary to!

ENTREPRENEURSHIP CONT.
• A dynamic process of vision, change, and creation.
• Requires an application of energy and passion towards the creation and
implementation of new ideas and creative solutions.

Essential ingredients include:

• The willingness to take calculated risks—in terms of time, equity, or career.

• The ability to formulate an effective venture team; the creative skill to marshal
needed resources.

• The fundamental skills of building a solid business plan.

• The vision to recognize opportunity where others see chaos, contradiction, and
confusion
COMMON MYTHS (OR) FOLKLORES
• Entrepreneurs are doers and not thinkers : Modern day entrenuership
involves creation of clear and complete business plans which is an indication of
thinking ahead!
• Entrepreneurs are born and not made : Modern educational institutions teach
models, traits, processes, case studies which generate knowledge to those
aspiring entrepreneurs. It has now become a discipline
• Entrepreneurs are always investors : Entrepreneurship encompasses
innovation, not necessarily investing!
• Entrepreneurs are educational and social misfits : The world has changed!
• Entrepreneurs seek success but experience high failure rates: Many
entrepreneurs suffer a number of failures before they are successful. Failure can
teach may lessons to those who are willing to learn and failure often leads to
future success.
• Entrepreneurs are extreme risk takers: Entrepreneurs take calculated risks
CONT. MYTHS
• Entrepreneurs must fit the profile: many books and articles have
presented checklists of characteristics of successful entrepreneurs.
Reality is it is not necessary for the individuals to have ALL the
characteristics as described to become successful.
• All entrepreneurs need is luck: luck only happens when preparation
meets opportunity. What appears to be luck could really be several other
factors e.g.; preparation, determination, desire, knowledge,
innovativeness
• Ignorance is bliss for entrepreneurs: the myth that too much planning
and evaluating will give rise to problems. In the competitive world of
business, entrepreneur should be equipped with solid knowledge &
strategies which would be keys to success.
ENTREPRENEUR'S TASKS: SO WHAT DOES AN
ENTREPRENEUR DO?
Own organisations
• Modern day market economies differentiate “ownership” from
“running organisation”
• Ownership lies with those who invest in business and own its
stock
• Running organisation is delegated to professional managers or
agents
• If an entrepreneur actually owns a business then he/she is in fact
undertaking two roles at the same time
TASKS CONT.
Find new organisations
• A very common belief that individuals who have established new
businesses are entrepreneurs
• Entrepreneur is recognised as the person who undertakes the task
of bringing together the different elements of organisation (people,
property, productive resources)
• Some “buy” into what has been established, develop them more
and extends them or absorbing them into existing organisations
• Contrary to many managers who “get on” with what has been
already established and bring only incremental changes to them
TASKS CONT.
Bring innovation on into the market
• Very crucial to entrepreneurial process
• “entrepreneurial” adjective describing how the entrepreneur undertakes what
they do
• “Entrepreneurial process” a process of creating or adding value a result of a
new project or venture
• “Entrepreneurs must do something new or else there will be no point in
entering a market”
• “Innovating” creating something new, product or technology, new way of doing
things? New way of delivering products? New methods of informing the
consumer about a product and promoting it to them? New approaches to
managing relationships?
• What is important is there has to be value added! Or else it is pointless.
TASKS CONT.
Identifies market opportunities
• Opportunity is defined as a “gap” in market where the potential to do
something of value exists. It is the other side of the coin of innovation!
• New opportunities exists all the time but not necessarily presenting
themselves
• “If they are to be exploited they must be actively sought out.”(Wickham,
1988)
• This is a key task of an entrepreneur!
• Entrepreneurs should always “scan” the environment/business
landscape to identify gaps left by existing market player including them.
They should not stop at scanning but go as far as pursuing these gaps
with suitable innovations
TASKS CONT.
Apply expertise
• Expertise comes in various forms e.g.: spotting new opportunities,
deciding how to allocate scarce resources in situations where
information is limited which makes them very valuable to investors!

• How “distinct” are entrepreneurial investment decisions apart from

acquired managerial skills via confidence, market knowledge,
decisiveness and leadership skills?

• Can we separate the attributes?

TASKS CONT.
Provision of leadership
• An indeed a special skill! Entrepreneurs can rarely drive innovations to
markets. They need support from various individuals: investors, customers,
suppliers etc people from both within and outside organisations

• If these are to pull in one direction for value to be created the task of
unifying these agents lies heavily on the shoulders of entrepreneurs since
they must be supported and motivated as well as directed.

• However, this factor is not unique to entrepreneurs, it is rather a “general

management skill”
ENTREPRENEURSHIP: A MINDSET
• Entrepreneurship is more than the mere creation of business:
– Seeking opportunities
– Taking risks beyond security
– Having the tenacity to push an idea through to reality

• Entrepreneurship is an integrated concept that permeates an

individual’s business in an innovative manner.
F IGU RE

ENTREPRENEURIAL SCHOOLS -OF-THOUGHTS APPROACH

MACRO VIEW: EXTERNAL LOCUS OF
CONTROL
• The Environmental School of Thought
– Considers the external factors that affect a potential entrepreneur’s lifestyle.
• The Financial/Capital School of Thought
– Based on the capital-seeking process—the search for seed and growth
capital.
• The Displacement School of Thought- Alienation drives entrepreneurial pursuits.
– Views the factors that prevent (or displace) a person from doing other
activities, such as a political regime or a regulatory environment that blocks
free enterprise; cultural aspects that might prevent a person from choosing
self-employment; or economic factors such as job loss or even full
employment that might affect one’s choice to become an entrepreneur.
MICRO VIEW: INTERNAL LOCUS OF CONTROL (CONT’D)
• The Entrepreneurial Trait School of Thought
– Focuses on identifying traits common to successful entrepreneurs.
• Achievement, creativity, determination, and technical knowledge

• The Venture Opportunity School of Thought

– Focuses on the opportunity aspect of venture development—the
search for idea sources, the development of concepts, and the
implementation of venture opportunities.
• Corridor principle: New pathways or opportunities will arise that
lead entrepreneurs in different directions.

• The Strategic Formulation School of Thought

– Emphasizes the planning process in successful venture development.
THEORIES OF ENTREPRENEURSHIP
Economic theories
• Entrepreneurship and economic growth take place when the economic conditions are
favorable.
• Economic incentives are the main motivators for entrepreneurial activities.
• Economic incentives include taxation policy, industrial policy sources of finance and raw
material, infrastructure availability, investment and marketing opportunities, access to
information about market conditions, technology etc.
• The economist sees an entrepreneur as someone who combines resources such as labour,
materials and other assets, introduces changes, innovations and new orders for profitable and
rewarding ends.
 SOCIOLOGICAL THEORIES
• Entrepreneurship is likely to get a boost in a particular social-culture
• Society’s values, religious beliefs, customs, taboos influence the behavior of individuals in a society.
• The entrepreneur is a role performer according to the role expectations by the society.

Max Weber’s Theory of Religion

• Religion is the major driver of entrepreneurship stressed
• Spirit of capitalism highlights economic freedom and private enterprise.
• Capitalism thrives under the protestant work ethic that harps on these values.
• The right combination of discipline and an adventurous free-spirit define the successful
entrepreneur.
SOCIOLOGICAL THEORIES
Social Marginality model
• Individuals who perceive strong incongruence between their personal attributes and the role
they hold in the society will be motivated to change or reconstruct their social reality
• One mechanism of doing so is becoming self-employed while others change career or
employers
• “Marginal men” were individuals who are less integrated in their society. They were free
from restrictions imposed by the system hence were more likely to develop entrepreneurial
traits.

Ethnicity
• Ethnic origin of a person is said to influence the choice between paid employment and self-
employment as well as performance in self-employment
 ETHNICITY CONT.
E.g. Igbos in Nigeria, Kikuyus in Kenya, Chinese at home country, Indians etc

Intergenerational Inheritance of enterprise culture (Role Modelling)

• Theory argues that entrepreneurial practise is largely inherited
• Offspring's are more likely to engage in entrepreneurial activities if parents were
entrepreneurial
• Strong grounding in business and ownership ethic at an early age is a useful driving force
for children as they choose their future carriers
PSYCHOLOGICAL THEORIES
• Entrepreneurship gets a boost when society has sufficient supply of individuals with necessary
psychological characteristics.
• The psychological characteristics include need for high-Achievement, a vision or foresight,
ability to face opposition.
• These characteristics are formed during the individual’s upbringing which stress on standards of
excellence, self reliance and low father-dominance.
• Attitudes and psychological attributes differentiate entrepreneurs from non-entreprenuers and
successful ones from non-successful entrepreneurs

Theories include: N-Ach theorem (McClelland), Locus of control (Rotter, 1954), psychodynamic
model by Kets de Vries and risk taking propensity.
THEORIES CONT.
Locus of Control theorem
• Degree to which one believe that he/she is in control of one’s destiny
• “Internals” believe that what happens to them is a result of their internal efforts
whether good or bad
• “Externals” believe whatever happens to them is a result of external factors (factors
beyond one’s control) whether good or bad.

Psycho-dynamic theories
• People with troubled pasts (e.g. from abused relationships, broken families, low
self-esteemed, low self confidence, refugees)
MCCLELLAND THEORIES
Theory of High Achievement/Theory of Achievement Motivation
McClelland identified 2 characteristics of entrepreneurship:
–Doing things in a new and better way
–Decision making under uncertainty
He stressed that people with high achievement orientation (need to succeed) were more likely
to become entrepreneurs
• Such people are not influenced by money or external incentives
•They consider profit to be a measure of success and competency.
Motivation theory by McClelland (Acquired Needs theory)
According to McClelland, a person has three types of needs at any given time, which are:
–Need for achievement (get success with one’s own efforts)
–Need for power (to dominate, influence others)
–Need for affiliation (maintain friendly relations with others)
•The need for achievement is the highest for entrepreneurs
 INNOVATION THEORY
• Theory by Joseph Schumpeter who believes that entrepreneur helps the process of
development in an economy.
• He says that an entrepreneur is the one who is innovative creative and has a foresight.
• According to him, innovation occurs when the entrepreneur introduces a new product–
Introduces a new production method–Opens up a new market–Finds out a new source of raw
material supply–Introduces new organization in any industry.
• The theory emphasizes on innovation, ignoring the risk taking and organizing abilities of an
entrepreneur
• Schumpeter’s entrepreneur is a large scale businessman, who is rarely found in developing
countries, where entrepreneurs are small scale businessmen who need to imitate rather than
innovate
MANAGEMENT THEORIES CONT.
• A framework can be developed that addresses the degree of entrepreneurship in
firm's management practices along several different dimensions.

• A company’s management practices range along a spectrum from highly

entrepreneurial to highly administrative.

• “Promoter” characterizes the entrepreneurial side of the spectrum (pursue and

exploit opportunities regardless of resources)

• “Trustee” characterizes the administrative side (efficiently use the resources

currently controlled)
TYPES OF ENTREPRENEURS
Innovative entrepreneur
Introduces something new in the society
Imitative entrepreneurs
Observe an existing system and replicate it in a better manner. They could improve on an existing
product, production process, technology and through their vision create something similar but
better.
Fabians
Very careful and cautious in adopting any changes. Apart from this, they are lazy and shy away
from innovations
Drone
Entrepreneurs that are resistant to change. They are considered as ‘old school’. They prefer to
stick to their traditional or orthodox methods of production and systems.
Nascent entrepreneurs
Those planning to start new ventures
TYPES CONT.
Singular entrepreneurs
Run single businesses

Novice Entrepreneurs
Already running singly owned business but are still actively learning about the business

Opportunist entrepreneur
Interested in maximising their returns from short term deals

Craftsmen
Make a living by privately selling what they produced

Growth oriented entrepreneurs

Pursue opportunities to maximise potential of their venture
TYPES CONT.
Income oriented
Securing steady income
Expansion oriented
Take risks of expanding business and face the challenge of changing their
role from crafts operators to managers of craftsmen
Intraprenuers
Administrative entrepreneurs (operating firms in entrepreneurial manner
Independence oriented entrepreneurs
They work for themselves
 LANDAU’S APPROACH

High
Gambler True Entrepreneur

Risk
Bearing
Consolidator Dreamer

Low

Low Innovativeness High

 CLASSICAL APPROACH

Craftsmen
Income oriented
Expansion oriented
Opportunist Entrepreneurs
Growth-oriented -
Independence-oriented
 WEBSTER’S APPROACH
• The Cantillon Entrepreneur (classic type)  brings
people, money and materials together to create an
entirely new organisation
• The Industry Maker  goes beyond merely creating a
new firm; their innovation is such important that a whole
industry is created on the back of it
• Administrative Entrepreneur (Intraprenuers)  a
manager who operates within an established firm but
does so in an entrepreneurial manner
• The Small Business Owner  an entrepreneur who
takes responsibility for owning and running their own
venture.
BUSINESS ENVIRONMENT
• 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 (BusinessDictionary.com, 2010).
• A business is also conceived as a legally recognized organization.
• It is also referred to as: enterprise, business enterprise, commercial
enterprise, company, firm, profession or trade operated for the purpose of
earning a profit by providing goods or services, or both to consumers,
businesses and governmental entities (Sullivan and Sheffrin, 2003;
AllBusiness.com., 2010).
ENVIRONMENT
• The concept ‘environment’ literally means the surroundings, internal, intermediate and
external objects, influences or circumstances under which someone or something exists
(Kazmi, 1999).
• The environment within which something exists exhibits certain characteristics which have
been identified by Kazmi (1999) to be: complexity, dynamism, multifaceted and far-reaching
impact.These are apart from the simple and stable environmental conditions.
Characteristics
• Multifaceted: The business environment is many-sided. It can be viewed from many angles 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.
CONT.
• 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.
INTERNAL BUSINESS ENVIRONMENT
• 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 social
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
(Ifechukwu, 1986; Kazmi, 1999; Business-Plan, 2010).
INTERNAL ENVIRONMENT CONT.
• 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
(Ifechukwu, 1986).
• The nature of a business’ internal environment is also determined by the organizational
resources, organizational behaviour, strengths, weaknesses, synergistic relationships and
distinctive competence (Kazmi, 1999).
Intermediate Environmental Factors
• Intermediate determinants of entrepreneurship ideally represent issues or factors in the
borderlines between strictly internal and external factors affecting entrepreneurship.
• 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 BUSINESS ENVIRONMENT
• 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 (Kazmi, 1999; Business-Plan, 2010).
EXTERNAL ENVIRONMENTAL FACTORS EXAMPLES
• 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. Technological Factors: This deals with knowledge of
how to accomplish tasks and goals, and innovations (Herbert, 1973).
• 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.
CONT.
• 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,
and
• (3) Customers who constitute a portion of the target market of the business; they are
the ones the business strives to satisfy.
EFFECTIVE TOOLS FOR INDUSTRY/BUSINESS
ANALYSIS
• S.W.O.T (STRENGTH, WEAKNESS, OPPORTUNITIES,
THREATS) analysis

• PORTER’S FIVE FORCES

Bargaining power of suppliers
Bargaining power of buyers
Threats to new entrants
Threats of substitute products
Competitive rivalry
SWOT ANALYSIS
• 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 (Dibb, Simkin, Pride, & Ferrell, 1991; Aluko, Odugbesan, Gbadamosi &
Osuagwu, 1998; Business-Plan, 2010).
• To do this effectively the entrepreneur needs to ask him/herself and answer questions
pertaining to the 5s (five ‘s’) in terms of their strengths and weaknesses by developing
questionnaires to ask questions pertaining to major internal environmental factors
such as:
• Skills: What skills do the organizational members possess?
• What are the distinctive competencies of the organization?
• Strategy: Does your business have a clear vision and mission?
• Are your business objectives/goals derived from its mission?
• Does your business have plans?
• Do you follow the laid down plans of the business as scheduled?
CONT.
• What skills do the organizational members possess?
• Does your business have clear strategies to operationalize its policies?
• What are the distinctive competencies of the organization?
• Staff: Does the business have qualified staff for the relevant positions? Are the staff
rightly placed?
• Does the business have adequate number of personnel to man the various positions?
• Structure: Does the business have an organizational structure or organogram? What
type of organization structure does your business adopt?
• Are there clear lines of reporting and communication?
• Systems: Does your organization have a system?
• What kind of systems (e.g. MIS, Accounting, Quality Control, and Inventory) does your
business have in place? (Business-Plan, 2010).
CONT.
• If the answers to these questions are positive/or the factors are present,
then you record them as strengths
• if the answers are negative/ the factors are absent, then you record them as
weaknesses.
• After this, each factor is rated as to whether it is a major strength, minor
strength, neutral factor, minor weakness, or major weakness (Business-Plan,
2010).
 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 favourable 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.
CONT.
• 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 (DixonOgbechi,
2003; Business-Plan, 2010).
• The entrepreneur can classify the overall attractiveness of a business once he/she has
conducted a thorough opportunities and threats analysis.
• To this effect, threats could be classified according to their seriousness and probability
of occurrence.
• To evaluate its opportunities, the business needs to operate a reliable Management
Information System (MIS).
CONT.
• The information obtained will enable the entrepreneur know if the business
is ideal (i.e. it is high in major opportunities and low in major threats);
• is speculative (i.e. it is high in both major opportunities and threats);
• mature business (i.e. it is low in major opportunities and threats) and
troubled (i.e. it is low in opportunities and high in threats).
• An effective opportunity and threat analysis is advantageous to the
entrepreneur; it will enable the entrepreneur make decisions on whether
the business should limit itself to those opportunities where it now
possesses the required strengths or should consider better opportunities
where it might have to acquire or develop certain strengths (Dibb et al.,
1991;Aluko et al, 1998; Dixon-Ogbechi, 2003; Business-Plan, 2010)
LEGAL FORMS OF BUSINESS IN TANZANIA
• Registered companies (private and public);
• Branch offices of companies registered outside Tanzania;
• Partnerships;
• Sole proprietorships;
• Associations, Societies and Non-governmental organisations.

Registered Companies (Private and Public)

• Companies are registered as “limited liability” companies and are regulated by the Companies Act,
2002. Tanzania’s legal system is based on English law and practice.
• Limited companies may be public or private.
• A private company is prohibited from inviting the general public to subscribe for its shares and it
cannot have more than 50 members excluding persons in employment of the company.
• A public company may offer its shares to the general public. There is no maximum number of
members and its shares are freely transferable. It may be able to raise capital by listing its shares
on the stock exchange.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• The process of registering a company in Tanzania may take up to four weeks and includes:
Reservation and approval of a name by the Registrar of Companies.
• The company name reservation lasts 30 days and can be renewed for a similar period.
• The associated cost is Shs. 50,000 per each name submitted for reservation.
• Preparation of the Memorandum of Association (setting out amongst other things the object of
the company and its authorised and issued capital) and Articles of Association (setting out the
procedures governing the operations of the company).
• A private company will require at least 2 subscribers, while a public company will require at least
7.
• Completion of various forms including Statement of Nominal Capital, Particulars of Directors and
Shareholders, Situation of Registered Office and Certificate of a Lawyer involved in the Formation
of the Company.
• In addition to the above, a public company is required to complete Consent to Act as Directors,
List of Persons who have Consented to Act as Directors and the Statement in Lieu of Prospectus
forms.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• Stamping of the Memorandum of Association and Articles of Association and the
Statement of Nominal Capital at the Lands Office together with payment of
stamp duty on Nominal Capital.
• Stamp duty payable is 1% of the capital (subject to a maximum of Shs. 300,000)
plus a fixed fee of Shs 5,000 for the stamping of each copy of the Memorandum
and Articles of Association and filing fees of Shs. 51,200 for statutory forms 14(a)
and 14(b).
• Issue of a Certificate of Incorporation by the Registrar of Companies. The
Companies Act also allows for the formation of a company limited by guarantee
and not having a share capital. These are normally used for the formation of
charitable foundations and not-for-profit entities. There are special requirements for
the formation of such companies, and the period of formation may take up to 1
month.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Types of Companies: three types of companies can be identified
Limited by shares Limited by guarantee An unlimited company.
• A company is said to be limited by shares, if the liability of its members is limited
by the memorandum to the amount, if any unpaid on the shares respectively held
by them.
• A company is said to be limited by guarantee if the memorandum to such amount
as the members may respectively thereby undertake to contribute to the assets
of the company in the event of its being wound up.
• A company is said to be unlimited when the members do not have any limit on
the liability of its members.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Branch Office of an Overseas Company
A company incorporated outside Tanzania may carry on business in Tanzania through a branch. In order to
establish a branch, the following documents and details must be submitted to the Registrar of Companies
before establishing such a branch:
• Statutory Form 434, duly filled and signed by the directors of the entity;
• A certified copy of the Charter, Statutes or Memorandum and Articles of the company, or other
instruments defining the constitution of the company;
• A list of the directors and the secretary of the company;
• A certified copy of the last audited accounts of the company in the country of its incorporation;
• A statement of all existing charges entered into by the company affecting properties in country of its
incorporation;
Names and residential and postal addresses of one or more persons resident in Tanzania authorised to
accept, on behalf of the company, service of notices required to be served on the company;
• Full address of the registered or principal office of the company in its home country; and
• Full address of place of business of the branch in Tanzania. The filing fees payable is US$ 1,100. Once the
process is complete, the Registrar will issue a Certificate of Compliance. The process may take up to 4
weeks. Companies that may want to have representative or liaison offices are required to register using
the above process.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• A partnership is a legal form of business with two or more owners.
• Partners legally share a business assets, liabilities, and profits according to the terms of a
partnership agreement.
• The law does not require a written partnership agreement, also known as the articles of
partnership, but it is wise to work with an attorney to develop an agreement that documents
the status, rights and responsibilities of each partner.
• The partnership agreement is a document that states all of the terms of operating the
partnership for the protection of each partner involved.
• Banks often want to review the partnership agreement before lending the business money. A
partnership agreement can include any legal terms the partner’s desire.
• Types of partnership include:
a) General partnership
b) Limited partnership
c) Limited Liability partnership (LLP) and;
d) Master Limited partnership (MLP)
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• General partnership: This is a partnership in which all owners share in operating the business
and in assuming liability for the business’ debts.
• Limited partnership: This is a partnership with one or more general partners and one or more
limited partners. Limited partnership is one in which certain partners are liable only for the
amount of their investment. The purpose of a limited partnership is to allow one or more
individuals to provide capital on which a return is expected. In case of liquidation, the limited
partners only lose the capital.
• Master Limited Partnership (MLP): This is a newer form of partnership which looks much like
a corporation in that it acts like a corporation and is traded on the stock exchanges like a
corporation but it is taxed like a partnership and thus avoids the corporate income tax.
• Limited Liability Partnership (LLP): LLP limited partners risk losing their personal assets to
only their own acts and omissions of people under their supervision. This newer type of
partnership was created to limit the disadvantage of unlimited liability.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Types of partners
The following types of partners are organized:
1) General partner: A general partner is an owner (partner) who has unlimited liability and is
active in managing the firm.
2) Limited partner: A limited partner is an owner who invests money in the business but does not
have any management responsibility or liability for losses beyond the investment.
3) Silent partners: These are partners who are known by the public as owners of the business, but
they may take no active role in marketing the business.
4) Secret partners: These are partners who take active role in the management of the company
but they are unknown to the outsiders as partners.
5) Sleeping partners: These are also known as dormant partners, they are neither known as
partners by the public nor do they participate in managing the company. They only share from the
profit /loss of the business to the tune of capital contributed.
6) Nominal partners: These kinds of partners are publicly known that they are partners although
they have no investment in the business and therefore have no rights of management. They merely
lend their names to the enterprise and may be liable for certain debt of the partnership. o How is a
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Partnership cont.:
• The law relating to partnerships is largely contained in the Law of Contract
Act, Chapter 345. A partnership may be formed by any kind of agreement. This
need not be formal but is usually in writing and is called Partnership Deed.
• The relevant applicable law is Law of Contract Ordinance Cap. 433. Whether
the partnership trades under the names of the partners or by a separate name,
the business name(s) to be used by the partnership must be registered under the
Business Names (Registration) Ordinance.
• A Partnership is required to file the statement of particulars form with the
Registrar of Companies together with a filing fee of Shs 6,000.
• The form has to be signed by all the partners. Partnership agreements must be
filed with the Registrar at Business Registrations and Licensing Agency (BRELA).
The Registrar will then issue a Certificate of Registration and an “extract”
certifying the name(s) of the partnership and the names of partners. The process
may take up to two weeks.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Sole Proprietorship
• Designed for a business owned and managed by one individual, has no legal
distinction between the sole proprietor status as an individual and his or her
status as a business owner.
• A sole proprietor is personally liable for all debts incurred. Whether a proprietor
trades under his personal name or any other name, the business name used by
the proprietor have to be registered under the Business Names
(Registration) Ordinance (Cap. 213).
• The proprietor is required to file the Statement of Particulars form with the
Registrar of Companies together with a filing fee of Shs 6,000. The Registrar
will then issue a Certificate of Registration and an “extract” certifying
the name of the business and the name of the proprietor. The process may
take up to two weeks.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• Associations, Societies and Non-Governmental Organisations Societies, which
include NGOs, charitable organisations etc. are usually formed for the purposes
of trade associations, not-for-profit organisations and similar organisations. They
are regulated under the Non Governmental Organisations Act, 2002, as amended
in 2005.
• These registrations fall under the Ministry of Community Development, Gender
and Children and registrations are done on completing all the statutory forms,
presentation of the constitution and a list of founding members and Directors
with their personal details.
• The board of directors and founding members must include at least two
Tanzanian nationals. The proposed entity must submit the application and the
notification of registered office and postal address of the society together with
the society constitution in duplicate accompanied by a registration fee.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• These fees vary based on the geographical level at which the NGO is registered.
The fees are Shs. 41,500 for registration at district level, Shs. 56,500 for
registration at regional level, Shs. 66,500 for registration at national level and US$
267 for registration of an international NGO.
• The annual fees payable are Shs. 50,000 for a local NGO and US$ 60 for an
international NGO. The application is considered by the Registrar of NGOs
normally within three months after the receipt of application.
• Upon registering the entity, the Registrar shall issue to the society a certificate of
registration in the prescribed form. Every NGO must submit an activity report to
the registrar each calendar year.
• Failure to do so can result in de-registration of the NGO by the Registrar.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Tax Identification Number and VAT Registration
• All businesses are required to obtain a Tax Identification Number (TIN). This is
the tax registration document. An application for a TIN is to be made to the
Tanzania Revenue Authority in the region where the business intends to be
established.
• Such application can only be done after completing the company registration
formalities and obtaining the Certificate of Incorporation/Registration. On some
occasions, the proprietor or partners or directors may be called to the TRA
office where the registering officer wishes to interview the applicant company
and its directors.
• The application form must be accompanied by the first provisional tax return for
the year during which the registration is applied for. This form is officially called
“statement of estimated tax payable” or SETP.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
• Doing Business in Tanzania When undertaking the TIN registration online, the
taxpayer is required to endorse the tax obligations in the systems which are
applicable to it.
• These include corporation tax, PAYE, income tax, withholding tax, etc. Where the
taxpayer is required to register for Value Added Tax (VAT), such registration can
be done by submitting relevant application form, but only after obtaining TIN
certificate and requires some additional documents, namely, proof of availability of
business premises, photographs and copies of passports of directors / partners
and business license from local or central government body responsible for the
business sector
• All employees and directors/partners/sole proprietor are also required to have an
individual TIN. This needs to be done in the same manner as the applications for
business entities.
LEGAL FORMS OF BUSINESS IN TANZANIA CONT.
Co-operative
• A form of business ownership which involves a collective ownership of a
production, storage, transportation or marketing organisation is what is referred
to as a co-operative.
• Some individuals dislike the notions of having owners, managers, workers and
buyers as separate parties with separate goals for business organisation. They
envision a situation whereby people will co-operate with one another as an
association and share the wealth more evenly. This is what necessitates the form
of business ownership referred to as cooperatives.
• Types of Co-operatives:
• Consumer/producer co-operative, Workers co-operative, Finance co-operatives
• Co-operatives allow small businesses to obtain quantity discounts on purchases,
reducing costs and enabling the co-operative to pass on the savings to its
members.
INTELLECTUAL PROPERTY
• Trademarks, copyright, patents, trade secrets etc
• TRADE AND SERVICE MARKS
• A Trade or Service Mark is a distinctive sign; be it a name, signature, drawing or anything, which is
used to distinguish similar goods or Services of various manufacturers or of such services
providers.
• Trade or Service Marks besides serving the owner or Services providers or products
manufacturers to market their products or Services, they on the other hand help the consumers
to identify, choose and finally purchase a product or service because of its quality as it has been
displayed by the Trade or Service Mark owner over the years.
• THE BENEFITS OF REGISTRATION OF A TRADE OR SERVICE MARK
• Registration of a mark gives an exclusive right to the use of that Mark by its proprietor or
licensee also known as registered user, assignee and any other beneficiaries. This exclusive right is
extended for the first/initial period of seven years and renewable for ten years consecutively.
• A person using an unregistered mark will most likely infringe a registered mark and is at a risk of
facing legal action which in the final analysis can make him/her bankrupt due to heavy penalties
imposed against him/her. So, the best advice to manufacturing and trading communities is to play
safe by registering their respective Trade and Service Marks to avoid those repercussions or
TRADE AND SERVICE MARKS
• Application for registration of a trade mark/service mark is made by filling in and filing form TM/SM 2
accompanied by form TM/SM 3. The forms are available on BRELA website or from Trade and Service Mark
Agents.
• The application forms together with about 8 loose representations of a mark are submitted to the Registrar.
Upon receipt and payment of the application fees, examination is conducted, whereby if the Registrar accepts
the mark the same is allowed to proceed to advertisement on the Journal published by the Registrar on
monthly basis.
• If within sixty days of advertisement the Registrar does not receive any objection on the advertised Mark, he
proceeds to issue the certificate of Registration upon payment of registration fee.
• POST REGISTRATION MATTERS ON TRADE AND SERVICE MARKS
• It has to be renewed after seven years. Any renewal thereafter lasts for ten years and then renewed
consecutively
• Where the owner of the mark decides to assign it to someone else, this matter has to be communicated to
the Registrar for registration and endorsement.
• Any change of name or address ought to be communicated to the Registrar. The same case applies to
Mergers, Registered users (also known as licensing) and any other change in particulars registered.
• Make sure the mark conforms to laid down procedures stipulated by the Trade and Service Mark Act,
Cap 326 [R.E.] 2002 and its Trade and Service Mark Regulations of 2000.
• Conduct search to make sure there is no similar or conflicting mark on record.
• Make sure the mark is distinctive, easy to read and acceptable with clear meaning which does not corrupt
public morals
PATENTS
• A Patent is a legal right granted by the Government to an inventor for an invention. An invention
is a solution to a technical problem existing in a particular field of technology.
• The entire contents of a patent description of an invention that form the basis for an application
for Patent right is referred to as a “patent document”.
• WHAT ARE THE PRIMARY CONTENTS OF A PATENT DOCUMENT?
• A patent document contains:
• The title of an invention
• General description of the invention
• The claim(s)
• An Abstract
• Technical Drawings (if any)
• The term of grant of a patent application is twenty (20) years counted from its filing date. After
the expiry of 20 years a patent falls into the public domain upon which anyone who is interested
can use it freely.
PATENTS CONT.
• WHERE AND TO WHOM POWERS TO GRANT PATENTS ARE VESTED?
• A Patent application is filed with the Competent Authority designated as such by the relevant
Sovereign State. It is usually a Government department or an Agency as the case may be. In
other words powers to grant patents are vested upon the Registrar of Patents or such name as
preferred by the Government of the respective Sovereign State.
• In Tanzania application for Patent rights is done through filing form No. P. 2 accompanied by a
patent document in triplicate and submitted to the Registrar of Patents with Business
Registrations and Licensing Agency (BRELA).
Criteria for patent grant namely:
• Novelty – an invention must be new to be patentable
• Inventive Step – an invention is patentable if it is beyond obvious
• Industrial Applicability – an invention shall be capable of being industrially workable to be
patented.
• An Applicant for patent rights may be a natural or legal person who shall file such an application
with the Registrar of Patents with BRELA.
ASSESSING OPPORTUNITIES IN
NEW VENTURES
PITFALLS IN SELECTING NEW VENTURES
• Lack of objective evaluation (falling in love in with the idea without
proper scrutiny)
• No real insight into the market (lack of information regarding nature
of markets, business cycle, product cycle etc)
• Inadequate understanding of technical requirements
• Poor financial understanding
• Lack of venture uniqueness
• Ignorance of legal issues
CRITICAL FACTORS FOR NEW –VENTURE
DEVELOPMENTS

• Uniqueness of idea
• Investment
• Growth of sales
• Product availability
• Customer availability
WHY VENTURES FAIL
Three categories of venture problems:

• Product-market problems
• Financial difficulties
• Managerial problems
PRODUCT MARKET PROBLEMS

• Poor timing(pre-mature entry into the market place )

• Product design problems
• Inappropriate distribution strategy
• Unclear business definition
• Over-reliance on one customer
FINANCIAL DIFFICULTIES

• Initial undercapitalization
• Assuming debt to early
• Venture capital relationship problems
MANAGERIAL PROBLEMS
• Concept of team approach (hiring & promoting on basis of nepotism, poor
relationships with parent companies and venture capitalists, incompetent
professionals)
• Human Resource problems (inflated owner’s ego, employee-related
concerns, verbal than written agreements which become unhonoured)
TYPES & CLASSES OF FIRST YEAR
PROBLEMS
OBTAINING EXTERNAL FINANCING

• Obtaining financing for growth

• Other or general financing problems
INTERNAL FINANCIAL MANAGEMENT

• Inadequate working capital

• Cash flow problems
• Other or general management problems
SALES/MARKETING

• Low sales
• Dependence on one or few clients/customers
• Marketing or distribution channels
• Promotion/public relations/advertising
• Other or general marketing problems
PRODUCT DEVELOPMENT

• Developing products
• Other product/service development problems
PRODUCTION/OPERATIONS
MANAGEMENT
• Establishing & maintaining quality control

• Raw materials/resources/supplies

• other
 GENERAL MANAGEMENT
• Lack of management experience

• Only one person/no time

• Managing /controlling growth

• Administrative problems

• Other
 HUMAN RESOURCE MANAGEMENT

• Turnover/retention
• Recruitment/selection
• Satisfaction morale
• Employee development
• Others
ECONOMIC ENVIRONMENT

• Poor economy/recession
• Other general economic environment
REGULATORY ENVIRONMENT
• Insurance
EVALUATION PROCESS OF A NEW
VENTURE
 MARKETABLITY PROFILE ANALYSIS

TECHNICAL FEASIBILIT
FEASIBILITY Y CRITERIA
APPROACH

COMPREHENSIVE
FEASIBILTY
APPROACH
BUSINESS PLAN
DEFINITION
• A business plan is a picture of your longer-term objectives, estimates and
forecasts.
• A written document that details your proposed venture. It describes
current status, expected needs and projected results of the new business
• It should not be something that ties you down but rather something that
helps you make decisions. Your forecasts and objectives are likely to
change as things develop and your business plan is where you get down
your best estimate given the current state of information.
CONT.
Enterprises use plan in two main ways:

• Firstly to help you to track progress and provide guidance for decision-making and
secondly to help you raise money. From a funder’s perspective your plan will need
to demonstrate that their investment of money will have a significant impact and
that there is a good market for your product or service and that you are able to
manage the enterprise.

• In order to do this, you must bring out what is exciting about the enterprise,
combined with a thoroughly prepared presentation of the back-up figures and
research. It is quite possible that you will want to have different versions of your
plan available – one for yourselves and others for funders or external partners.
CONTENTS OF BUSINESS PLAN
COVER PAGE
The cover page should include:
• the name of the company
• its address
• its phone number
• the date, and contact information for the lead entrepreneur.
EXECUTIVE SUMMARY
This is an overall summary of your plan. Ideally it should be around one page
long. It should give a reader a general feel for your organisation – overall
objectives, brief description of activities, services or products, what resources
are required and where they will come from and who will benefit. It should
make them want to read more.Write this bit last.
BUSINESS DESCRIPTION

• General description
• Industry background
• Goals & Potentials of business, milestones if any
• Uniqueness of product or service
MARKETING
RESEARCH & ANAYSIS
• Target Market
• Market size & trends
• Competition
• Estimated market share

MARKETING PLAN
• Market strategy- sales & distribution
• Pricing
• Advertising & promotions
OPERATIONS

• Identify location : advantages

• Specific Operational procedures
• Personnel needs & uses
• Proximity to suppliers
MANAGEMENT

• Management team- key personnel

• Legal structures- stock agreements, employment agreements, ownership
• Board of directors
 FINANCIAL FORECAST

• P & L statement
• Balance sheet
• Cash flow statement
• Accounting ratios
CRITICAL RISKS

• Potential problems
• Obstacles & risks
• Alternative course of action
HARVEST STRATEGY

• Liquidity event ( IPOs or sale?)

• Continuity of business
• Identify successor
MILESTONE SCHEDULE

Timing & objectives

Deadlines & milestones
Relationship of events
EXAMPLE OF AFANOU’S BUSINESS
PLAN
EXECUTIVE SUMMARY
The Company
Afanou’s java and Bakery (AJB) is a start-up coffee and bakery retail
establishment located in Oyster bay, DSM. AJB expects to catch the interest of
a regular loyal customer base with its broad variety of coffee and fresh pastry
products. The company plans to build a strong market position in oyster bay's
area, due to the partners' industry experience and mild competitive climate in
the area.
AJB aims to offer its products at a competitive price to meet the demand of
the middle-to higher-income local market area residents and Diplomats.
CONT.
AJB is incorporated in DSM by BRELA on …….., certificate no…... It is equally
owned and managed by its two partners: Mr. Yaovi Mawulolo Afanou and Ms.
Joan Marco Urio. Mr. Afanou has extensive experience in sales, marketing, and
management and was vice president of marketing with Serena Group of hotels
T ltd . Ms. Joan Marco brings experience in the area of finance and
administration, including a stint as chief financial officer with both Commercial
Bank Of Africa and the Tanzania Coffee board.
The company intends to hire two full-time pastry bakers and six part-time
baristas to handle customer service and day to day operations.
CONT.
AJB offers a broad range of coffee and espresso products, all from high quality
Columbian grown imported coffee beans. AJB caters to all of its customers by
providing each customer coffee and espresso products made to suit the
customer, down to the smallest detail.
The bakery provides freshly prepared bakery and pastry products at all times
during business operations. Six to eight moderate batches of bakery and
pastry products are prepared during the day to assure fresh baked goods are
always available.
CONT.
The retail coffee industry in the Tanzania has recently experienced rapid growth.
The nature of customer base who are mostly foreign nationals diplomats &
international guests and cool oceanic climate in Oyster bay area stimulates
consumption of hot beverages throughout the year.
AJB wants to establish a large regular customer base and will therefore
concentrate its business and marketing on local residents, which will be the
dominant target market. This will establish a healthy, consistent revenue base to
ensure stability of the business. In addition, demographic dynamics in oyster bay is
expected to comprise approximately 35% of the revenues. High visibility and
competitive products and service are critical to capture this segment of the
market.
FINANCIAL CONSIDERATIONS
AJB expects to raise of its own capital of ……. and to borrow……
guaranteed by the AKIBA bank as a ten-year loan. This provides the bulk of the
current financing required.

AJB anticipates sales of about……… in the first year,….. in the second year,
and …….. in the third year of the plan. AJB should break even by the fourth
month of its operation as it steadily increases its sales. Profits for this time
period are expected to be approximately ….. in year 1, …… by year 2, and
…….by year 3.The company does not anticipate any cash flow problems.
VISION

“ To b e e s t a b l i s h e d a n d b e c o m e a t r u s t e d p e r fe c t c o f fe e
b u s i n e s s p a r t n e r a n d l e a d e r fo r l o c a l a n d i n t e r n a t i o n a l
guests. “
MISSION

“ To p r o v i d e p e r f e c t , d e l i c i o u s c o f f e e p r o d u c t s a n d
excellent, reliable services to our customers”
CORE VALUES

H o n e s t y, I n t e g r i t y, R e l i a b i l i t y, E x c e l l e n c e
To b e o p e n m i n d e d , t o l i s t e n , t o c a r e a n d t o
be pro-active
To b e i n n o v a t i v e a n d r e a s o n a b l e
OBJECTIVES
• Become selected as the "Best New Coffee Bar in the area" by the local
restaurant guide.
• Turn in profits from the first month of operations.
• Maintain a 65% gross profit margin.
• Keep cost under 35% of revenue
Success of our objectives will depend upon:
a) Store design that will be both visually attractive to customers and designed for
fast and efficient operations.
b) Employee on-job training to insure the best coffee preparation techniques.
c) Marketing strategies aimed to build a solid base of loyal customers, as well as
maximizing the sales of high margin products, such as espresso drinks.
COMPANY SUMMARY
• AJB P.LTD, a Tanzania limited liability company, sells coffee, other beverages
and snacks in its 50 square meter floor area premium coffee bar located
along Chole road. AJB’s major investors are Mrs. Patra Gandhi and Mr.
James Polk who cumulatively own over 70% of the company. The start-up
loss of the company is assumed in the amount of …...
COMPANY OWNERSHIP
Company Ownership
AJB is incorporated in DSM city through BRELA. It is equally owned by its two
partners.

Start-up Summary
AJB is a start-up company. Financing will come from the partners' capital and a
ten -year Akiba loan. The following tables illustrate the company's projected
initial start-up costs.
START-UP EXPENSES (EST. VALUES)
Item Est. cost (in TSh.)
Legal & permits
Logo Design
Initiated web design
Insurance
Payroll
Computer & supporting equipment's

Training
Rent/Security Deposit
Pre-opening Marketing
Espresso machines & coffee grinders
Cash
Premise renovations
Total
START-UP ASSETS (EST. VALUES)
Item Est. cost (in TSh.)
Cash in Bank
Starting inventory
Other Current Assets
Bar’s Furniture
Espresso machines
Espresso coffee grinders
Gourmet Air pot Coffee Brewer
Commercial Blender
Refrigerators
Dishwasher
Cash registers
Credit card machine
Total
Cash Required
RECURRING COSTS (EST. VALUES)
Item Est. cost (in TSh.) monthly

Rent

Utilities

Payroll

Inventory

Waste disposal collection fee

marketing

Miscellaneous

Total
START UP FUNDING
START-UP FUNDING

Start-up Expenses to Fund

Start-up Assets to Fund
TOTAL FUNDING REQUIRED
Assets
Non-cash Assets from Start-up
Cash Requirements from Start-up
Additional Cash Raised
Cash Balance on Starting Date
TOTAL ASSETS
Liabilities and Capital
Liabilities
Current Borrowing
Long-term Liabilities
Accounts Payable (Outstanding Bills)
Other Current Liabilities (interest-free)
TOTAL LIABILITIES
Capital
Planned Investment
Gandhi
Polk
Other
Additional Investment Requirement
TOTAL PLANNED INVESTMENT
Loss at Start-up (Start-up Expenses)
TOTAL CAPITAL
TOTAL CAPITAL AND LIABILITIES
Total Funding
 PRODUCTS
AJB offers a broad range of coffee and espresso products, all from high quality
Columbian grown imported coffee beans. AJB caters to all of its customers by
providing each customer coffee and espresso products made to suit the
customer, down to the smallest detail.
The bakery provides freshly prepared bakery and pastry products at all times
during business operations. Six to eight moderate batches of bakery and
pastry products are prepared during the day to assure fresh baked goods are
always available.
MARKET ANALYSIS
Market Analysis Summary
AJB's focus is on meeting the demand of a regular local resident customer base, as well as a
significant level of diplomats from nearby residencies and passers and international guests.
Market Segmentation
AJB focuses on the middle- and upper-income markets.These market segments consume
the majority of coffee and espresso products.
Local Residents
AJB wants to establish a large regular customer base. This will establish a healthy, consistent
revenue base to ensure stability of the business.
International diplomats
Diplomats and international guests comprises approximately 35% of the revenues. High
visibility and competitive products and service are critical to capture this segment of the
market.
Market Analysis
The chart and table below outline the total market potential of the above described
customer segments.
Target Market Segment Strategy
The dominant target market for AJB is a regular stream of local residents. Personal and
expedient customer service at a competitive price is key to maintaining the local market
share of this target market.
MARKET AND SERVICE NEEDS
Market Needs
Because Oyster Bay has a cool climate; it is well planned and attractive; it is
the centre of diplomats residency; has safe environment and it’s availability of
well built infrastructures and communication links ,hot coffee products are
very much in demand. Much of the day's activity occurs in the morning hours
before ten a.m. and evening past four pm with a relatively steady flow for the
remainder of the day.
Service Business Analysis
The retail coffee industry in the Tanzania has recently experienced rapid
growth due to change in customer’s habits, exposure and income levels.
Coffee drinkers in Dar es Salaam are fussy about the quality of beverages
offered at the numerous coffee bars across the region. Despite low
competition in the immediate area, AJB will position itself as a place where
customers can enjoy a cup of delicious coffee with a fresh pastry in a relaxing
environment.
COMPETITION & BUYING PATTERNS
 Competition in the local area is somewhat sparse and does not provide nearly the level of product quality and customer

service as AJB. Local customers are looking for a high quality product in a relaxing atmosphere.They desire a unique, classy

experience.

 Leading competitors purchase and roast high quality, whole-bean coffees and, along with Italian-style espresso beverages, cold-

blended beverages, a variety of pastries and confections, coffee-related accessories and equipment, and a line of premium teas,

sell these items primarily through company-operated retail stores. In addition to sales through company-operated retail stores,

leading competitors sell coffee and tea products through other channels of distribution (specialty operations).

 Larger chains vary their product mix depending upon the size of each store and its location. Larger stores carry a broad

selection of whole bean coffees in various sizes and types of packaging, as well as an assortment of coffee- and espresso-making

equipment and accessories such as coffee grinders, coffee makers, espresso machines, coffee filters, storage containers, travel

tumblers and mugs. Smaller stores and kiosks typically sell a full line of coffee beverages, a more limited selection of whole-bean

coffees, and a few accessories such as travel tumblers and logo mugs.

Technologically savvy competitors make fresh coffee and coffee-related products conveniently available via mail order and

online.
 Strategy and Implementation Summary
AJB will succeed by offering consumers high quality coffee, espresso, and bakery products with personal
service at a competitive price.
Competitive Edge
AJB's competitive edge is the relatively low level of competition in the local area in this particular niche.
Sales Strategy
As the table show, AJB anticipates sales of about …. in the first year, …….in the second year, and ……….
in the third year of the plan.

EXPECTED SALES (IN TSHS)

MONTHLY SALES
ITEM 1 2 3 4 5 6 7 8 9 10 11 12
(s)

EXPECTED COSTS OF OPERATIONS

ITEM
(S)
SALES FORECAST
SALES FORECAST
YEAR 1 YEAR 2 YEAR 3
Unit Sales
Espresso Drinks
Pastry Items
Other
TOTAL UNIT SALES
Unit Prices
Espresso Drinks
Pastry Items
Other
Sales
Espresso Drinks
Pastry Items
Other
TOTAL SALES
Direct Unit Costs
Espresso Drinks
Pastry Items
Other
Direct Cost of Sales
MANAGEMENT & PERSONNEL SUMMARY
• Names, cv & qualifications of managing team
• Names and description of employees & respective duties. Also their expected salaries or wages

PERSONNEL PLAN

YEAR 1 YEAR 2 YEAR 3

Managers

Pastry Bakers

Baristas

Other

TOTAL PEOPLE

Total Payroll
FINANCIAL PLAN
Financial Plan
AJB expects to raise ….. of its own capital, and to borrow …… guaranteed
by AKIBA bank as a five-year loan.This provides the bulk of the current
financing required.

Break-even Analysis
AJB's Break-even Analysis is based on the average of the first-year figures for
total sales by units and by operating expenses. These are presented as per-
unit revenue, per-unit cost, and fixed costs.These conservative assumptions
make for a more accurate estimate of real risk. AJB should break even by
the fourth month of its operation as it steadily increases its sales.
BREAK EVEN ANALYSIS
BREAK-EVEN ANALYSIS

Monthly Units Break-even

Monthly Revenue Break-even

Assumptions:

Average Per-Unit Revenue

Average Per-Unit Variable Cost

Estimated Monthly Fixed Cost

TRADING ACCOUNT
PRO FORMA PROFIT AND LOSS

YEAR 1 YEAR 2 YEAR 3

Sales

Direct Cost of Sales

Other

TOTAL COST OF SALES

Gross Margin

Gross Margin %

Expenses

Payroll

Sales and Marketing and Other Expenses

Depreciation

Utilities

Payroll Taxes

Other

Total Operating Expenses

Profit Before Interest and Taxes

EBITDA

Interest Expense

Taxes Incurred

Net Profit

Net Profit/Sales
 Balance sheet
PRO FORMA BALANCE SHEET
YEAR 1 YEAR 2 YEAR 3
Assets
Current Assets
Cash
Other Current Assets
TOTAL CURRENT ASSETS

Long-term Assets
Long-term Assets
Accumulated Depreciation
TOTAL LONG-TERM ASSETS
TOTAL ASSETS
Liabilities and Capital
Current Liabilities
Accounts Payable
Current Borrowing
Other Current Liabilities
SUBTOTAL CURRENT LIABILITIES

Long-term Liabilities
TOTAL LIABILITIES
Paid-in Capital
Retained Earnings
Earnings
TOTAL CAPITAL
TOTAL LIABILITIES AND CAPITAL

Net Worth
RATIO ANALYSIS

Sales Growth

Percent of Total Assets

Other Current Assets

Total Current Assets

Long-term Assets

TOTAL ASSETS

Current Liabilities

Long-term Liabilities

Total Liabilities

NET WORTH

Percent of Sales

Sales

Gross Margin

Selling, General & Administrative Expenses

Advertising Expenses

Profit Before Interest and Taxes

Main Ratios
Current
Quick
Total Debt to Total Assets
Pre-tax Return on Net Worth
Pre-tax Return on Assets
Additional Ratios
Net Profit Margin
Return on Equity
Activity Ratios
Accounts Payable Turnover
Payment Days
Total Asset Turnover
Debt Ratios
Debt to Net Worth
Current Liab. to Liab.
Liquidity Ratios
Net Working Capital

Interest Coverage
Additional Ratios

Assets to Sales

Current Debt/Total Assets

Acid Test

Sales/Net Worth

Dividend Payout
APPENDIX

Fit in any other left out necessary information such as tables, diagrams
SOURCE OF FINANCING
 THE IMPORTANCE OF GETTING
FINANCING OR FUNDING

• The Nature of the Funding and Financing Process

– Few people deal with the process of raising investment capital until they need to
raise capital for their own firm.
• As a result, many entrepreneurs go about the task of raising capital haphazardly because
they lack experience in this area.
• Why Most New Ventures Need Funding
– There are three reasons most new ventures need to raise money during their early
life.
• The three reasons are shown on the following slide.
WHY MOST NEW VENTURES
NEED FINANCING OR FUNDING
ALTERNATIVES FOR RAISING MONEY
FOR A
NEW VENTURE

Personal Funds Equity Capital

Debt Financing Creative Sources

SOURCES OF PERSONAL FINANCING
1 OF 2

• Personal Funds
– The vast majority of founders contribute personal funds,
along with sweat equity, to their ventures.
• Sweat equity represents the value of the time and effort that a
founder puts into a new venture.

• Friends and Family

– Friends and family are the second source of funds for many
new ventures.
SOURCES OF PERSONAL FINANCING
2 OF 2

• Bootstrapping
– A third source of seed money for a new venture is referred to
as bootstrapping.
– Bootstrapping is finding ways to avoid the need for external
financing or funding through creativity, ingenuity, thriftiness,
cost-cutting, or any means necessary.
– Many entrepreneurs bootstrap out of necessity.
 EXAMPLES OF BOOTSTRAPPING
METHODS

Buying used instead of Coordinate purchases Leasing equipment

new equipment. with other businesses. instead of buying.

Obtaining payments in
Minimizing personal Avoiding unnecessary
advance from
expenses. Expenses.
customers.

Buying items cheaply but Sharing office space or

prudently via options employees with other Hiring interns.
such as eBay. Businesses.
PREPARING TO RAISE DEBT OR
EQUITY FINANCING
1 OF 3
PREPARING TO RAISE DEBT OF EQUITY
FINANCING
2 OF 3
Two Most Common Alternatives

Equity Funding Debt Financing

exchanging partial getting a loan.

ownership in a firm,
usually in the form of
stock, for funding.
PREPARING TO RAISE DEBT OR
EQUITY FINANCING
3 OF 3

Matching a New Venture’s Characteristics with the Appropriate Form of

Financing or Funding
SOURCES OF EQUITY FUNDING

Venture Capital Business Angels

Initial Public
Offerings
 BUSINESS ANGELS
1 OF 2

• Business Angels
– Are individuals who invest their personal capital directly in start-ups.
– The prototypical business angel is about 50 years old, has high income and
wealth, is well educated, has succeeded as an entrepreneur, and is interested
in the startup process.
 BUSINESS ANGELS
2 OF 2

• Business Angels (continued)

– Business angels are valuable because of their willingness to make relatively
small investments.
• Are looking for companies that have the potential to grow between 30% to 40% per
year.
– Business angels are difficult to find.
Types:
Corporate, enthusiast, micromanagement, professional, entrepreneurial)
 VENTURE CAPITAL
1 OF 3

• Venture Capital
– Is money that is invested by venture-capital firms in start-ups and small
businesses with exceptional growth potential.

• Venture-capital firms are limited partnerships of money managers who raise

money in “funds” to invest in start-ups and growing firms.
• The funds, or pool of money, are raised from wealthy individuals, pension
plans, university endowments, foreign investors, and similar sources.
 VENTURE CAPITAL
2 OF 3

• Venture Capital (continued)

– Venture capital firms fund very few entrepreneurial firms in comparison to
business angels.
• Many entrepreneurs get discouraged when they are repeatedly rejected for venture
capital funding, even though they may have an excellent business plan.
• Venture capitalists are looking for the “home run” and so reject the majority of the
proposals they consider.
• Still, for the firms that qualify, venture capital is a viable alternative for equity funding.
 VENTURE CAPITAL
3 OF 3

• Venture Capital (continued)

– An important part of obtaining venture-capital funding is going through the
due diligence process:
– Venture capitalists invest money in start-ups in “stages,” meaning that not
all the money that is invested is disbursed at the same time.
– Some venture capitalists also specialize in certain “stages” of funding.
 INITIAL PUBLIC OFFERING
1 OF 3

• Initial Public Offering

– An initial public offering (IPO) is a company’s first sale of stock to the
public. When a company goes public, its stock is traded on one of the
major stock exchanges.
– An IPO is an important milestone for a firm. Typically, a firm is not able to
go public until it has demonstrated that it is viable and has a bright future.
INITIAL PUBLIC OFFERING
2 OF 3

Reasons that Motivate Firms to Go Public

Reason 1 Reason 2

way to raise equity Raises a firm’s public

capital to fund current profile, making it easier
and future operations. to attract high-quality
customers and business
partners.
INITIAL PUBLIC OFFERING
3 OF 3

Reasons that Motivate Firms to Go Public

Reason 3 Reason 4

liquidity event that Creates a form of

provides a means for a currency that can be
company’s investors to used to grow the
recoup their company via
investments. acquisitions.
SOURCES OF DEBT FINANCING

Commercial Guaranteed
Banks Loans
 COMMERCIAL BANKS

• Banks
– Historically, commercial banks have not been viewed as a practical sources
of financing for start-up firms.
– This sentiment is not a knock against banks; it is just that banks are risk
adverse, and financing start-ups is a risky business.
• Banks are interested in firms that have a strong cash flow, low leverage, audited
financials, good management, and a healthy balance sheet.
 OTHER SOURCES OF DEBT
FINANCING

• Friends and Family

• Credit Cards
– Should be used sparingly.
• Peer-to-Peer Lending Networks
• Organizations that Lend Money to Specific Groups
CREATIVE SOURCES OF
FINANCING OR FUNDING

Small Business
Leasing Innovation
Research Grants

Other Grant Programs Strategic Partners

10-156
STRATEGIC
ENTREPRENUERSHIP
STRATEGIC ENTREPRENUERSHIP
Need for a strategic plan
i. Degree of uncertainty: with greater levels of uncertainty, entrepreneurs
have a stronger need to deal with challenges that face their venture & a
more formal planning effort can help them to do this.
ii. Strength of competition: in both number & quality of competitors will
add to the importance of a more systematic planning in order for a new
venture to monitor it’s operations and objectives more closely.
iii. Amount & type of experience an entrepreneur has: lack of adequate
experience either technologically or business wise, may constrain the
entrepreneur’s understanding and thus necessitate formal planning to help
determine future paths for the organization
 STRATEGIC PLANNING
DEFINITIONS
“Formulation of long range plans for the effective management of
environmental opportunities and threats in light of a venture’s
strength and weaknesses.” (Kuratko,2009)

“full set of commitments, decisions, and actions required for a firm

to achieve strategic competitiveness and earn above average
returns” (Kuratko,2009)
 STRATEGIC PLANNING
Five basic steps to be followed:
i. Examine internal & external business environment

ii. Formulate venture’s long-range & short-range plans(mission,

objectives, policies, strategies)

iii. Implement strategic plan (programs, procedures & policies)

iv. Evaluate the performance of the strategy

v. Take follow-up action through continuous feedback

 STRATEGIC PLANNING CONT.:
Balance Score Card (BSC):
Rather than evaluate corporation using a few financial measures such as ROI, Kaplan and
Norton argue for a “balanced score card”, including non-financial as well as financial
measures.
BSC evaluate strategies from 4 perspectives:
1. Financial performance: how do we appear to shareholders?
2. Customer knowledge: how do customers view us?
3. Internal business perspective: What must we excel at?
4. Innovation & Learning: Can we continue to improve and create Value?
The Scorecard is used to evaluate strategies. When one is aware of the method of
evaluation, it is useful to set objectives based on the evaluation method used. In other
words, if strategies are to be evaluated on this method, then objectives for what the
strategies should achieve can also be set using the same criteria.
STRATEGIC PLANNING
Reasons for lack of strategic planning:

i. Time scarcity:

ii. Lack of knowledge

iii. Lack of expertise/skills

iv. Lack of trust & openness

v. Perception of high cost

LEVELS OF STRATEGIES
Three levels

i. Corporate (and/or enterprise level)

ii. Business unit (and/or functional)

iii. Operating
LEVELS OF STRATEGIES
Corporate level

• Involves top management and/or board of directors

• Engages highest management’s overall plan for the entire

organisation

• Apply to all parts of organisations while incorporating longest

time of realization

• Give direction to organisational values, culture,goals and

mission
LEVELS OF STRATEGIES
Business Unit and/or functional level & operating level strategies

• Business unit and/or functional level strategies involves middle

ranked managers e.g.: branch managers. They are responsible for
implementation on the lower operating levels. Conducts SWOT for
their units then design structures, processes & systems to guide
their functional areas

• Operating level strategies involves lower ranked managers e.g.:

Supervisors
ENTREPRENEURIAL STRATEGY MATRIX MODEL
I-r
I-R
Move quickly
Reduce risk by lowering investment &
Protect innovation operating costs
Lock in investment & operating costs via Maintain innovation
control systems, contracts
Outsource high investment operations
Joint venture options

i-R
i-r Increase innovation, develop a competitive
advantage
Defend present position
Reduce risk
Accept limited payback
Use business plans
Accept limited growth potential
Minimize investment
 Venture life cycle
1.4
Profits
Revenues 1.2
productivity
1

0.8

0.6

0.4

0.2

new venture start up venture business innovation or

development activities growth stabilization decline

Stages/number of years
 VENTURE DEVELOPMENT STAGES
New venture development

Consists of activities associated with initial formulation of the venture

such as accumulation & expansion of resources, creative assessment &
networking. Venture’s general philosophy, mission, scope & direction are
determined during this stage.
 VENTURE DEVELOPMENT STAGES
START-UP ACTIVITIES

Encompasses the foundational work required to create a formal business

plan, search for capital, carry out marketing activities and develop an
effective entrepreneurial team
 VENTURE DEVELOPMENT STAGES
GROWTH

This stage often requires major changes to entrepreneurial strategy.

Movement/transitioning from one-person leadership to managerial team-
oriented leadership.
 UNDERSTANDING GROWTH STAGE
KEY FACTORS DURING GROWTH STAGE
• CONTROL: growth creates problems in command and control. When dealing with these problems,
entrepreneurs are to answer three critical questions:

i. Does control system imply trust?

ii. Does resource allocation system imply trust?

iii. Is it easier to ask permission than to ask forgiveness?

• RESPONSIBILITY : As company grows, the distinction between authority & responsibility becomes more
apparent. This is because authority can always be delegated. This function establishes flexibility, innovation &
supportive environment.

• TOLERANCE FOR FAILURE : Organisations should tolerate certain level of failure e.g. : Moral Failure
(violation of internal trust), personal failure (lack of skill or application), uncontrollable failure (caused by
external factors)
 VENTURE DEVELOPMENT STAGES
BUSINESS STABILIZATION STAGE/SWING STAGE

Result of both market conditions & entrepreneurial efforts. During this

stage, a number of developments commonly occur including increased
competition, consumer indifference to entrepreneur’s goods/services,
saturation of market with close substitutes. Sales often begin to stabilize
& entrepreneur must start to think about where the enterprise will go
during the next three to five years.
 VENTURE DEVELOPMENT STAGES
INNOVATION OR DECLINE STAGE

Firms that fail to innovate will die. Financially successful enterprises often
will try to acquire other innovative firms thereby ensuring their own
growth. Many firms will work on new products development to
complement current offerings
 VENTURE DEVELOPMENT STAGES
INNOVATION OR DECLINE STAGE

Firms that fail to innovate will die. Financially successful enterprises often
will try to acquire other innovative firms thereby ensuring their own
growth. Many firms will work on new products development to
complement current offerings
CORPORATE
ENTREPRENUERSHIP
 Corporate entrepreneurship
Concept is based on many definitions:
 Generation, development and implementation of new ideas, or
behaviours in organisation setting in order to re-energize and
enhance the firm’s ability to acquire innovative skills and
capabilities.
 It may also be formal or informal set of activities aimed at
creating new businesses in established companies through
product and process innovations and market developments.
These activities may take place at corporate, functional or
project levels with the unifying objective of improving company’s
competitive position and financial performance.
 Other authors have emphasized two major components of
corporate entrepreneurship : new venture creation within existing
organizations and transformation of organizations through
strategic renewal.
 INTRAPRENUER
 Pinchot (1985), defined an Intraprenuer as an entrepreneur
who works within confines of an established organisation.

 He/she would be responsible for the following duties:

a) developing and communicating organisational vision;
b) identifying new opportunities for the organisation;
c) generating innovative strategic options;
d) creating and offering an organisation-wide perspective;
e) facilitating and encouraging change within the
organisation;
f) challenging existing ways of doing things and breaking
down bureaucracies.
 Specific roles of Intraprenuers
 Management of specific projects: projects such as new product developments,
exploiting new market opportunities or going international need specific type of
teams with distinctive flair!
 Setting up of new business units: As ventures becomes larger and larger, new
and distinctive business functions and units come into existence. A specific or
particular part of business may operate best if it has a distinct character and a
degree of independence. Since setting up of these units is demanding,
intrapreneurial team are usually employed to manage the resourcing issues,
structural and external strategy issues
 Re-invigorating the whole organisation: Success of entrepreneurial ventures
depends mainly on their flexibility and responsiveness to new and unmet
customer demands. Such flexibility can be lost as the business grows & its
attention is drawn to internal concerns. Re-introducing the inventive spirit back
can only be done by Intraprenuers
 Re-inventing the business industry: By making a difference! Most successful
entrepreneurs do not just enter the market, they re-invent their industry by
introducing new technology, delivering new products or operating in a new
and more effective way
 The challenges to Intrapreneurship
 Existing manager’s comfort: existing managers always feel
uneasy when Intraprenuers operate since it means them letting
off degree of control.
 Decision making control: Since entrepreneurs seek better way of
doing things , they usually are dissatisfied with the status quo
having to operate within some sort of organisational decision-
making framework. A balance must be created between
allowing Intraprenuers freedom to make their own choice and a
need to keep business on strategic path
 Internal politics: Intraprenuers must question the existing order
and drive change within organisation. For many it creates a
challenge. Intraprenuers will most likely meet resistance both
active and passive
 Rewards for Intraprenuers: Intraprenuers if are to be effective
must bring along some type and level of skills. Question is, can
the organisation really offer rewards? (economical, social and
Need for corporate entrepreneurship
 Competitions: rapid growth of new and sophisticated rivals
possessing high-tech systems corporations must innovate or
become obsolete!
 International competition
 Downsizing of major corporations
 Overall need for improvement in efficiency and productivity
 Exodus of some other best and brightest people to other
corporations: A result of two reasons: rise of need for status,
publicity and economic development mostly among young
entrepreneurs; secondly, capital ventures has grown into
large industries capable of financing more and new ventures
than ever before enabling new entrepreneurs to launch their
ideas
 Sense of distrust in traditional methods of corporate
management
 Re-engineering corporate innovation and
creativity
Steps that will help innovative people reach their potential
 Set explicit innovation goals. These goals need to be
mutually agreed on by the employee and management

 Create a system of feedback and positive reinforcement

 Emphasize individual responsibility

 Provide rewards for innovative ideas

 Do not punish failures

 Re-engineering corporate innovation and
creativity- cont.
Steps that will re-structure corporate thinking & encourage
entrepreneurial environment

 Early identification of potential entrepreneurs

 Top management sponsorship of entrepreneurial projects

 Creation of diversities and order in strategic activities

 Promotion of entrepreneurship through experimentation

 Development of collaboration between entrepreneurial

participants and organisation at large
 C.E obstacles/challenges
Trad. Mgt practices Adverse effects Recommended actions

Compensating uniformly Low motivation & Balance risk & rewards,

insufficient operations employ special
compensation

Plan for the long term Non-viable goals are Envision a goal, set interim
locked in, high failure milestones
costs

Control against plan Fact ignored should Change plan to reflect

replace assumptions new learning

Enforce standards Innovative solutions Make ground rules

procedures to avoid blocked, funds misspent specific to each situation
mistakes

Avoid moves that risk the Missed opportunities Take small steps build
base business strength
The Corporate Entrepreneurship Process

Strategic Corporate
Innovation
Renewal Venturing

Corporate Entrepreneurship
 Types of corporate Innovation
• Radical Innovation
– The launching of inaugural breakthroughs.
– These innovations take experimentation and determined
vision, which are not necessarily managed but must be
recognized and nurtured.
• Incremental Innovation
– The systematic evolution of a product or service into
newer or larger markets.
– Many times the incremental innovation will take over
after a radical innovation introduces a breakthrough.
 Rules for an Innovative Environment
1. Encourage action.

2. Use informal meetings whenever possible.

3. Tolerate failure and use it as a learning experience.

4. Persist in getting an idea to market.

5. Reward innovation for innovation’s sake.

6. Plan the physical layout of the enterprise to encourage informal

communication.

7. Expect clever bootlegging of ideas—secretly working on new ideas on

company time as well as personal time.

8. Put people on small teams for future-oriented projects.

9. Encourage personnel to circumvent rigid procedures and bureaucratic

 Conceptualizing Corporate-
Entrepreneurship Strategy
• Corporate Entrepreneurship Strategy
– A vision-directed, organization-wide reliance on entrepreneurial
behavior that purposefully and continuously rejuvenates the
organization and shapes the scope of its operations through the
recognition and exploitation of entrepreneurial opportunity.

– It requires the creation of congruence between the

entrepreneurial vision of the organization’s leaders and the

entrepreneurial actions of those throughout the organization.

 Critical steps of a corporate entrepreneurial
strategy

Developing the vision

Encouraging innovation

Structuring for an intrapreneurial climate

Developing individual managers for corporate entrepreneurship

Developing venture teams.

 Developing Individual Managers
for Corporate Entrepreneurship
1. The Breakthrough Experience
2. Breakthrough Thinking
3. Idea Acceleration Process
4. Barriers and Facilitators to Innovative
Thinking
5. Sustaining Breakthrough Teams
6. The Breakthrough Plan
 Preparing for Failure
• “Learning from Failure”
– Recognizing the importance of managing the grief process that
occurs from project failure.
– Understanding how organizational routines and rituals are likely
to influence the grief recovery.
– Ensuring that the organization’s social support system can
encourage greater learning, foster motivational outcomes, and
increase coping self-efficacy in affected individuals.
SUCCESSFUL CORPORATE
ENTREPRENEURSHIP

Think big . . . really big.

Bring in the A-team.
Start small.
Establish unique measurement techniques.
FAMILY BUSINESS
definition

A family business is a business in which:

– one or more members of a family have a significant ownership

interest
– significant commitments toward the business overall well-being.
– where the voting majority is in the hands of the controlling
family including the founder(s)
– intend to pass the business

Major building blocks which are responsible for the health of any
FB are:
– The family – The business – The individual
advantages & disadvantages
Advantages
• Commitment
• Knowledge Continuity
• Reliability and Pride

Disadvantages
• Hesitates in appointing outsides talents
• Believe better to be 100% owner of stagnant business than to
be 80% owner of a growing business
• Lack of trust on next generation
Reasons for failure of family businesses
 poor management
 insufficient cash to fund growth
 inadequate control of costs,
 industry and other macro conditions
 Complexity
 Informality.
 Lack of Discipline.
Source of conflicts in family businesses
 Lack of communication
 lack of proper definition of boundaries
 No shared vision and mission
 The goals of a given family member does not harmonize with
that of the family business
 Lack of information
 Disbelief of leaders in next generation
Types of family business growth
Organic growth
Company using internal funds to expand the business, rather than
purchasing another business or through other partner-sharing
business. An example of organic growth will be increasing capital
using own money.

In organic growth
A growth in the operations of a business that arises from mergers
or takeovers, rather than an increase in the companies own
business activity.
Firms that choose to grow inorganically can gain access to new
markets and fresh ideas that become available through
successful mergers and acquisitions.
MANAGEMENT SUCCESSION

 Involves transition of managerial decision making in a

firm . Can be done through designating a “heir” who will
inherit the operation/business (or) by training a person
who is take over the business after the founder
 Barriers to succession include sibling rivalry, family
members’ fear of losing status or a complete aversion to
death for fear of loss or abandonment
 Basic rule for privately owned businesses is : the owner
should develop a succession plan.
BARRIERS TO SUCCESSION PLANNING IN
PRIVATELY HELD BUSINESS

Founder/Owner Family

Death anxiety Death as taboo

Company as symbol Discussion is a hostile act

Loss of identity Fear of loss/abandonment

Concern about legacy Fear of sibling rivalry

Dilemma of choice Change of spouse’s position

Fiction of equality

Generational envy

Loss of power
KEY FACTORS IN SUCCESSION
PRESSURES & INTERESTS INSIDE & OUTSIDE THE FIRM
(family & non-family members and non-family
elements such as competitors, government laws,
policies, customers, technology)

FORCING EVENTS (immediate death, sudden illness

or physical incapacitation, mental or
psychological breakdowns, abrupt departure,
severe business decline, financial difficulties
SOURCES OF SUCCESSION
Family members, non family members
Entrepreneurial successor -someone who is high in
ingenuity, creativity & drive. This person often
provides the critical ideas for new product
development & future ventures
Managerial successor -someone who is interested
in efficiency, internal control and the effective use
of resources,. This individual often provides the
stability and day to day direction needed to keep
the enterprise going.
DEVELOPING A SUCCESSION STRATEGY
STEPS
Understanding the contextual aspects :
i. Time (the earlier the succession plan the better)
ii. Type of Venture (some entrepreneurs are easy to
replace, some can not be replaced depending
on the type of venture)
iii. Capabilities of managers (the skills, desires,
abilities of the replacement will dictate the future
potential and direction of enterprise)
iv. Entrepreneur’s vision
v. Environmental factors
DEVELOPING A SUCCESSION STRATEGY
STEPS
Identifying successor qualities :
i. Sufficient knowledge of a business or good
position (e.g. marketing or finance)
ii. Fundamental honesty & capability
iii. Good health, energy
iv. Problem solving abilities,
v. Alertness & perception
vi. Stability & maturity
vii. Enthusiasm about the enterprise etc
DEVELOPING A SUCCESSION STRATEGY
STEPS
A written succession strategy. Steps to establish so,
include:
i. Owner controls the management continuity strategy
entirely
ii. Owner consulting selected family members in
presence of legal officers
iii. Owner works with professional advisor
iv. Employee Stock Ownership Plans (ESOPs) based on
loyalty and competencies of his/her employees
Considering outside help